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Dominant Position In One Relevant Market To Enter Into Or Protect Other

What happens if an enterprise being a market leader in an existing relevant product/ service market, on its own or through it's subsidiary enters or funds entry of its affiliate(s) into another relevant market?

Would section 4 (2) (e) of the Competition Act, 2002 ("Act") apply to such cases, making it a case of abuse of dominant position? If section 4(2) (e) of the Act applies, is only entry or protection in another relevant market by a dominant player considered objectionable or does there need to be a co-relation between dominant position and abusive conduct for it to be objectionable?

Section 4(2) (e ) of the Act provides that there shall be abuse of dominant position

"If an enterprise or a group uses its dominant position in one relevant market to enter into, or protect other relevant market"

Following are pertinent to be noted with respect to section 4(2) (e):
  • Unlike section 4(2) (a) to (d) where both dominance and abuse are with respect to the same relevant market, under 4(2) (e), dominance is with respect to one relevant market and abuse with respect to a different relevant market. "Dominance" has to be seen with respect to the former and "entry or protection" with respect to the latter.
     
  • Section 4 (2) (e) does not exclude new entrants from the scope of abuse. On the contrary, it expressly includes cases of entry into another relevant market.
     
  • It gets us to the question, as to what kind of transactions fall within the scope of "use its dominant position" to enter or protect other relevant market? Given, use has not been specifically defined under the Act, if all other conditions specified under section 4(2) (e ) are triggered, it appears, use need not be read down in a restrictive or watertight manner. As long as dominance in one relevant market is established, use can be interpreted to consist anything leading to "entry or protection" which may or may not include any or all of the transactions laid down under section 4(2) (a) to (d).
     
  • Does the use have to be only direct i.e. same enterprise in both the relevant markets or can the "entry or protection" be of another connected enterprise under section 4 (2) (e)? Section 4 of the Act applies to an enterprise or a group. There being two relevant markets under 4 (2) (e), if dominance in one relevant market and entry or protection in the other relevant market is by parent and subsidiary/ affiliate respectively, giving the group "entry or protection" in the other relevant market, qualifying condition of sec 4(2) (e) appears to be triggered.
     
  • It appears that any use of the dominant player in one relevant market to gain entry or protect another relevant market shall be abuse of dominance by itself. No further co-relation between dominant position and abusive conduct need be established in addition to "entry or protection" for the purposes of sec 4(2)(e).
     

In Bharati Airtel v. Reliance Jio, CCI observed:

"In the absence of any dominant position being enjoyed by OP-2[1] in the relevant market, the question of examining the alleged abuse does not arise."

"Providing free services cannot by itself raise competition concerns unless the same is offered by a dominant enterprise and shown to be tainted with an anti-competitive objective of excluding competition/ competitors, which does not seem to be the case in the instant matter as the relevant market is characterised by the presence of entrenched players with sustained business presence and financial strength.

In a competitive market scenario, where there are already big players operating in the market, it would not be anticompetitive for an entrant to incentivise customers towards its own services by giving attractive offers and schemes. Such short-term business strategy of an entrant to penetrate the market and establish its identity cannot be considered to be anti-competitive in nature and as such cannot be a subject matter of investigation under the Act."

"In the absence of any finding of anti-competitive conduct by OP-2, OP-1[2] cannot be held to be in contravention of Section 4(2)(e) of the Act just because it has made huge investments in OP-2. Mere investments cannot be regarded as leverage of dominant position, particularly when OP-1 itself is not engaged in business of providing telecom services or any activities incidental thereto. If one were to construe such investment as anti-competitive, the same would deter entry and/or expansion and limit the growth of markets. In view of the above, no prima facie case of contravention of Section 3(1) or Section 4(2)(e) of the Act is made out against the Opposite Parties."

Analysis:
  • "In the absence of any dominant position being enjoyed by OP-2[3] in the relevant market, the question of examining the alleged abuse does not arise."- CCI seem to have applied the test of dominance with respect to Reliance Jio, whereas, as per section 4(2) (e), it should have been applied with respect to Reliance Industries in its relevant market
  • Provisions with respect to abuse of dominance under Section 4 of the Act apply both to the enterprise and the group, as defined under the Act. The fact that Reliance Industries was not providing telecom or incidental services was not relevant. As long as the actual entry was by the subsidiary and funding by the parent, both were part of the same group.
     
  • "In the absence of any finding of anti-competitive conduct by OP-2, OP-1[4] cannot be held to be in contravention of Section 4(2)(e) of the Act just because it has made huge investments in OP-2." - Commission seems to have drawn a co-relation between Section 4(2) (a) (ii) and Section 4 (2) (e), whereas none exist under the Act. It seems to be Commission's view that if only anti- competitive conduct is shown under section 4(2) (a) to (d) by the new entrant that section 4(2) (e) would be triggered. These provisions apply in different scenarios and no co-relation can be read between them.
     
  • Commission seems to have shown a liberal view towards an entrant trying to penetrate the market and establish its identity and, in that pursuit, resorting to free pricing as a short-term business strategy. However, sec. 4(2) (e) expressly includes cases of entry by dominant player from one relevant market into another as an abuse of dominant position. Additionally, predatory (below cost) pricing under the Act, only has one exception i.e. if it is adopted to meet competition. There was no other player in the telco market at the time of Jio's entry which had zero pricing, so in the absence of the exception being triggered, it seems an exception has been drawn re: penetration pricing, when none exists under the Act.
     
  • Penetration Pricing is not a defined term under the Act. If the definition was to be borrowed from Cambridge dictionary, it refers to the "practice of offering a product or service at a low price in order to sell more than competitors do, and to persuade customers to keep using it." Material qualifier here seems to be low price which can be understood to be discounted price, not below cost or better still, zero price. Whereas, main qualifier of predatory pricing as per the Act i.e. below cost, is triggered in this case. Also, it gets us to the question, if zero pricing is not predatory and can't be accorded the intent of reduction or elimination of competition, then what would?

Liberal or differential view, if any, with respect to a new entrant when seen in context of a dominant player from a different relevant market funding the entry does not seem very apt. In Reliance Jio's case, though it was a new entrant in the telecom sector, yet its entry lead to a price war, scaling debt and forced exit of smaller and consolidation of some existing players in the market. Reliance Jio became number one telecom operator in India both in terms of subscriber base and revenue market share, within just three plus years of starting operations. [5]

In Baglekar Akash Kumar v. Google LLC, CCI held "that regardless of whether Gmail is a dominant app or not in the relevant market of providing email services in India, the conduct of Google does not appear to violate the provisions of Section 4(2)(e) of the Act. In relation to the allegations of leveraging, the Commission notes that the users of Gmail are not forced to necessarily use Google Meet, and there does not appear to be any adverse consequences on the users of Gmail for not using Google Meet, such as withdrawal of Gmail or any of its functionalities or other services that are so far being provided by Google. A Gmail user at his/ her 'free will' can use any of the competing VC apps.

Analysis:
Here again, CCI seems to have drawn a co-relation between section 4(2) (a) to (d) and section 4(2) (e), to examine the impact of entry of a dominant player from one relevant market to other. Whereas, as per section 4 of the Act, no such co-relation seem to exist. As per section 4(2) (e), entry of a dominant player from one relevant market to another per se seems to be objectionable, without examining any further impact.

This seems to stem from the fact that a dominant player enjoys a position of strength which enables it to operate independent of competitive forces prevailing in the relevant market or effect its competitors or consumers or the relevant market in its favour. When such advantageous position in one relevant market is used to enter or protect another relevant market that per se seems to be objectionable under section 4 (2) (e) of the Act.

Adani Group recently agreed to buy the two publicly listed cement companies Ambuja Cements and ACC in a $10.5 billion deal from Swiss cement maker Holcim Ltd. This deal will make Adani Group the second largest cement player in the country. It is also India's largest-ever merger and acquisition transaction in the infrastructure and materials space. The deal is contingent upon CCI's nod. It will be interesting to see if CCI would apply section 4(2) (e) in this case.

End-Notes:
  1. OP2- Reliance Jio Infocomm Limited
  2. OP1- Reliance Industries Limited
  3. OP2- Reliance Jio Infocomm Limited
  4. OP1- Reliance Industries Limited
  5. https://www.livemint.com/industry/telecom/reliance-jio-is-the-largest-telco-in-india-trai-11579180602386.html

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