An abuse of dominance

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3 Nov 2010
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The order by the Competition Commission of India in the case of set top boxes has not endeared it to consumers, leading to the questioning of its capacity to deal with the rampant anti-competitive practices in the country.

The issue is quite simple. DTH operators get set top boxes made to their own specifications, which are not usable on a competitor’s service. This means that interoperability is lacking, thus tying down a consumer to one provider. This, in turn, creates disincentives to shift to another provider. This also affects innovation adversely as such dominant practices dampen the desire to innovate by offering better quality, lower prices and so on, and thus be ahead of rivals.

In competition jargon it is defined as an abuse of dominance as the supplier ties you down to their own products.

In order to address this conundrum of interoperability, a consumer organisation filed a case in 2009, but their efforts proved to be in vain when the CCI, in March 2011, ruled that this is not an anticompetitive practice. The CCI felt that the issues do not fall under anticompetitive practices as defined under the Competition Act, 2002, particularly provisions relating to cartelisation and tied selling, which the director general had presented as the basis for action after the preliminary investigations.

In network industries, it is often observed that some information technology (IT) products can operate more effectively when using other IT products. A lot of savings for the industries are made and enjoyed if the service providers using identical technology could share their infrastructure. This would allow for the competing players to pool resources and devote surpluses towards more innovation and improved service delivery rather than duplicating infrastructure. In addition, consumers would also be protected from the hassles associated with moving between operators, as they can gain access to a different player using the same equipment they have already acquired, as is happening in the case of mobile number portability. Interoperability refers to the ability of a system or components thereof to function effectively together by providing or accepting services from other systems. Interoperability therefore implies that consumer choice flourishes while competition also enhances.

These expected benefits were the basis for the consumers’ high expectations. A consumer organisation, Consumer Online Foundation had filed a case with CCI, on the observation that DTH service providers—Tata Sky Limited, Dish TV India Limited, Reliance Big TV Limited and Sun Direct TV Pvt Limited—were acting against the spirit of competition by requiring consumers to purchase new set-top boxes every time they would want to switch between service providers. The providers had deliberately made sure that there is no interoperability in the DTH market.

Given that interoperability improves competition and consumer choices, it is therefore a competition issue. Interoperability in the DTH market implies that firms face competition pressure from rival firms as consumers can easily switch to their rivals if they are found to be lacking as far as service is concerned. It would also imply that manufacturers of the set-top boxes, which are critical in receiving transmissions, would be able to manufacture universal products without a specific company in mind, thereby opening up the market to other potential entries, a situation which is difficult at the moment as manufacturers are tied to a specific DTH service provider.

Although there was no evidence of cartelisation and tie-ins, the fact that competition is being restrained by the practice remains crystal clear for all to see. Alas, the case was dismissed largely on a technicality than on substance. This situation still calls for attention as the consuming public is still disadvantaged, which requires the effort of both the sector regulator and CCI. In addition, the fact that the firms have decided to duplicate infrastructure rather than using common facilities implies that a sub-optimal economic situation hampering innovation continues to prevail in the market.

The regulations issued by the Telecom Regulatory Authority of India (Trai): The Register of Interconnect Agreements (First Amendment) Regulations 2004, were largely meant to include the broadcasting and cable services also within the scope of telecommunication services. Under the regulations, Trai can also chip in to assist in resolving the anomaly, as ‘interconnection’ was revised to also allow for commercial and technical arrangements for service providers to connect their equipment, networks and services to enable their customers to have access to the services and networks of other service providers. Trai is thus mandated, under section 11 of its enabling Act, to ensure technical compatibility and effective interconnection between different service providers. This burning issue from the consumers’ point of view can thus be resolved with collaborative efforts between CCI and Trai. Coordination between CCI and the sector regulators is something we have been arguing for for a long time, as I did in the article “Making the case for NSE” (14 July), that Sebi should also have been involved in the competition case handled by CCI.

Cases involving interoperability have also proved difficult to handle in other competition jurisdictions. In 2004, the French Competition Council considered a case against Apple on the interoperability issue, which Apple won. The competition body was trying to force Apple to open up its Fair Play Digital Rights Management system to competitors. The case had been necessitated by the need to promote competition in the market by ensuring that Apple’s rivals also get access to the service.

In other competition cases involving intellectual property and interoperability, it can actually be established that the cases were successfully prosecuted based on the argument of dominance or monopoly. A well known example is the Microsoft case, which was based largely on its dominant position. Although a monopoly would be the basis, central to the ruling would be the need to promote competition through sharing facilities; a principle which is till true in the Indian scenario despite the absence of a dominant firm. This highlights the fact that the need to promote competition is central in all cases.

The CCI ruling thus leaves a gap that is still clamouring for attention as it is both economically and socially optimal for interoperability to be introduced in the DTH and similar markets. For example, mosquito repellents, where a particular make of refill cannot be fitted to other’s equipment, and thus there is a captive market. There are lessons in this for CCI, that it has to be innovative in analysing such cases and passing judgments which can endear them to the public.

The author is secretary general of CUTS International. Cornelius Dube of CUTS contributed to this article
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