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Sectoral regulator Trai has notified transparent pricing norms for telecom operators clearly defining the concept of non-discrimination and non-predation and also levying of penalty to the tune of Rs 5 million per tariff plan for each service area if an operator is found to be indulged in offering predatory tariffs.
Telecom Regulatory Authority of India (Trai) has come out with new rules on transparent pricing after incumbent operators complained to it against new entrant Reliance Jio for offering predatory tariffs as they were below cost and not compliant with the principles of interconnect usage charges (IUC).
However, in the new rules, Trai has clarified that IUC cannot be taken as floor for the retail tariff and it decided to remove the requirement of IUC compliance from the reporting requirement.
Trai said prices are considered predatory when the significant market players (SMP) sets its price so low that it can be considered rational only if it reduces competition, eliminate competitors or deters entry of new market players. Predatory pricing by an SMP involves deliberate sacrifice of profit in order to force competitors to exit the market. Trai said non-predation means not indulging in predatory pricing by a service provider having SMP.
An SMP is a service provider holding a share of at least 30 per cent of total activity in a relevant market, which should be defined based on any of the two parameters -- subscriber base and gross revenue.
As per sources in Trai, the new rules by Trai mean that incumbent operators like Bharti Airtel, Vodafone and Idea Cellular cannot offer tariffs below their average variable cost as they are an SMP in various markets. However, it will not affect Reliance Jio as the telco is yet to become an SMP in any of the markets.
The sources further said currently Airtel is an SMP in 15 circles, Vodafone in 4 circles and Idea in 3. However, after the merger Idea-Vodafone will be an SMP in about 16-18 circles. Jio also has gained around 18 per cent share in circles like Punjab and in coming years, it too may become an SMP in few circles.
Idea Cellular had sought the threshold for SMP to be fixed at 50 per cent or more.
There are 22 telecom circles in the country. Airtel, Vodafone, Idea Cellular and Reliance Jio have operations in all the circles whereas state-run telecom firm BSNL operates in 20 circles and MTNL in two. Aircel also operates in select circles.
Taking a tough stand against predatory pricing, Trai said it may examine tariffs of an SMP on reference from any person or suo motu, to determine the existence of predatory pricing. The Authority may disallow the relevant tariffs if they are found to be predatory. "In case of tariff being found predatory, the service provider shall, without prejudice to the terms and conditions of its licence...or directions issued, thereunder, be liable to pay by way of financial disincentive an amount not exceeding Rs 5 million per tariff plan for each service area as the Authority may by order direct," Trai said.
A tariff will be considered predatory if in a "relevant market", a telecom operator with over 30 per cent market share offers services at a price which is below the average "variable cost", with a view to reduce competition or eliminate the competitors in the "relevant market", as per an amendment made by Trai in the Telecommunication Tariff order.
The regulator will determine relevant market based on relevant product against which it receives a complaint. It will arrive at "variable cost" after deducting fixed cost and share of fixed overheads borne by the company from total cost incurred by it for running business during the period under review.
The regulator also said that telecom operators will have to provide services to all subscribers availing the same tariff plan in a non-discriminatory manner.
It is the obligation of a service provider to report to the Authority any new tariff within seven working days from the date of its implementation after conducting a self-check to ensure that the tariff, including promotional tariff, is consistent with the regulatory principles which, inter-alia, include transparency, non-discrimination and non-predation, Trai said.
"No service provider shall, in any manner, discriminate between subscribers of the same class and such classification of the subscribers shall not be arbitrary," Trai said.
