{"id":123,"date":"2022-08-01T00:04:19","date_gmt":"2022-08-01T00:04:19","guid":{"rendered":"https:\/\/publications.clpr.org.in\/the-philosophy-and-law-of-information-regulation-in-india\/?post_type=chapter&p=123"},"modified":"2022-08-03T11:55:12","modified_gmt":"2022-08-03T11:55:12","slug":"a-structural-analysis-of-the-mobile-telecommunications-market-exploring-the-jio-effect","status":"publish","type":"chapter","link":"https:\/\/publications.clpr.org.in\/the-philosophy-and-law-of-information-regulation-in-india\/chapter\/a-structural-analysis-of-the-mobile-telecommunications-market-exploring-the-jio-effect\/","title":{"rendered":"A Structural analysis of the Mobile Telecommunications Market: Exploring the Jio Effect"},"content":{"raw":"

I. Introduction<\/strong><\/p>\r\n

The mobile telecommunications sector serves as the backbone for digital information flows in the country. Over 97% of subscribers in India rely on the wireless communication services offered by telecom service providers (\u201cTSPs\u201d) as the primary means of internet access.[footnote] TRAI, The Indian Telecom Services Performance Indicators July \u2013 September, 2021 <https:\/\/www.trai.gov.in\/sites\/default\/files\/QPIR_10012022_0.pdf<\/a>>, p. ii.[\/footnote] Competition among TSPs and changes in the structure of this market, therefore, have a critical bearing on how users interact with the information economy.<\/p>\r\n

The mobile telecommunications sector has witnessed several key changes post Reliance Jio\u2019s[footnote]Reliance Jio Infocomm Limited is a wholly owned subsidiary of Reliance Platforms Limited, which in turn is a subsidiary of Reliance Industries (66.48 percent stake).[\/footnote] (\u201cJio\u201d) disruptive entry in September, 2016. The ensuing developments have taken the market in a very different direction from where it was just five years back, in terms of the number of operators, price structures, number of subscribers and their usage patterns (See Table 1).[footnote]Rajat Kathuria, Mansi Kedia, and Richa Sekhani, \u2018A study of the financial health of the telecom sector (Working paper no. 380)\u2019 (ICRIER 2019) <https:\/\/icrier.org\/pdf\/Working Paper 380.pdf<\/a>>[\/footnote] [footnote]Competition Commission of India, Market study on the telecom sector in India: Key findings and observations (2021) <https:\/\/www.cci.gov.in\/sites\/default\/files\/whats_newdocument\/Market-Study-on-the-Telecom-Sector-In-India.pdf<\/a>>[\/footnote] The sector continues to evolve, most\u00a0 recently with the Adani Group announcing its intention to set up a private 5G network although it would not be competing with the TSPs in the consumer mobility space.[footnote]ENS Economic Bureau (2022, July 11). Adani in spectrum race, but \u2018not in consumer mobility space\u2019. The Indian Express. <https:\/\/indianexpress.com\/article\/business\/companies\/adani-in-spectrum-race-but-not-in-consumer-mobility-space-8019984\/<\/a>>[\/footnote]<\/p>\r\n

Table 1: Key changes in the Indian telecom sector<\/strong><\/p>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
\r\n

Parameter<\/p>\r\n<\/td>\r\n

Mar, 2015<\/td>\r\nMar, 2022<\/td>\r\n<\/tr>\r\n
No. of Internet subscribers<\/td>\r\n302.3 million<\/td>\r\n824.8 million<\/td>\r\n<\/tr>\r\n
Active operators (TSPs)<\/td>\r\n12<\/td>\r\n5<\/td>\r\n<\/tr>\r\n
Average data consumption<\/td>\r\n91.5MB<\/td>\r\n15.8GB<\/td>\r\n<\/tr>\r\n
Average outgo per GB<\/td>\r\nRs. 200<\/td>\r\nRs. 10.4<\/td>\r\n<\/tr>\r\n
Monthly average revenue per user\r\n\r\n(% from data usage)<\/td>\r\nRs. 122\r\n\r\n(17.6% from data)<\/td>\r\nRs. 127\r\n\r\n(85% from data)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n

Source: TRAI\u2019s quarterly and monthly performance reports[footnote]TRAI, Performance Indicators Reports <https:\/\/www.trai.gov.in\/release-publication\/reports\/performance-indicators-reports<\/a>> and Telecom Subscription Reports <https:\/\/www.trai.gov.in\/release-publication\/reports\/telecom-subscriptions-reports<\/a>>.[\/footnote]<\/p>\r\n\r\n

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The period following Jio\u2019s entry is often spoken about in the context of telecom \u2018price wars\u2019 and ensuing mergers and exits by firms that could not cope with market pressures. But Jio has also played another notable role in shaping the current structure of the market by pushing for greater convergence between telecom and content services and the bundling of handsets with telecom services. Jio\u2019s bundled smart-features phone with 4G-LTE capabilities are designed as affordable phones that are meant to serve the gap between basic mobiles and smartphones.[footnote]Jeffrey James, \u2018The smart feature phone revolution in developing countries: Bringing the internet to the bottom of the pyramid\u2019 (2020) 36(04) The Information Society 226.[\/footnote] It, therefore, entered the market not only with a price-differentiated strategy but also a technology-differentiated one.[footnote]V Sridhar, \u2018Reliance Jio\u2019s latest bundling strategy might succeed in improving 4G penetration in India\u2019 (Financial Express) <https:\/\/www.financialexpress.com\/opinion\/reliance-jios-latest-bundling-strategy-mightsucceed-in-improving-4g-penetration-in-india\/1090937\/<\/a>>[\/footnote] In July 2020, Jio received investments of over Rupees 1520 billion from 13 investors, which included digital behemoths Google (7.73% stake) and Facebook (9.99% stake).[footnote]Reliance Jio, Media release dated 30 July 2020 <https:\/\/jep-asset.akamaized.net\/jio\/press-release\/media_release_jio_30072020.pdf<\/a>>. The other investors are Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, ADIA, TPG, L Catterton, Public Investment Fund of Saudi Arabia, Intel Capital and Qualcomm Ventures.[\/footnote] Existing TSPs responded to these developments with innovations of their own, including revised tariff plans, network improvements, and bundling of services. Subsequently, Bharti Airtel and Google also announced a partnership that would lead to Google holding a 1.28% stake in the telecom company together with other commercial arrangements.[footnote]Bharti Airtel, Press release dated 28 January 2022 <https:\/\/www.airtel.in\/press-release\/01-2022\/airtel-and-google-partner-to-help-grow-indias-digital-ecosystem<\/a>>.[\/footnote]<\/p>\r\n

While the telecom industry\u2019s basic structure could be characterised as a \u2018natural oligopoly\u2019,[footnote]Tommaso Valletti, \u2018Is mobile telephony a natural oligopoly\u2019, (2003) 22 Review of Industrial Organisation.[\/footnote] we now have a much tighter oligopoly than before. Industrial organisation studies draw a link among increased concentration, higher prices, and higher profits for TSPs.[footnote]Wolster Lemstra, Nicolai van Gorp, and Bart Voogt, \u2018Explaining telecommunications performance across the EU\u2019, [2012].[\/footnote] Oligopolistic markets are also known to be more susceptible to both active and tacit forms of collusion.[footnote]Ashwini Kumar Mishra and Ganesh Rao, \u2018Analysing Anti-competitive Behaviour: The Case for Indian Telecom Industry\u2019, 20(1) Science Technology & Society, 21\u201343.[\/footnote] Further, the existence of vertically integrated structures in such markets creates possibilities of foreclosure of competition and mandatory bundling of goods and services. However, there remains a divergence in views about whether concentrated markets necessarily lead to anti-competitive effects, or if they could foster greater efficiency.[footnote]Nakil Sung, \u2018Market concentration and competition in OECD mobile telecommunications markets\u2019, (2014) 46(25) Applied Economics.[\/footnote]<\/p>\r\n

Drawing the link between market structure and effects becomes particularly difficult in heavily regulated sectors like telecommunications, where outcomes are shaped by a mix of market developments and regulatory factors. Regulatory decisions on the pricing of telecom services, terms of spectrum auctions, and permissible relationships between telecom and content providers are some examples of such factors. Regulatory interventions often create entry and exit barriers, which are an important feature of market structure. Concentration levels, product differentiation, and extent of vertical integration are some of the other relevant structural elements. An understanding of these features lays the foundational block for analysing the state of competition and potential effects of any anti-competitive conduct in the telecommunication sector.<\/p>\r\n

The Competition Commission of India (\u201cCCI\u201d) also took note of these issues by commissioning a report on competition issues in the telecom sector. The report makes pertinent observations on topics such as the importance of non-price factors like quality of services and data speed, vertical integration in the sector, unbundling of the infrastructure and service layers, data privacy concerns, and inter-regulatory interactions.[footnote]\u2018Market study on the telecom sector in India: Key findings and observations\u2019 (n 3). The report was conducted by the Indian Council for Research on International Economic Relations.[\/footnote]<\/p>\r\n

In this paper we take a closer look at the structural developments in this sector post Jio\u2019s arrival in the market. We do this based on a survey of the relevant literature on competition in the digital communications sector, a review of the CCI\u2019s decisions, and analysis of the monthly subscriber data and quarterly performance indicator reports released by the Telecommunication Regulatory Authority of India (\u201cTRAI\u201d). A significant portion of the discussions revolve around examining the role of market structure in understanding the competitive outcomes in the mobile telecommunications sector, with a focus on market concentration and vertical relationships. This forms the starting point for understanding the behaviour of firms and consumers in the telecom market. Our analysis points to two key trends \u2013 growing concentration in the mobile telecom market and increasing cross-links across the telecom, content and device layers. Although these developments are not unique to India, their effects on the conduct and performance of markets are indeed shaped by the local context.<\/p>\r\n

In a span of four to five years Reliance Jio managed to acquire over 30% of the telecom market share in 15 of the 22 telecom circles.[footnote]See Table 2 in Section 3 of the paper.[\/footnote] Its share in the internet services segment is even higher, where it represents 53.17% of the country\u2019s internet subscriber base across mobile and wired connections.[footnote]Telecom Regulatory Authority of India, The Indian telecom services performance indicators (April \u2013 June, 2020) <https:\/\/www.trai.gov.in\/sites\/default\/files\/Report_09112020_0.pdf<\/a>>[\/footnote] The company has also started rolling out its fibre-to-the-home connections although, so far, it is reported to have seen lesser success on this front compared to its wireless services.[footnote]Shubham Verma, \u2018RIL AGM 2020: Is Jio Fiber due for upgrade a year later?\u2019 India Today (15 July 2020) <https:\/\/www.indiatoday.in\/technology\/features\/story\/ril-agm-2020-is-jio-fiber-due-for-upgrade-a-year-later-1700787-2020-07-15<\/a>>[\/footnote] Jio, however, scored a big win over its competitors through its investments haul in 2020.<\/p>\r\n

While Jio\u2019s entry and business strategies and the competitive responses of other firms are an important part of the story, there are certain other dimensions of Jio\u2019s market power, which might not always be captured in a formal competition analysis.[footnote]See Zephyr Teachout and Lina Khan, \u2018Market Structure and Political Law: A Taxonomy of Power\u2019 (2014) 9 Duke Journal of\u00a0 Constitutional Law and Public Policy 37.[\/footnote] In this context, we highlight the criticality of recognising the political economy forces that are at play in this sector.\u00a0 Focusing in particular on Facebook\u2019s investment in Jio we argue that Jio\u2019s dominance must be viewed not just in light of available knowledge about concentration and market power in the telecom sector but also the reality that flows from it being a part of the Reliance conglomerate. Its place in the Reliance conglomerate, its recent strategic alliances, and a carefully curated image of being a swadesi <\/em>counter to global big tech are all determinants of Jio\u2019s soft power. We argue that it is this interaction between market power and soft power that will ultimately shape the sector\u2019s competitive outcomes. Given the link between telecom markets and internet access and the trend of convergence between the network and content layers, concentration of power in this space also bears significant implications for information generation, access and control on the internet.<\/p>\r\n

Against this background, the rest of the paper is organised as follows. Section II outlines the relevance and key determinants of market structure in the telecom sector. Section III then offers an empirical analysis of the developments in market concentration levels in different circles of India\u2019s telecom market during the period between 2015-22. This period corresponds with the entry of Jio into the market and consequent changes in the structure and behaviour of the market. Section IV follows with a discussion on the trends and implications of vertical relationships in the sector, particularly across the access, content, and device layers. Next, in Section V, we explore some of the other determinants of the \u2018Jio effect\u2019, including its recent partnerships with the likes of Facebook and Google. We conclude in Section VI with a discussion of the broader implications of the structural and soft power effects of Jio for the future of competition and digital governance.<\/p>\r\n\r\n

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II. Understanding Market Structure<\/strong><\/p>\r\n

Market structure refers to the characteristics of a market, taking into account the nature of the relationships between buyers and sellers, and among different sellers in that market.[footnote]Joe S. Bain, \u2018Monopoly and Competition\u2019, Encyclopedia Britannica, (4 Sep. 2019), <https:\/\/www.britannica.com\/topic\/monopoly-economics\/Perfect-competition<\/a>>[\/footnote] It is shaped by a mix of intrinsic structural elements <\/em>that relate to the nature of the product and technologies involved and derived elements<\/em>, such as concentration levels, regulatory policies, product differentiation, and historical factors.[footnote]Richard Schmalensee, \u2018Inter-industry studies of structure and performance\u2019 in R Schmalensee and RD Willig (eds), Handbook of Industrial Organization (Elsevier Science Publishers BV 1989).[\/footnote] Collectively, these factors determine whether a market reflects the characteristics of a monopoly, oligopoly, or perfect competition. In the case of telecommunication services, intrinsic structural elements would include differing features of mobile and fixed-line services, and variations in successive generations of wireless technologies (i.e., 2G, 3G and 4G LTE). On the other hand, factors such as licensing requirements, spectrum costs, scale efficiencies, and product bundling are examples of key derived elements. In this section, we explain the relevance of market structure in market performance and competition studies and explore the possible \u2018relevant markets\u2019 that can be demarcated in the telecom sector.<\/p>\r\n \r\n

A.\u00a0\u00a0\u00a0 Relevance of Market Structure<\/p>\r\n

Economic theory suggests that certain types of market structures enable, or at least increase the likelihood of, certain types of conduct. In particular, the nature and scope of collusive conduct in a market is often related to the prevalent structural and legal conditions.[footnote]F.M. Scherer, \u2018Industrial Market Structure and Economic Performance, (Houghton Mifflin, 1990).[\/footnote] Further, structural changes affect the price discrimination strategies of firms and thus have important welfare consequences. Studying these links for the wireless communications industry is particularly important since technological innovations and entries\/exits lead to interesting effects on the market structure.[footnote]Katja Seim and V. Brian Viard, \u2018The effect of market structure on cellular technology adoption and pricing.\u2019, [2011] 3(2) American Economic Journal: Microeconomics.[\/footnote] The structure-conduct-performance (\u201cSCP\u201d) paradigm, which has been a popular framework of analysis in industrial organisation studies,[footnote]Industrial organization refers to the branch of economics that is \u2018concerned with the workings of markets and industries, in particular the way firms compete with each other\u2019 per Luis MB Cabral, Introduction to industrial organization (MIT Press 2002) p.3.[\/footnote] posits a causal connection between an industry\u2019s market structure, the conduct of firms, and the performance of the industry and firms.[footnote]Lemstra, Gorp, and Voogt (n 11).[\/footnote] This leads to an assumption that the level of concentration in an industry determines the pricing, investments and marketing decisions of firms, which in turn affects their performance. However, in practice, the reverse may also be true \u2013 the conduct or performance of firms can shape the market structure. For instance, mergers and investments can result in a change in concentration levels and marketing strategies can impact product differentiation.[footnote]Schmalensee (n 21).[\/footnote] Therefore, the link between structure, conduct, and performance is not always unidirectional in nature.<\/p>\r\n

Challenges such as these have led to a questioning of \u00a0the relevance of the SCP framework in competition practice.[footnote]Douglas H Ginsburg and Joshua D Wright, \u2018Philadelphia National Bank: Bad economics, bad law, good riddance\u2019 (2015) 80(4) Antitrust Law Journal.[\/footnote] However, it still remains a commonly deployed frame of analysis in telecommunication research studies. To take an example, a 2014 study of market concentration across OECD telecom markets applied the SCP analysis to establish a link between concentration, higher prices and profits.[footnote]Sung (n 14).[\/footnote] Other international studies have also evinced the relationship between structure and performance in this sector.[footnote]Novi Eka Wulansari, Risris Rismayani, and Yudi Pramudiana, \u2018Study on structure and performance of telecommunication services industry in Indonesia\u2019 [2015] IEEE, <https:\/\/ieeexplore.ieee.org\/document\/7347229<\/a>>.[\/footnote] Looking beyond the academic applications of the SCP framework, regulatory practices also signal the broader relevance of market structure analysis. Notably, in the telecom sector, authorities often perceive the existence of certain structural characteristics, like the prevalence of oligopolies, as an indicator of higher risk of anti-competitive effects.[footnote]OECD Directorate for Financial and Enterprise Affairs, Competition Committee, Organisation for Economic Co-operation and Development, \u2018Vertical mergers in the technology, media and telecom Sector, Background Note by the Secretariat\u2019 (2019).[\/footnote]<\/p>\r\n

In recent years, scholars like Lina Khan have also made a case for the revival of economic structuralism as the standard for understanding competition issues in digital markets.[footnote]Lina Khan, \u2018Amazon\u2019s antitrust paradox\u2019, (2017) 126(3) The Yale Law Journal 564. The author however clarifies that she is not \u2018advocating a strict return to the structure-conduct- performance paradigm\u2019 (p. 745). This push for the revival of economic structuralism needs to be seen in the context of the legal position in the United States, which accepts the maximisation of consumer welfare as the main goal of antitrust law. See Christine S. Wilson, \u2018Welfare Standards Underlying Antitrust Enforcement: What You Measure is What You Get\u2019, Keynote Address at George Mason Law Review 22nd Annual Antitrust Symposium: Antitrust at the Crossroads?, (February 15, 2019), <https:\/\/www.ftc.gov\/system\/files\/documents\/public_statements\/1455663\/welfare_standard_speech_-_cmr-wilson.pdf<\/a>>.[\/footnote] [footnote]Lina Khan and Sandeep Vaheesan, \u2018Market Power and inequality: The antitrust counterrevolution and its discontents\u2019, (2016) 11(1) Harvard Law & Policy Review 235.[\/footnote] This literature focuses mainly on structural issues in the markets for online services and platforms, shaped both by the lack of sufficient regulatory oversight in this space and the inadequacy of traditional metrics like \u2018price\u2019 and \u2018output\u2019 to analyze the conduct of online platforms.[footnote]Khan (n 31).[\/footnote] While examining the dominance of online platforms like Amazon, Lina Khan argues that the \u2018consumer welfare\u2019 standard that became prevalent with the rise of the Chicago school ought to be discarded in favour of understanding the \u2018underlying structure and dynamics of the market\u2019.[footnote]Khan (n 31).[\/footnote] She notes that economic structuralism offers the opportunity to focus on the competitive process through which firms gain anti-competitive power.[footnote]ibid.[\/footnote] In a more recent article, Lina Khan reviews the historical application of structural prohibitions in the US.[footnote]Lina Khan, \u2018The separation of platforms and commerce\u2019, (2019) 119(4) Columbia Law Review.[\/footnote] She argues, albeit again in the context of digital platforms, that structural separation - a traditional regulatory principle for addressing the challenges posed by dominant firms - be given its \u201cseat back at the table.\u201d[footnote]ibid.[\/footnote]<\/p>\r\n

While the jury is still out on whether structuralism can completely replace the consumer welfare standard in the context of the United States, current practices in India show that competition and regulatory agencies already place a fair degree of reliance on structural aspects. The Competition Act, 2002 requires market structure analysis to be the starting point for evaluating competitive effects in many circumstances. For instance, it lists factors like market share, size of the firm and its competitors, and extent of vertical integration as being relevant to any assessment of market dominance.[footnote]Competition Act 2002, Section 19(4). The CCI has also relied on a structural analysis while assessing the effects of bundling arrangements in the telecom sector. In Sonam Sharma v Apple Inc USA and others (Case number 24 of 2011), the CCI considered market shares of Apple, Vodafone and Bharti Airtel in the relevant markets to conclude that vertical agreements between them would not have an appreciable adverse effects on competition.[\/footnote] The CCI also takes market structure into account while reviewing merger and acquisition transactions. Recently, while assessing the merger between Vodafone India Limited and Idea Cellular Limited, CCI noted that despite the effect of increasing concentration in certain telecom circles, the transaction was not likely to have any appreciable adverse effect on competition. This was done taking into account the likelihood that competitors would be able to exercise adequate competitive constraints on the merged entity, switching ability of buyers, and the likely efficiencies from the combination.[footnote]See Notice under Section 6 (2) of the Competition Act, 2002 jointly given by Vodafone India Limited, Vodafone Mobile Services Limited and Idea Cellular Limited, Jul 31 2017, <https:\/\/www.cci.gov.in\/sites\/default\/files\/Notice_order_document\/Order_C-2017-04-502.pdf<\/a>>.[\/footnote]<\/p>\r\n

Further, both TRAI and the Department of Telecommunications (DoT) also tend to rely on market structure analysis in many contexts, such as the regulation of predatory pricing, setting interconnection charges, and recommendations on mergers and acquisitions.[footnote]See Telecommunication Interconnection (Reference Interconnect Offer) Regulation 2002. TRAI\u2019s assessment of predatory pricing and interconnection usage charges utilise the concept of \u2018significant market power\u2019 which is derived from understanding the market structure and shares of a provider.[\/footnote] For example, TRAI\u2019s recommendations to the Government in 1999 on the introduction of competition in National Long Distance (NLD) communications included a detailed analysis of the structure of the NLD market and an evaluation of different arrangements for increasing competition. DoT\u2019s 2014 merger guidelines prescribed market share limits for evaluating merger and acquisition proposals, and other proposed arrangements between companies. The guidelines set a hard limit of fifty percent of the market share for any entity resulting from a merger or acquisition.[footnote]Guidelines for mergers and acquisitions 2014. The resultant entity is required to reduce its market share to 50 percent within one year from the date of approval of the transaction. Similar caps also exist for spectrum holdings at 35 percent of total assigned spectrum and 50 percent spectrum in a specific band.[\/footnote]\u00a0 More recently, in 2018, TRAI adopted a tariff regulation specifying a threshold of thirty percent as an indicator of significant market power.[footnote]Regulation 2(lf) Telecommunication Tariff Order 1999, however, in Bharti Airtel and others v. TRAI (Telecommunication Appeal Nos. 1 and 2 of 2018), the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) struck down this 63rd amendment to the Tariff Order citing the lack of transparency in the guidelines on market shares and pricing.[\/footnote] This approach of setting hard limits on market shares differs from the case by case determination followed by the CCI.<\/p>\r\n \r\n

B.\u00a0\u00a0\u00a0 Elements of a Market Structure Analysis<\/p>\r\n

We now move from discussing the relevance of market structure to elaborating the components of such an analysis. This typically consists of four key elements.<\/p>\r\n\r\n