Research Paper

Unfair Trade Practices in Telecom Sector

Subject – Unfair Trade Practices

Submitted to- Mss. Parul

Lecturer, Unfair Trade Practices

Submitted by- Garima

Forth Year, Semester – 6th

Registration No - 11403774

Roll No. - RL1404 A05

Lovely Professional University, Punjab

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 INDEX

Page no.
1. Abstract 3
2. Introduction 4
3. Conclusion
16
4. Reference
17
5. Bibliography
18

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 1. Abstract
Globalization has made telecommunication an integral part of the infrastructure of the Indian
economy. India's telecommunication network is the second largest in the world based on the
total number of telephone users. It has the world's third-largest Internet user-base. The
Telecom Regulatory Authority of India governs this industry by providing a regulatory
framework and favorable environment for its efficient operation. The Indian telecom industry
stands as the second- largest in the world due to its rapid advancement and is in cut-throat
competition with the telecom industries of the other developed countries. According to the
Internet and Mobile Association of India (IAMAI), the Internet user base in the country stood
at 190 million at the end of June, 2013. Major sectors of the Indian telecommunication
industry are telephony, internet and television broadcasting.

In this research paper, main emphasis has been placed to bring to light the history and
development of telecommunication sector in India. It also uncovers the cartels made in
telecom sector in India and the various factors that have played a major role in facilitating the
anti competitive agreement in telecom sector in India. Data has been collected from multiple
sources including books, journals, websites, newspapers etc. The paper describes the current
scenario of Indian telecom sector.

“People Of The Same Trade Seldom Met Together, Even For Merriment And
Diversion; But The Conversation Ends In A Conspiracy Against The Public Or In Some
Contrivance To Raise Prices.”

Adam Smith in ‘The Wealth of Nations’.

Keywords: Unfair, Trade, Telecom, Cartels, Anti Competitive Agreements

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 2. Introduction
The Indian Telecom Industry is considered to be a vital tool for the development of the
country on the whole by contributing towards the immense growth, quick expansion and up
gradation of various sectors of the nation. This industry increases the GDP of India, earns
profit for the Indian Government and creates employment opportunities for a great number of
people. Communication is a hugely important aspect, not only for people around the world,
but also for small and large businesses. Long distance communication has been around for
years with the oldest methods that can be remembered to date being the use of smoke signals.
With time, methods such as horns became a means of communication. But with time there
has been a lot of development and with that come the more advanced technologies such as
radio, phone, television and the Internet. Businesses would be lost without the current
technological advancements and a lot of companies would cease to exist. But this is not the
only benefit that telecommunications can bring. With these advancements also comes
science. Without telecommunications, we would be unable to fly on planes and helicopters or
effectively navigate in the seas. Besides this, space travel would be nearly impossible.

Along with the Government owned telecom units, the Indian Telecom market has also
attracted many private operators to enter here who started offering their telecom services as
fixed communication, mobile communication and data services to the customers at the most
reasonable prices. The Government of India has adopted several measures to provide a
business friendly environment for companies in the Indian Telecom market while competing
with each other. Due to the rapid advancement in technologies, the telecom operators of India
are working actively in order to adapt themselves to the changing technology to continue
existing in the market.

The Indian Telecom Industry has grown tremendously during the past few years owing to the
unprecedented growth of wireless telephony in India and infrastructure which not only is
beneficial for the telecom industry but has positive effects on the entire economy of India.
The industry has the world’s third highest number of internet users. After the formulation of
the LPG (liberalization. globalization, privatization) dimensions of Indian market and
business changed completely. New business laws were needed to tackle these situations so
government made some acts to tackle these new changes like SEBI Act, Foreign exchange
act and MRTP Act. MRTP Act was not successfully implemented and it led to the formation
of the Competition Act, 2002. The main aim of this act was to manage and maintain healthy
competition in market and to prevent the Anti-competitive agreements in the market. Cartel is
one of the most popular anti-competitive agreements.

The Indian Telecom Industry has undergone a considerable transformation from being a
Government owned enterprise to that of a competitive environment after its liberalization in
1991. The rapid escalation in the telecom sector of India has been made possible due to the
active participation of private service providers, revenue generated through Foreign Direct
Investment (FDI), series of reforms instigated by the Government and through the adoption
of latest technologies.

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Now what is a cartel? Cartel or cartelization can be defined as collusion of companies to fix
prices, manipulate bids as to share customers. ‘Cartel’ is an association of producers who by
agreement among themselves attempt to control production, sale and prices of the product to
obtain a monopoly in any particular industry or commodity. It amounts to an unfair trade
practice which is not in the public interest. Cartels are workable in an oligopoly market they
fail in monopoly market because in a monopolistic market there is only one producer and he
cannot form cartel because to establish a cartel we must have more than one manufacturer.
We have witnessed a sharp increase in the price of petrol and still no country can do anything
for that because oil prices is decided by OPEC which is the biggest cartel in world and it has
twelve member countries.

The Competition Act 2002 prohibits any agreement which causes, or is likely to cause
appreciable adverse effect on competition in markets India. Any such agreement is void. The
agreements between companies not to compete on price, product or customers those
agreements are called Cartels. The main objective of a cartel is to raise price above
competition levels, which ultimately results in injury to the consumers and to the economy.
For consumer’s cartelization results are higher prices, poor quality and less or no choice for
goods and services.

Cartel is defined in section 2, sub section(c) of the Act, which states:

“Cartel” includes an association of producers, sellers, distributors, traders or service providers

who by an agreement among themselves, limit, control, or attempt to control the production,
distribution, sale or price of, or, trade in goods or provisions in services.

An important extent in the definition of cartel is that it requires an agreement between

competing companies, not to compete or to restrict competition. Over the years there have
been instances where there have been allegations of cartel formations in telecommunications.
In 2005 the telecommunications minister alleged that a cartel was in operation in the long
distance calling segment of telecommunications.1 Recently the telecom regulator has
suggested that pricing of roaming2 rates smacked of price coordination if not cartelization. In
September 2007 the MRTPC3 ordered an investigation into the pricing practices of three
private operators when they hiked some local calling charges by 20%. There have been a
number of acquisitions over the years, capped off by the acquisition of the operations of
Hutch, a very large and significant mobile operator, by Vodafone. As noted private players
have complained about bullying by BSNL, particularly in interconnection. They have also
complained about the government’s partiality towards BSNL. These issues make competition
policy and law important to telecommunications in India.

1
Hindu Business Line, Oct 7 2005, Long distance operators dismiss cartel allegations.
2
Roaming refers to the situation where a mobile phone customer registered in one state (circle) uses his phone
in another. Typically the rates for such calls are higher than calling within the “home” circle.
3
MRTPC stands for the Monopoly and Restrictive Trade Practices Commission. It was the forerunner of the
Competition Commission and is expected to stop functioning once the Competition Commission starts
implementation.

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 History of Indian Telecom Industry
The Indian Telecom Industry can be dated back to the year 1850 when postal was the only
source of communication in India. During the year 1850, the first experimental electric
telegraph line was commenced between Calcutta and Diamond Harbor. In 1851, this
telegraph line was made open for the use of British East India Company. Subsequently, the
telegraph lines were extended throughout India. During the year 1881, the Oriental Telephone
Company Ltd. of England launched the telephone services in India by setting up telephone
exchanges at Calcutta, Bombay, Madras and Ahmadabad. The telephone services were
combined with the postal system in 1883. The capital of India got shifted to New Delhi in
1911 up till when Calcutta remained the Indian capital. The Public Works Department was
then the in charge for administering the telecom operations in India. From the year 1902 to
1930, there had been a lot of progress in the Indian Telecom Industry in the form of cable
telegraph, wireless telegraph, radio telegraph and radio telephone system. Radio Broadcasting
was introduced in India in 1927 which was given the name All India Radio in 1937.

After the year 1947, when India attained independence all foreign telecommunication
companies were nationalized to form the Posts, Telephone and Telegraph (PTT), a body
governed by the Ministry of Communication. The Indian Telecom Industry was completely
owned by the Government till 1984, during which year private sector was allowed to
manufacture telecom equipment in this industry. The actual progression of the Telecom
Industry started after the year 1985 when the Government separated the Department of Posts
and Telegraph by setting up the Department of Posts and Department of Telecommunications
(Dot). Dot managed the planning, engineering, installation, maintenance, management and
operations of telecom services for the whole of India. In order to make the operations of Dot
easier, two new Public Sector corporations, namely Mahanagar Telephone Nigam Limited
(MTNL) and Videsh Sanchar Nigam Limited (VSNL) were set up under the Dot in 1986.
MTNL looked after the operation of basic telephone services in Delhi and Mumbai whereas
VSNL provided international telecom services to subscribers in India. Dot looked after the
basic telephone operations in areas other than Delhi and Mumbai. The demand for telephones
was rapidly increasing in the 1990s and the Government was under increasing pressure allow
the private sector to invest in the Indian Telecom Industry as a part of Liberalization-
Privatization- Globalization Policies. Thus, the private investment in the sector of Value
Added Services (VAS) was allowed by the Government and cellular telecom sector was
opened up for competition from private investments.

After this period, the Government announced the National Telecommunications Policy (NTP)
in 1994 which defined certain objectives, including availability of telephones on demand,
provision of world class services at reasonable prices, improving India’s competitiveness in
global market and promoting exports, attracting FDI and stimulating domestic investments,
ensuring India’s emergence as a major manufacturer of telecom equipment and a universal
availability.

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The entry of private service providers in the telecom industry created an indispensable need
for independent regulation. The Telecom Regulatory Authority of India (TRAI) was thus,
established on 20th Feb1997 to regulate the telecom services of India including fixation of
tariffs for telecom services which were earlier regulated by the Central Govt. TRAI's mission
was to create conditions for the growth of telecommunications in the country in a manner that
would enable India to play a leading role in the global information society, In order to carry
out the above objectives, TRAI has issued a large number of regulations, and has helped the
Indian Telecoms Further in 1998, the Government declared the policy for Internet Service
Provision (ISP) by private communications by Satellite (GMPCS) was also opened up for the
private operators. Although the private orders and directives from time to time to deal with
issues coming before it Industry to evolve from a Govt. owned sector to a multi-operator
multi-service open competitive market. Operators and the licensing for the same had begun
from then. Consequently, the Global Mobile Personal players had been allowed participation
in many telecom service segments; the results of privatization were not satisfactory.
Therefore, a New Telecom Policy (NTP-99) came into existence from 1st September 1999.
The NTP-99 emphasized upon the opening of all the segments of the telecom industry for
private sector participation. It recognized the need for resolving the prevalent problems of the
operators to restore their confidence and improve the investment climate. This policy
provided the much needed relief to private players who were earlier burdened with huge
debts that they had to pay owing to the license fee After this, two new departments, viz.
Department of Telecom Services (DTS) and the Department Telecom Operations were
carved out of the Department of Telecommunication (DoT) to separate the service provision
and operational functions of DoT. Later in 2000, DTS was corporatized and renamed as
Bharat Sanchar Nigam Limited (BSNL). DoT is now responsible for policy- making,
licensing and promoting private investments in both telecom equipment manufacturing and in
telecom services, subsequently in 2002, even March, 2002. Some parts of the
telecommunications sector is characterized by large sunk costs particularly the fixed-line part.

This acts as a barrier to entry by private operators Often, the incumbent operator is the sole
repository of expertise in engineering and Competition Policy in Telecommunications,
Background Paper, 2002. Telecommunications Regulation Module, Competition Policy, the
World Bank. Network management. Also, as a government operator it is sometime more
trusted than private operators. In India, which is slowly transforming g itself into a market
economy, businesses and businessmen have often been viewed with suspicion. It is often
assumed that businesses are simply out to exploit consumers and the public sector provides
an alternative to their depredations. Of course, some consumers, tired of public sector
inefficiency often welcome private operators. However, the brand name of the public sector
incumbent, particularly if it remains in government hands, can still be powerful. Further,
presence of scale and scope economies, established sales and distribution networks and the
benefits of vertical integration all serve to strengthen the dominant position of the incumbent.

Regulators have often sought to discipline dominant incumbent operators, in order to foster
competition by a number of methods. Perhaps, the most benign of these is to mandate
separate accounts for the different businesses that the operator runs. It has been the practice in

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the past, and India is no exception, for dominant operators to cross-subsidize their local fixed
services from Ion distance operations. Accounting separation provides some hope of
discovering the extent of such cross-subsidization. More stringent remedies would include
vertical or horizontal structural separation. Line of business restriction and the most extreme
of all, divestiture. Typically governments baulk at such drastic interventions, because of the
irreversible nature of such decisions and the risk of getting it wrong. Further, size is seen as
being important to compete effectively in a globalised world. Finally, it is sometimes argued
that incumbent operators have been the first to introduce innovations. Restricting incumbent
operators can have a detrimental effect on the dynamism of the industry.

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 Anti-competitive Agreements
Anti-competitive behavior can be categorized into three, viz., (1) anti-competitive
agreements, (2) abuse of dominance and (3) mergers and acquisitions. These categories are
not watertight but are useful in analyzing different situations that may occur. Competition
authorities the world over have been concerned with anti-competitive agreements. Nothing
stirs up public indignation as much as the existence of cartels the idea of competitors entering
into an agreement to divide up the market in some. Way to the detriment of customers raises
the hackles of public authorities.

In India there are currently numours of a cartel operating in the cement industry and there are
stories of collusion in bidding for projects, particularly in rural areas. This public distaste
with collusion raises a peculiar problem in telecommunications if there are multiple operators
in the telecommunications market then there must be some amount of cooperation, otherwise
there would be disarray. An essential agreement is that on Different operators must allow
calls to be terminated on their competitor’s networks. A BSNL customer must be allowed to
call a friend who owns an Airtel phone. The question though is at what price this exchange
should occur how much BSNL should have to pay Airtel for the privilege of allowing its
customer to call an Airtel number4. Unfortunately, there are no easy answers. The present
Practice is to allow the parties to arrive at an agreement by themselves. It could be beneficial
to both parties to agree to a high interconnection charge to preserve their own markets. That
way calls made on an operators own network would be cheaper than calls made to another
network leading to a less elastic demand on the own network. The operator could then extract
higher prices roaming its customers of it there have been calls for mobile operators to share
their infrastructure especially their towers. The reasons behind this demand are due to cost as
well as gesthetie considerations.

The idea has its obvious merits but it could assist collision as well .The problem is that the
sector cannot exist without some agreements but the seeds of collusion might also be planted
along with those agreements. There is an inherent tension between competition and
cooperation in telecommunicate Anti-competitive agreements can be categorized into two
types, horizontal vertical. Horizontal agreements use place between competitors and are
likely to be detrimental to competition. Vertical agreements occur between upstream and
downstream players Thus a phone company high eater into agreements about the sale of
customer premises equipment or handsets these are a pool less likes harm competition.
Horizontal agreements include some form of price fixation and collusion in the form of bid
raging. Market allocution, whether geographic or product wise, is another form of an anti-
competitive agreement that can be horizontal as well as vertical.

Another concept that has become important is that of significant market power (SMP). This is
a concept used by the European Commission to flag possible dominance and has also been
adopted by some non-EU countries to subject dominant operators with more onerous

4
For instance look at Economic Times, July 2006, Private Companies may tap broadband networks of
BSNL/MTNL. Given the dominance enjoyed by BSNL/MTNL in broadband connections such arguments could be
construed as abuse of dominance.

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regulation. According to the EU “an organization shall be presumed to have significant
market power when it has a share of more than 25% of a particular telecommunications
market.”5 The EU directives allow additional obligations for access to the network to be
imposed on organizations with SMP. In India it is conceivable that such restrictions could be
imposed on BSNL.6 The Competition Commission could ask BSNL to provide unrestricted
access to its network and provide interconnection at the points of presence demanded by
private operators. BSNL has often said that this is technically not feasible, which is a claim
that ought to be investigated. Further, there have been demands that BSNL open up access to
local fixed line connections. In a rather argument BSNL has said that it should not do so since
its network has been built with public money and therefore should not be used by private
operators. This is precisely the reason why it should be opened to private operators.

5
Interconnection Directive (97/33/EC)
6
It is not clear that even if BSNL were to specialize in providing services for the poor it would be very effective.
It would have to be funded out of the general exchequer. This would at least reduce the current distortions. In
principle, the same effect should be evident if the government subsidized rural operations of all operators.
Enacting policies regarding niche operators could also help.

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 Factors Facilitating Growth of the Telecom Sector in India
The phenomenal growth in the Indian telecom industry was brought about by the wireless
revolution that began in the nineties. Besides this, the following factors also aided the growth
of the industry.

 Liberalization

The relaxation of telecom regulations has played a major role in the development of the
Indian telecom industry. The liberalization policies of 1991 and the consequent influx of
private players have led the industry on a high growth trajectory and have increased the level
of competition. Post-liberalization, the telecom industry has received more investments and
has implemented higher technology.

 Increasing Affordability of Handsets

The growth in the Indian of telecom industry was predominantly aided by the meteoric rise in
wireless subscribers, which encouraged mobile handset manufacturers to enter the market and
to cater to the growing demand. Further, the manufacturers introduced lower-priced handsets
with add-on facilities to cater to the increasing number of subscribers from different strata of
the society. Now even entry-level handsets come with features like colored display and FM
radio. Thus, the falling handset prices and the add-on features have triggered growth of the
Indian telecom industry.

 Prepaid Cards Bring in More Subscribers

In the late nineties, India was introduced to prepaid cards, which was yet another milestone
for the wireless sector. Prepaid cards lured more subscribers into the industry besides
lowering the credit risk of service providers due to its upfront payment concept. Prepaid cards
were quite a phenomenon among first-time users who wanted to control their bills and
students who had limited resources but greater need to be connected. Pre-paid cards greatly
helped the cellular market to grow rapidly and cater to the untapped market. Further, the
introduction of innovative schemes like recharge coupons of smaller denominations and life
time incoming free cards has led to an exponential growth in the subscriber base.

 Introduction of Calling Party Pays (CPP)

The CPP regime was introduced in India in 2003 and under this regime, the calling party who
initiated the call was to bear the entire cost of the call. This regime came to be applicable for
mobile to mobile calls as well as fixed line to mobile calls. So far India had followed the
Receiving Party Pays (RPP) system where the subscriber used to pay for incoming calls from
both mobile as well as fixed line networks. Shifting to the CPP7 system has greatly fuelled
the subscriber growth in the sector.

7
Calling party pays refers to the practice of levying charges only on the individual who makes a call rather than
also on the individual who receives a call.

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  Changing Demographic Profile

The changing demographic profile of India has also played an important role in subscriber
growth. The changed profile is characterized by a large young population, a burgeoning
middle class with growing disposable income, urbanization, increasing literacy levels and
higher adaptability to technology.

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 Regulation and competition
The TRAI was set up in 1997 to regulate the telecommunications industry. India woke up to
the need for private participation in telecommunication in 1994, with its National
Telecommunications Policy (NTP 94). At first the private operators were only supposed to
supplement the efforts of the DOT and the emphasis was to get them to enter the basic fixed-
line segment. NTP 94 made no mention of a regulator. Within three years, however, the
regulator had been set up, but with limited powers. Its principle duty was that of tariff
regulation and it had no licensing powers. Its other duties included looking after
interconnection and settling disputes.

Within the limited powers of the TRAI it has tried to be pro-competitive. Its major
achievement was the tariff rebalancing exercise that it carried out soon after it was
constituted. In most countries the price of local calls is kept artificially low while the cost of
long distance calls are kept high to subsidize the price of local calls. If there was private entry
into the local calls market the entrants would not be able to compete with these low prices as
they did not have access to long distance markets. Thus prices and rentals of local calls would
have to be increased and prices of NLD and ILD calls would have to be decreased. This the
TRAI did in the face of opposition of the DOT. However, desirable though this move was, it
did not trigger entry into the market for fixed services due to the predominant position of the
DOT and the unattractiveness of the market.

The TRAI in its early years used price caps for individual services as its instrument of
control. Using the RPI – X method might have been more suitable for the flexibility it
provides to operators. At any rate with the market becoming more competitive the TRAI has
withdrawn from regulating a large number of tariffs and lets these is determined by the
operators themselves. It has been able to get BSNL and MTNL to sign interconnection
agreements with private operators, but not without a fight. It has also reduced the Access
Deficit Charges (ADC) that private operators pay BSNL for operating in remote areas and for
providing connections to poorer sections of the society.

A principle grouse with the TRAI would be that it does not seem to be using competition law
principles in its decisions. Earlier its main thrust was to try and calculate costs of different
services and force prices to converge to this cost since with competition prices should equal
marginal costs. Thus it tends to concentrate on producing desirable outcomes and not bother
too much on helping the competitive process.8 Of course it does not have any licensing
powers and so can do little to affect entry and exit. It would never the less be useful to adopt
a strong competition principle in its consultation papers and orders.

The TRAI’s powers were both strengthened and weakened by the government through the
New Telecom Policy (1999) and the TRAI (amendment) Act 2000. It now had a greater say
in licensing even though it was not mandatory for the government to heed its advice. One the
other hand its dispute resolution powers were removed and vested in a separate telecom

8
Desai(2006). This behavior could be interpreted as abuse of dominance. Certainly it involved an effort
towards establishing dominance prior to liberalization so that the market for new entrants would be reduced.

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dispute settlement body, the Telecom Dispute Settlement Appellate Tribunal (TDSAT). The
government also mooted the idea of a communications convergence act, which would
concentrate all communication related activities within one regulatory body. This bill has not
been passed till date. Instead, the TRAI was given powers to regulate cable TV and
broadcasting. However, it is not clear that the TRAI has a well defined view on competition.
Certainly, there is no consultation paper on competition in telecommunications indicating
how it will determine the level of competition in telecommunications. It seems to rely on
market shares and price levels to assess competition and not on sophisticated analysis that the
commission could produce.

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 3. Conclusion
The telecom industry in India has experienced exponential growth over the past few years
and has been an important contributor to economic growth; however, the cut-throat
competition and intense tariff wars have had a negative impact on the revenue of players.
Despite the challenges, the Indian telecom industry will thrive because of the immense
potential in terms of new users. The government is keen on mounting rural telecom
infrastructure and is also set to roll out next generation or 3G services in the country.
Operators are on an expansion mode and are investing heavily on telecom infrastructure. It
was found that, surprisingly but rationally though, the stock prices and volume traded of not
only the companies involved in the 2G scam but also the stock price of the companies which
were not involved in the 2G scam declined after 2G scam. Perhaps, this reflects the loss of
investor confidence in the telecom industry as a whole in India after the exposure of 2G
Scam, ironically when the telecom industry is booming in India where people love to die
talking.

And in case of Cartel it can be detected if CCI try to make stricter norms for penalties and
easier form for their detection this will not only save the economy from business tycoons.
CCI should be vested with more power so that they can charge a heavy penalty on running
and operational cartels; moreover they should investigate research for a cartel with more
stringent ways. Lastly and most importantly a mixture of eminent economists and lawyer’s
should work together in making cartel and competition laws more powerful in India. It is well
to recognize that in fighting cartels, what is important is strong investigative machinery,
supported by mutual assistance agreements with other countries in investigating such
organizations and sharing information of the operations of cartels.

It can be concluded that the Indian Telecom Industry contributes significantly to the overall
socioeconomic development of India. It is an essential tool for the growth of the nation. The
various telecom service providers offer voice and data services to the customers across
different regions of the country including both urban and rural areas thereby facilitating the
growth of this industry.

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 4. References
 www.trai.gov.in
 http://www.mbaskool.com/brandguide/telecom-service-providers/505-aircel.html
en.Wikipedia.org/wiki/telecommunication-in-India
 http://www.merinews.com/article/importance-of-telecommunication/148080.shtml
 www.dot.gov.in/content/chairmans-desk
 Jai Bhatia Economic & Political Weekly Oct8, 2016 vol. II no 41.
 http://www.ibef.org/industry/telecommunications.aspx.
 http://www.rcom.co.in/Rcom/aboutus/overview/overview_milestones.html
 https://www.budde.com.au/Research/India-Key-StatisticsTelecommunications-Market-
andRegulatory-Overview
 https://www.geckoandfly.com/13143/50-things-smartphone-replacedwill-replace-future/
 Press releases on subscriber data, March 2013. Telecom Regulatory Authority of India.
www.trai.gov.in
 https://www.equitymaster.com

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 5. Bibliography
 BOOKS
 GUIDE TO COMPETITION LAW
 COMPETITION LAW IN INDIA

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