A comment on the T.R.A.I. Consultation Paper on “Monopoly/Market dominance in Cable TV services” Part – I

The Telecom Regualatory Authority of India on 3rd June, 2013 released Consultation Paper No.: 5/2013 titled “Monopoly/Market dominance in Cable TV services”. The paper was in response to a reference received on 12th December, 2012 from the Ministry of Information and Broadcasting seeking TRAI’s recommendations under Section 11(1)(a) of T.R.A.I. Act.

With this post I aim to proffer answers to the questions raised by the Regulator and aim to provide suggestions as requested by them.

1. Do you agree that there is a need to address the issue of monopoly/market dominance in cable TV distribution? In case the answer is in the negative, please elaborate with justification as to how the ill effects of monopoly/market dominance can be addressed?

Absolutely yes. Ironically, it is T.R.A.I. itself which has caused the problem of dominance in the first place. Earlier, before the implementation of Digital Access Service (D.A.S.), i.e., what is commonly referred to as the “Set Top Box”, Cable TV could either be analogue or non-addressable viz. the cable TV signal is not digital. In the case of non-addressable platforms, Local Cable Operators (L.C.O.’s) had the option of downlinking Free to Air (F.T.A.) channels directly from broadcasters without the help from Multi System Operators (M.S.O.’s). Pay channels were ofcourse obtained by LCO’s through M.S.O.’s as these are transmitted by broadcasters in encrypted form as required. However, after the amendment of the Cable T.V. Act, 1995 in November 2011, it became obligatory for each cable operator to transmit or re-transmit programs of any channel in encrypted form through a digital addressable system. Consequently, only M.S.O.’s can receive signals from the broadcasters as per the Cable TV Networks Rules, 1994 as amended on 28th April 2012. Therefore, as per the paper,

“The MSO maintains a Subscriber Management System (SMS) where details about each customer and his/her channel preferences are stored. All the channels are now decrypted at the customer end through a set top box (STB) programmed by the MSO as per details in the Subscriber Management System. Therefore, in the DAS environment, MSOs play a key role in distribution of both FTA and pay channels.”

Which brings us to the condition which must be imposed to the above affirmative, that this dominance is predominantly at the State level. There does not appear to be a national dominance as most MSO’s operate on a regional basis. Therefore, the relevant market while examining such a question of dominance must be taken to be a respective state. I had highlighted this point in an earlier post while discussing similar issues before the C.C.I.

Also, since at present D.A.S. has still not been fully implemented across the entire country, it may be difficult to determine the true level of dominance of M.S.O.’s in each state. Till that time, the T.R.A.I. may consider our suggestion on the substitutive ability of the services as enumerated in the earlier post.

2.Do you agree that the state should be the relevant market for measuring market power in the cable TV sector? If the answer is in the negative, please suggest what should be the relevant market for measuring market power? Please elaborate your response with justifications.

Yes. The reasoning for which has already been elaborated above.

3. To curb market dominance and monopolistic trends, should restrictions in the relevant cable TV market be:

(i) Based on area of operation?
(ii) Based on market share?
(iii) Any other?
Please elaborate your response with justifications.

At the outset, I feel ex-ante restrictions are not the best method of tackling dominance in the sector as not only could they hurt competition compliance but experience shows it is often difficult to predict or theorize the effects or consequences of such regulations and this generally results in a huge spate of litigation. However, if such regulations are to be implemented, then they should NOT be based on the market share of an M.S.O. since it would be a herculean task to ensure competitiveness through regulations in each separate state (since the market share would be based on each specific state.) Moreover, market shares are subject to changes through regular competitiveness and acquisitions. Lastly, it is a well accepted principle of competition law, and which the T.R.A.I. should also follow, that dominance itself is not considered an offence but an abuse of that dominance is considered an infringement of competition law. Rather, it would be better to draft certain general rules on abuse of dominance in the Cable TV sector which may be enforced on an ex-post facto basis.

To be Contd.

Why the CCI Google Investigation faces Difficulty.

A recent Economic Times Article states that the “probe by Indian authorities to examine if Google abused its dominant position in the Internet search engine market is progressing at a sluggish pace, mainly due to a lack of understanding on Internet-related issues.” Furthermore, it also stated that “India (presumably through the C.C.I.) has sought the FTC’s help in this matter.”

While the reason stated above is probably true, I feel another important reason the investigation faces difficulty is becaue of the direction the D. G. Office seems to be taking to reach its goal. This is evident from the second line quoted above, where the article states that the C.C.I. is looking for aid from the F.T.C. There is no harm in asking for aid from others, but in this case, the Commission may be asking for aid from the wrong people. One needs to understand that the F.T.C. and the European Commission have SETTLED their cases with Google on the basis of certain commitments they received from the company. (See here for the F.T.C. commitments and here for the E.U. commitments). It is more than evident from their respective press release and the commitments received from Google that both the competition authorities never approached the investigation with an intention to prosecute. Their primary intention was merely to ensure competitiveness without disrupting the market (being the internet search engine market and online advertisement market) to the best possible extent. The merits of such an approach are of course debatable, but are presently outside the scope of this post. What is important is that settlements require a mediative approach (far different from an adjudicatory approach) and this is not the approach the C.C.I. wishes to follow. Even if it wishes to, it as of now can’t, as explained in a previous post.

It is better if the Commission looks eastwards to the Australian Competition and Consumer Commission (A.C.C.C.) for help. The judgement of the Federal Court of Australia is the only case which Google has lost on allegations against its Adwords programme, which is the primary subject of investigation even in India.

CCI + Settlement

A competition law co-blogger recently complained about how the European Commission was turning into a “settlement Junkie”. While this is a debate which no doubt all EC competition law jurists and lawyers will seek to actively participate in and discusss, the post did get me thinking on any future prospective settlements with the CCI in India.

As far as I know, the CCI has till date not settled any case either related to an anti-competitive agreement or an abuse of dominant position. And on a perusal of the Act, there is a good reason. The Commission doesn’t have the power to settle cases !! No section of the Competition Act seems to allow the CCI to settle a case if it wishes to do so. The Section which seems to come closest to granting such a power to the Commission may be Section 36 (Power of the Commission to Regulate its Own procedure). However, that the power to settle a case can be interpreted under this Section seems a doubtful proposition.

Of course, this may not necessarily be a bad thing, as we can see from the above mentioned blog post.

Status And Effect of Cooperative Joint Ventures under Indian Competition Law

My article titled “Status And Effect of Cooperative Joint Ventures under Indian Competition Law” has recently been published in the Competition Law Reports (January, 2013 Edition)

In the article, I elaborate in detail the competition law regarding cooperative joint ventures and present the measures and methods which may be adopted by the Commission when it is finally called upon to handle such issues. Part I being the introduction, Part II elaborates upon the concept of cooperative/contractual joint ventures and provides a definition for the phrase and elaborates as to what exactly would constitute a cooperative joint venture. Part III elaborates in detail the EU law regarding cooperative joint ventures, including the important Orders and Judgements in EU competition law on the same. Part IV focuses on the competition law (or anti-trust law) in the United States of America (U.S.A.) regarding such agreements. Part V deals with the problem of cooperative joint ventures under the Competition Act, 2002 and suggests the preferred method of analysis which may help the Commission best analyze such ventures or agreements.

Click here for a copy of the article and please do leave your comments and feedback on the same.

N. Sanjeev Rao v. Andhra Pradesh Hire Purchase Association, Case No. 49/2012

The case of N. Sanjeev Rao v. Andhra Pradesh Hire Purchase Association, Case No. 49/2012, which was recently dismissed by the Commission, highlights two important developments which are a must in Indian competition jurisprudence.:

1. It is necessary that the Parliament pass the Competition Amendment Bill, 2012 (see here and here for our previous posts on the same) at the earliest to recognise the concept of collective dominance under the Competition Act. Personally, I am of the opinion that too many genuine cases are getting dismissed due to this wide lacuna within the Act.

2. The Commission should apply a certain amount of pragmatism while deciding the relevant market in a particular case. For example, in this case, it is obvious that the market should have been, as submitted by the informants, “private auto financiers market in the cities of Hyderabad and Secunderabad, Andhra Pradesh.” The decision of the CCI that there was no case to differentiate private auto financers and other banking/non-banking entities which are in the business of extending automobile finance is clearly erroneous in light of practical realities. It is a well known fact that autowallahs would never qualify for an automobile loan with any decent bank, which is the exact reason why they need to resort to such financers in the first place, thus creating a clear distinction between the two different financial markets.

Belaire owners’ Association v. DLF, Case No. 19/2010 (Supplementary Order)

The CCI has just come out with the Supplementary Order in the case of Belaire owners’ Association v. DLF, Case No. 19/2010 (Main Order/Supplementary Order) which contains the Modified Buyers’ Agreement (begins from page 25 of the document). A clause by clause analysis of the new agreement would not be only be time consuming (which unfortunately, due to ongoing examinations, I presently don’t have) but would till a large extent be mundane and irrelevant. What is important to summarise are the following points:

1. The CCI has clarified that any such agreement, including the modified agreement drafted by it in this case, would have to comply with the laws and regulations of the respective state (in this case, Haryana) and no agreement, whether framed by the Commission or any other party, could supersede any such Acts, Rules and Regulations.

2. The CCI decided to basically draft an entirely new agreement along with all the modifications it considers necessary rather than specify specific clauses which require amendment.

Furthermore, this Order in no way affects the merits of DLF’s appeal before the COMPAT. Rather, the reason the COMPAT has directed the CCI to draft a Modified Buyers’ Agreement was to clarify the Commissions stand to help in the effective adjudication of the appeal.

Eastern India Motion Picture Association v. Ms. Manju Tharad, Appeal No.17 Of 2012 with I. A. No.31 Of 2012

To be honest, I did not know what to write about this Order (begins from page thirteen of the document), which is the primary reason for the delay to this post. The issue arose more as a result of bad drafting and communication rather than any actual serious question of law. Furthermore, what the Tribunal has actually enumerated is a well accepted principle of natural justice rather than a recognition of any previously unrecognised principle of competition law.

Nevertheless, important growths and developments always have small beginnings, and so till that extant this decision stands on its own. To quickly reiterate the facts, the Appellants challenged the Order passed by the CCI whereby all the appellants were imposed a penalty of Rs.25,000/- per day under Section 43 of The Competition Act, 2002 (hereinafter the ‘Act’). It was further provided that if the information asked was not supplied within 30 days, the penalty was to be Rs.50,000/- per day for the next 30 days and Rs.1,00,000/- per day thereafter, till penalty amount culminates to Rs.1.00 crore. Before the Commission, the Respondent in the present case approached the Commission under Section 19 of the Act with an information because of the action taken against her by Eastern India Motion Picture Association, the Appellant. The matter was referred to the Director General for Investigation under Section 26 (1) of the Act and the Director General in his report observed that the action taken by the appellant was not anti-competitive or in violation of Section 3 of the Act. The CCI however directed the Appellants to appear before the Commission on 03.11.2012 for making submissions. The CCI later in a meeting observed that the members of the Appellant’s association did not comply with the directives of the CCI as they had failed to file their individual profit and loss statements as called for by the CCI and directed the Appellant to file the individual financial statements and issued a show cause notice, consequent to which, the penalty.

Important portions of the Order:

We have found nothing in the impugned order justifying the action only against the four office bearers. The learned counsel pointed out before us that at the relevant time, there was 28 members of the Executive Committee of first appellant and that was clear from the records. (Paragraph 21)

We must clarify that the directions which are to be followed imperatively under Sections 48 read with Section 36 cannot be given casually. There must be some application of mind before issuing such directions and the orders must reflect such application of mind…. A look at the complaint would suggest that there were no allegations against the office bearers individually. If that was so and more particularly when the DG had exonerated the first appellant, it is not known as to why the CCI thought it fit to call the information about the personal accounts of appellant Nos.2, 3, 4 and 5. (Paragraph 22)

The last words of Clause of sub-Section (4)(a) [of Section 36] namely — “the examination of which may be required for the purposes of this Act” would in our opinion entail and would require the Commission to state at least prima-facie as to why the examination of the books of accounts was required. The Clause of sub-Section (4)(b) also uses the similar words. Therefore, the Commission would have to show before issuing any such direction that it has come to the conclusion that it would be necessary to examine such books or documents or for that matter the Commission would have to come to the conclusion that the information in possession of such persons would be required for the purposes of this Act. The Section is not meant to give an untrammeled and uncontrolled discretion to the Commission to ask for any information from anybody. It cannot be a mere ipse-dixit on the part of the Commission to decide to call for the production of books and documents or supply of information and the non-compliance of which would result in the penalty under Section 43. We find that the language of sub-Section (4)(a) and (b) of Section 36 would require a deeper examination of the issue as to whether production of books or documents in custody of such persons are necessary at all, the examination of which would be required for the purposes of the Act. (Paragraph 23)

And So The Lobbying Begins….

This wasn’t exactly unexpected. After all, there’s a lot of money at stake, so its natural that the cement companies would start pestering the Government to help them get a remedy sometime or the other.

Oh well, is there anything one can do about it ?! As of now, it seems best to just be content with drinking a jug of beer and raising a toast saying “long live the Republic of India !! ”

An Update:

This is probably why the CCI has asked lobby groups to draw up self regulating data-release rules. Better to begin preemptive action. This was at an meeting on “Competition Law & Trade Associations” which was held on 17th December 2012 at the India Habitat Centre, New Delhi. (Photos)