Communications Today reported on 19th March, 2012 that the Telecom Department will ask the Union Cabinet to exempt the communications sector from the country’s Competition Act. According to the article, “the move comes after the competition watchdog-Competition Commission of India (CCI)-recently raised the red flag over the telecom ministry’s plans to allow mergers and acquisitions (M&As) if the combined market share of merged mobile phone companies was less than 60 percent.”

We shall not comment upon the logic or exigencies which compel the Telecom Department to make such a demand but shall only list below point by point reasons the reason why we feel the Telecommunications sector should not be exempted under the Competition Act, irrespective of the complaints which support the request. They are as follows:

1. As of December, 2011. there were exactly fifteen different players in the Sector (Bharti Airtel, Reliance Comm., Vodafone India, Idea Cellular, BSNL, Tata Teleservices, Aircel, Uninor, Sistema Shyam Teleservices, Videocon Tele, MTNL, S Tel, Loop Telecom, Etisalat DB, HFCL). Granted, there are maybe players one too many in the sector, but the fact remains that six of the above are extremely small players, with atleast two of them confirmed to be losing subscribers as per TRAI. Only the first eight are predicted by analysts to be major market players in the sector, and it is expected that these players shall in all probability fade away on their own.   This is exactly what is envisaged in a competitive sector. The players in the relevant market which fail to grow and develop themselves in the relevant market should leave.

2. Continuing from the above, talking from the consumers perspective, tariff rates in the telecom sector in India can hardly be considered as an issue as frankly, they are one of the lowest in the world and even if assuming that they are raised in the near future, users can well afford the market rates, despite the recent cease fire in price wars. Admittedly, quality of service is a problem,  but the reason for that is primarily lack of infrastructure rather than excess of competition, and merging companies shall certainly not help improve the same. What is required is some seriously heavy investment in infrastructure, rather than simply buying out smaller players in the market, and additionally maybe even some corporate restructuring.

3. The Supreme Court has recently cancelled all 2G licenses issued during A. Raja’s tenure as Minister of Telecommunications. With the Judgement it self being questionable as regards its ratio and till a certain extent, its reasoning, and at the same time a Presidential reference also having been filed asking for clarifications to the same, it is best to follow a wait and watch policy and act only after receiving the Supreme Court’s reply on the Reference.

4. As per the Economic Times, there is a new round of Spectrum wars that’s about to begin with the upcoming re-auctioning of spectrum. Again, it is best to wait till the conclusion of the auction before deciding on such issues.

5. Clause 5(3) of the The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 provides that form may be filed preferably where “the parties to the combination are engaged in production, supply, distribution, storage, sale or trade of similar or identical or substitutable goods or provision of similar or identical or substitutable services and the combined market share of the parties to the combination after such combination is more than fifteen percent (15%) in the relevant market”. In light of this sub-clause, it is best to maintain harmony between various government policies  and the Act and regulations made under it in order to prevent unnecessary conflicts and confusion between the CCI, the Government and the Industry. In fact, the government, in its National Competition Policy, has sought to bring about harmony between the Act and policies and has suggested an elaborate mechanism to achieve the same.

6. Finally, if such an exemption is allowed, it will set a bad precedent in general and may encourage industries to lobby for exemptions in their favour.

The source of all data and statistics is The Economic Times