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Reliance Jio could replace Summer Surprise with new offer after TRAI order

Reliance Jio’s withdrawal of its Summer Surprise Offer is unlikely to make any difference to most of its customers, and the company may even come up with a new version of the plan to comply with the ban.

“The Telecom Regulatory Authority of India (TRAI) has advised Jio to withdraw the 3 months complimentary benefits of Summer Surprise…

We are in the process of fully complying with the regulator’s advice, and will be withdrawing the 3 months complimentary benefits of Jio Summer Surprise as soon as operationally feasible, over the next few days,” it said in a statement late night.

The phrasing of the statement implies that TRAI asked it to withdraw the ‘three months complementary benefits’ rather than the scheme itself.

In other words, the ‘three month free service’ could be replaced with some equally attractive — something that gives an equivalent benefit.

UPDATE: The company has revealed that new plans are being worked on and will soon be revealed.

To make it clear, under the present scheme, consumers get three months of daily-data plans free for subscribing for one month. In other words, it is selling four for the price of one and the price of one is reduced to 25%.

Now, what the operator is saying is that it will withdraw the ‘free three month offer’ under the SS plan. This likely means that the Summer Surprise plan may not be withdrawn, but could come with a different set of benefits after 2-3 days.

It could, for example, slash the price of its 303 plan to Rs 76 per month under a revamped offer. This would give the same benefit to the user as the current offer, even as it escapes the charge that it is providing its service free of charge.

The second aspect of the ‘withdrawal’ is that the operator is likely to take another “few days” days to complete it and people will continue to sign on during this period.

NO IMMEDIATE IMPACT

“Next few days” usually means over the next 2-4 days, which means that the offer will not be available for new sign-ups from the 10th or 11th of this month.

That is unlikely to come as a big shock to customers as the scheme was originally set to close on Apr 15.

Moreover, about half of Jio’s Prime subscribers are already likely to have availed of the offer and the other half are likely to do so over the next 2-4 days.

If Jio manages to get 80-90 mln of its subscribers under Summer Surprise, it would have met its goal with the scheme.

PREDATORY PRICING THREAT

The primary reason for coming out with three month schemes instead of having cheap tariffs on a permanent basis could be the threat of litigation by rivals alleging predatory pricing.

So, if the Ambani firm replaces the ‘three months free’ offer by reducing its monthly charge to Rs 75 for 1 GB per day, existing operators are likely to raise the predatory pricing issue before the Competition Commission of India.

But can they really make the charge stick?

The relevant Indian rule on predatory pricing is the Competition Act of 2002.

According to the Competition Commission website, a situation must meet three conditions to qualify as ‘predatory pricing’:

First, the goods or services must be sold below the cost of manufacturing or providing the service.

Secondly, offering such goods or services should be seen as threatening the existence of rival competitors and in the long run, reducing overall competition in the market.

And finally, the third condition is that the company engaging in predatory pricing must have a ‘dominant position’ in the market.

FIRST CONDITION

If Reliance Jio offers its 303 plan at Rs 75 per month, that would imply a price of around Rs 2 per GB, which the rivals are likely to argue is ‘below cost’.

In other words, the company cannot sustain its business if it prices data at Rs 2 per GB and is therefore providing it below cost, they could say.

Jio could counter that BSNL is offering a truly unlimited 3G connection at Rs 1,099 per month — under which 1 GB would cost less than Rs 2.

RIVALS AND DOMINANCE

But it is the remaining two conditions that they could have some trouble applying to this case.

The second condition is that Jio’s offer of 1 GB per day for four months for Rs 303 must threaten the existence of rivals like Bharti Airtel, Idea Cellular and Vodafone India.

This is something that they will find hard to prove, as these companies are still making profit and even if they are pushed into the red for a period of four months, they are unlikely to go out of business.

Finally, the third condition is that Jio must be in a ‘dominant position’ in the telecom market in India.

This is open to interpretation and the arguments on this count could go on for months, if not years. According to the Competition Act, various factors must be evaluated to determine if a company is dominant in a market.

These factors include overall revenue market share (which is practically zero for Jio), overall volume market share (which is very high), the size and economic resources of the company (which is also high), strength of competitors and other market structures.

In other words, just the determination of the question — does Reliance enjoy dominant position in telecom market in India — will likely require several months.

And even if it is held that it enjoys a dominant position, the Competition Commission still has to decide issues such as whether Jio’s four-month offer is likely to lead to its competitors shutting down or not and so forth.

LEGAL PROVISIONS IN INDIA

Predatory Pricing definition from CCI website

The following is the definition of predatory pricing in the Competition Act.

“Predatory price” under the Act means “the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of goods or provision of services, with a view to reduce competition or eliminate the competitors”

The Act also offers the following explanation:

Predation is exclusionary behaviour and can be indulged in only by enterprises(s) having dominant position in the concerned relevant market. The major elements involved in the determination of predatory behaviour are: 1) Establishment of dominant position of the enterprise in the relevant market. 2) Pricing below cost for the relevant product in the relevant market by the dominant enterprise.  3) Intention to reduce competition or eliminate competitors.

 

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