Radio Chip and Competition Law(Competition Act)

Radio Chip and Competition Law(Competition Act)

Introduction

Most smartphones have chipsets installed in them that provide integrated wireless services, such as Bluetooth, Wi-Fi, and Radio services. However, the telecom service providers and mobile companies disable this feature, due to which we cannot avail radio services on our handsets. This may be because, unlike other apps that charge subscription fee, radio services are available free of cost. Due to which mobile companies cannot charge any commission from them. In Indian context, this move of the mobile companies can raise serious questions from competition law point of view because this ‘concerted practice’ has become a widely followed trend. As a result, neither the pre-existing, nor the new entrants are providing radio services on the handsets, which is ultimately hampering consumer welfare. Additionally, it is creating barriers for radio service providers thereby denying market access to them.Guest Post] Competition Act, 2002: An Overview of Competition Law in India by Prakhar Bhardwaj | Law Notes

Aiming to rectify the damage caused to consumers by restricting access to a free of cost service provider i.e. the radio, the US and the Canadian government insisted the enabling of the radio-chip feature installed in the phones. It is crucial to provide radio services in mobile phones because radio travels way farther than an LTE broadcast. Especially, in emergencies, it makes it much easier to get a signal, and reaching as many people as possible.  Relevantly, it is also free and can be accessed without the use of cellular data and hence consumes lesser battery and provides wider opportunities to consumers.

Anti competitive Practices?

In United States, telecommunication services are governed by the Federal Communications Commission (FCC). Likewise, in India, Telecom regulatory Authority of India (TRAI) along with Department of Telecommunications (DoT) and Ministry of Information and Broadcasting (MIB) regulate telecom and radio services. However, it is absolutely the company’s prerogative, whether to enable the radio chips in handsets or not. Therefore, in this article the author questions the activities of mobile companies in India.  

Almost all handsets in India have radio chips installed in them but the mobile companies opt to disable them due to various reasons such as rise in demand for mobile streaming apps, leading to very low demand for FM services. However, it is also criticised that the mobile companies are intentionally trying to keep FM service providers out of the market and are denying proper market access to them. This act of mobile companies can be adjudged as anti-competitive, by following ways:

  1. Tacit collusion: however there exists no proof of any express agreement between the mobile companies to exclude radio service providers from the market, but it can also be looked at from the concerted action of each individual mobile company. To explain it better, In the case of Interstate circuit v. US (1969), there were two kinds of theatres functioning in the US, First-run theatres and Subsequent-run theatres. The first-run theatres got into an agreement with each individual distributor to impose price restrictions on the subsequent-run theatres in order to drive them out of the market. Subsequently, concerted action among competitors for section 1 can be inferred from evidence that each gave its assent to the same proposal and adhered to it knowing that concreted action was contemplated and invited at least where they stood to suffer financial loss absent unanimous action.

Therefore, even though there was no express agreement between the distributors but it was held that their exists and tacit agreement amongst them as all of them were agreeing making sure that all of them agrees. It was also noted that, all the distributors were acting against their self interest as if anyone of them would not have agreed with the conditions then they would have gained larger market access and subsequently would have earned larger profits. This act was held to be anti-competitive.

Similarly, in the present case, although there exists no evidence of express agreement between mobile companies but they have tacitly agreed to disable radio services from their handsets in order to drive private radio service providers from the market of providing entertainment and tele broadcasting services. It won’t be completely wrong to assume that this act is done to promote other OTT applications, to name a few: Jio Saavan, Spotify, Jio News, which provides similar services to the consumers. This act of mobile companies is anti-competitive as it is denying market access to the radio service providers and is also hampering consumer welfare by barring them from using free radio services. Likewise, they are also acting against their individual self interest because if any one of the mobile company would have allowed radio services on their handsets, their demand would have rose in comparison of others as other manufacturers are not providing the same service. But in the present case, all the major market players in the mobile industry opted for disabling the same and is therefore anti-competitive.

  1. Public welfare: “Amidst the ruins and in the face of an emergency, the radio is often the first medium for survival” says Irina Bokova, Director-General of UNESCO. “It’s durability is an incomparable advantage, often enabling it to resist shocks and re-transmit messages of protection and prevention to as many people as possible, better and faster than other media, saving lives.”

In Indian context, whether it be the super cyclone of Orissa in 1999, or the killer Tsunami, 2004, or the Kosi floods in Bihar in year 200, radios have acted like a lifeline and played a crucial role during various natural disasters. During the Uttarakhand crisis, when all the mobile towers were shattered, the radio headquarters in Delhi started an SMS service for relatives of the victims to pass on plain or voice messages for broadcasting them over radio.

Keeping the safety of public during emergencies, TRAI also recommended DOT to mandate GPS in phones in order to trace exact locations of individuals in need. Similarly, after the Delhi gangrape case, DOT in its report of April, 2016 mandated the Panic button/ Emergency call feature in every smartphone, which automatically calls the police on the multiple tapping of lock button in handsets. Likewise, during natural calamities when mobile towers are also shattered, radios can function without the use of internet and can help in providing necessary news to the people who require urgent help.

Consumer Welfare as the Goal of Competition Policy 

Consumer welfare is generally defined as the maximisation of consumer surplus, which is the part of total surplus given to consumers. This is realised through, ‘direct and explicit economic benefits received by the consumers of a particular product as measured by its price and quality’.

The consumer welfare model argues that the ultimate goal of competition law should be to prevent increases in consumer prices, restriction of output or deterioration of quality due to the exercise of market power by dominant firms. Competition policy generally has as its aim to increase the overall material welfare of society through maintaining rivalry among firms. The ultimate goal is to increase overall economic efficiency while providing consumers with a fair share of this total wealth. While society’s total welfare is usually the ultimate goal of competition policy it is rarely its exclusive goal. Competition policy usually focuses on a specific reconciliation of the overall interest of society with the particular interests of consumers. The difference between competition policies lies in the particular way in which they reconcile these interests. Whether a given competition policy strives to achieve pure economic goals, in particular economic efficiency, or whether it includes non-economic goals, like income distribution, diffusion of economic and political power or fostering business opportunity, as well depends on the economic goals of the political system it is part of. Three approaches are possible. First, competition policy may ignore consumer interests and focus solely on total welfare and economic efficiency. Second, it may recognise the immediate and short-term interests of consumers as the primary aim of competition policy. Third, competition policy might recognise consumer welfare as an essential long-term goal where the immediate interests of consumers are subordinated to the economic welfare of the society as a whole.

Merger Cases 

It is in merger cases that the balancing of efficiencies and anticompetitive effects is the most explicit and therefore the outcome of competition enforcement depends very much on the chosen welfare standard. This has been illustrated by Williamson’s famous trade-off model.The consumer welfare standard is concerned with direct welfare of the purchasers in the relevant output market. While a competition authority operating on the basis of the total welfare standard makes full trade-offs between consumer and producer benefits in merger cases, a competition authority pursuing the consumer welfare standard does not weigh producer benefits against consumer losses. In this sense it favours consumers to producers. The total welfare standard considers transfers from consumers to producers as not being harmful from an efficiency point of view. There are several relevant questions: does the total welfare standard favour producers to the disadvantage of consumers, does the consumer welfare standard have a distributional bias in favour of consumers, and, ultimately, which welfare standard leads to more efficient market performance? 

In other words, does it matter which welfare standard is applied and do they lead to significantly different results in terms of welfare? The following alternative welfare standards imply that the actual outcome of merger decisions depend more on the way a given welfare standard is enforced than on the fact which welfare standard has been chosen as the basis of the competition policy.

Conclusion

The market for mobile phones in India is driven by few major players, namely Xiaomi, Samsung, Vivo & Oppo. Quarter2 results of 2019 shows 52% of the total sales followed by Quarter3 results of 2020 shows that around 50% of the total sales of mobile phones is grabbed by the later 3 companies which also have a radio chip installed in them but would need an external application to run that radio. Here, the companies are using their collective dominance in the market of mobile phones to leverage into the market of telecommunication and thereby fabricating the purpose of radios and providing advantage to OTT platforms.