‘Average Variable Cost’, best way to determine predatory pricing: TRAI

The Telecom Regulatory Authority of India (TRAI) has said that Average Variable Cost (AVC) is the most-appropriate method to determine the issue of predatory pricing, and operators indulging in other practices, will be fined a penalty of ₹50 lakh per tariff place per circle.

“The authority, after examining the various relevant factors, such as availability of cost details, their reliability and relevance for the purpose, is of the view that AVC is the most-appropriate cost measure to determine the issue of predatory pricing,” TRAI said in its ‘Telecommunication Tariff (63rd Amendment) Order, 2018’ on Friday. The new order comes following allegations by top operators such as Bharti Airtel, Vodafone and Idea Cellular that the new entrant Reliance Jio is offering predatory pricing, following which TRAI said that the issues were being debated as part of TRAI’s ongoing consultation on ‘Regulatory Principles of Tariff Assessment’.

AVC describes how marginal cost behaves, on average, over a given range of output. AVC is calculated by identifying those costs that vary with output, adding them together, and dividing the result by the total number of units produced.

“Predatory pricing means the provision of a distinct telecommunication service in the relevant market at a price which is below the AVC, with a view to reduce competition or eliminate the competitors in the relevant market, as determined by the authority,” said TRAI. For instance, Bharti Airtel, for its 22 circles, launched a tariff plan, and if the plan is found to be predatory, the company will be imposed a penalty of₹11 crore.

The authority said after considering all factors, including, inter alia, consumer interests, maturity of the telecom sector, competition, tariff forbearance and the fact that even promotional tariffs have to satisfy the ‘tariff principles of transparency’, non-discrimination and non-predation opines there is no further need to alter the current minimal definition of the promotional offer as contained in the direction dated September 1, 2008.

“The authority is also of the view that there is no need to further restrict the time period of promotional offer from existing stipulation of 90 days. Currently, while the offer period is restricted to 90 days, there is no restriction on the period of benefit to consumers,” it said.

On the issue of transparency, the sector regulator said it stands for disclosure of all the relevant information of every tariff plan offered by an operator, which enables a consumer to make informed choices.

To ensure transparency, the regulator has imposed a fine of ₹5,000 for every day of delay subject to a maximum of ₹2 lakh on telcos who fail to comply with the requirement of intimating the authority within seven working days of coming out with a tariff plan.

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