Technology

TRAI Tariff Order and Interconnection Regulations for Broadcasting and Cable Services

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

The Telecom Regulatory Authority of India (‘TRAI’) has on March 3, 2017, issued two sets of regulations governing, inter alia, the pricing of television channels by broadcasters and distributors, namely the Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable Systems) Tariff Order, 2017 (‘Tariff Order’) and the Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017 (‘Interconnection Regulations’), which repeal certain related regulations applicable to pricing and addressable systems.

The Tariff Order and the Interconnection Regulations specify the framework for tariffs to be charged by broadcasters and distributors and also govern the arrangements between various service providers engaged in broadcasting services, and inter alia:

(i) provide that broadcasters are required to declare a monthly maximum retail price for a-la-carte channels; (ii) prescribe the amounts distributors may charge for channels as the capacity fee per network; (iii) manner in which charges may be levied by broadcasters and distributors for channel bouquets; and (iv) manner in which discounts and carriage fees may be applied by broadcasters and distributors.

Star India and Vijay Television have filed a writ petition in the Madras High Court (‘Madras HC’) challenging TRAI’s authority to regulate pricing of content on television channels. During the pendency of these proceedings, the Supreme Court (‘SC’) has granted TRAI leave to notify regulations (including the Tariff Order and Interconnection Regulations), while observing that the new cause of action arising from the notification of the regulations may be taken up with the Madras HC.

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Revised Guidelines for Registration of Infrastructure Provider – I

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

On January 13, 2017, the Department of Telecom (‘DoT’) issued revised guidelines for registration of Infrastructure Provider – I[1] (‘IP-I’) to incorporate the relevant provisions of the FDI Policy. 100% FDI is permitted in an IP-I, with 49% FDI permitted under the automatic route. The guidelines clarify that both direct and indirect foreign investment in the IP-I entity will be taken into account for computing FDI.

[1]     Infrastructure providers who provide dark fiber, right of way, duct space and towers.

 

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Consultation Paper on Net Neutrality

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

In furtherance of a pre-consultation paper, TRAI has released a ‘Consultation Paper on Net Neutrality’ on January 4, 2017 to address issues such as what will be the core principles of net neutrality in the Indian context, permissible exceptions to net neutrality considering the business practices proposed by certain telecom service providers (‘TSPs’), the policy and regulatory approach to deal with issues relating to net neutrality, necessary precautions for maintaining customer privacy and preserving national security, etc.

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Recommendations on Spectrum Usage Charges and Presumptive Adjusted Gross Revenue

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

On March 7, 2017, TRAI had issued recommendations on Spectrum Usage Charges (‘SUC’) as a percentage of adjusted gross revenue based on the amount of spectrum held by internet service providers (‘ISPs’) and commercial very small aperture terminal operators. TRAI has recommended to DoT that the existing regime be continued with respect to the spectrum assignment on administrative basis to ISP licensees in the specified bands, and the existing formula for charging SUC and payment of such charges on an annual basis by ISP licensees.

Further, TRAI has recommended to DoT that arrangements be made to accept online payment of financial levies /dues such as SUC and other fees payable by the ISP licensees for obtaining license/ approval/ clearance from DoT, set up a comprehensive and integrated on-line system as a single window clearance for issuance for approval and other permissions to the ISP licensees.

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Extension of Time for Obtaining the Telecom Testing and Security Certification

Published In:Inter Alia - Quarterly Edition - April 2017 [ English Chinese japanese ]

By way of a notification dated April 6, 2017, DoT has extended the time for obtaining the Telecom Testing and Security Certification (‘TTSC’) from an agency / lab within India to April 1, 2018. The requirement in respect of telecom licenses for International Long Distance and National Long Distance is for TSPs to obtain the TTSC in respect of network elements before the induction of such elements into their respective telecom networks. TSPs are required to obtain such TTSC from authorised and certified agencies / laboratories within India.

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Guidelines for TSPs in the Process of Tariff Recharges/ Payments through Third Party Apps/ Websites

Published In:Inter Alia - Quarterly Edition - January 2017 [ English Chinese japanese ]

On October 14, 2016, Telecom Regulatory Authority of India (‘TRAI’) issued the Guidelines for Telecom Service Providers (‘TSPs’) who provide access or internet services, directing them to ensure transparency, uniformity and protection to their subscribers in matters of tariff recharges/ payments of bills through third party applications/ websites appointed by the TSPs (‘Channel Partners’) or sub-Channel Partners appointed by such Channel Partners on their behalf (‘Sub–Channel Partners’). These guidelines require the TSPs to ensure the following:

i. All product features, tariff, and benefits available on the relevant TSP’s website should also be displayed on the website of the Channel Partner/ Sub-Channel Partner. A new feature can be launched only once it has been duly updated on the website of the Channel Partner/ Sub-Channel Partner;

ii. The TSP should ensure that all service conditions of the TSP’s license, as contained in the agreement between TSP and the Channel Partner, should be incorporated in the agreement between Channel Partner and Sub–Channel Partner; and

iii. Any new tariff product or any change in an existing tariff product can be implemented only at midnight (between 00:00 and 02:00 hours), on the date of launch/ date of change of the tariff product. Further, TSPs continue to be wholly responsible for compliance with the conditions of its license as the Channel Partners and Sub–Channel Partners are unlicensed entities.

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Directions to TSPs for Delivering Broadband Services in a Transparent Manner

Published In:Inter Alia - Quarterly Edition - January 2017 [ English Chinese japanese ]

In supersession of the earlier directions issued on July 27, 2012 relating to provisioning of broadband services, the TRAI has, on October 31, 2016, issued directions to TSPs (providing broadband (wire – line or wireless) services) for delivering broadband services in a transparent manner by providing adequate information to broadband consumers. TSPs have been directed to provide on their website, and also in all advertisements published through any media, information (as prescribed under the directions) with respect to all broadband tariff plans offered under the fair usage policy for fixed and mobile broadband service, respectively. The information to be disclosed includes data usage limit with specified speed, speed of broadband connection up to the specified data usage limit; speed of broadband connection beyond data usage limit, etc. This information is also required to be provided to all new and existing subscribers of the TSPs on their registered email address or mobile number, as specified by the subscriber.

Further, TSPs must ensure that the download speed of broadband service provided to the fixed broadband subscriber is not reduced below the minimum download speed prescribed by Department of Telecommunications (‘DoT’) in any fair usage broadband tariff plan, after expiry of a consumer’s assigned data quota. TSPs should also provide an alert to the subscribers through SMS on their registered mobile number or e-mail, each time when the data usage reaches 50%, 90% and 100% of data usage limit under a consumer’s plan and maintain a portal/ website for the subscriber to access such usage information at any point of time.

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Amendment to Mobile Banking (Quality of Service) Regulations, 2012

Published In:Inter Alia - Quarterly Edition - January 2017 [ English Chinese japanese ]

The Mobile Banking (Quality of Service) Regulations, 2012 (‘Mobile Banking Regulations’) mandate every TSP to facilitate banks and its agents to use SMS, unstructured supplementary service data (‘USSD’) and interactive voice response to provide banking services to its customers and deliver such messages within the time frame prescribed under the Mobile Banking Regulations. By way of this amendment dated November 22, 2016, TRAI has enlarged the scope of the Mobile Banking Regulations by permitting TSPs to also facilitate entities authorised by the RBI for delivery and banking services, to provide USSD based banking and payment services to its customers.

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Clarification Regarding the Scope of Permitted Activities by an Infrastructure Provider – I

Published In:Inter Alia - Quarterly Edition - January 2017 [ English Chinese japanese ]

On November 28, 2016, the DoT issued a clarification stating that Infrastructure Provider – I (‘IP-I’) providers are not permitted to own and share active telecom infrastructure elements (such as antenna, feeder cable, node B, radio access network and transmission systems), and can only install such elements on behalf of telecom licensees. IP-I providers, who have invested in creation of active network infrastructure, have been granted a period of six months from the date of the clarification to either obtain a telecom license and move all such operations involving active network elements under the license for carrying on operations of such infrastructure, or transfer such network elements to a holder of a valid telecom license.

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Statutory License for Internet Broadcasting under the Copyright Act, 1957

Published In:Inter Alia - Quarterly Edition - October 2016 [ English Chinese japanese ]

DIPP issued an office memorandum dated September 5, 2016, clarifying that internet broadcasting companies are also covered, along with radio and television broadcasting organizations, within the statutory licensing regime prescribed under Section 31D of the Copyright Act, 1957 (‘CR Act’). This view was taken based on a broad interpretation of the words “any broadcasting organization desirous of communicating to the public” under Section 31D of the CR Act read with the definition of the term “broadcast” under Section 2(dd) of the CR Act and the definition of the term “communication to the public” under Section 2(ff) of the CR Act.

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Revisions to FDI Policy

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

The Department of Industrial Policy and Promotion (‘DIPP’) has, by way of Press Note No. 5 dated June 24, 2016 (‘Press Note 5’), introduced the following notable amendments to the FDI Policy:

i. 100% foreign direct investment (‘FDI’) is permitted under the approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India;

ii. In the defence sector, FDI beyond 49% is permitted through the approval route, where the investment results in Indian access to modern technology or for other reasons. The erstwhile condition for such FDI, requiring such investment to result in access to ‘state-of-art’ technology, has been dispensed with;

iii. Foreign investment in the civil aviation sector has been liberalised, whereby: (a) 100% FDI is permitted under the automatic route in brownfield and greenfield airport projects; and (b) FDI has been raised to 100% (with up to 49% under the automatic route and 100% through the automatic route for non-resident Indians (‘NRIs’)) for scheduled air transport services, domestic scheduled passenger airlines and regional air transport services. Foreign airlines continue to be allowed to invest in the capital of Indian companies operating scheduled and non-scheduled air-transport services up to 49%;

iv. FDI in brownfield pharmaceutical projects has been permitted up to 100%, with 74% under the automatic route. However, a non-compete clause is not permitted in transactions, except in certain special circumstances with the prior approval of the Foreign Investment Promotion Board;

v. Local sourcing norms have been relaxed for three years for entities engaged in single brand retail trading of products having ‘state-of-art’ and ‘cutting edge’ technology, and where local sourcing is not possible;

vi. FDI in private security agencies has been raised to 74%, with 49% permitted under automatic route. It is clarified that the terms ‘private security agencies’, ‘private security’, and ‘armoured car service’ will have the same meaning as ascribed to such terms under the Private Security Agencies (Regulation) Act, 2005. Accordingly, private security agencies would include any person (other than any governmental agency) providing private security services including training of private security guards and deployment of armoured cars;

vii. FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture was permitted up to 100% under the automatic route under controlled conditions. The requirement of ‘controlled conditions’ for FDI in these activities has now been removed; and

viii. 100% FDI in broadcasting carriage services, including teleports, direct to home, cable networks, mobile TV and headend-in-the-sky broadcasting services, has been permitted under the automatic route.

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Supreme Court Decision in the Case of Star Sports India Private Limited v. Prasar Bharati and Ors.

Published In:Inter Alia - Quarterly Edition - July 2016 [ English Chinese japanese ]

On May 27, 2016, SC upheld the order passed by the Delhi High Court against Star Sports India Private Limited (‘Star Sports’), in connection with a dispute relating to the mandatory sharing of feeds for television broadcast of sporting events of national importance on cable or direct-to-home (‘DTH’) networks in India.

Under Section 3 of the Sports Broadcasting Signals (Mandatory Sharing with Prasar Bharati) Act, 2007, a content rights owner or holder and a television or radio broadcasting organisation (‘Broadcaster’) are prohibited from carrying live television broadcast of a sporting event of national importance on cable or DTH networks, unless it simultaneously shares the live broadcasting signals, without its advertisements, with Prasar Bharati to enable it to retransmit the same on its terrestrial and DTH network.

In the present case, live feeds being provided by Star Sports to Prasar Bharati contained commercial enhancements such as ‘logos’ and ‘on-screen credits’ (‘Logos’) inserted by the event organiser, i.e., International Cricket Council (‘ICC’). Star Sports argued that the words ‘without its advertisements’ in Section 3, relates to advertisements inserted by the Broadcaster and not by the event organiser, and therefore the Logos inserted were not prohibited under Section 3.

The SC observed that the word ‘its’ under Section 3 relates to all three categories, viz: (i) content rights owner; (ii) contents holder; and (iii) television or radio broadcasting service provider. Accordingly, the SC held that Star India is required to remove all commercial content from the feed, even if such commercial content has been included by ICC and Star Sports does not earn any revenue from such commercial content, before sharing the feed with Prasar Bharati.

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The Telecommunication Interconnection Regulations, 2018

Published In:Inter Alia - Quarterly Edition - March 2018 [ English Chinese japanese ]

In addition to the existing framework of interconnection in India under the Unified License regime, the Telecom Regulatory Authority of India (‘TRAI’) has, on January 1, 2018, issued the Telecommunication Interconnection Regulations, 2018 which have been made applicable to all telecom service providers (‘TSPs’) in India with effect from February 1, 2018. These regulations, inter alia, provide for important aspects of interconnection, such as, the procedure for entering into interconnection agreements, bank guarantee to be furnished by TSPs prior to entering into agreements, interconnection charges, framework for provisioning of initial interconnection and augmentation of points of interconnection (‘POIs’), disconnection of POIs and financial disincentive on interconnection matters.

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Clarification on Direct Carrier Billing for Digital Content

Published In:Inter Alia - Quarterly Edition - July 2017 [ English Chinese japanese ]

On March 23, 2017, the Department of Telecommunications (“DoT”) has clarified, that mobile subscribers are permitted to download all paid digital content (such as e-books, applications, etc.) through their mobile phones, and make payments for such content using pre-paid account balance or post-paid bill payment methodology. The DoT has prescribed that the maximum value of such payments will be INR 20,000 (approx. USD 310) per transaction. Further, the DoT has also clarified that such purchase of digital content will not be treated as a pass-through revenue for the purpose of computing the adjusted gross revenue for licence fee and spectrum usage charge.

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Amendment to the Unified Licence Agreement

Published In:Inter Alia - Quarterly Edition - July 2017 [ English Chinese japanese ]

The DoT has, by way of notification dated June 23, 2017, amended the unified license in respect of the ‘Technical and Operating Conditions’ for ASP. Pursuant to the amendment, the Telecom Service Provider (‘TSPs’) can deploy any of its equipments anywhere in India (whereas earlier the TSPs could only deploy the IP based Next Generation Network, Media Gateway Controller, Soft Switch: (i) within the geographical boundaries of any of the authorised service area, provided the TSP had Access Services authorisation, or (ii) anywhere in India, if the TSPs had authorisation for National Long Distance (‘NLD’)/International Long Distance (‘ILD’) service), subject to interconnection points being located and operated in the service areas for inter operator, inter service area, NLD and ILD calls and meeting security conditions as mentioned in the licence. Further, the amendment has also deleted the requirement to intimate the DoT of the commissioning of the abovementioned equipment.

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TRAI recommendations on “Issues relating to Uplinking and Downlinking of Television Channels in India”

Published In:Inter Alia - Quarterly Edition - June 2018 [ English Chinese japanese ]

The Telecom Regulatory Authority of India has on June 25, 2018, issued Recommendations on Issues relating to Uplinking and Downlinking of Television Channels in India. These recommendations have been issued with a view to review and amend the guidelines relating to the uplinking and downlinking of satellite television channels issued by the Ministry of Information & Broadcasting in 2011. The recommendations provide for various changes in the existing framework of uplinking and downlinking regulations including in relation to relaxations in security clearance requirements, streamlining of the application procedures overall and regulation of transfers of uplinking and downlinking permissions.

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Amendment in relation to Cap for Spectrum Holding

Published In:Inter Alia - Quarterly Edition - June 2018 [ English Chinese japanese ]

The Department of Telecommunications (‘DoT’) has, by way of a circular dated May 30, 2018 amended the guidelines for transfer/merger of various categories of telecommunications service licenses/authorization under unified license on compromises, arrangement and amalgamation of companies dated February 20, 2014.

Pursuant to this amendment, DoT has removed the cap of 50% in a particular spectrum band for access services and increased the cap on the total spectrum holding by an entity to 35% of the total spectrum assigned for access services, from the previous cap of 25%. The revised overall cap also applies to entities resulting from implementation of a scheme of compromise, arrangement or amalgamation and merger of licenses in a service area.

However, the spectrum holding cap for 700 MHz, 800 MHz and 900 MHz bands (‘Sub 1 GHz Bands’) is different. DoT has prescribed that the combined spectrum holding of an entity must not exceed 50% of the total spectrum assigned in the Sub 1 GHz Bands. However, no such limit has been prescribed for individual or combined spectrum holding of an entity above the 1GHZ band.

DoT has also notified an option for telecom licensees to choose higher number of installments for deferred payment liabilities in respect of the award of spectrum in 2012, 2013, 2014, 2015 and 2016. There is no change or modification in the moratorium period for payment of deferred payment liabilities and the instalments already paid.

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Instructions for implementing Restrictive Feature for SIMs used only for Machine-to-Machine communication service

Published In:Inter Alia - Quarterly Edition - June 2018 [ English Chinese japanese ]

DoT released instructions on May 16, 2018 in relation to SIM cards used for Machine-to-Machine (‘M2M’) communication services[1] (‘M2M SIMs’), along with related Know Your Customer instructions for issuing M2M SIMs to entities providing M2M communication services under the bulk category and instructions for Embedded-SIMs.

The entity providing M2M services may require SIMs from a telecom licensee authorized by the DoT for the purpose of providing connectivity for M2M services. The instructions from the DoT clarify that the ownership of all such M2M SIMs must be with the entity providing the M2M services. Further, in case of a sale or transfer of devices having M2M SIMs, the entity providing M2M services will be responsible for (i) intimating the telecom licensee(s) from which the M2M SIMs are obtained of the details of persons to whom such devices are transferred; and (ii) fulfilling the subscriber verification norms. The telecom licensees are also required to regularly update these details in their database.

[1] Machine to Machine (M2M) Communication Services means services offered through a connected network of objects/devices with identifiers in which Machine to Machine (M2M) communication is possible with predefined back end platform(s) either directly or through some gateway. ‘M2M Communication’ refers to a communication between two or more entities (object/devices/things) based on existing and evolving communication technologies that do not necessarily need any direct human intervention.

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Indian Telegraph Right of Way Rules, 2016

Published In:Inter Alia - Quarterly Edition - June 2018 [ English Chinese japanese ]

The DoT has, by way of a memorandum dated May 22, 2018, extended the benefit of the Indian Telegraph Right of Way Rules, 2016 (‘ROW Rules’) to Infrastructure Providers Category I (‘IP-1’), by clarifying that under clause 2(d) of the ROW Rules, the term “licensee” includes IP-1s authorised to establish and maintain assets such as dark fibres, right of way, duct space and tower for the purpose of granting the same on lease/ rent/ sale basis to the telecom services providers licensed under Section 4 of the Indian Telegraph Act, 1885 on mutually agreed terms and conditions.

The erstwhile ROW Rules did not cover IP-1s within the ambit of ROW Rules. However, the right of way was effectively permitted to IP-1s in their respective registration certificate(s) creating ambiguity. With the aforesaid clarification provided by DoT, this ambiguity has been removed.

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Clarification and Amendments regarding Internet Telephony

Published In:Inter Alia - Quarterly Edition - June 2018 [ English Chinese japanese ]

The DoT issued a clarification on June 19, 2018 stating that internet telephony service is an un-tethered service from the underlying access network and such service can be provided by access service provider to the customer using the internet services provided by other service providers. As a step further on this clarification, DoT has amended the telecom licenses, including the unified license, to incorporate certain provisions in relation to internet telephony service. Some of the salient features of the amendment are:

i. internet telephony calls originated by international out roamers from international locations need to be handed over at international gateway of licensed international long distance operators. The international termination charges must be paid to the terminating access service provider;

ii. the mobile numbering series should be used for providing internet telephony by a licensee. The same number may be allocated for cellular mobile service as well as internet telephony service;

iii. telecom licensees are required to comply with all the interception and monitoring related requirements as specified in the respective licence (as amended from time to time);

iv. IP address assigned to a subscriber for this service must conform to IP addressing scheme of Internet Assigned Numbers Authority; and

v. the licensees providing internet service may facilitate access to emergency number calls using location services. This is not a mandatory requirement presently.

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Blockchain & Cryptocurrency Regulation – 2019 | India

Published In:Blockchain & Cryptocurrency Regulation – 2019, 1st Edition [ ]

Introduction

In India, cryptocurrencies started gaining popularity since around 2013, when small scale businesses began accepting bitcoin as a form of payment. Since then, cryptocurrencies have grown into a means of investment evidenced by the emergence of cryptocurrency exchanges in India.
The first regulatory response in the context of cryptocurrencies was when the Reserve Bank of India (“RBI”) issued a press release – on December 24, 2013 (“Press Note 1”). The RBI (which is in charge of monetary policy, regulation of financial markets and exchange control related issues) was careful in terms of neither sanctioning, nor prohibiting, cryptocurrencies; rather, all that Press Note 1 constituted was a caution to users, holders and traders of ‘virtual currency’, of potential risks associated with cryptocurrencies.

Almost immediately after the issuance of Press Note 1, several bitcoin exchanges such as ‘Buysellbitco.in’ and ‘INRBTC’ temporarily shut operations. The Enforcement Directorate (“ED”, which enforces exchange control regulations) undertook raids on the proprietor of ‘Buysellbitco.in’ to examine if transactions being carried out on its platform violated foreign exchange control regulations.

While Press Note 1 and the ED’s actions caused a setback in the popularity of cryptocurrency transactions. This was only temporary; ultimately, cryptocurrencies weren’t banned or prohibited, and India witnessed a steady rise in transactions in cryptocurrency, tracking the global increase in similar activities.

The RBI released warnings similar in scope to Press Note 1 on February 01, 2017 (“Press Note 2”) and December 5, 2017 (“Press Note 3”) reiterating its caution, and went one step further to clarify that it (i.e. the RBI) has not provided any entity any license or sanction to transact with cryptocurrency.

It should be noted that the government does distinguish between bitcoin and its underlying technology, i.e., block chain. Despite the issuance of the press notes cited above, the RBI has issued a White Paper on ‘Applications of Block Chain Technology to the Banking and Financial Sector in India’ in January 2017, which views the application of block chain technology by banks favorably. The RBI has also indicated that it may create a domestic ledger platform involving National Payment Corporation of India similar to existing platforms (such as RTGS, NEFT and IMPS). Towards this end in particular, the RBI, in September 2017, announced that it has taken steps to create such a platform, and also filed three patent applications in this regard.

Along similar lines, the Indian Finance Minister, in his Budget Speech on February 1, 2018 stated that although the Indian government does not recognize bitcoin as legal tender, it does encourage the use of block chain technology in payment systems.

The Budget Speech is often cited as the precursor to the regulation on cryptocurrency in India, although it is certainly not the sole reflection of the Indian government’s attitude to cryptocurrency. Since RBI’s press releases, the government has constituted an inter-disciplinary committee (which includes representatives from the RBI) to examine (i) the present status of cryptocurrency in India and globally; (ii) the existing global regulatory and legal structures governing cryptocurrency; (iii) measures to address issues relating to consumer protection and money laundering.

These developments initially suggested a positive approach towards the regulation of cryptocurrency, in that it was expected, by some quarters at least, that the RBI and the government would officially permit the use of cryptocurrencies.

All that changed with RBI’s circular dated April 6, 2018 (“Circular”), as a result of which the dealing of cryptocurrency in India today has been substantially impeded. Through the Circular, the RBI banned all entitles regulated by it (i.e., banks, financing institutions, non banking financing institutions, payment system providers and the like) from dealing in, or facilitating any dealings in, cryptocurrencies. These entities were provided a three month period within which all accounts dealing with cryptocurrency would have to be shut down.

As a consequence, while the government has not per se banned cryptocurrency in India, it has certainly made it quite difficult for participants to conduct transactions by using traditional banking channels.

No other regulator in India has issued any directions concerning cryptocurrencies.

Press releases as recent as July, 2018, indicate that the government will clarify its stand on cryptocurrency and is working with various industry participants to issue detailed guidelines, although timing in this regard remains uncertain.

Indian Supreme Court on Cryptocurrency

Along with the executive contemplating regulation of cryptocurrency, several stakeholders have also approached the judiciary by filing petitions before the Indian Supreme Court (“SC”) in order to compel the government to provide clarity.

The two primary petitions seeking to address the legality of cryptocurrency were filed by (i) Vijay Pal Dalmia and Siddharth Dalmia through civil writ petition 1071 of 2017 on June 2, 2017 (“Dalmia Petition”), and (ii) Dwaipayan Bhowmick through civil writ petition 1076 of 2017 on November 03, 2017 (“Bhowmick Petition”).

The Dalmia Petition was filed against the Union of India (through the cabinet secretary), Ministry of Home Affairs, Ministry of Finance and the RBI (“Respondents 1”), seeking an order to direct Respondents 1 to “restrain/ ban the sale/ purchase of or investment in, illegal cryptocurrencies and initiate investigation and prosecution against all parties which indulged in the sale/ purchase of cryptocurrency.”

The grounds for the stated petition, as available on public sources, was based on (i) the anonymous nature of cryptocurrency transactions which makes it well-suited for funding terrorism, corruption, money laundering, tax evasion, etc.; (ii) production and introduction of new cryptocurrency being generated by private parties, without the intervention of the government, and hence violating the Constitution; (iii) use of cryptocurrency being in contravention of several laws such as FEMA and Prevention of Money Laundering Act, 2002; (iv) ransomware attacks having occurred through the use of bitcoin; (v) illegal cryptocurrency providing an outlet for personal wealth that is beyond restriction and confiscation; (vi) cryptocurrency exchanges encouraging undeclared and anonymous transactions making it difficult for government authorities to identify such transactions; and (vii) the fact that trading of cryptocurrencies permits players to bypass prescribed KYC norms.

The Bhowmick Petition was filed against the Union of India, Ministry of Finance, Ministry of Law and Justice, Ministry of Electronic and Information Technology, SEBI, RBI, Income Tax Dept. (through its secretary) and Enforcement Directorate (through its joint director) seeking an “issuance of direction to regulate the flow of bitcoins as well as requiring the constitution of a committee of experts to consider prohibition/regulation of bitcoins and other cryptocurrencies.”

The grounds for the petition, as reflected in public sources, inter alia include (i) bitcoin trading/ transactions, being unregulated, lack accountability; (ii) investigators can only track bitcoin holders who convert their bitcoin to regular currency; (iii) counterfeiting of cryptocurrency is not an issue so long as the miners keep the block chain secure; (iv) bitcoins may be used for trade and other financial activities without accountability, having an affect on the market value of other commodities; (v) conversion of bitcoin into foreign exchange does not fall under the purview of the RBI, making such transactions highly unsafe and vulnerable to cyber attacks; (vi) presently, no regulator has the power to track, monitor and regulate cryptocurrency transfers; (vii) cryptocurrency has the potential to support criminal, anti-social activities, like money laundering, terrorist funding and tax evasion; and (viii) use of cryptocurrency could result in widespread adverse financial implications if left unchecked.

Subsequent to the aforementioned petitions, certain industry participants have filed writ petitions challenging the constitutionality of the RBI’s Circular and reiterated the need for clarity on regulation. Other stakeholders, such as the Internet and Mobile Association of India have filed intervention applications in the Bhowmick Petition in order to draw attention to the impact that any restrictive regulation on cryptocurrencies may have to their businesses.

Till date, while the Supreme Court has admitted these petitions, the matters remain sub judice offering limited insight on the judiciary’s stance. Nevertheless, the arguments made (as publicy reported) indicate that there is a degree of acknowledgment that various risks are presented by the continuing lack of regulation around cryptocurrencies.

Is cryptocurrency valid currency in India?

The Indian Parliament has enacted (i) Reserve Bank of India, 1934 (“RBI Act”) regulating inter alia bank notes; and (ii) Coinage Act, 2011 (“Coinage Act”) regulating coins, and these remain the only statutes that define and recognize legal tender.

Per section 26 of the RBI Act, ‘every bank note shall be legal tender at any place in India for payment, or on account for the amount expressed therein, and shall be guaranteed by the Central Government.” The central government specifies and approves the denomination value, form and material of such bank notes and the RBI has the sole right to issue bank notes in the country. Similarly, section 6 (1) of the Coinage Act provides legal sanction to coins that are made of any metal or other material as approved by the Central Government. Bank notes and coins therefore encompass the entire universe of physical legal tender available in India.

Under the existing framework therefore, there is no sanction for cryptocurrencies as legal tender.

Is cryptocurrency a valid payment system in India?

In India, prepaid instruments and payment systems are regulated by the Payments and Settlement Act, 2007 (“PSSA”). Prior to the enactment of PSSA, a working group on electronic money set up by the RBI, issued a report in July 11, 2002 (“Report”), which defined electronic money as ‘an electronic store of monetary value on a technical device used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument.’

These products could be classified into two broad categories that is, (a) pre-paid stored value card (sometimes called “electronic purse” or “e-wallet”) and (b) pre-paid software based product that uses computer networks (sometimes referred to as “digital cash” or “network money”). It was highlighted that the stored value card scheme typically uses a microprocessor chip embedded in a physical device (such as a plastic card) while software based scheme typically uses specialized software installed in a personal computer.

The aforementioned definition may seem wide enough to include cryptocurrency in its scope. However, this must be read in conjunction with the PSSA which does not explicitly define electronic money, but regulates payment systems that affect electronic fund transfer. These payment systems include ‘systems that enable payment between a payer and beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange’. Such systems include credit cards, debit cards, smart cards, and money transfer operations.
In addition to the PSSA, the RBI has also issued the ‘Master Direction on Issuance and Operation of Prepaid Payment Instruments’ dated October 11, 2017 (“PPI Regulations’) that regulate prepaid wallets. Prepaid wallets may be issued by bank or non-bank entities to facilitate the purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments.

In order to fall under the purview of the above, the instrument in question must store some monetary value. Cryptocurrencies may not have any value stored on them and their value (if any) is contingent on market speculation. Consequently, their issuance are not likely to be construed as regulated electronic money, or a valid payment system, as is currently understood by Indian regulation. Consequently, associated compliance requirements such as obtaining RBI registration, the requirement to establish an entity incorporated in India, the requirement to comply with AML regulations etc. are not applicable.

Are cryptocurrency cross border trades, valid?

Cryptocurrencies are easily capable of being traded on a cross-border basis, and are generaqlly speaking exchangeable into fiat currency. Under the RBI Master Directions – Liberalized Remittance Scheme dated January 1, 2016, an Indian resident individual may remit up to USD 250,000 per year towards a permissible current or capital account transaction or both.

A permissible current account transaction includes inter alia remittance towards (i) private visits, business travel, or remittance by tour operators; (ii) fee for participation in global conferences and specialized training; (iii) remittance for participation in international events / competitions (towards training, sponsorship and prize money); (iv) film shooting; (v) medical treatment abroad; (vi) disbursement of crew wages, overseas education, remittance under educational tie up arrangements with universities abroad; (vii) remittance towards fees for examinations held in India and abroad and additional score sheets for GRE, TOEFL, etc; (viii) employment and processing, assessment fees for overseas job applications; (ix) emigration and emigration consultancy fees; (x) skills / credential assessment fees for intending migrants; (xi) visa fees, or processing fees required for registration of documents with other governments; (xii) registration / subscription / membership fees to international organizations.

A permissible capital account transaction includes inter alia remittance towards (i) investment in foreign securities; (ii) foreign currency loans; (iii) transfer of immovable property; (iv) guarantees; (v) export, import or holding of currency notes; (vi) loans and overdrafts; (vii) maintenance of foreign currency accounts overseas; (viii) insurance policies; (ix) capital assets; (x) sale and purchase of foreign exchange derivatives.

As is evident from the above, payments for cryptocurrency is not per se listed as a permitted activity. Nevertheless, it may have been possible for an individual to broadly declare the remittance of funds towards investments, without specifying that the intent was to invest in cryptocurrency. At present, given the financial blockage imposed by RBI’s Circular, if a banking institution were to examine the purpose of the remittance further or trace such remittance to its ultimate use, the individual may be held liable for violating foreign exchange regulations (at the very least, the banking institution in question would be unable to facilitate the transaction).

Closely associated with cross border transactions are anti-money laundering regimes that require periodic reporting and declarations being made prior to undertaking the transaction. While Indian money laundering regulations only apply to specific regulated entities such as banks, financial institutions, securities market intermediaries, etc., as a means to address concerns relating to money laundering, several cryptocurrency participants, such as cryptocurrency exchanges have imposed self regulatory measures such as complying with standard ‘know your customer’ obligations.

Conclusion

Regulatory uncertainty doesn’t seem to have hindered industry participants from applying creative alternatives to capitalize on the Indian cryptocurrency market. For instance, cryptocurrency exchanges are exploring the option of setting up a ‘peer to peer’ platform to act as an intermediary between entities trading in cryptocurrency. As a proof of concept, it can be argued that businesses in India are keen to adopt block chain and cryptocurrency, evidenced by various banks exploring the use of block-chain to facilitate cross border payments and large business houses contemplating issuing their own cryptocurrency.
Given the burgeoning market and technological potential, the Indian government is likely to seek to strike a balance in its approach. It will be interesting to witness whether the government recognizes the need of such technology by provisioning for regulation similar to the United States or Singapore governments that have imposed their taxation regime on cryptocurrency or, in the alternative, choose to nip this disruptive technology in the bud, like China, which has banned cryptocurrency.

Authors

1. Ashwin Ramanathan, Partner
2. Anu Tiwari, Partner
3. Rachana Rautray, Associate

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TRAI Notifies the Telecom Commercial Communication Customer Preference Regulation, 2018

Published In:Inter Alia - Quarterly Edition - September 2018 [ English Chinese japanese ]

On July 19, 2018, the Telecom Regulatory Authority of India (‘TRAI’) notified the Telecom Commercial Communication Customer Preference Regulation, 2018 (‘Customer Preference Regulations’) to curb the problem of unsolicited commercial communication (popularly known as ‘spam’). The Customer Preference Regulations, inter alia, provide for: (i) registration of senders (businesses and telemarketers) with telecom service providers to reducing the ability of unknown entities reaching customers with calls and messages that are fraudulent or otherwise of dubious nature; (ii) registration of headers, i.e. alphanumeric string of characters or numbers assigned to a sender of commercial communications for segregating different types of messages related to one time passwords, balance enquires, flight alerts, special offers, etc.; and (iii) complete control to the subscriber to consent to receiving commercial communication and the ability to revoke the consent already granted. Additionally, the concept of registered templates for both message service and voice communication has been introduced to prevent deliberate mixing of promotional messages into the transactional stream.

The salient features of these regulations also include the adoption of ‘distributed ledger technology’ (or blockchain) by telecom service providers to ensure regulatory compliance is carried out for sending commercial communication. Every telecom service provider is required to develop an ecosystem, with the prescribed functions, to regulate the delivery of the commercial communications to customers.

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TRAI amends the Telecommunication Interconnection Regulations

Published In:Inter Alia - Quarterly Edition - September 2018 [ English Chinese japanese ]

The TRAI on July 5, 2018, issued the Telecommunication Interconnection (Amendment) Regulations, 2018, inter alia, amending certain provisions under the Telecommunication Interconnection Regulations, 2018. The key amendments include the following: (i) a service provider may request any other service provider for additional ports at a point of interface (‘PoI’), if the projected utilisation of the capacity of such PoI at the end of 60 days from the date of placing the request, is likely to be more than 85%; (ii) the time-frame for provisioning of ports for initial interconnection and augmentation of ports at PoIs has been increased to 42 working days; (iii) every service provider is required to provide to the interconnecting service provider, at intervals of every six months, its forecast of busy hour outgoing traffic, for the succeeding six months, at each PoI, and the first such forecast is required to be provided within 60 days of the amendment and thereafter on April 1 and October 1 every year; and (iv) the port charges and infrastructure charges, for all ports provided before February 1, 2018 shall continue to be payable as per the terms and conditions which were applicable to them prior to February 1, 2018.

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Department of Telecommunication Introduces Guidelines for Grant of Unified License (Virtual Network Operators)

Published In:Inter Alia - Quarterly Edition - September 2018 [ English Chinese japanese ]

In 2016, the Department of Telecommunications (‘DoT’) had issued Guidelines for Grant of Unified License Virtual Network Operators (‘Unified License Guidelines’) to facilitate delinking of licensing of networks from the delivery of services. Under such guidelines, Category B licenses were issued with the validity of one year and subsequently extended from time to time.

By way of notification dated August 31, 2018, the DoT has issued revised guidelines for the grant of a new category of license to Virtual Network Operators (‘VNO’) viz. UL (VNO) Category B. A new application may be submitted by the existing Category B license holders within a period of six weeks from August 31, 2018, failing which such existing licenses will cease to exist. The new license shall be valid for a period of 10 years. The total amount of entry fee is required to be the cumulative entry fee of each authorization subject to a maximum of Rs. 75 million (approx. US$1.01 million).

The basic features of the licence includes: (i) treating VNOs as an extension of Network Service Operators (‘NSO’) or Telecom Service Providers, and not allowing them to install equipment interconnecting with the network of other NSOs; and (ii) enabling the applicant to apply for the license along with any one or more additional services such as internet services. Some key requirements under the revised guidelines for the grant of new license are: (i) the applicant must be an Indian company or a partnership firm or an organization registered under the relevant Shops and Establishment Act or a legal person for Access Services Category B license; (ii) one applicant can have only one licence; (iii) the total composite foreign holding in the applicant shall be governed by extant foreign direct investment policy; (iv) no restriction on the number of VNO licensees per service area; and (v) the following entities in the same service area should not have any beneficial interest in each other directly or indirectly: (a) VNO or its promoter(s) and another NSO (other than the VNO’s parent NSO) or its promoter(s); (b) VNO or its promoter(s) and another VNO or its promoter(s), authorized to provide access services using the access spectrum of NSO(s).

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Commencement of TRAI Tariff Order, Interconnection Regulations and Quality of Service Regulations for Broadcasting and Cable Services

Published In:Inter Alia - Quarterly Edition - September 2018 [ English Chinese japanese ]

As reported in March 2017 issue of Inter alia…, the Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable Systems) Tariff Order, 2017 (‘Tariff Order’) and the Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017 (‘Interconnection Regulations’) issued by TRAI on March 3, 2017, had been challenged in the Madras High Court by Star India and Vijay Televisions. Consequently, TRAI had suspended the implementation of the Interconnection Regulations, Tariff Order and the Telecommunication (Broadcasting and Cable) Services Standards of Quality of Service and Consumer Protection (Addressable Systems) Regulations, 2017 (‘QoS Regulations’). The validity of the Interconnection Regulations and the Tariff Order has now been upheld by the Madras High Court, other than with respect to the provisions imposing a cap of 15% on maximum discounts on bouquets of channels. As per TRAI’s Press Release dated July 3, 2018, the Tariff Order, Interconnection Regulations and QoS Regulations are now in force with effect from July 3, 2018 and accordingly, all timelines prescribed in the Tariff Order, Interconnection Regulations and QoS Regulations would be deemed to commence from such date.

However, do note that a Special Leave Petition filed by Star India in this regard is still pending before the Supreme Court.

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CCI Approves the Acquisition of 21 Century Fox by The Walt Disney Company

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English ]

On August 10, 2018, CCI approved the acquisition of Twenty-First Century Fox (‘21CF’) by The Walt Disney Company (‘TWDC’) (TWDC and 21CF are collectively referred to as ‘Parties’).[1] Notably, 21CF’s news, sports, broadcast businesses, including inter alia Fox News Channel, Fox Business Network, and certain other assets (‘Separated Assets’) were to remain with 21CF pursuant to the Proposed Combination.

For the purposes of its assessment, CCI identified the following overlapping product segments between TWDC and 21CF (‘Identified Overlaps’) in India and analysed the competitive scenario in each overlapping segment as follows and concluded that the Proposed Combination would not lead to AAEC in any of the Identified Overlaps.

i.       Production and supply of films to third-party distributors and exhibitors for theatrical release in India: CCI observed that this segment could be further sub-segmented on linguistic basis, however, it did not go to the extent of defining the exact relevant market. CCI observed that the combined market share of the Parties (in terms of gross box office receipt) had reduced from 60% – 65% in 2016 to 30% – 35% in 2017 for English films, and to 15% – 20% in 2017 from 35% – 40% in 2016 for Bollywood films. In this regard CCI observed the hit-driven nature of this segment. It also considered Parties’ market share in terms of top 5 grossing films across 15 years, which was 20% – 25%, and at par with Warner Bros, a significant player in this market. CCI also noted that Parties had insignificant market share at 0-5% for 2017 in the sub-segment of regional films. Further, the Parties also faced significant competitive constraints from existing large competitors.

ii.      Business of licensing of audio-visual content in India: CCI observed that Parties’ activities overlapped in the sub-segments of film-content rights, sports-content rights and non-film and non-sports rights, although, it did not define the exact relevant market. CCI observed that the Parties did not have significant business activities in these sub-segments, and TWDC at the moment was not active in the sub-segment of sports-content rights.

iii.     Business of operation and wholesale supply of TV channels: CCI observed that Parties’ activities overlapped in the sub-segments of films, kids, infotainment & Lifestyle, sports, Hindi general entertainment channels (‘GEC’), English GEC and Regional GEC, and music. CCI noted that in the sub-segments of films, infotainment & lifestyle, kids, Hindi GEC, and Regional GEC, the combined market share of the Parties was in the range of 25% – 35% and, further, in the sub-segments of music, English GEC, the market share was even lower and in the range of 0-5% and 15% – 20%, respectively.  It was further observed by the CCI, that in all these markets, the Parties would continue to face substantial competitive constraints from significant players.

iv.      Retail supply of Audio Visual Content in India: While assessing this segment, CCI observed that the Parties’ competed in the segment of supply of audio-visual content in India through over-the-top applications (‘OTT’) with a combined market share of 30% – 35%, but that TWDC only had a negligible presence. Further, CCI noted that the concerned segment was marked by the presence of numerous players such as Amazon Prime, Netflix etc. and therefore the Parties would remain competitively constrained.

v.       Supply of advertising airtime on TV channels in India: CCI observed that advertisements were not genre specific and that targets of advertisements (viewers) were largely genre agnostic. CCI observed that 21CF had a market share of 20% – 25% but TWDC had a much smaller share and, therefore, the Proposed Combination would have resulted in only an insignificant increment in market shares.

vi.      Supply of consumer products: CCI observed that the Parties were active in ‘character merchandising’ only by licensing of intellectual property (‘IP’), and that the combined market share of the Parties was insignificant in the segment.

vii.     Licensing of Music rights in India: CCI observed that both TWDC and 21CF had only insignificant market share in this segment.

viii.    Licensing of Publication Rights in India: CCI observed that both TWDC and 21CF license their intellectual property to third-party publishers who published non-academic books and magazines. It was observed that the Parties had insignificant market share in this segment.

Interactive Media in India: CCI observed that interactive media is a means of actively engaging with the customers by providing an interactive form of entertainment, which includes games, digital media etc. and the Parties were active in this segment through licensing of IP. However, the market share of the Parties was insignificant in this segment.

[1] Combination Regulations C-2018/07/582

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CCI Fines Film Associations Once Again

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English ]

On August 30, 2018, CCI imposed a penalty on Karnataka Film Chamber of Commerce (‘KFCC’), Kannada Okkuta (‘Okkuta’) and their officials for indulging in practices that were in violation of Section 3(1) and Section 3(3)(b) of the Act. [1]

The information was filed by Mr. G Krishna Murthy, a former member of KFCC (‘Informant’). As per the information, the Informant is engaged in the business of production and distribution of films in Karnataka and KFCC is a society of producers, directors, technical staff, distributors and exhibitors of Kannada films in the State of Karnataka and Okkuta is an unregistered organization formed for the protection of Kannada language and culture.  The Informant had alleged that KFCC and Okkuta had been consistently obstructing him from exhibiting and distributing, Tamil films namely, ‘Yennai Aridhal’ and ‘Sathyadev IPS’ (dubbed in Kannada) in the State of Karnataka. Further, KFCC and Okkuta had also threatened the Informant through social media and newspaper interviews, of retributive actions in the event that the films were released in theatres. In order to make his case, the Informant relied on CCI’s decision in Kannada Grahakara Koota and Anr. v. Karnataka Film Chamber of Commerce[2], penalizing KFCC for indulging in similar activities.  The Informant also relied on the Supreme Court’s order in Competition Commission of India v. Co-ordinated Committee of Artists and Technicians of W.B. Film and Television and Ors.[3]  that upheld CCI’s penalty on an organization analogous to KFCC, based out of West Bengal, for indulging in anti-competitive activities similar to the ones that were impugned in the information. Based on its prima facie opinion of a violation, CCI directed a the DG to investigate the matter through an order dated September 14, 2017 and the DG submitted a detailed investigation report (‘IR’) to CCI on April 04, 2018.

In its decision, CCI relied on various social media statements made by KFCC and Okkuta, including through the medium of Twitter, YouTube, statements of officials of KFCC and Okkuta, third party statements, and other evidence adduced by the DG to determine that KFCC and Okkuta had been making incendiary remarks directed towards the films dubbed by the information. Based on the same, CCI was of the opinion that KFCC, Okkuta and their officials had been acting in agreement (tacit) with the objective of restricting the distribution and exhibition of dubbed films in Karnataka. CCI further noted that such conduct was anti-competitive, as it reduced consumer choice and created entry barriers for films dubbed in languages other than Kannada.

More specifically, CCI relied on the fact that KFCC and Okkuta officials had organized a press meet right before the release date of ‘Sathyadev IPS’, with the intention of hampering the release of the Informant’s film. In this regard, CCI rejected the contention that the purpose of the press meet was not as was recorded in the IR, and observed that in such cases the general nature of press meets needs to be pierced through to see the purpose behind them. As per CCI, this press meet was the ‘connecting link’ that showed the unity of cause and a meeting of minds of KFCC and Okkuta officials, as was required under Section 3(3) of the Act.

CCI also rejected KFCC’s contention that the ban on dubbed films was justified in order to protect Kannada language and literature and to ensure livelihood for artists active in Kannada film industry. As per CCI, irrespective the cause, the impugned activity of banning and obstructing the release of dubbed films within Karnataka was in violation of Section 3(1) and Section 3(3)(b) of the Act. CCI reiterated that the presumption of AAEC under Section 3(3) was rebuttable, and observed that KFCC had failed to provide any justifiable basis for the impugned activities. Additionally, based on the abovementioned observations, CCI also concluded that KFCC had also been continuously violating the directions of CCI as specified in Kannada Grahakara Koota and Anr. v. Karnataka Film Chamber of Commerce[4] by way of its order dated July 27, 2015.

In its assessment of the penalty to be levied, CCI considered aggravating factors such as the fact that KFCC had consistently been violating the provisions of the Act and had been penalized by CCI on numerous occasions.[5] CCI also noted the fact that KFCC had failed in bringing out a competition compliance manual in abrogation of CCI’s order in Kannada Grahakara Koota and Anr. v. Karnataka Film Chamber of Commerce.[6] Accordingly, CCI imposed a penalty at 10% of the average of the income of KFCC, Okkuta and their officials for the past three years, respectively and also directed KFCC to bring out a competition compliance manual.

[1] Mr. G. Krishnamurthy v. Karnataka Film Chamber of Commerce (KFCC) & Others, Case No. 42 of 2017 (Order date August 30, 2018)

[2] Kannada Grahakara Koota and Anr. v. Karnatake Film Chamber of Commerce, Case No. 58 of 2012 (Order dated July 27, 2015)
[3] Competition Commission of India v. Co-ordinated Committee of Artists and Technicians of W.B. Film and Television and Ors., Civil Appeal No. 6691/2014
[4] Kannada Grahakara Koota and Anr. v. Karnatake Film Chamber of Commerce, Case No. 58 of 2012 (Order dated July 27, 2015)
[5] Case Nos. 25, 41, 45, 47, 48 of 2010; Case No. 56 of 2010 and Case Nos. 56 and 71 of 2011
[6] Kannada Grahakara Koota and Anr. v. Karnatake Film Chamber of Commerce, Case No. 58 of 2012 (Order dated July 27, 2015)

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CCI Dismisses Allegations of Abuse of Dominance Against a Trading and Distribution Company of Mobile Handsets

Published In:Inter Alia Special Edition Competition Law Third Quarter 2018 [ English ]

On October 4, 2018, CCI dismissed allegations of abuse of dominance against Fangs Technology Private Limited (‘OP 1’) and Vivo Communication Technology Company (‘OP 2’) with respect to certain clauses in a VIVO Distributorship Agreement (‘Agreement’) entered into by the OP 1 with its distributors.[1]

The distributors are members of Tamil Nadu Consumer Products Distributors Association (‘Informant’) which is registered under the Tamil Nadu Society Registration Act, 1975. The Informant pointed out several concerns with regards to the clauses of the Agreement, inter alia that the conditions imposed were unfair and unreasonable for the distributors, resulting in foreclosure of competition by creating barriers to new entrants. The Informant also alleged that the Agreement prohibited the distributors from doing business in Oppo and Honor brand of mobile phones. Thus, the Informant alleged that the conduct of the OPs was in violation of Section 3 (4) and Section 4 of the Act.

While assessing the allegations of abuse of dominance, CCI defined the relevant market as ‘market for smartphones in India’. Placing reliance on the GFK Report (‘Report’), prepared by GfK SE (Germany’s largest market research institute) for the year 2017-18, it was observed that the market for smartphones in India is highly competitive with several players. Moreover, the Report indicated that the brand share of Vivo in the Indian market declined from 14.4% to 12.1% during this period. Additionally, CCI observed that other competitors in the market such as Samsung and Xiaomi held close to 33% and 16.6% respectively. As a result, CCI opined that OP 1 is not dominant in the relevant market. In the absence of dominance, no case can be made against OP 1 in violation of Section 4 of the Act.

With regard to the allegation of resale price maintenance (‘RPM’) under provisions of Section 3(4) of the Act, CCI observed that the Informant had not submitted any evidence to prove that OP 1 has imposed RPM on the Informant. CCI also observed that there exists high inter-brand competition in the smartphone market in India. On this basis, CCI held that OP 1 does not have the significant market power required to impose anti-competitive vertical restrictions. In addition, CCI opined that the restriction imposed by the Agreement on doing business with Oppo and Honor was justified on the ground that it was to avoid leakage of intellectual property of Vivo. CCI also justified some of the other contentious clauses of the Agreement as being reasonable restrictions imposed by OP 1. Therefore, CCI ordered the matter to be closed under Section 26(2) of the Act.

[1] Case No. 15 of 2018 (Order dated October 4, 2018)

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Competition Commission of India Orders Probe Against Star India, Sony Pictures and Indian Broadcasting Foundation

Published In:Inter Alia Special Edition Competition Law October 2018 [ English ]

On July 27, 2018, CCI directed the DG to investigate allegations against Star India Pvt. Ltd. (‘Star India’), Sony Pictures Network India Pvt. Ltd. (‘Sony Pictures’) and Indian Broadcasting Foundation (‘IBF’) (collectively, ‘Broadcasters ’) for engaging in unfair business practices with regard to pricing of television channels.

Information was filed by Noida Software Technology Park Ltd. (‘NSTP’), a public limited company, which is a ‘distributor’ of television channels, has been issued a license to establish, install, operate and maintain Head-End In The Sky (‘HITS’) project for digital cable services in India. NSTP alleged collusion between the Broadcasters in determining prices and supply to distributors in contravention of Section 3(3) of the Act. It also alleged (i) price discrimination by Broadcasters in the supply of television content to it in comparison to similarly placed Multi System Operators (‘MSOs’)/distributors/ operators under Section 4 of the Act; and (ii) anti-competitive vertical agreements under Section 3(4) of the Act in the form of ‘refusal to deal.’

CCI rejected allegations under Section 4 of the Act against the Broadcasters, holding that the Act does not envisage the concept of ‘collective dominance.’ Absent credible evidence, CCI found allegations of collusion as being conjecture. CCI specifically held that forming an association or taking a favourable stand by such association before a regulatory authority cannot, in and of itself, be deemed anti-competitive. CCI also noted the lack of evidence re exchange of business sensitive information amongst Broadcasters. On this basis, CCI dismissed allegations of a cartel under Section 3(3) of the Act.

To examine whether the alleged conduct may be scrutinized as a potential vertical anti-competitive arrangement under Section 3(4) of the Act, CCI clarified that the Broadcasters market power would need to be considered in a relevant market. While acknowledging that narrower markets on the basis of genres and regional preferences may exist, CCI identified the relevant market as the “market for broadcasting of television channels in India”.

While noting that the Broadcasters did not hold significant market shares in the identified relevant market, particularly as there existed over 500 channels, CCI nevertheless found that the Broadcasters enjoyed ‘significant market power’ in the relevant market of ‘sports’ and ‘entertainment’ genre in India. Relying on (i) the size and importance of the Broadcasters as compared to their competitors; (ii) commercial advantage over competitors; and (iii) consumer dependence as a result of their extensive channel portfolio in the sports and entertainment genre, CCI was of the preliminary opinion that the Broadcasters had sufficient market power.

Having determined that Broadcasters enjoyed sufficient market power, CCI turned to examining allegations of price discrimination. It was alleged that Broadcasters made disparate payments in the form of ‘carriage fees’ (to carry channels) and ‘placement fee’ (to place channels at prominent positions) to their ‘favoured’ distributors. Allegedly, these fees were often greater than the license fee ordinarily charged to distributors that significantly reduce costs for such ‘favoured’ distributors’ vis-à-vis others. While Broadcasters made channels available on an a-la-carte basis, the terms at which they were offered, including pricing, made the choice between a bouquet of channels and a-la-carte illusory.

Relying on the decision of the Telecom Disputes Settlement and Appellate Tribunal (‘TDSAT’)[1], CCI opined that despite regulatory oversight, Broadcasters had the ability to discriminate amongst distributors. CCI rejected the Broadcasters’ contention that the very offer of channels at rates mentioned in the Reference Interconnect Offer (‘RIO’) (in Interconnect Agreements filed with the Telecom and Regulatory Authority (‘TRAI’)) negates allegations of ‘refusal to deal’. However, referring to observations of the TDSAT and TRAI’s issuance of new regulations to ensure non-discrimination, CCI was of the prima facie opinion that the RIO terms by Broadcasters may well qualify as a mechanism for refusal to deal in contravention of Section 3(4)(d) of the Act.

Finally, responding to the Broadcasters’ challenge of CCI’s jurisdiction to take cognizance of information, CCI held that its powers are in addition to, and not in derogation of, TRAI’s mandate to regulate Broadcasters. CCI also noted that as TDSAT and TRAI have decided the matter fully and recognized that Broadcasters had engaged in the practice of price discrimination/ refusal to deal, nothing precluded it from taking cognizance of this matter.

[1] M/s Noida Software Technology Private Limited v. M/s Media Pro Prvt. Ltd. & Ors. (Petition No. 295 (C)/ 2014 decided on 07 December 2015

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DoT prescribes Minimum Requirement for Security Policy of DoT Licensees

Published In:Inter Alia - Quarterly Edition - December 2018 [ English Chinese japanese ]

The Department of Telecommunication (‘DoT’) has, by way of notification dated September 26, 2018, issued instructions to all licensees in relation to the minimum requirements for security policy of DoT licensees. These requirements are applicable for telecom networks and systems holding customer’s data including the endpoints through which such infrastructure and information is accessible.

The security policy at the minimum must include provisions in relation to, inter alia: (i) responsibility of the management; (ii) designation of chief security officer(s) for network security and information security; (iii) implementation of security risk management system; (iv) periodic evaluation of the information security performance and effectiveness of the security management; (v) provision of periodic training and awareness programs; (vi) ensuring adequate storage, protection and availability of the security policy, recruitment process, and employee’s record including permanent and local addresses and their pre-employment references, etc. The notification clarifies that the licensees should have further provisions, in addition to the minimum requirements set out in the notification, as a part of their security policy to enhance security as deemed fit, since network security is the responsibility of the licensees. The licensees have been given a period of one year to fully implement these requirements. Further, these guidelines are subject to review after every two years or on need basis.

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Inclusion of the Net-Neutrality provision in License Agreements

Published In:Inter Alia - Quarterly Edition - December 2018 [ English Chinese japanese ]

The DoT has, recently amended the terms of UL(VNO) agreement, Cellular Mobile Telephone Service license agreement and Unified Access Service license agreement to include the regulatory framework on ‘Net Neutrality’. Pursuant to these amendments, the telecom licensees are not permitted to engage in discriminatory treatment of content, including any discrimination based on the sender or receiver or the user equipment. The licensees have been expressly prohibited from entering into any arrangement or agreement with any person that has the effect of discriminatory treatment of content. In the context of these restrictions, the DoT has prescribed an inclusive definition for ‘content’ to include all content, applications, services and any other data or end-point information that can be accessed or transmitted over the internet. Further, for the purposes of these restrictions, ‘discriminatory treatment’ has been defined to include blocking, degrading, slowing down or even grant of preferential speeds or treatment to any content. The amendments clarify that the aforesaid restrictions will not apply to ‘specialized services’ i.e. services other than internet access service that are optimized for specific content, protocols and user equipment wherein such optimization is necessary to meet the specific quality of service requirements.

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Commencement of TRAI Tariff Order, Interconnection Regulations and Quality of Service Regulations for Broadcasting and Cable Services

Published In:Inter Alia - Quarterly Edition - December 2018 [ English Chinese japanese ]

As reported in the September 2018 issue of Inter alia, the validity of the Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable Systems) Tariff Order, 2017 (‘Tariff Order’) and the Telecommunication (Broadcasting and Cable) Services Interconnection (Addressable Systems) Regulations, 2017 (‘Interconnection Regulations’) issued by the TRAI on March 3, 3017 had been upheld by the Madras High Court. Consequently, the Tariff Order, the Interconnection Regulations and the Telecommunication (Broadcasting and Cable) Services Standards of Quality of Service and Consumer Protection (Addressable Systems) Regulations, 2017 came into effect from July 3, 2018. Subsequently, Star India preferred an appeal before the SC against the Madras High Court judgement arguing, inter alia, that the Tariff Order and the Interconnection Regulations regulated the content of the transmission, which was solely within the ambit of the Copyright Act, 1956 and fell outside the jurisdiction of the TRAI. The SC, by its judgment dated October 30, 2018, upheld the jurisdiction of the TRAI to regulate the content of transmission in light of the larger public interest involved and upheld the validity of the Interconnection Regulations and the Tariff Order in their entirety.

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Supreme Court Rejects Appeal on Cartel Investigation against Airtel, Vodafone and Idea

Published In:Inter Alia Special Edition Competition Law December 2018 [ English ]

On December 5, 2018 the SC dismissed CCI’s appeal against an order of the Bombay High Court (‘BHC’) setting aside CCI’s order directing the DG to investigate allegations against Bharti Airtel Limited, Vodafone India Limited, Idea Cellular Limited (‘IDOs’) and the Cellular Operators Association of India (‘COAI’) (‘Impugned Order’).[1]

It was alleged that IDOs had cartelized to deny Reliance Jio Infocomm Limited (‘RJIL’) entry in the telecom sector by not providing it adequate Points of Interconnection (‘POIs’), resulting in calls failures between RJIL and other networks. POIs are “points between two network operators which allot voice calls originating from the work of one operator to terminate on the network of the other operator.” Further, a smooth connectivity amongst different telecom service providers is ensured by unified licenses, which put an obligation over the telecom service providers to interconnect with each other on POIs. This is subject to compliance of regulations and directions issued by the Telecom Regulatory Authority of India (‘TRAI’).

Meanwhile, RJIL had also filed letters to the TRAI complaining against the conduct of the IDOs. It was alleged by RJIL that IDOs were inter alia denying mobile number portability (‘MNP’) to customers who wanted to switch to RJIL, and that the COAI was acting against RJIL at the behest of the IDOs.

On the basis of four separate writ petitions filed before it, the BHC set aside the Impugned Order on September 21, 2017. The BHC had held that the telecom sector is governed, regulated and controlled by certain special authorities i.e. the TRAI Act and the Indian Telegraph Act, 1885 (‘Telegraph Act’), and CCI does not have the jurisdiction to deal with interpretation or clarification of inter alia contract clauses, unified license, interconnection agreements, quality of services regulations, which are to be settled by the TRAI/ Telecom Disputes Settlement and Appellate Tribunal. The BHC further held that the powers of CCI are not sufficient to deal with the technical aspects associated with telecom sector which solely arise out of the TRAI Act.

The SC held upheld the BHC’s finding that the relevant market in the present case being the telecom market, was therefore regulated by the statutory regime under the TRAI Act. The TRAI Act establishes the TRAI as the regulator exercising supervision and control and providing guidance to the telecom market, and telecom service providers are bound by license agreements between the central government and the service providers. Further, the functioning of telecom operators, who are granted license under Section 4 of the Telegraph Act, is regulated by the provisions in the TRAI Act.

TRAI’s functions include: (i) ensuring technical compatibility and effective inter-relationship between different service providers; (ii) ensuring compliance of license conditions by all service providers; and (iii) settlement of disputes between service providers. In this regard, the SC noted that RJIL’s disputes were captured within TRAI’s functions. Moreover, RJIL had also specifically approached the TRAI for settlement of these disputes.

The SC further stated that unless the TRAI were to find fault with the IDOs on the allegations raised by RJIL, the matter could not be taken further even if one were to assume that CCI has the jurisdiction to deal with the matter.

The SC also noted that if CCI were allowed to investigate matters that are already being decided by the TRAI, it may lead to conflicting views being given by the two bodies. However, the SC also noted that TRAI does not have the exclusive jurisdiction to deal with competition law issues in the telecom sector. The specific purposes of the TRAI Act and Competition Act have to be kept in mind before deciding on jurisdiction; while CCI has the sole jurisdiction to address allegations of anti-competitive agreements, and investigating against cartels, a comity has to be maintained between CCI and TRAI’s roles in the present case. Therefore, once the TRAI deals with the issues of RJIL with a prima facie finding of cartelization between the IDOs, the CCI would be allowed to investigate the case.

Separately, while discussing the decision in Competition Commission of India v. Steel Authority of India Limited (‘SAIL’), the SC disagreed with the BHC’s conclusion that the Impugned Order is quasi-judicial. The SC held that a jurisdictional challenge is maintainable in writ petitions even against an administrative order. However, given that the Impugned Order is administrative in nature i.e. it only contemplates a direction to the DG to investigate, the SC held that BHC would not be competent to adjudge the validity of such an order on merits.

In light of the above, the SC upheld the BHC’s direction to set aside the Impugned Order passed by the CCI.

[1] Civil Appeal No(s). 11847-11851 of 2018.

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CCI Dismisses Yet another Allegation of Contravention of Section 3 of the Act against Cab Aggregators Ola and Uber

Published In:Inter Alia Special Edition Competition Law November 2018 [ English ]

On November 6, 2018, CCI dismissed the information filed by Mr. Samir Agrawal against ANI Technologies Private Limited (‘Ola’), Uber India Systems Private Limited (‘Uber’), Uber B.V. Amsterdam, Netherlands (‘Uber B.V.’) and Uber Technologies Inc., San Francisco, U.S.A (‘Uber Technologies’).[1] The information alleged violation of Section 3 of the Act by Ola and Uber. The information had three allegations and they were considered and decided by CCI in the following manner:

(i)      It was alleged that Ola and Uber were acting as ‘hubs’ for their respective drivers (the ‘spokes’) and colluding on prices. More specifically, it was alleged that Ola and Uber were using their respective pricing algorithms to fix prices between their drivers thereby facilitating a cartel in contravention of Section 3 of the Act. It was contended that absent the pricing algorithm, drivers would compete on prices which, in turn, would prevent them from commanding high prices (as calculated by the algorithm). CCI dismissed these allegations and held that for a ‘hub and spoke cartel’ to exist: (i) the ‘spokes’ must use a third party platform (or, ‘the hub’) to exchange sensitive information, including information on prices which can facilitate price fixing; and (ii) there needs to be a conspiracy to fix prices, which requires existence of collusion. CCI then noted that although the drivers may have acceded to the algorithmically determined prices by the platform (Ola/Uber), it did not amount to collusion between the drivers. CCI also did not find any agreement between the drivers per se on the basis of which they delegated pricing decisions to the platform. Instead, ride prices were determined by algorithms using multiple factors for each rider (time of the day, traffic situation, special conditions/events, festival, weekday/weekend) to determine the demand/supply.

(ii)      It was also alleged that Ola/Uber and its drivers are in a vertical relationship. As per this relationship, Ola/Uber impose a floor price on drivers, creating a resale price mechanism (‘RPM’) in contravention of Section 3(4)(e) of the Act. Drivers have no liberty to reject prices calculated by Ola/Uber’s algorithm or offer their services at a price lower than the said price. CCI rejected this allegation on the grounds that Ola/Uber do not resell a service, which is an essential ingredient for an RPM allegation. There is an agency relationship and a single transaction takes place between a rider and Ola/Uber. In this single transaction, the drivers are paid for the ride after Ola/Uber deducts their commission. CCI also held that the centralized pricing mechanism adopted by Ola/Uber allows for adjustment and optimization of prices based on multiple factors. It held that this cannot be viewed as a vertical instrument employed to orchestrate price-fixing cartel amongst the drivers.

(iii)    It was alleged that the cab aggregators possess considerable personalized information about every rider and use it to price discriminate amongst riders. CCI dismissed this allegation and referred to its earlier decisions (Fast Track Call Cab and Meru v ANI Technologies[2] and Meru v ANI Technologies[3]), stating that Section 4 the Act (the only provision where a price discrimination allegation may be examined) does not recognize the concept of ‘joint or collective dominance’. CCI also noted that the information did not allege Ola/Uber to be in a dominant position in the market.

Additionally, CCI distinguished Ola/Uber applications from other platform applications like Airbnb, Trivago and Zomato etc., by observing that unlike these applications, riders on Ola/Uber have no material information or preference about drivers available in their area of demand. CCI relied on its earlier decision in Fast Track Call Cab and Meru v ANI Technologies[4] and ECJ’s decision in Asociación Profesional Élite Taxi v Uber Systems Spain SL[5], to hold that Ola/Uber were not pure platforms like Airbnb, Trivago and Zomato, but qualified as ‘radio taxi operators’ or ‘transport service companies’. CCI held that Ola/Uber were not limited to intermediating between drivers and also acted as service providers.

[1] Case No. 37 of 2018.
[2] Case Nos. 6 &74 of 2015.
[3] Case Nos. 25, 26, 27 & 28 of 2017.
[4] Case Nos. 6 &74 of 2015.
[5] Case C‑434/15

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CCI Dismisses Allegations of Abuse of Dominance against M/s Indus Towers by BSNL

Published In:Inter Alia Special Edition Competition Law November 2018 [ English ]

On November 9, 2018, CCI dismissed information filed by Bharat Sanchar Nigam Limited (‘BSNL’) against M/s Indus Towers Limited (‘Indus’), alleging violation of Section 4(2)(a)(ii) and Section 4(2)(e) of the Act.[1] Indus and BSNL had entered into an Infrastructure Sharing Agreement (‘ISA’) on September 9, 2008 for provision of existing and viable telecom tower sites (‘Sites’) to BSNL on mutually agreed terms under the ISA. BSNL had alleged that Indus was abusing its dominant position in the infrastructure provider market by refusing to provide existing viable Sites to BSNL as required under the ISA.

CCI determined the relevant market as the ‘market for provision of passive infrastructure services to telecom service providers in Kolkata Circle’ since: (i) the market for active infrastructure provider is not substitutable with passive infrastructure provider; and (ii) the demand for passive infrastructure varied from circle to circle.

The CCI observed that Indus’s market share during 2016-2018 was 60.06 – 63.80%. Considering Indus’s market share, the CCI held that Indus was dominant in the relevant market for provision of passive infrastructure services to telecom service providers in Kolkata Circle. However, CCI dismissed the information filed by BSNL on the following grounds:

(i)      there were unresolved contractual issues between Indus and BSNL which were germane for provision of the services;
(ii)     BSNL had failed to show any instance where Indus had not agreed to provide the Sites;
(iii)   it was BSNL who had not provided the required information in the prescribed format (and it was aware of the format that had to be used for placing a valid Site request); and
(iv)    Indus had fulfilled its obligations under the agreed terms of the ISA.

[1] Case No. 10 of 2018.

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CCI Dismisses Allegations of Abuse of Dominance and Contravention of Section 3 of the Act against Oppo

Published In:Inter Alia Special Edition Competition Law November 2018 [ English ]

On November 8, 2018, CCI dismissed the information filed by M/s K. C. Marketing (‘K.C. Marketing’) against OPPO Mobile MU Private Limited (‘Oppo’) under Section 3 and 4 of the Act.[1]

K.C. Marketing, a proprietorship firm in Pune, entered into a sub-super mobile distributorship agreement dated July 1, 2016 (‘SSMD Agreement’), with Oppo as the exclusive sub-super mobile distributor of their brand’s mobiles in south and central Maharashtra. Oppo is engaged in the business of trading and distribution of mobile phones and accessories under the brand name ‘OPPO’ in India. It was alleged that certain clauses of the SSMD Agreement restricted K.C. Marketing from selling OPPO products online and outside the sales region of K.C. Marketing (as defined in the SSMD Agreement). For violation of these clauses, Oppo imposed certain specified penalties on K.C. Marketing as provided in the Agreement. It was also alleged that Oppo had illegally charged certain other costs which were not required under the SSMD Agreement and had failed in paying dues.

Since Oppo only manufactured and sold smartphones, the relevant market was defined by CCI as ‘smartphones in India’. CCI considered the market shares of Oppo (10 – 13% in 2017-2018), as well as the combined market shares of Oppo’s group company – BBK Electronics, a Chinese consumer electronics manufacturer owning other brands under the name of ‘Vivo’ and ‘OnePlus’. CCI concluded that the combined market shares of BBK Electronics make it a significant player, but still not dominant in the defined relevant market. CCI also observed that the allegations regarding abuse of dominance by stopping supply and charging amounts beyond what is provided under the SSMD Agreement are unsubstantiated.

Further, CCI dismissed the allegations of violation of Section 3(3) of the Act based on restrictions against selling products online and outside demarcated sales region. The reason cited by CCI for this was the established jurisprudence under Section 3(3) of the Act which restricts it to agreements between parties involved in ‘identical or similar trade of goods or provision of services’. CCI held that since the relationship between Oppo and K.C. Marketing is not in ‘identical or similar trade of goods or provision of services’, violation of Section 3(3) cannot exist. CCI also examined the conduct of Oppo under Section 3(4) of the Act and concluded that for violation of Section 3(4) of the Act, an analysis of the factors to determine appreciable adverse effect in India as provided under Section 19(3) of the Act is necessary. After considering the factors under Section 19(3) of the Act, CCI concluded that Oppo had not violated Section 3(4) of the Act by restricting the sales region of K.C. Marketing. It also held that there is no violation of Section 3(4) of the Act by restricting sales of the product online since OPPO mobiles are freely available in the market at competitive prices on all major websites.

[1] Case No. 34 of 2018.

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CCI Dismisses Allegations against Laxven Systems and Medha Servo Drives for Contravention of Section 3

Published In:Inter Alia Special Edition Competition Law February 2019 [ English ]

On January 2, 2019, CCI dismissed allegations of contravention of Section 3 of the CA02 filed by Chief Materials Manager/Sales of Eastern Railway against M/s Laxven Systems (‘Laxven’) and M/s Medha Servo Drives Private Limited (‘Medha’). [1]

Pursuant to delisting of certain vendors from a tender issued for procurement of ‘Microprocessor Control and Fault Diagnostics System for Electric Locos’, it was alleged by the informant that the remaining 2 parties i.e. Laxven and Medha, were acting as a cartel where Laxven decided not to participate in the tender resulting in a monopoly and the quotation of a high price by Medha. Further, Laxven also did not participate in other contemporaneous tenders floated for procurement of a similar item by other railway zones. The resulting monopoly led to a situation where the informant had no other option but to accept Medha’s high rate which it did not reduce even after negotiation.

CCI perused the technical specifications prescribed by Research Designs and Standard Organisation (‘RDSO’) for procurement of such instruments/machinery related to the tender and the minutes of the tender committee meeting. CCI noted that the tender specifications per RDSO’s specifications change with every tender. Further, the minutes of the meeting showed that Laxven did not have the required technology to manufacture the instrument related to the tender. The minutes of the meeting also noted the statements made by the technical member of the committee who clarified that the item to be produced under the said tender involved many changes in the software and hardware resulting in a significant increase of manufacturing costs compared to that quoted in previous tenders. Therefore, CCI dismissed the allegations against Laxven and Medha noting that the informant had failed to substantiate its case.

[1] Reference Case Number 6 of 2018.

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CCI Approves Acquisition by Integral Corporation from Toyo Engineering Corporation

Published In:Inter Alia Special Edition Competition Law February 2019 [ English ]

On December 19, 2018, CCI approved subscription to optionally convertible preferential stock (without voting rights) amounting to 34.65% of shares of Toyo Engineering Corporation (‘Toyo’) by Integral Corporation (‘Integral’) pursuant to the execution of a share subscription agreement dated November 28, 2018. Integral also acquired a right to appoint two nominee directors in Toyo. [1]

Integral, a Japanese private equity firm based in Tokyo, is engaged in making long-term equity investments and providing support to investee companies in terms of management and finance. In India, Integral is present through its stake of 29.2% shares of Ohizumi Manufacturing Company Limited, a Japanese corporation which is engaged in manufacture and sale of electronic parts and electronic equipment/devices such as thermistors which are primarily used for measurement and control of temperature. Toyo is a Japanese engineering, procurement and construction (‘EPC’) company engaged in the provision of EPC services and R&D support, design, engineering, procurement, construction, commissioning and technical assistance for industrial facilities. It provides EPC services in various sectors such as oil & gas development, petrochemicals, chemicals and biotechnology. In India, Toyo is present through its subsidiary namely Toyo Engineering India Private Limited which is also engaged in providing EPC services in India.

In its competition assessment, CCI observed that there is no horizontal overlap or vertical relationship between the activities of the parties. Therefore, CCI approved the combination as it was unlikely to have any AAEC in India.

[1] Combination Registration Number C-2018/12/619.

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