2013 (5) TMI 681 - Commission - Companies Law

Abuse of Dominant position - (Apple/Airtel/Vodafone) - distribution/ sales arrangement between Apple and Airtel/Vodafone - violation of Section 4 r.w.s. 3 of the Competition Act, 2002 - Price bundling strategy - secret exclusive contracts/agreements for sale of iPhone in India, even prior to its launch as a result of which an exclusive selling rights has been gained for undisclosed number of years - Informant has categorically claimed that the information is in regard to a particular variant of iPhone - 3G/3GS, manufactured by OP1, an American multinational corporation that designs and markets consumer electronics, computer software and personal computers - Held that - As it is found that a consumer interested in buying an iPhone is tied to one of the two mobile networks i.e. Airtel or Vodafone. It is worth noting that at the time of launch of iPhone in India, Apple did not have an outlet to sell its iPhone, a high-end smartphone. Instead of investing money on creating sales and service outlet and incurring advertisement expenditure, Apple s strategy was to have tactical agreement with network operators, possibly the best partners for selling mobile handsets. This arrangement also helped Apple in gauging the public perception for iPhone before actually selling iPhone through its own retail stores. The mobile network companies who spent money on creating distribution channel and incurring advertisement expenditure wanted the iPhone to be locked-in for some period so that they would be able to recoup their investment over a period of time. To assess the alleged anti-competitive effect of the tie-in arrangement between Apple and Airtel/Vodafone in line with Section 19(3), the Commission relying on the market share statistics of smartphones in India provided by the DG observed that Apple had a share of less than 6% in the market of smart phones during the period 2008-11. Furthermore, share of GSM subscribers using Apple iPhone to total GSM subscribers in India is miniscule (less than 0.1%). Similarly,data provided on mobile service provider, no operator has more than 35% market share in an otherwise competitive mobile network service market. As none of the impugned operators (OP3 / OP4) have market-share exceeding 30%, that smartphone market in India is less than a tenth of the entire handset market and that Apple iPhone has less than 3% share in the smartphone market in India, it is highly improbable that there would be an AAEC in the Indian market. A consumer having a mobile handset (smartphone or otherwise) is free to exercise his choice for availing network services without any restrictions. Furthermore, the network operators do not require any particular handset to be purchased by the customer in order to avail its network services. Moreover, the lock-in arrangement of iPhone to a particular network was for only for a specific period and not perpetual, a fact known to prospective customer. It is difficult to construe consumer harm from the tie-in arrangement between the opposite parties. The Commission observes that there is no restriction on consumers to use the network services of OP3 and OP4 to the extent that the network services can be availed on any mobile handset, even an unlocked iPhone purchased from abroad. Also, a consumer who has purchased a locked iPhone in India and paid the unlocking fees is free to choose the network operator of his choice. Thus none of the OPs have a position of strength to affect the market outcome in terms of market foreclosure or deterring entry, creating entry barriers or driving any existing competitor out of the market and within the theoretical framework of tying arrangement, the anti-competitive concerns in terms of section 3(4) violations does not hold. On the other hand, Commission has reasons to believe that the distribution arrangement between the impugned parties helped create a market for iPhone in India wherein domestic consumers got an opportunity to purchase a contemporary handset which was otherwise available through the grey market. Thus no evidence to show that entry-barriers have been created for new entrants in the markets i.e. smartphone market and mobile services market by any of the impugned parties. Similarly, nothing has been brought to the notice of the Commission to reveal that existing competitors have been driven out from the market or that the market itself has been foreclosed. Under these circumstances Commission opines that there is no anti-competitive effect of the tie-in arrangement as alleged by the Informant or dominant position in their respective relevant market to establish violation of Section 4(2), (a), (b), (c), (d) and (e). No appreciable adverse effect on competition in the market of smart-phones and/or mobile service has been established, there is no contravention of Section 3 (4) of the Act. Accordingly, the case is ordered to be closed.

Summary

Issues Involved:
1. Jurisdiction of the Competition Commission of India (CCI)
2. Anti-competitive agreements and abuse of dominant position by the opposite parties (OPs)
3. Applicability of the Competition Act to events predating its notification
4. Discontinuance of certain practices and their relevance
5. Credentials and locus standi of the Informant

Detailed Analysis:

Jurisdiction of CCI
The CCI addressed the jurisdictional objections raised by the OPs, particularly Airtel and Vodafone, who argued that the Telecom Regulatory Authority of India (TRAI) Act should govern the dispute. The CCI clarified that competition issues arising from the activities of cellular service providers fall within the ambit of the Competition Act under Section 62. The CCI also referenced the Bombay High Court decision in Kingfisher Airlines Ltd. v. CCI, which established that the Act covers agreements entered into prior to its commencement if their effects continue post-enforcement.

Anti-competitive Agreements and Abuse of Dominant Position
The Informant alleged that OP1 (an American multinational corporation) and its Indian subsidiary OP2 had entered into secret exclusive agreements with OP3 and OP4 (leading mobile service providers in India) for the sale of iPhones. These agreements allegedly resulted in the iPhones being locked to OP3 and OP4's networks, compelling consumers to use specific, more expensive data plans and limiting their ability to switch service providers.

Investigation of Section 3 Violation:
The Director General (DG) found that while Apple had entered into distribution agreements with Airtel and Vodafone, these agreements were not exclusive and were for a specified period of two to three years. The DG concluded that these agreements did not breach Section 3(4)(c) of the Act. However, the sale of locked iPhones was found to be a tie-in arrangement under Section 3(4) of the Act. Despite this, the DG determined that the tie-in arrangement did not have an appreciable adverse effect on competition in the GSM cellular service market, given Apple's small market share in India.

Investigation of Section 4 Violation:
The DG identified two relevant markets: the market for smartphones in India and the market for GSM cellular services in India. The DG found that Apple did not hold a dominant position in the smartphone market, with a market share of less than 3% during 2008-2011. Similarly, neither Airtel nor Vodafone was found to be dominant in the GSM cellular services market. Consequently, no case for abuse of dominance under Section 4 of the Act was established.

Applicability of the Competition Act to Events Predating Its Notification
The DG referenced the Kingfisher Airlines Ltd. v. CCI decision, which held that the Act applies to agreements entered into before its commencement if their effects continue after the enforcement of relevant provisions. Thus, the CCI had jurisdiction to examine the alleged anti-competitive conduct that continued post-enforcement.

Discontinuance of Certain Practices and Their Relevance
The DG submitted that despite the discontinuation of certain practices, the period during which they continued needed to be examined for potential infringements. The investigation focused on practices that persisted beyond the enforcement of the Act's relevant provisions.

Credentials and Locus Standi of the Informant
The DG addressed objections regarding the Informant's credentials and locus standi, noting that the Informant had used the iPhone in India and availed cellular services from the providers in question. The DG emphasized that there is no mandatory requirement for the Informant to be a directly affected party.

Conclusion
Based on the investigation, the CCI concluded that:
- Apple did not enter into any exclusive agreement with Airtel and Vodafone for the sale and distribution of iPhones in India.
- The tie-in arrangement between Apple and the mobile service providers did not have an appreciable adverse effect on competition in the GSM cellular service market.
- Apple, Airtel, and Vodafone were not found to be dominant in their respective relevant markets.
- No case for violation of Sections 3 or 4 of the Competition Act was established.

The case was ordered to be closed, and the Secretary was directed to forward a copy of the Order to the concerned parties.