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TMI Blog2013 (5) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... tegorically claimed that the information is in regard to a particular variant of iPhone - iPhone 3G/3GS, manufactured by OP1. It has been submitted by the Informant that iPhone is a line of internet and multimedia enabled smart phone that functions as video camera, camera phone, portable media player, internet client with email and web-browsing facilities and is capable of sending texts and receiving voicemail. Further, more than 350,000 approved third-party as well as Apple application software, having diverse functionalities including games, reference, GPS navigation, social networking, security and advertising for television shows, films and celebrities, can be downloaded from the 'App Store' to the iPhone. The Informant has claimed that during the fiscal 2010, worldwide sale of iPhone was 73.5 million. The Informant has further averred, on account of its unique features, iPhones cannot be substituted by any other smartphones available in the market. 3. According to the Informant, OP1 and OP2 entered into some secret exclusive contracts/agreements with OP3 and OP4 for sale of iPhone in India, even prior to its launch; as a result of which OP3 and OP4 got exclusive selling right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by threatening to void the warranty terms of such iPhones that have been unlocked and/or jailbroken by the users in order to use the same on the networks of their GSM competitors or to use unapproved third party applications on their iPhones. Also, OP3 and OP4 have used their dominant position in the GSM market to enter and control the iPhone market in India. 8. It has further been submitted that OP1 and OP2 have also abused their dominant position by imposing discriminatory conditions on such persons who have purchased their Apple iPhones from a source other than OP3 and OP4 by: (i) refusal to accept the said handsets for repair in its authorized service centers; (ii) refusal to allow access to Apple's App Store for the purchase and download of new applications to such iPhone users; (iii) by denying to such users the latest upgraded operating software; (iv) compulsorily relocking and disabling such handsets and permanently deleting all unapproved third party applications installed on such handsets whenever such users try to upgrade the operating software on their handsets; and (v) limiting/restricting the relevant Market of iPhones as well as iPhone Applications in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of dominance in the relevant market? * What are the best international practices and developments in the other jurisdictions? Within the contours of above-mentioned issues, DG investigated the case. Important finding as detailed in the Investigation Report are summarized in following paragraphs. Preliminary Objections 12. DG has submitted that during the course of investigation, some of the opposite parties have raised certain issues in the nature of preliminary objections, which are as follows: Objections raised by AIRTEL i. The prima facie order fails to consider that any dispute in relation to a telecommunication service is actionable under Telecom Regulatory Authority of India Act, 1997 and the Competition Act, 2002 cannot be invoked. ii. The bundled offer was in compliance with the guidelines of TRAI. iii. The informant has failed to make any averment of having purchased Apple iPhone of 3G and 3GS to show that he has interest in the matter and has the locus standi to file the information. iv. The informant has failed to state that he had purchased iPhone 3G and 3GS from grey market in India or abroad and consequently it is inexplicable as to how he has a grievance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eview of the clauses in the agreement reveals the following:- ○ The arrangement was non-exclusive with Apple reserving its rights to sell the iPhone directly or indirectly to any other person. ○ The carrier (i.e., Vodafone) was required to give best telecom service plans (i.e., tariffs to its customers) ○ The carrier (i.e., Vodafone) was to allow the customers to use the unlocked iPhones on its network. vii. In relation to all three points highlighted above, as the agreement was nonexclusive, iPhones were available in India through a number of other distributors/channels and Vodafone being a telecom service provider provided the best tariff plans to its customers and Vodafone never imposed any restriction on its customers with respect to using unlocked phones. Therefore, there can be no violation. viii. The tariff plans as were provided to iPhone customers were the same and if not, even better than the normal plans offered to other subscribers. Further, the tariff plans, as approved by Apple were filed with the TRAI in August 2008 and were in full compliance with the TRAI regulations. Additionally, it is important to note that even if an iPhone specific plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive dominance" is not recognized under section 4 of the Competition Act. Both Airtel and Vodafone are separate legal entities with no structural links and with completely different board of directors and management. Therefore the question of "collective dominance" does not arise. xiv. The iPhone agreement is no longer in existence and therefore, the investigation in so far as Vodafone is concerned is not going to lead to any plausible conclusion nor can any relief be granted against Vodafone, assuming but without admitting, that the alleged conduct is considered to be anticompetitive. Therefore, there is no continuing conduct of the alleged infringement. xv. iPhones are easily available in the open market and without any network locking. More importantly even the iPhones bought through Vodafone channels were unlocked as and when a request was made after following the due process. Further the TRAI's MNP regulations allow a customer to move from one service provider to another freely and consequently, the same customer can unlock his phone without any hassle. These facts clearly indicate that the allegations in the information are mere speculations and should be dismissed outrigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich clearly fall within the ambit of the TRAI especially in relation to the tariffs set for consumers. The above issues were examined by the DG. Those concerning jurisdiction of CCI was taken up separately while objections pertaining to contraventions were handled as part of the investigation on allegation. Jurisdiction of CCI 13. Regarding the jurisdiction of CCI contested by Airtel, DG has submitted that notwithstanding the fact that activities of Cellular Service Providers in India are regulated by a Sectoral Regulator, any competition issues arising out of the activities and practices of these entities would fall within the ambit of the provisions of the Competition Act under section 62 of the Act. Accordingly, DG has submitted that there is no basis for contention of the opposite party regarding jurisdiction of CCI. Date of agreement prior to the enactment 14. On the issue of applicability of the Act to events prior to its notification, DG has referred to the decision of the Hon'ble High Court of Bombay in W.P. No. 1785/ 200, Kingfisher Airlines Ltd. v. CCI [2011] 108 SCL 621/12. In this decision, it was held that though the Act is not retrospective, it would cover all a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008. DG has found that upon expiration, the agreement entered by Vodafone was not renewed, while agreement with Airtel was renewed with certain amendments. An agreement with Aircel was entered by Apple on 11.03.2011. DG has also submitted that Apple had approached other network operators like Reliance Communications, Idea Cellular, Tata DoCoMo to enter into a distribution agreement for selling iPhone but it did not materialize. It has also been submitted by DG that the agreement entered by Apple in India with various MNOs were for a specified period of two-three years at a given point of time. In view of the foregoing, DG has concluded that the agreement of Apple India and Apple Inc with Airtel and Vodafone for distribution and sale of 3G and 3GS models of iPhones was neither exclusive nor for very long/undisclosed duration. Accordingly, these agreements do not breach provisions of Section 3(4)(c) of the Act. Tie-in arrangement 19. DG has found that iPhones sold in India were in a locked state. While Apple contended that locked iPhones were supplied based on specific orders placed by Airtel and Vodafone, the latter have submitted that there was no such option available to them i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in terms of the agreements, both Airtel and Vodafone were required to offer iPhone specific internet plans on the same or better terms than those offered to other customers. DG has stated that analysis of various internet plans offered by OP3 and OP4 did not reveal any indication of iPhone specific internet plans of Airtel being more expensive than other data plans. As regards Vodafone, DG has found that on account of the technical specifications stipulated in APN settings, only iPhone specific plans of Vodafone could have been used on iPhones till September 2010. Third party downloads 22. As regards allegations pertaining to restrictions imposed by Apple for downloading third party applications, DG has submitted that investigation did not reveal any evidence to indicate anti-competitive effect of the practice of Apple allowing downloading of those applications which are based on its operating system. In this context, DG has observed that while there are other alternate online application stores such as Google play etc. from where applications can be downloaded on other handsets, most of the application stores undertake some monitoring to deal with threats from malware, virus e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed by rapid innovation and replication which, according to DG, ensured robust competition on an ongoing basis. Considering these aspects, investigation did not find Apple to be dominant entity, possessing market power in the relevant market of smart phones in India. 27. As regards cellular service market, the GSM cellular services market is fragmented and there are several active cellular service providers. DG did not find either Airtel or Vodafone to be dominant in the relevant market of GSM cellular services. Consequently, no further examination was done by the DG on the alleged abusive conduct of Apple, Airtel and Vodafone. Concluding Remarks: DG Report 28. Based on above findings, DG has concluded that Apple did not enter into any exclusive agreement with Airtel and Vodafone for sale and distribution of iPhones in India. By selling locked iPhones to the network of the distributing MNO, Apple entered into tie-in arrangement with Airtel and Vodafone in terms Section 3(4)(a) of the Act. However, analysis of various data and facts gathered during the investigation did not reveal any appreciable adverse effect on competition in the cellular service market in India, in terms of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trol the iPhone market in India. 32. The case as such has two dimensions to it as can be seen from the informant's allegation of contravention of Section 3 and Section 4. As submitted by DG, Apple iPhone 3G and 3GS were launched in India in August 2008 and March 2010, respectively. Apple India did not own or operate retail stores in India, but preferred to distribute its handsets and related marketing activities through two channels Mobile Network Operators (MNOs) and Authorized Premium Resellers (APRs) by way of non-exclusive distribution agreements with tenure of two to three years. Of significance is that the MNOs are also service providers. The duality of the roles of MNOs permits examination of the contravention of the Act under Sections 3 and 4. Section 3 arises from the agreements between Apple and its distributors and fall within the ambit of vertical restraints on competition elucidated in Section 3(4) of the Act. Contraventions of Section 4 arise from the dominance of the two sets of players' viz., the iPhone manufacturer (Apple) and service providers (Airtel and Vodafone) in their respective markets. 33. We shall first examine the contraventions arising from abuse of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies competing in a space which is growing by about 15%, as per the data pertaining to H1 2012 as per a market research group, CMR (http://cmrindia.com/india-mobile-handset-shipments-cross-100-million-units-in-the-first-six-months-of-2012/). Another Report of CMR 'India Mobile Handsets Market Review, 2Q 2012, September 2012', during H1 2012 (January-June 2012), total India shipments of mobile handsets was recorded at 102.43 million units. In India, handsets are available from plethora of manufacturers in practically every price range -from few hundred rupees to about half a lakh rupees. 38. Handsets can be primarily characterized as being one of the three: (i) basic phones; (ii) feature phones and (iii) smart-phones. While the basic phone is equipped for call and text messaging services, the other two have more advances features. There is no industry standard definition of a smartphone, but rather a spectrum of functionalities that defines a particular brand of smartphone. A significant difference between smart-phones and feature phones is that the advanced application programming interfaces (APIs) on smart-phones for running third party applications can allow those applications to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hysical keypads, light detecting and proximity censors, DG has held that it belongs to the category of smartphones, competing with other smartphones offered by other companies. 43. Furthermore, in view of the allegations on the service providers, DG has considered it appropriate to include a second relevant market in the present case - that of mobile network service. On the cellular network services market, DG has observed that the same can be classified under two heads namely GSM and CDMA, based on the underlying technology. Further, SIM cards of each of these cellular services are compatible only with those handsets which deploy their respective technology. On account of such technological differences, DG has submitted that there is no substitutability between GSM and CDMA cellular services. It has also been submitted by the DG that iPhones (in India) are based on GSM technology. The DG has found that the cellular network of most of the GSM cellular service providers in India at the time of launch of iPhones was technologically compatible for use of iPhones. Hence unless the iPhones were specifically locked to a particular GSM network, the users could have used the network of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 47. In view of the above discussion and in the absence of any specific finding that Apple iPhone constitutes a distinct market; the Commission has reasons to believe that the true relevant market is the market of smartphones in India, in line with the approach and reasoning of the DG. B. Cellular Telecom Services Market 48. There are two competing technologies that offer commercial mobile telephony - (i) GSM and (ii) CDMA. The handset to be used for availing service from any of these cannot be used to avail the service from other. Even from the supply side, the two are not substitutable in as much as each require set of equipments that are not compatible with other. In our analysis, since iPhone is offered only for GSM module in India and that specific allegation has been brought against two GSM service providers, the Commission shall limit its analysis to the GSM service market. 49. The mobile network service in India is divided into distinct telecom circles, also known as licensing areas, with majority of the circle having 6-7 operators. It is important to take note of the fact that each telecom circle has different valuation and accordingly the license fee varies across ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere it enjoys such a position through OP2. 55. Quoting the IDC Smartphone Market Share for India (2008-2011)and other reports cited by DG in its investigation report, DG has observed that in terms of volume, Apple India had a share between the ranges of 1%-3% in the smart-phone market during the period 2008-11 in India. The DG, then, proceeded further and analyzed the other factors to be considered for determining dominance of an enterprise and found that OP1 and OP2 are not in a dominant position in the relevant market of smart-phones in India. View of the Commission 56. There are two issues that need to be highlighted before commenting on the dominant position of the opposite parties. Firstly, the business model/strategy of Apple in India need to be emphasized. At the time of launch of iPhones in India, Apple did not have its own retail stores. It might have been a conscious decision of Apple to sell the iPhones through existing mobile network operators (MNOs) in a locked state apart from APRs. This arrangement suited both Apple and MNOs since the former did not have to incur establishment / marketing expenditures while the latter were guaranteed of turf-client for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9% 5 Aircel 6,33,47,284 9.64% 6 Uninor 4,15,20,544 6.32% 7 Videocon 36,40,312 0.55% 8 MTNL 51,19,179 0.78% 9 Loop Mobile 30,28,539 0.46% All India 65,71,58,013 100.00% Source: http://www.coai.com/statistics.php - Subscriber Figures for Dec 2012 From the above data as also the data submitted by the DG, it is observed that none of the OPs can be deemed dominant in terms of respective market share in the relevant market and other Section 19(4) conditions. 61. An issue has been raised by the Informant, submitting that OP3 and OP4 hold more than 50% of GSM market, thereby making them dominant in the market. The Commission notes that there is no indication of any sort of agreement between them (OP3 and OP4) that could be deemed anti-competitive. Therefore, it is not relevant to take cognizance of this piece of information in the given context, more so when they are competitors in the same market. 62. In view of the above discussion, Commission opines that since dominance does not get established, there can be no case for abuse of dominance under Section 4 of the Act. Anti-competitive agreement 63. Having opined on AoD aspect, the Commission sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased their iPhones of the necessity of these tied cellular services, which in themselves were not exclusive as iPhone could be purchased both with an Airtel and a Vodafone service. 66. A tying arrangement occurs when, through a contractual or technological requirement, a seller conditions the sale or lease of one product or service on the customer's agreement to take a second product or service. In other words, a firm selling products X and Y makes the purchase of product X conditional to the purchase of product Y. Product Y can be purchased freely on the market, but product X can only be purchased together with product Y. The product that a buyer is required to purchase in order to get the product the buyer actually wants is called the tied product. The product that the buyer wants to purchase is called the tying product. Examples of tying include the tied sales of machines and complementary products, the tied sales of machines and maintenance services, as well as technological ties that force consumers to buy two or more products from the same supplier due to compatibility reasons. More often, tying is a sales strategy usually adopted by the companies to promote/introduce a slo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing arrangement, there must be two products that the seller can tie together. Further, there must be a sale or an agreement to sell one product or service on the condition that the buyer purchases another product or service (or the buyer agrees not to purchase the product or service from another supplier). In other words, the requirement is that purchase of a commodity was conditioned upon the purchase of another commodity. 2. The seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product: An important and crucial consideration for analyzing tying violation is the requirement of market power. The seller must have sufficient economic power in the tying market to leverage into the market for the tied product. That is, the seller has to have such power in the market for the tying product that it can force the buyer to purchase the tied product. 3. The tying arrangement must affect a "not insubstantial" amount of commerce: Linked with the above requirement, tying arrangements are generally not perceived as being anti-competitive when substantial portion of market is not affected. 70. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 73. 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 examined the following: A. Share of markets: Market share of Apple iPhone in the smartphone segment; subscribers using Apple iPhone as a percentage of total GSM subscriber. B. Sanctity of exclusivity under multiple arrangements of Apple with other service providers as well as premium resellers, apart from the cited opposite parties. C. Effect of the tie-in arrangement between a handset manufacturer and a service provider vis-à-vis consumer choice. 74. Relying on the market share statistics of smartphones in India as provided by the DG, the Commission observes that Apple had a share of less than 6% in the market of smart phones during the period 2008-11. Furthermore, share of GSM subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns 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. 78. The Commission does not find any 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. 79. Under these circumstances, on the basis of the counter-factual posed, the Commission opines that there is no anti-competitive effect of the tie-in arrangement as alleged by the Informant. In fact, there is some suggestion in the literature that the earlier tying arrangement between the iPhone and the service providers in other jurisdictions may have spurred wireless service providers to invest in innovation in mobile devices. Such innovation ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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