Net neutrality: What’s the umpire’s verdict?

Few people knew or cared about net neutrality until recently. Now, there appears to be no neutral ground, as it were, as activist and political campaigns demand clarity, and the government affirms its commitment.

Is net neutrality also a competition law issue? The Competition Commission of India (CCI) is awaiting the new net neutrality norms to examine whether Indian telecom operators/internet service providers (ISPs) are violating this principle in their data access plans.

In simple terms, net neutrality is the principle that ISPs should not discriminate between consumers and charge different prices for different speeds. There are currently no laws governing net neutrality in India.

The dominance factor The CCI reportedly plans to examine whether the launch of data access plans allowing ISPs to offer certain apps for free violates the Competition Act, 2002. There are two possible claims that could potentially be considered by the CCI: (i) that this practice is an abuse of dominance; (ii) that this is an anti-competitive agreement.

Abuse of dominance under the Competition Act requires three things to be proved: (i) the violating enterprise is in a dominant position; (ii) the dominance is within a “relevant market”; and (iii) there is actual abuse of the dominant position.

So the first step would be to define the relevant market that ISPs/telecom operators operate in. In network industry terms, such markets are “two sided markets”.

A potential way of examining these would be to separately look at (i) the wholesale market for internet traffic where the app market pays the ISP for the customer’s use of their content; and (ii) the retail market for internet access where the ISP’s customers can access the app maker’s content for free.

The exact scope of the market would depend on the CCI’s analysis of markets in India (based on substitutability of networks, existing regulations); there may, of course, be narrower markets where the effect of the arrangement between ISPs and the app maker may be assessed.

For instance, the European Commission and the Federal Trade Commission (FTC) and the department of justice the US have all independently held that “residential high speed broadband internet access” service constitutes a separate market from “narrowband services”.

Once the market is defined, it would need to be examined whether the ISPs are individually dominant in the relevant market.

If yes, the CCI would then look at whether the data access plans/agreements by each ISP may be considered discriminatory. The CCI cannot examine the actions of telecom operators as a whole if, let’s say, Vodafone and Airtel abuse their dominant position together since there is no scope in the Competition Act to look at “collective abuse of dominance”.

The CCI has, in previous cases, looked at unfair and discriminatory conditions in business agreements with similarly placed entities. For instance, in its decision against Coal India Limited (CIL), the CCI held that some clauses in CIL’s fuel supply agreement were found to be “unfair and discriminatory” against several downstream buyers.

Defying the agreement Is this arrangement between the app maker and the telecom operator a form of anti-competitive agreement? Here, an agreement between an app maker (for instance, a social networking site) and the ISP can be examined as an “exclusive agreement” since it would be to the exclusion of the competing social networking sites.

The test is to determine whether the agreements cause an “appreciable adverse effect on competition” in markets in India.

One of the arguments against such agreements is that a dominant social networking website with existing networks and more financial strength would be able to pay for faster access compared to an emerging social networking website. This would operate as a barrier to expansion and innovation by the emerging company.

On the other hand, a pro-competitive justification would be that such an exclusive agreement would permit the companies to make greater investment in newer technology and in advertising.

Even though the Competition Act doesn’t require the market power of any one of the companies to be proved for an exclusive agreement, it is usually a rough indicator of the possible “appreciable adverse effect on competition” caused by an agreement.

Given the extraordinary interest of other competition regulators such as the European Commission and the United States FTC in net neutrality, it is also hoped that there is consistent application of the law regulating the internet.

The writers are with Khaitan & Co LLP