Introduction Facts CCI decision COMPAT decision
By way of a December 7 order,(1) the Competition Appellate Tribunal (COMPAT) set aside a February 10 2016 Competition Commission of India (CCI) order which had closed the case filed against Uber India Systems Private Limited for alleged abuse of its dominant position. COMPAT has directed the director general to investigate the allegations that Uber India, the aggregator-based radio taxi services company, established a monopoly and eliminated otherwise equally efficient competitors through predatory pricing and by imposing unfair conditions by virtue of its dominance.
In the information filed by Meru Travels Solutions Private Limited, it was alleged that before the commencement of Uber India's operations, the prevailing market rate for radio taxis in the National Capital Region was approximately Rs23 per kilometre (km). Uber India launched its services at Rs20 per km. This rate was progressively reduced to between Rs7 and Rs12 per km, depending on the service. Uber India also offered incentives to new customers and discounts on subsequent trips.
The informant also alleged that Uber India paid its drivers and car owners attached to its network unreasonably high incentives in addition to passenger fares. As a consequence, the informant's market share per trip was reduced from 18% in December 2013 to 11% in September 2015 and it lost Rs1.07 billion during the same period. Uber India's market share reached almost 50% per trip during the same period.
It was also stated that Uber India was spending approximately $885 million to generate revenues of $415 million. Further, Uber India's loyalty schemes were likely to have an exclusionary effect. The informant alleged that through its conduct, Uber India was indulging in anti-competitive practices.
Uber India defended its services by stating that the September 30 2015 report by New Age Tech Sci Research Private Limited – which the informant relied on to suggest that Uber India had a 50.1% share in the National Capital Region – lacked credibility, as no Uber India representatives had been interviewed. It was further stated that the report covered business until September 30 2015. However, as the informant's claim was filed on October 9 2015, doubts arose as to the nature of the report, as it would be impossible to file a claim so soon after the reporting period.
While adjudicating the matter, the CCI considered that the nature of the report on which the informant relied was controversial, as Uber India was not interviewed and the report's findings were entirely contrary to a 6Wresearch report, which had been presented before the CCI in an earlier case regarding radio taxis. These factors led to doubts about the credibility of the report. The CCI further held that Delhi was the relevant market, not the National Capital Region (as requested by the informant), on the grounds that the regulatory framework in relation to taxi services and the use of compressed natural gas in public transport differed in both regions.
The CCI found that Uber India was not in a dominant position and closed the case under Section 26(2) of the Competition Act.
While setting aside the CCI's order, COMPAT noted that the CCI considered Delhi to be the relevant market, while the claim suggested that the National Capital Region was the relevant market. According to COMPAT, the CCI erred in restricting the relevant geographic market to Delhi, as the relevant market prima facie should have been radio taxi services in the National Capital Region. COMPAT based its decision on the fact that:
- the Delhi High Court's mandate on the use of compressed natural gas in public transport within the National Capital Region had been revised by the Supreme Court to cover Delhi;
- according to the Motor Vehicles Act, taxis which operate under a tourist agency permit need not operate only within municipal limits;
- taxis services such as Uber India and Ola have tourist taxi permits; and
- regardless, customers were not affected these political demarcations.
Further, as regards Uber India's dominance, the CCI acknowledged that the respondent had raised doubts about the credibility of the Tech Sci report. Further, it was aware of the 6Wresearch report, which it had reviewed in the context of an earlier case involving radio taxi service provider Ola.
COMPAT noted that since the two reports were contrary, the CCI decided to discount them; however, the CCI subsequently alluded to a combined reading of the reports. If the CCI had ignored both reports, there was no reason for it to give a combined reading. COMPAT also observed that while Uber India disagreed with the data presented in the preliminary conference, it neither presented a written claim nor offered material evidence to demonstrate to the CCI that its market share differed from that claimed in the report. According to COMPAT, if Uber India had disagreed with the figures contained in the Tech Sci report, it should have provided its own figures. While Uber India offered to do so under confidentiality, the CCI proceedings had already ended. In light of this, COMPAT held that the CCI's approach was inconsistent and that the information and evidence made available to it should have been enough for the CCI to formulate an opinion, as the goal of Section 26(1) is to formulate a prima facie view. Further, the fact that the two reports differed should have encouraged the CCI to order an investigation, in order to reach a decision on a matter which has attracted significant interest in the Indian marketplace.
COMPAT also held that the availability of financial resources and Uber India's offering of discounts and incentives supported the assertion that the issue of dominance could not be limited only to Uber India's market share. In light of these considerations, COMPAT held that although it could not definitively say that Uber India's business practices were inherently abusive, the size of the discounts and incentives showed that:
- there had been substantial efficiency improvements which replaced Uber India's early business models; or
- the company was conducting anti-competitive practices.
It ultimately held that the circumstances were enough to trigger an investigation by the director general. COMPAT thus ordered an investigation into Uber India's conduct. The director general must submit its findings to the CCI within the period prescribed under the Competition Act.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4929 2525) or email ([email protected]). The Vaish Associates website can be accessed at www.vaishlaw.com.
Endnotes
(1) COMPAT order dated December 7 2016. For full text see http://compat.nic.in/Judgements.aspx.
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