That’s not all. There’s more data to contend with. 6Wresearch, another research agency, published a study of the market share in Delhi NCR as of March 2015. This report indicated that Ola Cabs had the leading market share in Delhi as of March 2015. Incidentally, 6Wresearch has a history with the CCI. Its research report was used by the Commission to decide another matter when Mega Cabs accused Ola of predatory pricing and distorting a level playing field. Uber’s contention is that the 6Wresearch report should have been considered.

A quick diversion. Bear in mind that when Meru had first approached the CCI in 2015, the body had passed an order on 10 February 2016 closing the case. It held that prima facie there was no case of dominance by Uber. To quote from it:

The fluctuating market share figures of the various players show that the competitive landscape in the relevant market is quite vibrant and dynamic.” Meru filed an appeal against this order in the COMPAT and fast forward, it got a favourable ruling that its case has merit and must be investigated by the Director General.

Now, back to TechSci and data. In a sworn affidavit, Karan Chechi, research director of TechSci, explained its findings and said that the agency files a report every quarter on the radio taxi industry by conducting market surveys. Uber’s contention is, if the data is published quarterly, how did Meru get hold of two monthly TechSci reports; one published in August 2015 and another in October. How did this happen? Uber also contends that Meru only subscribed to the TechSci reports, just so it could use the information to file the case against Uber.

The submission

Put all of this together, and Uber’s submission is that COMPAT didn’t do a good job. That the body didn’t have enough information to decide if Uber had the largest market share in Delhi NCR. That COMPAT didn’t have the authority to pass an order asking the Director General to investigate the matter because that power only rests with the CCI. That COMPAT overstepped its jurisdiction because its only power is to affirm, modify or set aside an order of the Commission. It ought not to have substituted its view in place of the order passed by the Commission.

Legal mud wrestling aside, it is fascinating to note some of the claims from Uber’s petition before the Supreme Court. Take for instance Uber’s submission that the company cannot affect its competitors, customers or the relevant market in its favour by providing discounts and incentives. To quote from its petition:

“If any service provider attempts to provide discounts or incentives, it is soon countered by other competitors with similar offers. The Appellant (Uber) are not, and has never been in a position where it could act independently.”

Incentives are a tricky issue. More so now, with Uber drivers protesting across the company stopping incentives across India. It will be fair to say that Uber’s deep pockets played a key role in doling out incentives to corner market share.

Let’s end with this dissent note from CCI member Augustine Peter dated 3 August 2015.

The opposite party is engaged in predatory pricing in the relevant market. […] There is an imminent danger of the Informant and even other players in the relevant market getting totally eliminated from the relevant market within a short span of time and there is an urgent need to stop the Opposite party in its tracks. This is coupled with the real danger of competition in the relevant market getting considerably reduced, verging on monopolisation.

Once the Informant and other competitors are eliminated from the market, re-entry for those players is not at all easy given the nature of the market which is network based and is highly dominated by the Opposite party who continues to have access to substantial financial resources which it is diverting for pricing below ‘average variable cost’, irreconcilable with rational business behaviour.”

Did you realise Peter was referring to market domination and monopolisation by Ola? (this was for a case filed against Ola by radio taxi operator FastTrack).

Today, the very same Ola is accusing Uber of doing the same, through ‘capital dumping’. What a difference 1.5 years can make.

The crux of the matter is this. Does Uber have a majority share in the cab market in Delhi, NCR? Has it used its majority position to offer predatory pricing and distorted the competitive level playing field? And as a result, has it kicked Meru in the gut?

If you were to ask Meru; and they have gone to town with their answer, Yes. They even drew a flowchart explaining how.

Uber? No. From its point of view, there isn’t an iota of truth to Meru’s claims.

At the heart of the matter is also a report from TechSci Research, published in October 2015, titled ‘Delhi NCR Radio Taxi Service Market Analysis’. TechSci is a research agency, and its report is based on publicly available information on players. The data compiled from a survey conducted by TechSci was until September 2015. According to this report, at the time, Uber’s market share was as follows:

Fleet size: 44.42%

Active fleet size: 41.38%

Number of trips: 50.1%

Meru’s contention is that the average price of radio taxis in Delhi NCR before Uber was in the range of Rs 23 per km. Uber launched its service in December 2013 at Rs 20 per km and thereafter successively brought down its per kilometre price to Rs 7 per km, Rs 12 per km and Rs 9 per km for different categories of services.

Uber, of course, offers incentives to first-time customers and various other discounts. Plus, Uber incentivises its drivers as well, over and above the fare received from passengers. All put together, this results in a per trip net loss of Rs 204 to Uber.

Meru also produced a purported communication from Uber to its drivers in August 2015, explaining how much they would earn per trip. Rs 403 for a trip for which the customer pays Rs 160.

As of September 2015, Uber was doing 33,000 trips per day in Delhi NCR alone with an active fleet of 6,000 vehicles.

What does that disruption look like?

The total fleet size in Delhi has grown from 10,020 in December 2013 to 13,755 in September 2015. Let’s put this in perspective with data from the TechSci report:

All of this, where did it leave Meru? The company says, thanks to the predatory pricing and loss of market share, Meru lost Rs 107 crore between December 2013 to September 2015.

The COMPAT took this data into account and passed an order on 7 December 2016, asking the Director General to investigate the matter. Before COMPAT, Uber in its defence questioned the credibility of this market share data but curiously didn’t furnish any of its own. To quote from the order:

“It may further be observed that the data presented in the Tech Sci report has simply been denied by Uber in the preliminary conference but nothing in writing or by way of material has been presented by Uber to assist the Commission in making an assessment about the share and size of the market. They have not controverted the figures factually. If they did not believe the Tech Sci figures, they had the option of giving their own figures. They offered to do so under confidentiality but perhaps the matters ended there itself.”

Needless to say, Uber was not happy with the COMPAT’s order. And it has brought in Shardul S Shroff and moved the Supreme Court of India. The company has taken both the CCI and Meru to court.

A case of sour grapes

Uber’s contention is that Meru is a company that got disrupted and can’t seem to digest the fact. It started operations in India in 2007 with a fleet of self-owned vehicles. In 2012, it adopted an aggregator model but primarily its business came from self-owned vehicles. Because of its flawed business model, Meru hasn’t seen a single year of profit. And now that it is hurting, Meru has filed a frivolous case against Uber.

Then, comes the contention of the veracity of data. Uber contends that TechSci published a report titled ‘Delhi NCR Radio Taxi Service Market Analysis’ to the period up to 31 August 2015, where it reported that Ola Cabs (along with TaxiForSure) had the leading market share in Delhi NCR. In the subsequent month, of course, TechSci put out another report, which said that Uber has the highest market share. This August report was withheld by Meru from COMPAT. That Meru didn’t file the August report, material to the case, shows that the case has been filed in bad faith.

New oil, new gold and many such metaphors have been heaped upon good old data. In fact, it is the banks who have traditionally had the data advantage given that they had reams of credit history. But considering that cash still accounts for about 90% of all transactions, how people spent their money was a black box. That’s something that payment companies can peek into now. And almost exclusively.

Imagine this, you have Rs 1 lakh in your bank account. Till the time you used your card or net banking, banks knew where you spent that money and how much. But the minute you use the same net banking solution to transfer money into a wallet or now possibly into a payment bank, banks suddenly lose visibility of how you spent that money in that wallet.

(It’s another matter that few did anything remotely meaningful with that data.) And the fintech firms with their algorithms and analytics prowess would know not only where you spent it but also how much of what you bought, was it a routine spend or a one-off purchase.

Banks’ loss, wallets’ gain

“If you are using MobiKwik, I know your location, which bank you’re using to load, I know what is your average spend. If I know what is your electricity bill, I can also know your income,” says MobiKwik’s co-founder Upasana Taku. The more you continue to use MobiKwik, the better it gets to know you.

If that wasn’t enough, companies like MobiKwik can always get more data from the stores by making small changes to the software, which banks will find tough to do, say many payment experts. Compared to banks, which update their banking software very rarely, fintech and wallet startups update their software almost every other day, adding new features, fixing bugs and learning from past user behaviour.

Online lenders like Capital Float have already disbursed close to Rs 1200 crore in 60-90 day loans. It was set up three years ago to lend to small and medium business. It now also lends to entrepreneurs like cab drivers and kirana shop owners based on their spending and earning patterns driven by data sourced from partner ecosystems, says Sashank Rishyasringa, co-founder and managing director of Capital Float. He adds, 99% of his 7000 borrowers repay their loans.

The impact of fintech firms using this kind of non-traditional data has not scaled much as yet. Looks like one just has to accompany the Indian bankers to China to see what data can do in the hands of new-age banks.

Internet giant Tencent Holdings’ immensely popular instant messaging chat service WeChat, which has over 600 million users’ social data, knows their every move literally. And this social behaviour came in mighty handy to offer ‘tiny bits of loans’ when Tencent set up the first online bank, WeBank in 2015.

And in India, payment banks seem poised to be that kind of data miner.

Paytm and Jio declined to participate in this story.

There are numerous restrictions on what payments banks can do (no lending; can take only Rs 1 lakh of deposit; should invest 75% of the deposit in government securities). But nothing stops them from partnering with other Non-Banking Financial Companies (NBFCs), mutual funds, insurance companies and other fintech firms to extend their entire suite of services. Think of them like magnets for numerous small firms that could ride atop payment banks and the data they bring in.

And that can be the real challenge for banks, says a senior executive from a top management consultancy, who didn’t want be named to avoid angering the very same banks it counts as clients. “Fintech firms by themselves won’t be a threat for banks. But the combination of payment banks and fintech firms will be, as they will have access to very rich and contextual data,” he says.

Banks like HDFC Bank are not perturbed. Chugh believes that few will move money into an account that offers some services, which anyway a bank does in addition to many others.

But a Sanford C Bernstein survey shows that young Indians use a wallet more for the convenience of it.

A senior payments executive who is not authorised to speak to the media anticipates that users will migrate to a payments bank for all payments less than Rs 2000, and for higher value, stick with the bank.

While this is the side banks want to show to the world, the curiosity and, possibly, fear within is getting the better of them. Many bankers have reportedly been visiting China to understand how the fintech revolution has transformed the ecosystem there.

While trips to China may help in future gazing, right now banks must deal with pint-size fintech firms that have emerged as ‘disintermediators’. Wallets, digital lenders, payment solution companies and, of course, payment banks are piecing together a fintech ecosystem that will be held together by data, an open regulatory environment and cost structures that are very different from those of banks. Even if most of the fintech firms perish in a way that startups usually do, they would have still altered the way business is done forever.

Who cares about fintech firms?
Question: Why did the banking chickens cross the road?

Answer: To discover a world beyond the staid and slow world of banks; to experience dazzling things like experience and ease of use.

Fintech firms have been quite sneaky in their run-ins with banks. Because they appeared to focus on financial transactions that brought people back to the banking fold, like helping choose the best insurance policy or loan products, banks paid little attention to them over these last five years. And in areas like payments, largely left to card companies, banks didn’t bat an eyelid as they considered it a low-margin business.

“We used to consider payments as a subset. Five years ago, no one would have thought of payments as a product by itself. Think about it realistically, will you sell one large loan or one lakh wallets,” asks Ritesh Pai, the country head for digital banking, Yes Bank Ltd, rhetorically.

Banks also had other king-sized fish to fry; tackling the ever-mounting non-performing assets and chasing defaulters.

But in the last two years, banks have really taken note of fintech firms possibly after the attention heaped on them by the Reserve Bank of India (RBI), which gave licenses for wallets in 2013. This allowed wallets to also become payment banks. Since then banks like Yes Bank, Axis Bank, State Bank of India (SBI) and HDFC Bank have developed their own wallets and now collaborate with much smaller and younger fintech startups.

“When you see a readymade solution, it makes sense to collaborate than spend money on it ourselves,” says Nitin Chugh, country head, digital banking for HDFC Bank. “But it is not like if we don’t collaborate, we will get disrupted. Moreover, he adds, that the bank had many of these ideas in-house.

So if they had the ideas, how did the banks miss the wallets bus?

“In the wallets space, fintech firms may have had a headstart, but we have caught on fast and are getting better. We have a PayZapp wallet, which you can pay through one click. This along with other features on PayZapp, we feel has no parallel,” says Chugh.

Customers clearly felt otherwise. They flocked to download and transact on apps like Paytm*, MobiKwik and PhonePe after demonetisation. These apps saw their users grow 1.3-3.3X.

At the same time, the National Payments Commission of India (NPCI)—an industry body of banks—also launched a new payment solution called United Payment Interface (UPI). With UPI, one only needs a mobile number to transfer money. And any bank or nonbank entity’s app can be used to transact.

Banks, like most highly regulated businesses, typically like to own their customers. They were not entirely pleased about now having to share customers with upstart apps and startups. So, like most large regulated incumbents, some responded in expected ways. ICICI Bank blocked its customers from using Flipkart-owned app PhonePe after a mutual blame game on who was flouting the UPI rulebook. And the country’s largest lender SBI also blocked its users from being able to transfer money to the Paytm wallet.

With that, the big banks officially earned the ‘bully-tag’ while the rest watched all this unfold, uncomfortably.

So the next time you try to respond to an email on your smartphone while listening to your colleague talk about his latest achievement, you should stop and ask yourself which of the two mental processes you really want to engage in. Your brain is better equipped to handle one complex process instead of two. So is it more practical to respond to that email with your undivided attention? Remember the destructive potential of reply all? When you accidentally used it to declare your undying love for Arijit Singh to the entire sales team instead of just one colleague?

On top of the limitations of the brain, our memories are also fallible. Anupam was absolutely sure that his child’s first movie was Kung Fu Panda, till his wife showed him the photo she clicked next to an Iron Man cutout at the multiplex.

Our memory is weaker—much weaker—than we perceive it to be. For example, how much can you rely on mental images that are based on memory? Take a mental image of a striped tiger. Go ahead, form a powerful mental image of a tiger and then try to answer a simple question: how many stripes does your tiger have?

That question cannot be answered. But all tigers have a definite number of stripes. Forget the number of stripes on a tiger, sometimes we can’t even remember the combination of the number lock on our cycles. And we won’t even get into how we have faulty memories of what our spouses wore on special occasions.

Like the flawed and incomplete image we have of the tiger in our head, most of our memories are manufactured by us—they have a lot less to do with what really happened than we would like to believe. We imagine our past to a significant extent, and in doing so, we invent memories, as well as feelings such as nostalgia.

There are two clear implications of the limitations of our minds and the fallibility of our memories: first, we are bad decision-makers and second, our minds can be manipulated easily.

Let’s consider the first one. There are bad, even random, decisions. Faced with the same choice in the same circumstances on two consecutive days, we might take two totally different decisions. One day, we took Tulsi Pipe Road from Bandra to Lower Parel and the next day we took the Bandra-Worli Sea Link. Both decisions make perfect sense to us and have the same goal—reaching work on time. And yet, we didn’t have any reason for taking different routes.

The Indian government’s ever-changing rationalisation for demonetisation (black money, terrorism, corruption, counterfeiting, etc.), which were extensively documented in the Indian press, is a public demonstration of post-facto rationalisation of a policy decision which must have arisen from a neural storm in someone’s head. Legendary trader and philanthropist George Soros’s son, Robert Soros, claimed that his illustrious father’s trades weren’t based on grand theories of reflexivity but rather on his back pain. George Soros admitted as much in the book, Soros on Soros, in a section on how he found out when things were going wrong:

I feel the pain. I rely a great deal on animal instincts. When I was actively running the Fund, I suffered from backache. I used the onset of acute pain as a signal that there was something wrong in my portfolio. The backache didn’t tell me what was wrong—you know, lower back for short positions, left shoulder for currencies—but it did prompt me to look for something amiss when I might not have done so otherwise. That is not the most scientific way to run a portfolio.

Which brings us to the second issue, our vulnerability to manipulation. As our brain reaches almost every meaningful decision through neural war, it is highly prone to suggestion and manipulation (without realising that it is being manipulated).

Alvaro Pascual-Leone, a professor of neurology at Harvard Medical School, used transcranial magnetic stimulation (TMS), i.e. a magnetic pulse which excites a part of the brain, to initiate movement in either the left or right hand to show this. Participants sat in front of a computer screen and were told to raise their right or left hand as the screen cued the colours red, yellow and green. At red, participants made their decision of right or left hand and activated this decision when the lights turned green.

The human mind created all this, and therefore it stands to reason that the human mind must be a super-charged supercomputer powering the progress of civilisation. Spinoza, the German philosopher, said in Proposition 23 of Ethics, “The human mind cannot be absolutely destroyed with the body, but there remains of it something which is eternal.” His exaggerated faith in the human mind was symptomatic of the era he lived in (1632 to 1677).

And what of our brain, that physical human organ that is closely related to our intangible mind? The mind might truly be without limits, but psychologists have shown us over the past 10 years that there is a gulf between our perception of how powerful our brains are and their true abilities.

Everyone agrees that traffic sucks. But here’s the problem: over the past 50 years, urban planners across the world have struggled to predict traffic flows, in spite of sustained efforts to do so. The difficulty stems from two distinct factors: the lack of systematic and accurate data on traffic flows across entire cities and the diversity of drivers’ self-adaptive decisions with regards to the routes they take.

To complicate matters further, the advent of GPS has made these decisions even more self-adaptive. Last year we took Jogeshwari Vikhroli Link Road to go to IIT Bombay for the Mood Indigo festival because Google Maps told us so. But Google Maps also told the same thing to another 150 people. The result? By the time we reached the college, our friends, who took the Eastern Express Highway had already arrived.

The traffic problem

Complex traffic flows are like the complex neural networks in our mind. Vanilla or chocolate ice cream, mid-cap or small-cap stocks, route 1 or route 2—there’s a battle royale raging in the different factions of your brains over simple decisions. Understanding this chaotic complexity of the brain—and abandoning the computer-related analogies of the brain—is central to coming to terms with its strengths and weaknesses. Neuroscientist David Eagleman describes these neural wars vividly in his book The Brain: The Story of You:

Imagine you’re making a simple choice, standing in the frozen-yoghurt store, trying to decide between two flavours you like equally. Say these are mint and lemon. From the outside, it doesn’t look like you are doing much…But inside your brain, a simple choice like this unleashes a hurricane of activity.

By itself, a single neuron has no meaningful influence. But each neuron is connected to thousands of others, and they in turn connect to thousands of others, and so on, in a massive, loopy, intertwining network. They’re all releasing chemicals that excite or depress each other.

Within this web, a particular constellation of neurons represents mint. This pattern is formed from neurons that mutually excite each other. They’re not necessarily next to one another; rather, they might span distant brain regions involved in smell, taste and your unique history of memories involving mint.

At the same time, the competing possibility – lemon – is represented by its own neural party. Each coalition—mint and lemon—tries to gain the upper hand…They fight it out until one triumphs in the winner-take-all competition. The winning network defines what you do next.

If choosing an ice cream flavour stresses so many neurons, do you actually think you understand this article while responding to pings on WhatsApp? In fact, research has now conclusively shown that the brain cannot multitask—we can only think one thought at a time.

In his path-breaking book The Mind is Flat, Nick Chater of the Warwick Business School shows that while doing something routine and well-practised, humans can do two things at once, like driving and talking. However, when anything non-routine is introduced (such as driving and thinking through the budget for your next holiday), then multitasking becomes really difficult. Chater says:

Most of the things that we find are reasonably challenging we can only do one at a time. We think we are multitasking but in fact we are jumping from one task to the next quite rapidly, something we don’t have to do if we practice. If we practice we get very fluent at something and it requires almost no mental effort, like driving and listening to the radio.

When you are trying to strain your memory or when we have to do something remotely difficult we have to stop doing something else… Mental and physical energy is more connected than you imagine. We can’t keep mental processes entirely separate from each other. If we are doing routine things that is fine, but if we do something non-routine suddenly other parts of the brain start to engage and interfere with routine things like walking.

 

 

Lumbering trucks transport goods across the country and usually are the lifeline of any economy. The lakhs of mini-trucks chugging away within a city function as the last mile agent. And as with any unorganised business, small truck owners form a local cartel. They dictate price and squeeze small and medium enterprises (SME) like those that sell electronics, furniture, paints and timber.

But even with this tilt in the balance of power, it is not like these truck drivers get any richer. There is no predictable way of anticipating demand. So after idling away in the local adda for more than half the working day, truck drivers overcharge the customers anticipating an empty return trip.

A lose-lose proposition all the way.

So naturally, it became a space that had to be disrupted and begged the attention of startups to try and ‘Uberise’ it, and try they did. The app gives a business owner an ETA on when a truck will be at his doorstep and at a price that is decided by an algorithm. The driver gets a promise that there will be more rides.

Given the scale of the problem (last mile logistics in India is estimated to be worth $15 billion, according to industry estimates) in 2014 and 2015 as many as 74 on-demand last mile trucking startups got $10.6 million in funding, according to Tracxn. Companies such as Porter, the Karrier, TruckSumo, Turant Delivery, Cargoji, LetsTransport, Shippr all set out to solve the problem for both drivers and SMEs using technology, and there it was the Uber for trucks.

The business

When it all started, most of these companies chased SMEs because that is where the inefficiency was at its peak.

Large companies had contracts with slightly more organised logistic providers and fixed requirement. Here, too, there were inefficiencies as trucks idled half the time, but for companies, predictability scored over better utilisation and cheaper rates.

“For us, SMEs were the real business problem to solve. If you look at big clients they want a contract and they want trucks at their disposal. While it is profitable to do so, you are not creating great efficiencies there using tech,” says Aravind Sanka, co-founder of the Karrier, which was set up in 2014 and raised $225,000.

Logistic service providers, who watch the space hold a similar belief.

“Corporates tend to have corporate accounts with logistic companies and they tend to be more organised. But it is the smaller fraternity where there is a lot of demand for efficiency” says Anil Syal, CEO, Flywheel Logistics, a container transport company.

But cut to 2016, only a few companies remain an on-demand aggregator of last mile trucks. Companies found out the hard way that getting SMEs to change their habit and take to technology was a tough sell.

The common refrain that Aravind Sanka, co-founder, the Karrier heard from SMEs was “Ek seeti se driver mil jata hai saab, to mein appka app kyun use karoon.” (I can get drivers at the drop of a hat, why should I use your app?)

“We knew it was a tough market to convince but didn’t anticipate that selling to SMEs would be as tough as it turned out to be,” says Sanka. “There was not as much excitement about this among them as we expected initially and they weren’t excited about the value proposition of more efficiency,” he says.

Unlike Uber, which could subsidise the customer to a great extent, these companies could not dream of discounting to such a large extent with the cash that they had raised.

“SMEs have a lot of inertia to change because it involves trusting someone with cargo. Even though we were 15% cheaper, it was not enough of an incentive for SMEs to change their behaviour. We also needed to be available on-demand and provide the reliability of a known driver.” says Arun Rao, co-founder, TruckSumo, which had about 200 drivers on its platform. “We would have had to subsidise them a lot more to break the inertia and that was not possible with the funding we had.”

As a result, companies had to make some hard choices. Companies like TruckSumo, Shippr, Moovo dismantled the on-demand model in 2016 and moved on to cater to fixed demand from big businesses like e-commerce. Some others like Turant Delivery moved to inter-city transport after six months of trying to crack the intra-city space.

The fact that these companies compete with the very people who have come to depend on it naturally creates a conflict of interest.

Khan contends that there are three elements that contribute to this. While she makes the argument specifically in the context of Amazon, it speaks for all platforms. First, their dominance as platforms necessitates independent merchants to use their site. Second, their vertical integration in selling as a retailer and acting as the marketplace for the same. Third, as an internet company, their ability to amass large swathes of data.

German antitrust watchdog, the Bundeskartellamt, just launched a probe into Amazon using its dual role as both a marketplace and retailer to effectively become a “gatekeeper for customers”.

Indian policies explicitly prevent this.

Although the sad part is that both Amazon and Flipkart rely on complicated corporate structures to bypass these. But I guess as long as we’re taking two steps forward, and one backwards, instead of one step forward, and two backwards.

The Google Tax

Foreign companies generally do not get taxed for every transaction that takes place in India due to the presence of Double Tax Avoidance Agreements. It’s only when these transactions cross a certain limit or threshold that taxes kick in.

Enter, the Google Tax, brought in through the Finance Bill in 2016. Every time a company has to pay advertising fees above Rs 1 lakh ($1,417) to a company that is based outside India, it has to withhold 6% of that payment. This amount then paid to the government is known as the equalisation levy.

“These thresholds were based on physical factors. For instance, the foreign company should have an office, agent in India or some kind of a physical presence. Now, with digital commerce, the issue is foreign companies do not require a presence in India and can conduct a lot of business earning significant amounts of revenues here. That is the reason why they brought the equalisation levy,” says Meyyappan Nagappan, a tax lawyer with Nishith Desai Associates.

There are, globally, at least three different versions of the Google Tax imposed in Australia, United Kingdom and India. All of them differ but are made with the singular aim to prevent tax avoidance by multinational companies, especially big tech companies like Google and Facebook.

These companies have, for the longest time, been able to avoid paying taxes in the countries from where they earn their revenues. They did this by creating incredibly convoluted corporate structures to set up entities in tax havens, channelling their revenues through them. Which was entirely legal, since most countries have what is called a Double Tax Avoidance Agreement.

Attempts to prevent tax avoidance are not limited to these three countries though. Countries across the world have started taking unilateral measures to tax digital businesses. The European Union is debating about introducing a 3% digital tax for money made through user data or digital advertising in a country. The Organisation for Economic Co-operation and Development also started a project known as the Base Shifting and Tax Erosion project in 2015. Additionally, the United Kingdom is in the process of moving toward a system similar to India.

Amidst reports that companies like Google, Facebook and Twitter have generated close to Rs 1,000 crore ($141 million) as revenue from local advertisers, there does seem to be some merit in taxing these companies like this.

But as with all taxes, solutions often need tweaking. The Google Tax works in a manner similar to indirect taxes, which means the charge can be passed on to Google’s customer.

Nailing down WhatsApp

Indians form WhatsApp’s largest userbase globally. And yet, till earlier this year, it neither had a corporate office in India nor a named official whom Indian users could contact if they had any complaints.

This is similar to many international tech companies who have a massive online presence in India but no local companies or officials empowered to take action when there’s a problem.

Yet, under pressure from the Indian government, WhatsApp recently appointed an India-specific “grievance officer” and also agreed to set up a corporate office in India. This is a one-off move where one company has ceded to the demands of a government.

Pharma, telecom, financial services and e-commerce are just a few of the industry sectors where companies and business models have been either extinguished or supercharged due to regulatory decisions. A carry-over of this attitude while regulating technology companies can have disastrous consequences for innovation and conducting business. Death by compliance.

But could it be possible that India’s regulators may be at the forefront of devising regulations to check the uncontrolled growth and domination of “Big Tech”?

Could it be that Indian regulators already hold answers for their peers around the world on how best to control the unchecked dominance of tech giants such as Facebook, Google and Amazon?

Across the world, there has been a growing call to regulate big tech companies to protect citizens’ rights and competitiveness of markets. Many smart people have argued that the free hand given to tech companies in markets like the United States has resulted in them developing into behemoths, which has, in turn, led to deleterious effects, not just to economies but democracies around the world.

Sort of like an overfed, pampered and badly brought-up child growing up to be a bully as an adult.

So, if someone must discipline these bullies and teach them how to play by the rules, it won’t be their parent countries, but other countries in which they operate.

Indian regulators had, for the most part, taken a hands-off approach to the tech industry, similar to the US. This became one of the major factors that led to the growth of tech and Internet in India. “The fact that we have had a fairly lax regulatory environment, particularly around data, is itself quite a spur to a lot of innovative activities,” says Arghya Sengupta, Research Director at policy advisory group Vidhi Centre for Legal Policy.

But then things changed, as Indian regulators started hitting nails pretty accurately on their heads across different sectors.

Could India be the hero the world needs, even if not the one it deserves?

Forcing Amazon to choose

Amazon India is very different from Amazon US. In the US, its e-commerce operations are highly centralised as a corporate. Its control over every single component of its operations, by owning multiple related business lines, has led to it becoming one of the largest corporations in the world.

But in India, neither Amazon nor its arch-nemesis Flipkart (now owned by Walmart) has the kind of structural control over the e-commerce market like Amazon does in the United States. Why? One key reason is that Indian regulations explicitly forbid e-commerce players acting as both third-party marketplaces as well as their own stores. Thus, Amazon and Flipkart cannot sell their own products on their own websites. Under the FDI policy passed by the Department of Industrial Policy and Promotion, while 100% foreign investment is allowed for marketplace-based e-commerce, it is not allowed for retail-based e-commerce.

Jaideep Reddy, a Technology Lawyer at legal and tax consulting firm Nishith Desai Associates, says that the argument for not allowing these companies to sell their own products is to protect mom-and-pop stores; that these stores wouldn’t be able to afford the kind of deep discounting that the venture-backed companies can provide. He also says that there are those who make the argument that opening up foreign investment in the long-run could benefit the economy by, at the very least, increasing jobs.

Lina Khan, an antitrust scholar, in an article titled ‘Amazon’s Antitrust Paradox’, published in Yale Law Journal, makes a similar contention. She says that a company like Amazon has been able to grow to the extent that it has for two reasons—ability to sustain losses over a long period of time and presence in a range of related businesses.

The discussion around this topic so far has been on Flipkart and Amazon’s ability to sustain losses, but the latter plays out in a far more sophisticated manner to remove smaller sellers from the equation. This is already happening in the United States, where Amazon is said to be elbowing out smaller sellers from its platform. With access to information about the nature of the products that are sold, it is able to completely sideline these sellers by directly buying those products from the manufacturer.

At the analyst meet though, Vodafone Idea tried to paint a far rosier picture of future EBITDA. They added the combined ARPU of Vodafone India and Idea Cellular over the last 12 months to their forecasted opex synergy of Rs 8,400 crore, and used their ARPU levels prior to the merger to forecast an annual EBITDA of Rs 43,000 crore ($6.04 billion). An analyst privy to the meeting indicated to The Ken that this was little more than wishful thinking.

Despite not having to worry about spectrum auctions—with telcos looking to better utilise existing spectrum and prepping for 5G in the future—there is still a need to increase capital expenditure. As the industry shifts from voice to data, Vodafone Idea must spend big to increase its number of mobile broadband sites and upgrade its optic fibre networks. Airtel, for instance, revised its capex guidance for the financial year to Rs 25,000 crore from Rs 20,000 crore ($2.77 billion). In stark contrast, Vodafone Idea’s capex for the same period is a little over a quarter of Airtel’s—Rs 5,816.9 crore ($807.34 million).

To ease out some of the capital expenditure problems, Vodafone Idea’s board of directors announced plans to infuse equity capital worth Rs 25,000 crore from the company promoters. This was on the pretext that balance sheet flexibility was necessary to execute their strategy. According to a company statement, UK-headquartered Vodafone Group would be willing to contribute Rs 11,000 crore ($1.5 billion) while the Aditya Birla Group is willing to invest Rs 7,250 crore ($1 billion) towards the capital raise. The proposal is expected to close by the end of the financial year.

This, however, is unlikely to remedy Vodafone Idea’s capex shortfall. Instead, analysts say that the bulk of the equity infusion should be used for debt deleveraging. More than half of the equity infusion, say about Rs 15,000 crore ($2.1 billion), should be used to push their debt levels down.

Speaking to The Ken, a Mumbai-based analyst at a financial firm opined that even if Vodafone Idea were to do about Rs 16,000 crore EBITDA annually, they should ideally have no more than Rs 60,000 crore ($8.41 billion) of debt. After deleveraging, the remaining capital can be used for capex and interest payments.’

Tower power

Industry observers say that the capital after deleveraging will not be enough for Vodafone Idea to stay competitive. Instead, the company will have to sell off some of its assets to raise some capex firepower. Their tower assets, for example, could fetch the company some much-needed cash. Cash they need sooner rather than later.

“If they sell the tower assets, then they will be able to survive. If the tower sale does not happen, it is a slow death,” says a senior executive with a telecom gear manufacturer. In the run-up to the merger, both Idea Cellular and Vodafone India sold their standalone tower businesses to ATC Infrastructure Private Limited for a total of Rs 7,850 crore ($1.08 billion)

“Unfortunately, Vodafone Idea does not have a healthy balance sheet and they can’t put in as much money as Airtel is putting in. Forget about what Reliance Jio is spending on capex,” said an analyst in a Mumbai-based brokerage firm.

He sees a correlation between the amount of capex a telco is putting in with the mobile broadband subscriber additions, an important aspect as broadband subscriber additions translate to a higher ARPU and stronger revenue growth. And while Vodafone Idea seems limited in its ability to bring on board high-ARPU customers, it’s also in danger of losing low-end users as well.

Swing low

In the same 2017 interview where Sunil Mittal was supportive of the Vodafone-Idea merger, he also spoke of the biggest thorn in his side—Mukesh Ambani-led Jio. While talking about Jio as a competitor, he mentioned that Jio would have a tough time as its 4G-only network would only cater to smartphone users. The rest of the customer base—on 2G and 3G networks—would remain intact.

All that’s left now is the company’s stake in tower company Indus Towers. While Vodafone owns a 42% stake in the company, Idea owns a further 11.5% stake. Indus Towers is currently awaiting approvals for a merger with Bharti Infratel, the standalone tower company of Airtel. This merger gives Vodafone Idea an opportunity to make a full or partial exit, which could improve the balance sheet further. Globally, Vodafone has been mulling selling its towers business in Europe for around €12 billion ($13.67 billion) to bring down its overall debt.