Facebook-Jio Deal: What India’s Competition Regulator Will Have to Consider
The Wire
Dated: June 10, 2020
By: Anupam Sanghi
When
two huge conglomerates come together, the news is usually mixed — good
and bad. The recent partnership between Reliance Jio and
Facebook will give huge business benefits for India’s small businesses
and kirana-stores through Jio-Mart’s hyperlocal offering, giving
them access to a digitalised ecosystem. WhatsApp Pay could shake up the payment
ecosystem where sending money is as easy as sending a message.
The
negative side of this is that it could end up producing a data Frankenstein of
sorts, giving a micro understanding of millions of consumers. The general idea
is that the added power of Facebook, a platform where advertisers can target
people based on their interests, and bingo — nothing about you is unknown.
While
the details of their working relationship are unknown, if Jio and Facebook
share information with each other, a complete portrait of a consumer, her
passion, interests, expenditures etc could be mapped out in a manner that would
make her privacy vulnerable.
What is the big deal?
There
are a number of issues at play here. Firstly, the strong network effects of
digital platform economies. Second, the relevance of volume and variety of data
as a key factor to provide high quality service and how that serves as a competitive
advantages. Third, whether the mere combination of both types of user data
(WhatsApp and Jio) will allow the new entity to achieve a position that could
not be replicated by competitors leading to foreclosure of the market(s).
The
success of the business model of various (multi) two-sided virtual platforms
like Google, Facebook, and Uber among others depends on collecting user data.
The data as input may be used to get ad-revenue or improve internal algorithms
for the paid side of the platform. The potential of data analytics gives a
crucial competitive advantage to the advertisement-driven business model.
By
restricting the supply of user data, a dominant player can successfully
restrict its competitors from gaining critical mass (in terms of both scale and
scope) that is crucial to stay viable in a digital market.
Very
often, big digital businesses are not confined to providing just one or two
services. They offer a whole range of access to different areas with an
ecosystem of services that are designed to work together well. The goal of
producers is to essentially lock-in their customers and lock-out the
competition. This is accomplished by creating a value proposition for their
customers and making it difficult for them to leave the fold because of the
high switching costs.
In
developed jurisdictions, data leveraging has been considered as a serious
anti-trust issue and various competition regulators have fined both Google and
Facebook.
Two
recent cases on the competition assessment of data-driven markets are the
European Commission’s decision against Google in the Android licensing case,
and Bundeskartellamt’s (German Competition Authority) action against Facebook.
Both decisions were concerned with anti-competitive foreclosure, leveraging technology
– with the motivation to illegally acquire data to score an advantage over the
competitors.
The
Competition Commission of India (CCI) is also investigating the Google-Android
case for abusive and anti-competitive restraints in Google’s licensing practices
of its Operating System by imposing conditions (on mobile manufacturers) like
the pre-installation of Google Search app in Android phones.
When
is privacy an anti-trust issue?
Restrictions
around data portability help firms maintain or grow their market power. A
social network’s default settings ( restricting choice ) are an important
initial sales pitch since consumers are reluctant to change default settings as
it is cumbersome to change them. This
induces users to maintain the status and creates a disadvantage called the
‘status quo bias’.
In
2017, the CCI closed cases against both WhatsApp and Jio involving allegations of predatory
pricing and privacy violations. In both these decisions, the regulator did not
consider the restrictions around data portability as a competitive
advantage.
The
European Commission has analysed data related mergers in the last decade
starting from Google/DoubleClick to Microsoft/Linkedin, Verizon/Yahoo and
Facebook / WhatsApp to name a few – identifying possible harming effects of the
control over exclusive information or an absolute foreclosure scenario. The
commission’s tendency has been to avoid over-enforcement — balancing the efficiency
defence doctrine with theories of harm of financial power and portfolio effect.
However,
it seems difficult to maintain a non-interventionist stance. On the one hand it
is not only questionable whether efficiency considerations are the norm in big
data merger cases, it is also difficult to define data specific economic
efficiencies that have to be assessed with due regard for data protection
obligations.
On the other hand, the evidence shows how during the last years
some data-driven markets instead of having been disrupted by new, innovative
products or services, have even increased their strong market positions like
Google’s search engine or Facebook’s social network and communication online
services.Therefore,
they stress the need for considering conditional remedies that tackle potential
issues of lack of foreseeability.
How
can the CCI assess competition and consumer choice?
Given
that both Jio and Facebook are among the top three holders of subscribers in
India in their respective services, are these companies in a position to
unfairly compete against competitor service providers by ‘directing’ its
customers to use, for instance, the Jio Mart service? That is, will consumers
have unfettered freedom to choose other alternatives like Bigbasket, Goffers
(in online grocery ), or Amazon and Flipkart (in retail)?
Given the new app could provide various
services (one-stop-shopping) through a ‘super-app’ and may acquire the status
of a dominant hyperlocal service provider, will consumers be free to choose
their service without pre-installation of app over the phone, or will the
merged company’s significant subscriber base be “ushered” through technical
price discrimination or by requiring users to pass through a proprietary first
screen? In other words, will users of Jio/FB/WhatsApp/Instagram be
led into content cul-de-sacs owned and operated by Jio / Facebook?
Concerns
of dataopolies in digital conglomerate cases
The
mere accumulation of data may create an advantage that increases the risk of
further anti-competitive behaviour.
Some
possible data leveraging advantages for attempted monopolization could be:
1)
A theory of leveraging. The classic example of leveraging is when Microsoft
used its quasi-monopoly on the client PC operating systems market to extend it
to the media player market – in view of the indirect network effects. In this
case the concern is that both Jio and Facebook through Whatsapp could
potentially use the market dominance it has gained in the telecom and social
networking services to create dominance in the e-commerce market through
unlawful anticompetitive acts.
These unlawful anti-competitive acts include tying,
monopolistic refusals to deal, predatory pricing, and new product
proliferation. These unlawful anticompetitive acts however can also
independently give rise to liability under Section 3(4) and Section 4 of the
Competition Act, 2002.
2)
Next, there must be a determination whether a probability exists that any
anti-competitive acts of Jio or Facebook would have the dangerous probability
of creating a monopoly in the online groceries and/or other new markets entered
into through Jio Mart as a Super-app. Having a significant number of combined
users, no other platform could begin to compare to Jio-FB combined market
power. It is not unreasonable to forecast that JioMart alone would quickly
become the dominant competitor in the hyperlocal market if free to do so, just
like Jio alone gained 380 million users in about three years.
3)
Portfolio effect. Increasing the range of brands, by bundling of say, telecom
and other service offerings or illegal vertical restraints, even predatory
pricing. This in turn may lead to greater ability of further leveraging,
deterring innovation and results in degradation of quality.
Other
concerns on data exclusivity post-merger could include whether consumers will
have a choice or how could the ecosystem leave consumers locked in. Does the
consent for data collection include information that is not relevant for
retail? Is there potential for misuse of of power to generate and/or share more
information that is profitable to the platform, for instance, with the
intention of suggesting a grocery list? Such strategies often make the consumer
totally dependent on the app achieving a status quo
bias.
Summing
up the theory of harm of a relative market foreclosure scenario – the data
induced economic power generates greater advantages than in the pre-digital era
– where the advantage is not to a specific relevant market but to the whole
conglomerate’s digital ecosystem.
Till
now, there has not been a clear and consistent approach adopted by CCI in both
anti-trust and merger cases of platform markets. Lessons from the past
anti-competitive analysis by different competition authorities are relevant
today to understand the diversification in the digital economy. Remedies in
merger control play a major role of restoring competition in the market. The
CCI could mandate certain commitments to address the obvious antitrust concerns
raised by the merger. Two major concerns being ensuring open access for rival
service providers and interoperability of data and / or treating it as an
essential facility.
Cost
benefit analysis
Does
the free market today reflect consumer welfare even as digital monopolists have
no incentive to innovate which amounts to de-grading quality? When calculating
the economic impact of conglomerates like Jio-FB, one needs to consider
potential market power as well. However, at present, the vulnerability of the
consumer is most crucial when data privacy law is fuzzy.
Huge benefits will come
with huge costs. While regulators grapple with the digital market structures
and consumers are confused with data strategies of the tech giants, the
Competition Commission of India can provide a way forward by a robust and
sophisticated market analysis, mandating commitments to allow the deal to go
through.
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