Facebook’s mega-deal with Reliance Jio for purchasing a 9.99% stake in RIL’s telecom unit has got a green chit from the competition watchdog of India. The symbiotic deal on one hand helped Facebook to strengthen its presence in the Indian market, on the other it helped Reliance to pare debt. Additionally, through Jio-Mart’s hyperlocal offering, the deal results in business benefits for India’s small businesses and local grocery stores, giving them access to a digital ecosystem.
When such ‘data elephants’ like Jio and Facebook come together, the network effects of such deals, high returns to scale and accessibility to tonnes of data may incentivize indulging in anti-competitive practices. This combination will significantly increase the concentration in the respective horizontal markets by reducing the incentives of the two firms to compete vigorously, but also the pooled resources of the companies will add to their pre-existing dominance.
This blog discusses (a) the prospective anti-competitive practices due to the of Facebook- Jio (FB-Jio) Deal and (b) analyses the competition concerns caused due to the usage of big data in mega deals of foreign jurisdictions with respect to the FB-Jio Deal.. so that India gets an idea about the probable implications of the largest minority stake investment by a technology company worldwide;
A. Potential Anti-Competitive Implications of the Deal
The Competition Commission of India (CCI) permits a combination only if the parties establish that the benefits of the combination to the market outweigh its adverse impacts. Pertinently, the FB- Jio combination, on the face of it, has the potential to cause numerous harms to the consumers as well as the competition.
Given that both Jio and Facebook are among the top three subscriber holders in India, in their respective services, the ‘data-poly’ conceived after their deal will direct its customers to use its indigenous platforms like ‘Jio Mart’ based on an online to offline model. Big firms like Amazon, Flipkart, Bigbasket etc won’t be able to compete with the extremely low prices or deep discounts offered by the virtue of the companies’ deep pockets. On the other hand, local grocery stores would be dependent on the Reliance network from all sides, procurement, online distribution and offline sales.
In the case of Google LLC, CCI observed that there is a need not only to delineate primary relevant market but also related markets to relevant markets that have been affected by the conduct of the involved parties. Section 20 sub-section (4) of the Competition Act,2002 (the act) lists the factors to be considered by CCI in deciding that there is any major adverse impact on the market because of the proposed combination.
In the context of related markets, there are barely any horizontal overlaps between the two companies, but there is vertical integration. Jio provides internet access to smartphones, the internet is used to operate WhatsApp and now JioMart would be integrated into WhatsApp. This is not merely vertical integration, but the use of dominance in one market, to enter into another market, thereby causing leveraging and violating section 4(e) of the Act.
Furthermore, WhatsApp currently is allowing JioMart to function on its platform. Moreso, if a situation arises where WhatsApp comes with pre-embedded JioMart, it could result in abuse of dominance under Section 4(2)(d) of the Act as installing WhatsApp will be the principal contract with a pre-embedded JioMart as an unconnected supplementary obligation. This would also mean that the users will be unable to embed any other e-commerce portal on WhatsApp, causing disrupting the competition in the market. Furthermore, it will lock-in consumers and curb their freedom of choice.
The abovementioned probable consequences of the deal would not only foreclose the market for the existing players but it is also capable of hampering the Indian start-up movement, a significant wing of the Digital India campaign, by creating commercial and business barriers for local tech start-ups.
B. Analysing Big data Concerns for India
Competition concerns arising out of big data has gained a lot of attention in Europe. The companies with access to a huge amount of data and specifically using big data poses to have anti-competitive exclusionary effects. Countries such as France and Germany have released a report analysing the impact of big data on competition law. It is now fairly settled that big data may result in anti-competitive practices such as a barrier to entry and creation of dominance over a market. The merger of Microsoft Corp. with LinkedIn Corp. and Facebook Inc. with WhatsApp are cases where these concerns had profound relevance. Further, Facebook has been charged with a fine for abuse of market power because the company used big data in an anti-competitive manner. Even in the US, antitrust concerns exist due to big data which are recognized by the Federal Trade Commission (FTC). The commission has shown concerns over the potential risk of innovation in deals which involve big data.
India, for the first time, witnessed a merger deal involving the use of big data. Generally, mergers that give rise to a collection of qualified data which cannot be gathered from other sources and analysing that data specifically for commercial purposes calls for scrutiny. The merger between Jio and Facebook would lead to the accumulation of data which can be a threat for anti-competitive practices. This deal plans to create a Super App which would provide multiple services and shall have its impact on various markets. This app would, in essence, create a monopoly in various markets and no other platform would be able to compete with Jio-FB’s combined market power due to the advantage that it accrues by using big data. Anti-competitive issues arising due to the use of big data is unchartered territory for India. However, the Central Laboratory of the Research Councils (CLRC) report has acknowledged the incising interplay of big data and market power. The report pointed out that the definition of the term ‘price’ under section 2(o) of the Act has a wide scope and can include data which is non-monetary in nature. Further, the reports mention that a firms’ control over data creating its dominance can be included within the meaning of ‘resources of the enterprise’ under section 19(4)(b) of the Act.
As CCI has allowed the deal between Jio and Facebook, India must learn from the anti-competitive concerns raised in the jurisdictions and the mergers as mentioned above to create a framework that can combat such concerns. In various countries, Facebook has already been scrutinized for a lot of anti-competitive practices. Considering the absence of a comprehensive data protection law in India and additionally, after the Cambridge Analytica mishap, India is dealing with a tricky situation which requires constant vigilance by the CCI so as to secure the interests of the other market players along with the consumers.
The CCI carries out an ex-ante analysis with a forward-looking approach to check that the suggested combination does not potentially result in an appreciable adverse effect on the competition in the market. CCI has the power to prohibit and modify combination deals that potentially can cause anti-competitive effects. Despite the fact that the present combination is capable of resulting in potential harms to consumers as well as competition, CCI resisted suggesting any behavioural or structural changes in the deal. As the CCI Chairman, Mr Ashok Gupta noted that certain mergers and acquisitions escape the set threshold, despite the potential harm they might result in, is evident. Hence there is a need for CCI to learn from the experiences of foreign jurisdictions in order to prevent any harms to the market competition or consumers.
ABOUT THE AUTHORS
Ramit Singh is a third-year student at Institute of Law, Nirma University. His interests lie in Constitutional Law and Arbitration Law.
Sakshi Lulla is a third-year student of Institute of Law, Nirma University. Her areas of interest are Arbitration Law and Competition Law.