Facebook-Jio Deal: What India’s Competition Regulator Will Have to Consider- The devil lies in the details.

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.