Reliance Jio – Facebook Merger- The Big Task before the CCI
-Rohan Bhargava
Introduction
The amount of data collected by different online platforms through various methods, viz, social media accounts, mobile phones of users, etc. has been on the surge in the past few years. The information collected by the online platforms plays a significant role in framing their market strategies. These platforms analyze the data to find the preferences and habits of the users and it helps them to make their platform more personalized and targeted towards each individual user. But apart from the pro-competitive changes that it brings, there are many questions that have been raised about the grave anti-competitive issues that it leads to. One of the primary concerns in the digital markets is the merger of online platforms in which the incumbent market players actively participate. This may lead to vast amounts of data sharing and accumulation with one platform. A Merger, therefore, is completed and finalized only after it seeks the approval of the Competition Authorities which thoroughly investigate the harmful effects a merger may raise in the market. They need to look at the future challenges a merger can lead to.
Background
On 23rd April, Facebook announced a Rs 43,574 crore ($5.7 billion) investment in Mukesh Ambani-led Jio Platforms Limited(RIL). With the investment, Facebook will hold a 9.99 per cent stake in Jio Platforms and will be the largest minority shareholder. However, Jio has maintained the status that WhatsApp and Jio will remain independent entities and will continue with business models of their own and compete in the market. The merger deal awaits the approval of the Indian competition authority, CCI under Sec 5 of the Competition Act. The question of approval posed in front of CCI is crucial and can lead to vital outcomes in the future. With this deal RIL seeks an opportunity to kickstart its JioMart Project, where with the assistance of WhatsApp it allows users to order groceries through small kirana stores by placing orders on WhatsApp and making payments through its payment gateway WhatsApp Pay. RIL aims to rival the likes of Amazon and Walmart owned Flipkart in the Indian online delivery market. Another aim of RIL is to reduce its debts which have accumulated in the past three years since its inception in 2016.
Issues at hand
The companies in the digital market are constantly looking for mergers and acquisitions in the market to strengthen their position as the leading players. This leads to incumbent market players accumulating vast amounts of data which the new players lack and therefore, it becomes impossible for the new players to compete in the market. Big Data, today, has become of immense importance in the economy. Even, the Competition Law Review Committee in its report has recognized that the inclusion of non-monetary considerations like ‘data’ in the definition of ‘price’ under Sec 2(o) of the Act. The potential anti-trust issues that might arise due to merger deal between the two digital market giants RIL/FB have been discussed in this article.
- Data Accumulation in One Hand: Facebook and Reliance Jio are two big data controlling giants in India with 328mn and 388mn active users respectively. A big question that arises is about the data-sharing agreement between the two digital market giants. The threat that it possesses is that with the accumulation of vast amounts of user data in its hands (328mn Jio and 400mn WhatsApp users), it can lead to monopoly in the market. This would harm the potential rivals in the market and potentially prohibit future entries of new players in the market. The situation around this issue is more precarious as the Commission has never had to consider the issue of data accumulation in one hand before. The US District Court in United States v. Bazaarvoice, have acknowledged that due to large amount of data accumulation with the acquirer due to the merger can lead to anti-competitive restraints on the market by depriving the competitors a chance to compete. It would be interesting to see as to how and to what conclusion the commission reaches after the investigation. The Indian competition authorities must recognize the importance of Big Data in todays’ market. The Commissioner of the US Federal Trade Commission (FTC), Pamela Jones Harbour in her dissenting statement in the Google/DoubleClick merger case pointed out that with the combination of both the entities, the platform will become a “super-intermediator” with access to unparalleled data sources.
- Preferential Treatment: The agreement further raises concerns of preferential treatment to Facebook and WhatsApp by Jio and vice versa. The collection of data of the users enable the platforms to target the habits, preferences, and likes and dislikes, and helps them to target the audience. With the unparalleled access to a vast amount of data, the online platforms can influence the choices and preferences of the user in each other’s favor. The platform can choose what advertisements are to be displayed in the users feed to generate the greatest revenue. Such preferential treatment is abhorred by the Competition Authorities all over the world. The potential harms in preferential treatment also include better working of the Facebook and WhatsApp over the Jio network. This would be a violation of net neutrality rules. Net neutrality rules provide that all the data should be treated equally by the Internet Service Providers (ISPs). The ISPs must ensure that same level of data, speed and traffic is provided to one service and no websites are blocked nor any special agreement with any specific service are entered into.
- Privacy Concerns: Moreover, it is also essential to look at how the data is going to be used by the Facebook once it acquires the data from RJio. India lacks any legislation regarding the data protection laws as that of in the EU or the US. The EU General Data Protection Regulation protects the user’s data by requiring the marketers to secure explicit permission for data use activities within the EU. India is neither a part to any convention on protection of personal data. In India, presently, the Information Technology Act, 2000 under sect 43A and 72A is the only legislation that applies to body corporates that possess or handle any sensitive information and provides compensation for improper disclosure of personal information. But these provisions are insufficient to protect the data collected by the digital platforms that include the activities of the users on different online platforms. The Facebook/Cambridge Analytica scandal is still afresh in the memory of everyone where the US FTC imposed a fine of $5 billion on Facebook for breach of privacy of its users by sharing the user data with the Political Consultancy firm Cambridge Analytica. Without any strict laws on data protection, there is nothing to show that such breach cannot happen again, in India, and therefore, India must revamp its laws rapidly and efficiently.
- Overlapping Businesses: There are certain business activities of both the companies that are of competing nature and have overlapping business activities. While RJio has its own payment gateway, JioMoney, Facebook is awaiting the Government nod to roll out its own payment gateway, WhatsApp Pay. While Reliance operates through AJio and JioMoney for small and medium enterprises and kirana stores, Facebook also has its own platform for buyers and sellers in the form of Facebook Marketplace. Thus, a thorough investigation needs to be done in the Horizontal nature of the merger deal. The question would be whether the deal reduces competition in the market. Although there are different platforms that offer these services and occupy a large enough market share, the size of the digital giants could be a threat to the existing market players.
Conclusion
Digital Markets have seen a lot of Mergers in the past decade. The big digital market giants have been actively looking in the market to acquire small competitors in the market especially the likes of Amazon, Google and Facebook have been very active in acquiring different platforms. The main targets of these digital platforms have been the new players in the market with a different or a new business idea. These are players who have spent two to three years in the market, and may in future potentially compete with the incumbents.
The mergers can hamper the development of competition in two ways; Firstly, directly, if the acquired entity is a potential competitor of the incumbent player and Secondly, indirectly by acquiring an entity that is a supplier of complementary product or service, thereby depriving their competitors the opportunity to develop/improve in the market.
The mergers in the past decade have mostly been data driven, Microsoft/Yahoo, Microsoft/Skype Google/DoubleClick, to name a few. The vast amount of data collection with one platform often leads to a huge gap between the incumbent and new market players. This gap can lead to loss of quality and innovation in services. Also, since the users lose the control over their data, it leads to breach of privacy of users. Therefore, it is imminent for the Competition Authorities to look very closely at what effects a merger deal can have on the market. A big task lies ahead of CCI in the form of the RJio/Facebook merger deal. The deal raises some challenging and novel issues which the Indian Commission has never had to consider before. And therefore, the Commission must be pragmatic in its investigation with a broad view towards Big Data.
This article is authored by Rohan Bhargava. He is a third year student of law at Dr. Ram Manohar Lohiya National Law University.