By: Angela Dua and Rashi Rawat
Data, as the new ‘raw material’ for business, plays a cardinal role in the dynamic and evolving digital space as the world increasingly shifts online, a trend which is only set to grow after the COVID-19 pandemic passes. Therefore, the e-commerce companies are, now more than ever, focusing on developing novel methods to collect and process data in order to gain more ground in markets. Thus, it becomes all the more significant that the recent acquisition of shares in Reliance Jio by Facebook, Inc. is subjected to close scrutiny by the Competition Commission of India (hereinafter ‘CCI’).
BIG DATA AND DIGITAL MARKETS
‘Big data’ can be defined as a large dimension of datasets characterised by high volume, velocity and variety (the three V’s) which is processed by specific technology for its transformation into value. It differs from traditional business models in a multitude of ways. For instance, brick-and-mortar stores have thrived by personally knowing their customers to learn about their preferences. Data markets, on the other hand, work on data-driven network effects such as search engines, sponsored ad targeting and social networks. Digital companies create specialised algorithms to detect sentiments on a particular good or service to determine, not just consumer preferences, but also the product’s attractiveness to future users. Another significant difference between traditional business markets and big data is with respect to physical limitation. While the former is exposed to limited knowledge based on personal interaction, the latter has access to boundless information regarding consumer behaviour, both individual and collective, that can be obtained by running data mining algorithms on a variety of data sets.
Since the data market is more dynamic and volatile in nature, the price effects of a transaction should not be the only focus of competition authorities while assessing market power. Especially in sectors like telecommunication and social media where services are offered for free, non-price factors such as innovation, quality of the product and privacy protection become more relevant. This line of reasoning was adopted by the US Department of Justice in the merger of Bazaarvoice and PowerReviews wherein the said merger was not given clearance because it could potentially monopolise data, thereby causing high barriers to entry in the market for ‘ratings and reviews platforms’. Therefore, in markets where zero prices are observed, the share of control over data is a more efficient tool than the share of sales to assess market power.
ACCUMULATION OF DATA AND COMPETITION
The present merger control regime in India does not take into account the competitive significance of data and how its accumulation can attenuate competition. Some major competition concerns pertaining to the access to data include exclusionary conduct, price discrimination, barriers to entry and privacy breaches.
A merger of two companies which already have a large user base and hold strong positions in separate markets can lead to market foreclosure through exclusive contracts with third-party data service providers, usage of bundling and tying strategies or refusal to access data. Further, having access to every minute detail of the consumer profile, companies get to know about their purchasing habits and are in a better position to gauge their willingness to pay for a particular service. As a result, some consumers end up paying higher prices than others for the same product or service. Furthermore, access to big data between two established companies may prevent new entrants from getting access to the same kind of data, thereby creating high entry barriers in the market.
Privacy protection is one of the most relevant non-price competition factors which has great significance in industries where the service itself is offered for free. Accumulation of vast amounts of data, coupled with targeted advertising, leads to the loss of consumers’ privacy. Consumers value privacy as a desirable characteristic, and since a reduction in privacy leads to a reduction in quality, privacy considerations can fall within the purview of non-price quality competition.
Privacy protection can also be brought under the monetary competition law by virtue of the theory of privacy harm, wherein the personal data that the user gives in exchange for the company’s services can be regarded as the price which he has to pay when using a ‘free’ service.’ This theory was the basis of Bundeskartellamt’s investigation against Facebook for the infringement of data protection rules.
In India, as across the world, the development of digital markets and the omnipresence of data has led enforcement authorities to re-evaluate their merger assessment policies, which are primarily focused on indicators of asset turnovers. Data-driven markets and their impact on competition were discussed by the Indian Competition Law Review Committee in its report in 2019. Traditionally, these assessments tend to focus majorly on the impact of the merger on prices of services, which becomes irrelevant in two-sided markets where consumers are offered services for free. Accordingly, the committee examined whether the definition of ‘price’ defined under section 2(o) of the Competition Act, 2002, needs to be widened to expressly include data. Although it was concluded that the present definition is wide enough to include non-monetary considerations in the form of data, it was conceded that consumers ‘pay’ with their personal data and relevant preferences on platforms which offer free services to consumers and monetise that data through advertisements.
The committee also agreed that control over data and network effects may be relevant in assessing the dominant position of an enterprise, but there was no indication of its inclusion in the criteria for the assessment of mergers, i.e., if the combination would cause an appreciable adverse effect on competition. The report on e-commerce markets makes some points about self-regulation of digital markets and their distribution of data, despite enough proof that it is not effective. Recently, a Wall Street Journal report alleged that Amazon used data regarding third-party sellers to launch its own competing products. As a result, the US Congress members have called on Amazon’s CEO, Jeff Bezos, to testify before the Judiciary Committee of the House of Representatives, as part of an ongoing antitrust probe.
FACEBOOK’S ACQUISITION IN RELIANCE JIO
Reliance Jio, of the Jio Platforms Limited, the market leader in telecom sector in India, and Facebook made the headlines a few weeks ago when the latter announced that it would be acquiring a 9.99% minority stake in Jio. The deal, which is worth a massive $5.7 billion dollars (Rs. 43,574 crores), also makes Facebook the largest minority shareholder in the Mukesh Ambani-led Jio Platforms, the digital arm of Reliance Industries Limited. The deal assumes significance in light of the vast user base both companies enjoy in India. In the past, the Competition Commission of India had to foray in the digital market too as it dealt with individual complaints regarding abuse of dominance against the cab aggregator Ola, and has fined Google for its practices, and in the matter of acquisition of Flipkart by Walmart, and Flipkart and e-Bay. While in the first one, there was no data sharing aspect as Walmart is a brick-and-mortar store and Flipkart is an online store, the latter was approved for the fact that neither of the companies enjoyed a large market share (less than 20%).
The two behemoths, backed by deep pockets, have the ability to bear losses to offer services below market rates in order to expand its customer base. This may act as a barrier to entry for new entrants in the market. Reliance Jio has already been accused of predatory pricing by its competitors in the Indian telecom market, owing to its offer of free data and voice scheme to its new subscribers which continued for months. Although the CCI dismissed the allegations and called it ‘penetrative pricing’, the reason Jio was able to do it was because of the extensive resources and wealth of its parent company, RIL. Where the number of private sector wireless providers in the market was ten before the launch of Jio in 2015, it has now come down to three.
JioMart has already gone live over WhatsApp and allows users to place orders to be dispatched to local grocery stores, leveraging the latter’s users for an unparalleled reach in the country. This is crucial since RIL plans to sell its own private labels through these stores under brand names such as Best Farms, Good Life etc. This could then lead to discriminatory practices and unfavourable treatment against those selling on the platform. WhatsApp’s UPI Payment app, which has been facing regulatory and legal problems for the past two years, might finally see a launch at the end of this month. The giants working together could give Facebook a pipeline into the data of India’s small and medium businesses with a deeper and more localised insight into the consumption patterns and data usage of millions of Indians, a leap towards becoming formidable advertising machinery. This is because of the platforms’ exclusive access to massive transaction data and the ability to control search rankings. Deep discounts and platform neutrality aspects may also bring in competition concerns, disrupting the e-commerce space. In a market study on e-commerce in India published by the CCI, it was observed that numerous e-commerce players in India compromise platform neutrality by according preferential treatment in marketing and selling products by their own subsidiaries, related parties or others. Unfair and discriminatory contractual terms for different entities, which leads to small business’ lack countervailing power, was also highlighted.
Some industry analysts believe that the strategic rationale of the deal is to create a ‘super app’ (e.g. WeChat in China) that leverages its massive install base and incrementally adds new products and services (e.g. ride-sharing, food delivery and financial services). Ambani would be best-suited to try the model in India, especially if he gets to build it around the popular WhatsApp. In this potential scenario, Reliance/Facebook could monetise all payment volume transacted through the app. Further, due to the lack of data regulation rules in the country, TRAI may have to get involved to monitor the deal. Concerns around net neutrality have also been raised as Jio, a service provider, could give some benefits to its users for joining certain apps, thus discriminating against the others.
Justice BN Srikrishna, a former Supreme Court judge, who is considered to be the chief architect of India’s data privacy law, has claimed that the Reliance-Facebook deal took place due to the absence of a data privacy law. He also raised concerns over the long-term strategy of the deal and said that it is just a strategic investment to cater to the business interests of both the parties. He asserted that the said deal raises two important issues around competition law and data protection. According to him, while there is a regulator under the Competition Act of India to look into various aspects of the deal, no such regulator exists to scrutinise big data since the Personal Data Protection Act is yet to come into force.
The terms of the agreement over data sharing are still not clear. Although the companies maintain that there would be no sharing of its users’ data, there are no regulations in place to prevent that from happening in future. This also puts at risk the privacy of those people who are only using one platform and have not agreed to their data being traded. India does not have a data protection law yet, and there is no law which protects the privacy of the citizens in such situations, where data is to be shared with an overseas company. Privacy is increasingly becoming a qualitative, non-price factor in measuring competition. In the Facebook-Whatsapp merger, the EU reiterated that data security and data privacy constitute key factors of non-price competition. Moreover, the social media giant has been mired with controversies related to its data collection and sharing policies. The EU fined Facebook €110 million ($122 million) for providing misleading information over its technical capabilities in terms of sharing user data before its acquisition of WhatsApp in 2014. This came after WhatsApp announced that it would begin sharing its user data with Facebook. India has, in the past, recognised and applied other remedies for regulating mergers, instead of blocking it altogether. The CCI has enough discretion to modify those remedies according to the market landscape to ensure that there is competition in the market. As mentioned in the Competition Act, the goal is to ensure competition in the market and free flow of trade, instead of maximising consumer welfare. This distinction between ‘harm to consumers’ and ‘harm to competition’ becomes even more relevant when online digital markets come into play. To tackle these issues and that of leveraging data for acquiring power and size in the market, the CCI could put some stipulations over data sharing between the two companies.
Cite as: Angela Dua and Rashi Rawat, ‘The Reliance-Facebook Deal: A Case for Data-Driven Mergers’ (The RMLNLU Law Review Blog, 06 June 2020) <https://rmlnlulawreview.wordpress.com/2020/06/06/the-reliance-facebook-deal-a-case-for-data-driven-mergers > date of access.