Following the announcement of Facebook's USD 5.7 Billion investment in Jio Platforms, the largest minority investment by a technology company worldwide, Reliance Jio confirmed that it would approach the Competition Commission of India (CCI) for its approval. It is reassuring to know that the CCI will scrutinise such a mega deal between two data giants before it can be consummated, unlike Facebook's earlier acquisition of WhatsApp which escaped the CCI's scrutiny. However, the key question is whether the CCI is equipped to deal with big data issues and if it would, in fact, go beyond its comfort zone (traditional competition rules) to dig deep into the potential adverse effects of such a mega deal.
The starting point for a CCI assessment is to identify any existing or potential overlaps between the combining parties and then examine the effect of the combination on the ability of other players to effectively compete with the combined entity. The CCI is required to balance the adverse effects of the proposed transaction against its positive effects and ensure that the competition dynamics do not get skewed in favour of the combined entity.
Although there are certain obvious overlaps between the two companies in segments such as, e-commerce and digital payments, the primary driver of this transaction is the vast user and data bases of these companies and the synergies which can be created by judiciously commercialising this data. It appears that WhatsApp (as a platform and as a massive userbase) will be leveraged to propel Reliance's e-commerce platform, JioMart, which is likely to be synergised with India's largest retail chain, Reliance Retail. This may result in the creation of a grand e-commerce platform, especially if the Facebook/ WhatsApp data is used for targeted advertising, clubbed with deep discounting.
On the grocery side, Jio has already started onboarding a large number of local traders and kirana stores. What is being claimed is that Reliance is attempting to create an ecosystem where online and offline channels can co-exist. However, there is little discussion on the distribution model which Reliance plans to employ and how such a model would attempt to create an ecosystem where stakeholders at every level of the distribution chain (starting from FMCG companies to local kirana stores to end consumers) would become increasingly dependent on Reliance's network.
Existing distributors and wholesalers of FMCG companies may gradually become irrelevant as kirana stores' inventory requirements would be met by Reliance's wholesale entity. Reliance has already invited existing distributors of renowned brands to join its wholesale entity. Even for offline customers (whose number is expected to collapse with JioMart's success), payments could move to Reliance's payment portals (MPoS or JioMoney) with attractive cashback offers. Reliance is likely to introduce smart MPoS terminals which can track the inventory of a store along with other data on offline sales. Therefore, local traders and kirana stores would become increasingly dependent on the Reliance network on all sides, i.e., procurement, online distribution and offline sales. Effectively, there could be vertical integration at the wholesale and the retail levels insofar as Reliance entities would be the wholesaler and the final retailer (with kirana stores in the middle) along with Reliance's payment gateways.
The dependence on the Reliance ecosystem could become so great that Reliance could soon become an essential business partner for many (in competition law, such a position is generally described as a dominant position). The fast track to such a position could be paved by deploying targeted advertising through Facebook which (through its sophisticated AIs and algorithms) collects deep insights on user interests and preferences. Such targeted marketing could be exacerbated by Reliance's ability (as an ISP) to employ Deep Packet Inspection (DPI) to monitor browsing histories of its broadband users. If Jio manages to commercialise this colossal data, currently being harvested by the two entities to promote JioMart and its other businesses, the results would be extraordinary, perhaps, even frightening to many players.
Based on traditional competition rules, it may be difficult to assess the resources and market positions of the combining entities, especially in the technology sector. However, if such an assessment is undertaken considering data as a relevant metric for resources and economic power of the parties, the results would be very different. It is now well accepted that data is a monetizable asset and a relevant factor to assess the market power of an entity, especially in the digital space. Many mature competition authorities (especially, the European Commission) are reconsidering their current rules to define relevant markets and assess dominance in digital markets. From previous data driven transactions, such as, Facebook/ WhatsApp and Microsoft/ LinkedIn, competition authorities have learnt their lessons not to ignore the importance of data in competition law assessments, despite the limitations of the existing legal framework.
Given that such a mega-transaction is subject to the scrutiny of the CCI alone, and that there is no data-protection authority to monitor data abuses, it becomes indispensable that the CCI steps up to the plate and meticulously scrutinises the transaction from the big-data perspective, without relying much on the traditional approach which is unsuitable for dynamic digital markets.
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