CCI dismisses allegations on WhatsApp and Facebook for abuse of dominance in digital payments market
By way of order dated 18.08.2020, the Competition Commission of India (CCI) has dismissed allegations of abuse of dominance by WhatsApp Inc ("WhatsApp") and Facebook Inc ("Facebook") in the market for internet-based messaging application through smartphones to manipulate another market i.e. 'market for UPI enabled digital payment applications' in its favour, with its new feature of UPI based transfer of funds.
Background and allegations
Information before the CCI was filed by a lawyer- Ms. Harshita Chawla 'highlighting' the anti-competitive practices followed by platforms in Unified Payment Interface (UPI) market in India which affect participants/players in the said market, besides impacting individual customer/consumer in the long run. It was alleged that WhatsApp backed by Facebook and its dominance in the internet based instant messaging App, is bundling its messaging App with the payment option (WhatsApp Pay) to penetrate into the UPI enabled Digital Payments App Market. It was alleged that UPI enabled Digital payment market deals with customer sensitive data and with the given volume of data, national security and data privacy can be compromised, if the anti-competitive activities are left unchecked and unregulated, thereby leading to loss at a national level.
Besides these broad allegations, the informant made two specific allegations:
- The users of WhatsApp automatically get the payment app owned by WhatsApp i.e. 'WhatsApp Pay' installed on their smartphones and this automatic installation of the Payment option into the Messenger App is nothing short of 'pre-installation' which is forced upon a user of the "dominant" product, the WhatsApp messenger , as automatic installation of WhatsApp Pay on existing WhatsApp Messenger user's device amounts to imposition of unfair condition on the users/consumers. There exist two separate markets for Internet based Messaging Apps on smartphones and for UPI enabled Digital Payments Apps and that there exists a sufficient consumer demand for use of these apps separately and independently. Thus, the conduct of WhatsApp amounts to bundling since the two products are offered as a package and are not available independent of each other, which contravenes Section 4(2)(d) of the Act. This bundling arrangement allegedly has an element of 'coercion' as WhatsApp enjoys a dominant position in the internet based instant messaging app market, having a pre-existing user base of more than 400 million monthly active users in India. A user who does not wish to install the Payments App but only the Messenger App does not have the option to do so.
- That the acquisition of WhatsApp, Instagram and Oculus by Facebook causes an adverse effect on the competition as these companies have huge data sets of users which they can use for their commercial advantage.
Submissions by Facebook
It was submitted that while Facebook is the parent company of WhatsApp, they are separate and distinct companies and it is only arrayed as a proper party in this matter. It was highlighted that Informant has neither made any allegations against Facebook, nor has prayed for any relief against it, therefore, Facebook should be deleted from the memorandum of parties.
Further, Facebook challenged the allegation regarding its previous acquisitions stating that such legitimate and legal acquisitions cannot be equated with abuse of dominance under Section 4 of the Act. Further, it was submitted that WhatsApp and Facebook are separate and distinct entities and any alleged strengths of Facebook cannot be attributed to WhatsApp.
Submission by WhatsApp
It was submitted by WhatsApp that the information filed before the Commission was premature since the full version of WhatsApp Pay was still to be released in India , which would enable all users in India to access the WhatsApp Pay feature, has not been launched yet.
Further, WhatsApp challenged the informant's market definition stating that the informant incorrectly defined the relevant market to be, the 'market for internet based instant messaging apps in India' whereas WhatsApp operates in a much broader market under 'market for user attention'. WhatsApp application competes broadly with all digital products and services that seek to capture user attention through innumerable different services or functionalities, such as social networking, messaging, gaming, content viewing and sharing, photo and video sharing, or music, amongst many others and the relevant market cannot be limited to a specific mode of engagement like instant messaging.
With respect to allegations of dominance, WhatsApp claimed that it does not enjoy a dominant position in the market proposed by it or even in the narrow market proposed by the Informant and the assessment does not meet the test for dominance under the Act as the Informant has failed to provide any comparative analysis to demonstrate that WhatsApp acts independent of competitive constraints from other messaging applications active in India such as Google Hangouts, iMessage, Viber, Hike, Zoom, Skype, Telegram, or Truecaller, or SMS services offered by every telecommunications operator in India.
It was further submitted that to constitute an abuse, it must be demonstrated that WhatsApp Pay has imposed itself upon users of the WhatsApp messenger application, who have no choice but to submit to using WhatsApp Pay. Further, WhatsApp Pay remains disabled until it is manually set up by a user and WhatsApp's other non-payment features remain uncompromised in terms of functionality and quality, irrespective of it being pre-installed and no user can send or receive funds through WhatsApp Pay without taking these voluntary steps to enter into these separate terms of service and registering for the WhatsApp Pay feature.
Further, with regards to allegations of bundling, it was submitted that since WhatsApp pay is only in the beta phase, it cannot be even said to exist as a separate product. It was contended that the allegation of bundling is without merit and does not satisfy the conditions of bundling as understood in the antitrust context. (i) it was submitted that the WhatsApp application and the payments feature are not separate products, rather it is an additional feature. (ii) there is no insistence or coercion for the use of WhatsApp Pay. Neither the users are required to register for or use WhatsApp's payment feature in order to use the WhatsApp messenger service nor the use of WhatsApp messenger service is conditional upon the usage of its payments feature.
Challenge to informant's locus standi
Both WhatsApp and Facebook challenged the locus standi of the informant stating that a lawyer, such as the Informant, who has not even claimed any legal injury as a consumer or as a member of any consumer or trade association as a result of WhatsApp's alleged conduct does not have the locus standi to file information. This submission was based on the decision of the Hon'ble National Company Law Tribunal in its recent judgement in Samir Agarwal v. Competition Commission of India.
Further, it was alleged that the informant is indulging in forum shopping since the Supreme Court was also approached by the informant with the same subject matter allegations and this fact was not disclosed in the information.
CCI's prima facie order
Decision on locus standi
As regards the challenge to the locus of the informant, the Commission noted that as per the scheme of the Act, the challenge was misconceived. It was observed that the Preamble to the Act unequivocally voices the ethos with which the Act was enacted, keeping in view the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participant's in markets, in India, and for matters connected therewith or incidental thereto.
"Even though a case filed by an aggrieved party may appear to be a case in personam, underlying it is a larger question of market distortion. The mere fact that a case has been filed by an aggrieved party under the Competition Act, does not take away its character of being a case in rem involving a larger question of fair and competitive markets."
Further, it was held that role of the Commission as an overarching market regulator also finds its foundational footing in the amendments introduced in the Act, vide the Competition (Amendment) Act, 2007, whereby the provisions of Section 19 (1) (a) were amended substituting the words "receipt of a complaint" with "receipt of any information" which clearly reflected the legislative intention of emphasizing the inquisitorial nature of the proceedings of the Commission.
The Commission placing reliance on the earlier decisions of the Appellate Tribunal held that that the Informant need not necessarily be an aggrieved party to file a case before the Commission. Neither the Act specifies any such requirement explicitly, nor the same can be implicitly read into the provisions which clearly point towards the inquisitorial system envisaged by the Parliament. It was held that since there are divergent decisions of the Hon'ble Appellate forum on the question of locus of the Informant, it may not be appropriate for the Opposite Parties to challenge the maintainability of the information filed by the Informant, based on the observation in the case of Samir Agarwal case alone.
Further, as regards the challenge that the informant had indulged in forum shopping, the Commission noted that where the Informant approaches the Commission with unclean hands or bases its case on incorrect facts or evidence, there are adequate provisions under the Act, to deal with such instances and to demand that the dismissal of an otherwise maintainable information, would be stretching the argument too far. As regards non-disclosure, the Commission noted that the Informant in the present case and the petitioner in the PIL filed before the Hon'ble Supreme Court are not the same and the attempt to draw some linkages are not relevant to the facts of the present matter given the inquisitorial scheme of the Act. More so, when such a disclosure being a technical requirement, and not a factum leading to dismissal of an information, the assertion of the OPs that the 'Commission should not consider the present Information on the ground of the Informant's unclean hands alone' is not tenable.
Decision on merits
Relevant Market
Commission observed that WhatsApp and Facebook broadly are third party apps providing internet-based consumer communications services. Consumer communications services can be sub-segmented based on different parameters e.g. on the basis of functionality, some apps enable real-time communication in various forms, such as voice and multimedia messaging, video chat, group chat, voice call, sharing of location, etc., while others provide services such as communication with a wider set of people in an impersonal setting such as sharing status and posts. Further, while some consumer communications apps are proprietary in nature, i.e. available on only one operating system such as FaceTime and iMessage service available on Apple's iPhones, while others operate as over-the-top ('OTT') apps offered for download on multiple operating systems, e.g. WhatsApp and Facebook are available on a variety of mobile operating systems, including iOS, Android, Windows Phone etc. Further, segmentation can also be based on whether a set of consumer communications apps are available for all types of devices, or only for particular type(s) of device e.g. while Facebook is available on smartphones as well as PCs, WhatsApp essentially is a smartphone app.
CCI observed that there are peculiar features which these consumer communication apps possess, where for some functions they may appear substitutable while not so for others, making it all the more challenging to compartmentalize them into water-tight categories, and therefore, it is important to identify the primary or most dominant feature(s) of an app to categorise it into a particular relevant market.
As regards WhatsApp, it was observed that WhatsApp is primarily an Over-The-Top (OTT) messaging App, linked to a smartphone device and mobile number, which has features of communicating personally, both one-to-one or group. It uses the internet to send and receive text messages, images, audio or video content, sharing of location etc. from one user to another as opposed to the mobile network used for traditional texting/SMSing. On the other hand, Facebook is a social networking app which connects many users simultaneously. The users can post text, photos and multimedia which is visible to all those other users whom they have agreed to be their 'friend' or with a different privacy setting, with any other user. Users can also use various embedded apps, join common-interest groups, receive notifications of their Facebook friends' activities etc.
CCI noted that one of the economic tools widely used by competition authorities for gauging substitutability and for defining relevant market in traditional markets is the SSNIP (Small but Significant Non-Transitory Increase in Price) Test. However, given that 'price' is the most significant consideration for application of SSNIP Test, it may be difficult to contextualise substitutability from SSNIP point of view for OTT communication Apps as they do not levy monetary charge on the users.
Accordingly, the Commission held that that the relevant product market in which WhatsApp operates is the 'market for Over-The-Top (OTT) messaging apps through smartphones' in India.
UPI enabled Digital Payment Apps also work as third-party apps (not the banking entities) enabling instant transfer of funds (in the form of IMPS) between users having subscribed to the Apps on their smartphones and having access to internet which is a new technology infrastructure that existing bank apps can integrate with, in order to facilitate easy transfer of funds and other monetary transactions between two people in a secure and convenient manner. Further, these UPI enabled Digital Payment Apps, e.g. PayTM, Google Pay, Phone Pe etc., allow several value-added features besides traditional transfer of funds, such as integrating payment for utilities, mobile bills, purchasing train tickets, air tickets, movie tickets and thus, provide services which are distinct and which may not be substituted with any other mode of payment such as debit cards, credit cards, net banking, etc. Therefore, the second relevant market for assessing the allegations of the Informant was determined to be 'market for UPI enabled Digital Payments Apps in India'.
Dominance
Commission observed that Facebook and WhatsApp are group entities and though they may operate in separate relevant markets, their strengths can be attributed to each-others' positioning in the respective markets in which they operate.
CCI noted that the data provided by the informant showed that WhatsApp messenger is the most widely used app for social messaging, followed by Facebook Messenger in the relevant market delineated by the Commission and is way ahead of other messaging apps like Snapchat, WeChat etc. showing its relative strength. Further, WhatsApp messenger and Facebook Messenger are owned by the same group and therefore do not seem to be constrained by each other, rather adding on to their combined strength as a group. Accordingly, owing to its popularity and wide usage, for one-to-one as well as group communications and its distinct and unique features, WhatsApp was found to be dominant.
Abuse of Dominance
Commission observed that the allegation levelled by the informant are in the nature of both exploitative as well as exclusionary abuses flowing from the same conduct. On the exploitative side, the Informant was aggrieved that the users of WhatsApp Messenger have been imposed with another App 'WhatsApp Pay' to which they did not subscribe or download [Section 4(2)(a)(i)] and since these two apps operate in two different markets, the tying of the latter with the former is anticompetitive [Section 4(2)(d)]. On the exclusionary side, it was alleged that this conduct distorts another market i.e. 'market for UPI enabled digital payment applications in India'.
As regards the allegations with respect to Section 4(2)(a)(i), Commission did not find merit in the allegation as the mere existence of an App on the smartphone does not necessarily convert into transaction/usage and as per WhatsApp's submission in order to enable WhatsApp payment, the user has to separately register for it which necessarily requires the users to accept terms of the service agreement and privacy policy and therefore no action cannot be completed without voluntary steps. Further, the users will have full discretion whether to use WhatsApp Pay app or not, which implies that the users will have an option to use any other payment apps which might already have been downloaded on their smartphones.
As regards bundling/tying, the Commission observed that certain conditions which need to be fulfilled to conclude a case of tying are (i) the tying and tied products are two separate products; (ii) the entity concerned is dominant in the market for the tying product; (iii) the customers or consumer does not have a choice to only obtain the tying product without the tied product; and (iv) the tying is capable of restricting/foreclosing competition in the market. CCI noted that the first two conditions are met since (i) WhatsApp Messenger and WhatsApp Pay are two distinct products with different functionalities; and (ii) WhatsApp is dominant in the 'market for OTT messaging apps through smartphones in India'.
On the third condition, CCI observed that WhatsApp had submitted that WhatsApp users do not "automatically" or "mandatorily" have to use the WhatsApp Pay feature, but rather retain full discretion on whether or not to use WhatsApp and the WhatsApp Pay feature'. It was prima facie found that Installation of the WhatsApp messenger does not appear to explicitly mandate/coerce the user to use WhatsApp Pay exclusively or to influence the consumer choice implicitly in any other manner, at present. Accordingly, the third condition does not seem to have been established.
As regards the fourth condition i.e. the actual or likely impact of installation on competition in the market for tied product, the Commission observed that at present, the UPI digital payments market consists of various established players e.g. Google Pay, PayTM, Phone Pe, Amazon Pay etc. which are backed by big companies/investors and in an evolving market the players seem to be vigorously competing which is evident from offers/discounts/incentives offered by them to their users. It was concluded that in such a market to perceive that WhatsApp Pay will automatically get a considerable market share only on the basis of its pre-installation seems implausible. Further, the Commission also observed that WhatsApp Pay had got approvals to act as a payment app in India in February 2020 in beta version, and only recently, it seems to have complied with the data localisation norms stipulated by NPCI to operate fully and therefore, its actual conduct is yet to manifest in the market. Accordingly, the Commission observed that this allegation was premature in nature.
Accordingly, the Commission closed the case under Section 26(2) of the Act.
Comment: This order involving sound economic analysis by the Commission is likely to expedite the rolling out of the digital payment by WhatsApp in India. The UPI enabled digital payment services, WhatsApp Pay, is still in launch stage and to this extent the Information filed alleging abuse of dominance was apparently premature.
Note: This article first appeared on the Antitrust and Competition Law Blog on 26 August 2020.
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