How Facebook and WhatsApp won over Sections 4 and 5 of the Competition Act, 2002 in a Big Data Economy.
On 01.06.2017, the Competition Commission of India ('Commission') dismissed an abuse of dominance case against WhatsApp Inc. under Section 26(2) of the Competition Act, 2002 ('Act'), in Case No.99 of 2016. The following case comment attempts to briefly analyze this 26(2) order ('Order') and also to contextualize it against Facebook's acquisition of WhatsApp.
On 19.02.2014, Facebook Inc. announced the acquisition of WhatsApp Inc. for approximately US $19.3 billion. The acquisition was not notifiable in India as it did not trigger the asset or turnover thresholds prescribed under Section 5 of the Act. It may also be noted that the under the Act, the Commission does not have suo-motu powers to review mergers which can potentially raise AAEC concerns unless thresholds under Section 5 have been met.
The Commission defined the relevant market as 'the market for instant messaging services using consumer communication apps through smart phones'. The definition adopted by the Commission is also almost identical to the narrow market definition adopted by the European Commission ('EC') its decision approving the Facebook's acquisition of WhatsApp (Approval Decision').1 However, it maybe pertinent to note that EC undertook its ultimate market analysis in three further narrower markets located within the aforesaid market definition i.e. market for consumer communication services, Social Networking Services and Online Advertising Services. These three distinct markets however were not recognized by the Commission in its Order.
The Commission, based on the data presented by the Informant, accepted the dominant position held by WhatsApp. In this regard the Order specifically noted that 96% of the smart phone devices in India had WhastApp installed on them and that 51% and 56% of internet users in India where active on WhatsApp and Facebook respectively, everyday.
In recent times authorities have merely considered privacy concerns as non-price factors in competition assessments.9 This is mainly because data in the hands of individual user is never assigned a monetary value but is seen in isolation within the privacy discourse. This, however, is the age of big data where an individual's phone numbers and their connections on a social platform are not merely a subject matter of privacy but a 'commodity' that is bought and sold and serves as currency in the digital market. Viewed from this perspective, where an admittedly dominant players fails to provide sufficient opportunity and knowledge to its input suppliers (i.e. subscriber with their personal data), it may amount to a violation under Section 42(a), Section 4(2)(d) and Section 2(2)(e) of the Act.
With regard to the allegation of predatory pricing, the Commission dismissed the same claiming that that there were several other apps such as Hike, Messenger and Viber that are also available for free and that not charging any fee for subscription fee was a standard industry practice in the relevant market. To further justify its decision the Commission also considered the 'switching cost' in the relevant market. The Commission held that since most of the other communication apps were low cost/free, easily downloadable, capable of co-existing on the same device, had functionally simple interfaces, and there was enough information available about new apps on app stores, the switching costs for a consumer in the relevant market was insignificant.
This analysis is problematic for two reasons. Firstly, it is oddly and tediously entwined with the issue of predatory pricing while it could have more appropriately been a component of the Commission's assessment on dominance. Further, ease of switching could also make predatory pricing a much more aggressive anti-competitive tool. Secondly, the switching cost assessment undertaken by Commission is potentially deceptive as it is more suited for the analysis of traditional goods and services rather than internet based, data-intensive service. For example the Commission has not taken into consideration the 'network effect' i.e. just like traditional telecom services, communication and social network platforms also become more valuable as more and more subscribers use it. As had been recorded in the Order itself 96% percent of the smartphones in India have WhatsApp installed on them and 56% users are active on WhatsApp everyday. These figures are significant enough to suggest that consumers are unlikely to leave the app when more that half of their acquaintances are likely to be available on that platform. Further with volume of multimedia content and messages being shared through the app, shifting to another app may entail the cost/effort of data migration which will further have 'lock-in' effect on a subscriber, especially when the app itself is free further disincentivizing a shift10. Infact these two considerations received substantial considered by the European Commission and although it did not see competition being distorted in the post-acquisition market, that conclusion was drawn on market studies conducted within the European Commission and results of which may be drastically different in India.
1 Case No. Comp/M7217, decision dated 3.10.2014 ('Acquisition Approval')
2 Approval Decisions- See paragraphs 137 and 138 and paragraphs 184 to 186 of the decision.
3 Approval Decision- Para 174
4 FTC, Press Release 'FTC Notifies Facebook, WhatsApp of Privacy Obligations in Light of Proposed Acquisition' dated 10.04.2014, available at https://www.ftc.gov/news-events/press-releases/2014/04/ftc-notifies-facebook-whatsapp-privacy-obligations-light-proposed
5 See: WhatsApp Blog, 'Looking ahead for WhatsApp' dated 26.08.2016, available at: https://blog.whatsapp.com/10000627/Looking-ahead-for-WhatsApp ;
6 European Commission – Press Release 'Mergers: Commission fines Facebook €110 million for providing misleading information about WhatsApp takeover' dated 18.05.2017, available at http://europa.eu/rapid/press-release_IP-17-1369_en.htm
7 See: IANS, 'Ban on WhatsApp data transfer to Facebook to stay: German court', Business Standard, dated 27.04.2017, available at : http://www.business-standard.com/article/news-ians/ban-on-whatsapp-data-transfer-to-facebook-to-stay-german-court-117042700309_1.html ; Karin Matussek , 'WhatsApp sued by German Consumer Group Data Policy', Bloomberg, dated 30.01.2017, available at https://www.bloomberg.com/news/articles/2017-01-30/whatsapp-sued-by-german-consumer-association-over-data-policy-iyk1690m
8 Nick Fildes & James Politi 'WhatsApp fined €3m over Facebook data sharing in Italy', Financial Times , dated 13.05.2017 https://www.ft.com/content/2fdb5f34-3728-11e7-bce4-9023f8c0fd2e
9 Edith Ramirez, FTC Chairwoman, 'Deconstructing the Antitrust Implications of Big Data', Keynote Remarks at the 43rd Annual Conference on International Antitrust Law and Policy Fordham Competition Law Institute New York. dated 22.10.2016, available at : https://www.ftc.gov/system/files/documents/public_statements/1000913/ramirez_fordham_speech_2016.pdf
10 Approval Decision , para 114.
11 Karmanya Singh Sareen v. Union of India [SLP(C) No. 000804 / 2017]
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