What is the Facebook Jio deal and why a green flag was required from the Competition Commission of India? The competition commission of India (CCI) is the Indian watchdog which ensures to eliminate practices which tend to have an adverse effect on the competition, promote and sustain the competition, protect the interests of consumers and ensure an environment for businesses to grow without facing any anti-competitive atmosphere.
On April 22 2020, when the whole world was going through COVID- 19 pandemic, facebook purchased a stake of 9.99% in Reliance Jio which valued around USD 5.7 Billion. This historic deal became one of the biggest foreign direct investment (FDI) deals which can never be forgotten in the Indian tech market.
The scope of the deal and its possible impact on competition in various sectors, in which these two companies’ projects operate, may be of great concern for the antitrust watchdog in India. Since the CCI has given a green flag to the deal therefore it is probable to conclude that the Competition Commission of India (CCI) while performing its duties would have investigated various aspects involved in the celebrated Jio- Facebook deal. One of the major tasks of CCI would be checking whether there exists any actual or possible conflict between the two parties and to analyze the impact of this historic deal on the other businesses involved in the market to compete with them.
The humongous user base of these two tech giants has already given cause for concern for the other market players as post the deal the two tech giants would be able to make a profit from each other’s network, thereby raising difficulty for the new players to enter, sustain and make considerable profit in the market. Furthermore, if this hypothesis is turned into reality then these giants would drive out the existing competition out the market forever. Facebook, as well as Jio, would be having a strong advantage of the user base of consumers and sellers, giving consumers and sellers exclusive access to data and providing them with various business opportunities.
In 2017, a nine-judge bench of the Supreme Court of India in the celebrated case of Justice K.S. Puttaswamy Vs. Union of India unanimously held that the right to privacy is a fundamental right enshrined under Part III of the Indian Constitution. Despite the ruling of the supreme court, the draft e-Commerce Policy has characterised data as a public good or a national asset.
In order to make most of the opportunities in the market, the BigTech companies compete with each other to extract as much customer information as possible for the optimal use of market opportunities. If this race to extract data by the big corporations continues then the impact of these corporate houses will be problematic for the society.
The Aspect of Dominance
Across their respective markets, Jio and Facebook tend to be dominant players. The data provided by the telecom regulatory authority of India points out that Jio has approximately 32 % stake in the 1.15 billion Indian mobile services industry. It has the highest customer base and revenue share in the telecommunications market. Jio outperforms its competitors Bharti Airtel and Vodafone-Idea. On the other hand, for Facebook, India is the biggest user base in the world. Furthermore, adding to what it has been previously stated, India is also the biggest market for the social media platform messaging service WhatsApp with over 400 million monthly active users.
After this deal, Jio with the help of Whatsapp intends to bring JioMark in the market which has the objective of integrating small and medium-sized ‘Kirana’ shops. Besides this revolutionizing step, no Whatsapp would be able to allow JioMart to operate through its messaging platform. If done so, and in a way that WhatsApp comes with a pre-installed JioMart platform, this would lead to abuse of dominant position which is punishable under section 4 of the competition act.
Post this deal if a user downloads Whatsapp then he’ll have pre-embedded JioMart in the interface which means the WhatsApp users won't now be able to use other e-commerce platforms in the manner they would have used JioMart. This would absolutely result in disruption of competition as other platforms would lose the consumer base that these tech giants will share.
IS THE DOMINANCE GOOD FOR THE TECH GIANTS
Facebook primarily operates its business through the following three platforms:
2. Instagram and;
All of the above-mentioned platforms are dominant players in their own market. Since the JioMart only involves the interaction with Whatsapp our concern is limited with WhatsApp only. Its relevant market seems to be smartphone-based social media messaging platforms. WhatsApp has more than 400 million confirmed users in India, while around 600 million people have access to the internet in the country.
Post the deal one of the benefits the two corporates would enjoy would be the absolute control over consumer data. There is currently no agreement on the transfer of consumer data between the two tech giants. However, this does not erode the possibility of entering into such agreements in the near future.
The competition commission of India must have dealt with this deal with utmost seriousness as previously Facebook has been one imposed a $5 billion fine over the violation of data privacy. The control over the consumer data has been used reviewed by the Competition regulators to examine the anti-competitive conducts of e-commerce business in the famous Delhi Vyapar Mahasangh Vs. Flipkart Internet Private Limited, and Sonam Sharma Vs Apple Inc. USA & Ors, which empowers the Indian courts to set guidelines as to what business should work.
APPRECIABLE ADVERSE EFFECT ON COMPETITION
There exists a strong possibility that this strategic investment by Facebook in the Jio is done with an intention to penetrate in a market which is different from what the two tech giants claim. Furthermore, since both the companies have a huge customer base, after this deal they might jump into a different market and by using their dominance remove each and every other player out of the competition and create a monopoly. Therefore, CCI has to take each and every angle before giving a nod to this historic deal.
In the celebrated case of Umar Javeed Vs. Google LLC, CCI held that “there is a need to not only delineate primary relevant markets but also associated markets to relevant markets that have been affected by the conduct of the parties involved.” However, Section 20(4) of the Act provides the factors that CCI must consider before concluding that there is any appreciable adverse effect on the competition.
The rationale behind bringing this provision in the Act is to look for a horizontal or a vertical overlap once the deal has been done. Prima facie, on looking at this historic Jio- Facebook deal there seems no horizontal overlap, however, there might exist a case of vertical overlap. If we see the whole structure we'll analyse that Jio manufacture smartphones, provide internet to the smartphone, these smartphones use the internet to access Whatsapp and now post this deal JioMart will be accessible through WhatsApp.
This structure can be called as a vertical overlap, not just this but this arrangement is nothing but absolute use of dominant position in the used by the corporation to enter another market, this would be affecting the competition in the market.
It is true to state that post this deal many businesses will flourish in the Indian market. Those small vendors who don't have a reach in their local area where the customers live will now have a huge customer base. Also, the consumers would be able to buy each and everything that they want in no time. This model will be a boon for the local vendors. However, the possibility of creating barriers for the startups to enter the market would increase post the deal.
However, on the other side, the interest of consumer welfare should not be ignored. Since this deal is beneficial for consumers as they’ll have more easy options to buy their products but the weighing scale for both, consumers and sellers can never reach an equilibrium. What is crucial here is to understand that one should not step on the commercial prospects of a deal like this in order to ensure distributive justice.
For the technology sector, in particular, it can be a difficult step to determine the resources and market positions of the two companies. However, if such an assessment were made and the data were viewed as a valid indicator of the parties’ resources and economic strength, the outcome would be completely different. It is also a known fact that data can be monetized. This is an important factor in determining a company's market power, especially in digital environments.
To ensure accountability, the data-sharing agreement between the two companies must be shared with consumers and the government. Private data is one of the most critical aspects of competition in any sector. To avoid the consolidation of market power, CCI must control every aspect of the data exchange in this agreement.
AN ATTEMPT TO MONOPOLIZE
It is crucial to look at this deal and decide whether in this deal it is likely that anti-competitive acts by Jio or Facebook will get the opportunity to create a monopoly in the e-grocery market and other connected new markets created through JioMart. It would be very difficult for any other platform or start-up to compete with Jio and Face once they are together in the same market as both of them have deep pockets and humongous customer base. If we see, JioMart alone has a competency to become a dominant player. There is a strong possibility that JioMart would also create a monopoly in the local market, just as Jio did when it introduced its telecommunication plan and in just three years created a huge customer base of 380 million users.
In order to suggest changes in the newly incorporated Competition act, the government in 2018 constituted a Competition Law Review Committee. The CLRC in its final report which has been submitted in 2019 suggested that there should be a provision in the Act which will penalize those who even make a mere attempt to monopolise in the relevant market where a particular product or service is sold.
If we look at Jio in isolation we can see how it entered the telecommunication business. Jio’s entry in the market and offering services for free and then subsequently for negligible prices shows the potential of Jio’s ability to capture any market in no time.
In 2015, there were in toto 10 major private wireless providers in the telecommunication market and now only 3 are sustained after the grand entry of Jio. The price at which Jio provided its service is no less than predatory in nature. This low rather no cost to service policy of Jio had forced each and every player of the telecom market to lower their charges in order to sustain in the market. It is reported that the telecommunication providers after the rough entry of Jio were facing financial strain with a cumulative debt of ₹ 7.7 lakh crore.
HOW IT IS A GAME CHANGER FOR INDIA’S RETAIL AND INTERNET LANDSCAPE
1. Benefiting Millions of Small Businesses
This deal is nothing but a gift from the almighty for the small enterprises. No, because of this deal the small Kirana shops would be able to sell their products easily through one of the most used messaging applications of India, Whatsapp. Jio wants to build an environment where they’ll enable customers to access the local Kirana store by using WhatsApp. This will include both online as well as offline stores. Through this deal apart from the growth of JioMart millions of local businesses with consumers and provide them with a livelihood.
2. Boosting India’s Internet Scenario
This strategic deal between the two tech giants, Jio and Facebook will play a crucial role in boosting India’ internet Scenario, as these two corporate giants businesses are solely based on the internet. The possibility of a technology boost is very high.
After this deal, the 400 million users of WhatsApp will help in deepening financial inclusions which may leverage Whatsapp pay UPI platform. Furthermore, as the tech giant Facebook is involved in the cryptocurrency service known as Libra, therefore this celebrated tie-up would be a founding step towards introducing a crypto-based payment system and a highly developed blockchain technology in India,
In order to understand the Facebook Jio deal, it is crucial for us to carefully understand and interpret the following provisions of the Competition Act in order to come to a rational view.
The definition of price as given under section 2(o) of the Competition Act, 2002 is broad enough to take into account the non-monetary considerations like data and preferences. While interpreting the ‘resources of the enterprise’ one has to look at section 19(4)(b) of the Act. the resources used to assess the dominant position of the market player was given vide interpretation in order to include data control.
Apart from this section 19(4) of the act is in itself enough to cover the ‘network effects’ as a crucial factor in order to determine the dominance of a firm. As technology develops with the passage of time it is true to state that the now day legislation won't be able to mitigate those attempts to monopolise the market which might arise in the future however it can be mitigated through timely amendments to the Competition Act.
Despite all the problems that the market might face due to competition, this historic deal will do the Indian economy tremendously good. Careful examination and fair clearing by the Chamber of Industry and Commerce would also help both companies to achieve high market heights without the use of anti-competitive practices.