Facebook has told the Competition Commission of India (CCI) that its investment in Jio Platforms will involve the transfer of only “limited data”. Facebook had recently acquired a 9.99% stake in Jio Platforms — through a subsidiary, Jaadhu Holdings LLC — for a whopping $5.7 billion (₹43,574 crore). The deal was okayed by CCI in June, however, the full order has been made public only this week.
The CCI explained all the issues it had examined and deliberated upon on the merger, including the data-sharing mechanism between Jio Platforms and Facebook, the interplay of JioChat, WhatsApp and Messenger (both owned by Facebook), possible advantages for JioMart due to integration with WhatsApp and so on.
On the matter of a possible unfair advantage that JioMart may have because of integration with WhatsApp Pay (when it is launched), Jaadhu told CCI that JioMart was only a “small e-commerce retail provider“, indicating the concerns were unnecessary. CCI went on to also say that both JioMart and WhatsApp are only entrants in their respective markets, hence are unlikely to cause much effect on competition.
Data-sharing not purpose of deal, Facebook tells CCI
The CCI noted that Facebook, through its applications such as the Facebook platform, Messenger and WhatsApp, has access to “rich data” of user behaviour. Similarly, Jio Platforms (such as JioChat, JioMart, JioCinema, JioCloud, JioSaavn and so on) is also in a position to collect and possess consumer data. CCI admitted that Facebook only wants a 9.99% stake in Jio Platforms, and hence this “may not result” in unrestricted access to each other’s data. “Nevertheless, the parties may have incentives to engage in mutually beneficial data sharing,” it said.
Jaadhu (subsidiary of Facebook) assured CCI its fears were unfounded:
“It is clarified that data sharing is NOT the purpose of the Proposed Commercial Arrangement, nor will either side be acquiring ownership of the other’s data pursuant to the Proposed Commercial Arrangement” — Jaadhu to CCI (Emphasis theirs)
Jaadhu, however, added that as part of their commercial agreement with Jio Platforms, there may be some exchange of data between JioMart and WhatsApp. “This would only be for the purpose of facilitating e-commerce transactions on JioMart,” it said.
CCI will watch out for anti-competitive conduct: Though the CCI chose to greenlight the acquisition, it still noted that that RJIO (Reliance Jio, another subsidiary of Jio Platforms) is a prominent telecom player in country, while Facebook group itself is the second leading player in the online advertising market. The user data possessed by both parties is complementary to each other, especially because of the link between the telecom sector and over-the-top (OTT) services. It indicated that would be watching out for anti-competitive conduct by the two through data-sharing in the future.
The user data possessed by Jio Platforms including RJIO and Facebook Group are complementary to each other given the symbiotic interface between telecommunication business and OTT content/ application users. Thus, any anti-competitive conduct resulting from any data sharing in the future could be taken up by the Commission under Sections 3 and/or 4 of the [Competition Act, 2002] having due regard to the dynamics of the concerned markets and position of the parties therein — CCI
Note: Section 3 of the Competition Act deals with the regulation of combinations, while Section 4 prohibits the use of dominant positions.
Effect of acquisition on overall competition in market: Interplay of WhatsApp, JioChat and Messenger
The CCI noted that both Jio Platforms and Facebook had business interests in the messaging and communication and messaging services. It noted that WhatsApp’s chat features and RJIO’s telecommunications services are complementary to each other. Jio Platforms has JioChat as well as several digital services such as JioTV, JioSaavan, JioChat, JioCrowser, JioCloud and so on, while Facebook offers WhatsApp and Messenger.
Jaadhu submitted that it is only acquiring a minority stake in Jio Platforms, hence both parties would continue to operate independently. It said the acquisition “would not alter the competitive landscape in any potential relevant market in any manner”
Most apps free, not many barriers of entry: What seems to have convinced CCI, in addition to Jaadhu’s arguments, is that WhatsApp, Messenger and JioChat, along with other applications in the market like Duo, Hangout, WeChat and Viber are all available to consumers free of cost. Jaadhu further argued that the market for consumer communication applications is competitive on its own. It took the example of how several apps like Telegram and Houseparty were downloaded en masse during the Covid-19 pandemic, indicating how easy it to enter and operate in the market. CCI seemed to agree, and noted that consumers seemed to find it easy switching between applications, hence the acqusition wouldn’t hurt competition adversely.
Will WhatsApp give JioMart and unfair edge? No, says CCI
CCI seemed to be quite concerned with the possible interplay of JioMart and WhatsApp. As per the agreement between both parties, WhatsApp will provide chat services to Reliance Retail — a subsidiary of Jio Platforms’ parent Reliance Industries Limited (RIL) — in relation to JioMart. This would enable WhatsApp users to access JioMart directly, and pay using WhatsApp Pay, whenever it is launched.
Jaadhu told CCI that WhatsApp is free to offer its services to any other market participant. It also told CCI that JioMart is a new and “small e-commerce retail provider”. CCI seemed to agree:
“Given the presence of entrenched incumbents like Amazon and Walmart-Flipkart and other valuable contenders, the business collaboration between the parties does not raise any competition concern in any of the plausible relevant markets in e-commerce space, in India” — CCI
CCI also believed in a similar line of argument with respect to WhatsApp Pay, and how it would effect JioMart when it gets approved. Noting the “phenomenal growth” of UPI transactions in the country in recent times, “the overall value and quantum of UPI based digital payments to JioMart (an entrant in e- commerce space) through WhatsApp Pay (an entrant in digital payment applications space) is not likely to be significant.” (Emphasis added). Hence, CCI ruled that the acquisition would not cause adverse effect on competition in the UPI-based payment market.
Implications on advertising market
CCI noted Facebook is a major player in the digital advertising market. It provides services on its own platforms — Facebook, Instagram and Messenger, but not on WhatsApp — in addition to third party apps through its Facebook Audience Network (FAN). At the same time, Jio Platforms also offers advertising services on its myriad platforms.
Again, Jaadhu told the CCI that since it is only acquiring a minority stake, both it and Jio Platforms will operate independently. Jaadhu’s primary argument seemed to be that its parent company Facebook derived much of its revenue from revenue from advertisements, while Jio Platforms’s advertising revenue is insignificant.
CCI agreed with Jaadhu’s submission, noting that advertising revenue of Jio Platforms is “insignificant” and constitutes less than 1% of its total revenue. Additionally, it noted that the online advertisement market featured the presence of Google, which is a market leader. It should be noted that CCI’s assessment seems to be entirely based on statistics submitted by Jaadhu, which have been redacted from the report. CCI finally concluded that the acquisition would not result in anti-competitive conduct in the advertising market.
Impact on net neutrality
CCI also examined whether the acquisition of a stake in Jio Platforms would affect net net neutrality in RJIO’s telecommunication network. Jaadhu told CCI that RJIO was already prohibited from providing preferential treatment to Facebook or any other OTT service provider by its license agreements with the Department of Telecommunications. Hence, any possible violations would be taken care of by existing legal provisions. CCI seemed to agree, and said it didn’t find it necessary to examine the issue any further.
Both Jio Platforms, Reliance Retail getting massive investments
Both Jio Platforms and Reliance Retail have been netting massive investments from investors all over the world. Investors in Jio Platforms include Silver Lake, Vista, General Atlantic, KKR & Co Ltd., Mudabala, Abu Dhabi Investment Authority and so on. Many of the same investors have also invested in Reliance Retail, likely reflecting the belief that it will be as successful in the Indian retail market as it Jio has been in the Indian telecom market.