Monitor the moves of Big Tech through a regulatory framework and ensure fair competition in the Indian digital market – these two points stand out in the observations and recommendations made by the Standing Committee on Finance in its report ‘Anti-competitive practices by Big Tech companies’, released on December 22, 2022.
Taking Competition Commission of India’s (CCI) investigations into Alphabet Inc, Google, Swiggy and Zomato, Amazon and Flipkart as case studies, the panel has identified ten major anti-competitive practices by big companies. On the basis of consultations with representatives of hospitality, restaurants and travel agents associations, digital media and newspaper associations and big tech companies, the panel put forth recommendations for each issue.
Highlights:
- The report notes that as India’s digital ecosystem expands, in absence of regulation, monopolistic practices in interconnected digital markets will prevent fair competition, restrict consumer choice and prevent the growth of new companies.
- The Committee notes that the Big Tech’s ad business is a monopolistic threat in a digital market. Moreover, they indulge in practices such as preventing third-party companies on their platforms, skewing search engine rankings and providing discounts to preferred sellers, among others to restrict smaller firms.
- In tune with Competition policies of the European Union, the United States and Germany, the report stresses on the need to identify the Big Tech players as Systemically Important Digital Intermediaries and subject them to ex-ante restrictions to ensure fair competition.
- There is a need to enhance India’s competition law to meet the unique needs of and requirements of “restraining anti-competitive behaviours” in a digital market.
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1. Identifying Significant Digital Intermediaries
- The Committee recommends that India must identify leading players or those market winners, who may negatively influence competition in a digital ecosystem as “Systemically Important Digital Intermediaries (SIDI)”.
- These SIDIs must be identified on the basis of their revenues, number of active business and end users and their market capitalisation.
- The CCI and the central government must, in collaboration with stakeholders, deliberate on a reasonable definition of SIDIs for ex-ante regulation of their behaviour based on market forecasts.
- Within certain fixed months of being designated as a SIDI, a platform must annually submit a report to the Commission regarding its compliance with its mandatory obligations. It must also publish a non-confidential summary of the report on its website.
2. Digital Competition Act
The Committee recommends that government should consider introducing a Digital Competition Act to ensure a “fair, transparent and contestable digital ecosystem” in-sync with the country’s evolving start-up ecosystem and global policies.
3. Revamping of CCI
- Establishment of a specialised Digital Markets unit within the CCI.
- The staff must include skilled experts, academics and attorneys enabling the Commission to closely monitor SIDIs and emerging SIDIs, review SIDI compliance, adjudicate on digital market cases and conduct efficient and effective monitoring of digital markets.
- The unit must also keep a check on and track of similar unfair practices of other digital players, even though not specifically designated as SIDIs.
Issues and respective recommendations
The Committee has identified ten major anti-competitive practices and suggests recommendations for the same in the report. The examples under each case are cited from the Committee report.
1. Anti-Steering: Associated with app stores, a company’s anti-steering provisions essentially disallow business stakeholders such as app publishers and users to access alternative payment methods. Companies resort to mandating the use of their own payment systems, thereby eliminating competition from other payment applications.
For example: Google’s App Store and Apple’s App Store policies have been under scrutiny for their payment mechanisms in India. The CCI in its 2020 order, initiated investigation against Alphabet Inc, the parent company of Google, and noted that mandatory use of application store’s payment system for paid apps & in-app purchases restrict the choice available to the app developers and is unfair towards them. It also noted that given Google’s dominance over android apps, it controls a significant volume of payments in the market.
Recommendation by the Committee: A SIDI should not “condition access to the platform or preferred status or placement on the platform on the purchase or use of other products or services offered by the platform that are not part of or intrinsic to the platform”.
2. Platform Neutrality/Self Preferencing: Most of the business entities leverage the use of digital stores or platforms — driving force of digital economy — to list their parent companies’ applications, products, services alongside theirs. The Committee raises concerns of self-preferencing and notes that this can negatively affect the downstream markets’ profits and may give an unfair advantage to the leading player—the platform itself. These factors can affect platform neutrality.
Example: In the 2020 Alphabet Inc case, Google was accused of placing ‘Google Pay’ prominently on the Play Store, Android OS and Google smartphones by multiple methods such as favouring Google Pay in search advertisements, search results and others, thus resulting in a “status-quo bias” affecting other payment facilitating apps. The CCI noted such practices as unfair, discriminatory and violative of the section 4 of the Act.
Recommendation: “An SIDI must not favour its own offers over the offers of its competitors when mediating access to supply and sales markets, in particular, when presenting its own alters in a more favourable manner; and when exclusively pre-installing its own offers on devices or integrating them in any other way in offers provided by the platform.”
3. Adjacency/Bundling and tying: This can be defined as a practice by digital firms to “force consumers to buy related services”. The report notes that such bundling or packaging of services can limit the number of options available to the user in terms of prices and features and also leads to elimination of rivals. This is similar to food delivery apps forcing customers to rely on their delivery services and mobile OS encouraging users to use their search engines.
Example: In a 2018 case against Google LLC, the CCI in this issue noted that mandatory pre-installation of entire GMS suite under Mobile Application Distribution Agreement amounts to “imposition of unfair condition on the device manufacturers and thereby in contravention of Section 4(2)(a)(i) of the Act”. It also amounts to prima facie leveraging of Google’s dominance in Play Store.
Recommendation: The panel states, “An SIDI should not force business users or end users to subscribe to, or register with, any further services as a condition for being able to use, access, sign up for or registering with any of that platform’s core platform service.”
4. Data usage (use of non-public data): The report highlights the ways in which businesses in digital trade can leverage data collection and processing to monopolise the market or gain a competitive advantage. As digital platforms have become “vast repositories of consumer as well as business data”, they can indulge in practices such as comprehensive tracking and profiling of end consumers, thereby raising data privacy concerns for users.
Example: In 2021, in a case concerning Swiggy and Zomato, the CCI had noted that these companies collect data from customers based on their past purchases to customise their offerings for such customers. It observed that this “strengthens their market positioning, dissuading new players from entering the relevant market.”
Recommendation: The Committee recommends that a SIDI should not:
- “process, for the purpose of providing online advertising services, personal data of end users using services of third parties that make use of core services of the platform;
- combine personal data from the relevant core service of the platform with personal data from any further core services or from any other services provided by the platform or with personal data from third- party services;
- cross-use personal data from the relevant core service in other services provided separately by the platform, including other core services of the platform, and vice-versa; and
- sign in end users to other services of the platform in order to combine personal data, unless the end user has been presented with the specific choice and has given consent.”
5. Acquisitions and mergers: This highlights the risk of “killer acquisitions” wherein big firms buy highly valued start-ups and disallow them to grow beyond a certain limit in a digital market. The Committee notes that it is a recurrent issue in digital markets where larger firms buy out smaller ones without the transaction being subject to the existing “merger control rules”.
According to the report, as per the current competition law, the Commission reviews mergers and acquisitions on the grounds of assets and turnover. The Committee notes, “many high- value deals between Big Tech firms in India have escaped scrutiny because the parties involved have had few and low turnover. Importantly, due to this reason, Facebook’s acquisition of WhatsApp in 2014 for $19 billion, for example, required no CCI clearance”.
Recommendations: The CCI must be informed of an intended concentration concerning services or collection of data in the digital sector, irrespective of whether it is notifiable to the Commission. A SIDI should also provide such information prior to its implementation, following the conclusion of the agreement, the announcement of the public bid or “acquisition of a controlling interest”.
6. Pricing/Deep discounting: The report raises concerns over platform practices such as ‘dynamic pricing’ (raising prices when the demand is high), bogus sales and markdowns, which means inflating price and then offering a sale or discount. These practices often lead to a lack of transparency between platforms and the businesses such as food delivery or hotel service providers. These businesses often end up losing the authority to decide the final price. It also affects the ability of offline players to conduct business.
Example: In a 2019 case order, involving Amazon and Flipkart, the informant had raised issues against both companies providing deep discounts to preferred sellers, which adversely affected non-preferred sellers.
Recommendations: A SIDI “should not limit business users from differentiating commercial conditions on its platform” and must not prevent business users from offering same products and services through third-party online intermediation services or through their own direct channel at varying prices.
7. Exclusive Tie-ups: An agreement between an e-commerce platform and a brand to allow exclusive sales of that brand on the platform can be termed as an exclusive tie-up. This affects business of other e-commerce platforms as well as of brick-and-mortar sellers. Secondly, the report notes that a “platform parity clause” in agreements disallows a business user to sell at a lower rate on any other platform, resulting in higher prices of products for users.
Example: The Commisssion is looking into a 2019 case against Amazon and Flipkart wherein it was informed that these platforms engage in preferential listing using tags like “Assured Seller” and “Fulfilled” for certain sellers. The Commission noted that there appears to be a tie-up between smartphone manufacturers and the e-commerce platforms for exclusive launch of smartphone brands. Such practices may lead to adverse effect on competition.
Recommendations: A SIDI should not prevent business users from offering same products and services through third-party or direct channels at a different price for fair market conditions to prevail.
8. Search and ranking preferencing: If a particular keyword search on a search engine displays sponsored products or those fulfilled by the marketplace on a platform, instead of highest-rated results, it is indicative of the company’s bias towards such favoured products.
Example: In the 2019 Amazon and Flipkart case, CCI had noted that such preferential listing also connects to exclusive tie-ups, often influencing competition in the market, and warrants a holistic investigation to examine how “vertical agreements” operate.
Recommendations: A SIDI must provide third-party undertaking with access to fair, reasonable and non-discriminatory terms to search-engine related operations such as ranking, click, query and others. Further, SIDI should not treat businesses favourably.
9. Restricting third-party applications: The Committee identifies gatekeepers to be restricting the installation or operation of third-party applications, as similar to the anti-steering practices.
Example: In a 2021 case against Apple Inc, the CCL found that Apple’s policies restricting third-party app stores to be listed on Apple’s App Store forecloses the markets for app stores for iOS for potential app distributors and denies market access for them in violation of Section 4(2)(c) of the Act.
Recommendations: A SIDI should enable installation of third-party software applications or stores using or interoperating with its operating system. Only exception may be made in case of preventing data from the SIDI or another business user from being transferred to government of a foreign adversary.
10. Advertising policies: In the digital marketing space, the Committee notes that consumer data can be leveraged with the help of AI and Machine Learning practices for targeted advertising. This raises competition concerns due to factors such as market concentration, consolidation and integration across supply chains.
Example: In a 2021 Alphabet Inc case dealing with online news publishing, the CCI prima facie took note of the bargaining power imbalance caused by the alleged position that Google enjoyed in the digital news publishers’ space in terms of access to online audience and digital ad revenue generation. The case raised issues of lack of transparency and “information asymmetry” in the ad tech services provided by Google.
Recommendations: A SIDI should not process users’ personal data for online advertising services using third-party services. It must provide advertisers with information on price paid by the advertiser remuneration received by the publisher on a daily basis. Advertisers and publishers must be able to carry out their independent verification of the advertisements inventory of aggregated and non-aggregated data.
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