By Siddharth Manohar
Amidst the initial clamour around the investment of a 9.9% stake by Facebook in Jio Platforms, a wholly-owned subsidiary of Reliance India Limited, there is discussion on how the stake purchased is a relatively smaller one, one that is not enough for a board seat, for influence on decision making, and is little more than a show of faith in the Indian market. For starters, the claim of the lack of a board seat has been expressly reported irrespective of the size of the stake; and further, there is a clear signal of intent to strategize for a common business plan that serves both sets of interests: both parties have explicitly come out with statements on an intention to focus on E-Commerce, specifically for smaller enterprises, or kirana stores, in an attempt to create a “super app” along the lines of WeChat, leveraging Facebook’s existing userbase on its Whatsapp application and bringing that advantage to Jio Platforms’ venture in E-Commerce, Jio Mart.
It has also been reported the deal will will go to the CCI for a look into privacy, control over user data, and neutrality of services. A useful question at this point is what deals are exactly required to go to the CCI for approval? The Competition Act specifies that any acquisition that may have an “appreciable” impact on competition within the relevant market in India would in fact be considered absolutely void. Further, any acquisition also requires notice to be given to the Commission within thirty days of the acceptance of the proposal for the acquisition. This period in now ongoing for the FB-Jio deal, and we will await the order of the CCI once the notice has been considered by the Commission.
A further nuance to this requirement is the form of the notice given; the rules of notice specify that when the parties to the deal are engaged in different points in the supply chain of the same market for services, the notice is required if the combined market share is over 25%. Jio’s telecom offering is the largest in India in terms of subscriber base, and Facebook’s Whatsapp platform boasts a 400 million-strong user base. However, this may not be the only relevant indicator to consider in a transaction of this nature.
In an earlier post, I discussed how data and its sharing amongst dominant companies play an important role in determining the impact of any company or transaction on the relevant market. The Managing Director of Facebook official has gone on record stating that there will be no data sharing included as part of this deal. What the deal nonetheless signals publicly however, is an alignment of interests between the two companies, engaged at different points of the E-Commerce vertical. Questions of potential bias and collusion across the value chain may be relevant for the Commission to look into.
A mode of investigating this question open to the Commission is the power to direct the parties to file submissions with extra information. The Commission may decide that the initial mandatory filing on the transaction may not have the requisite information for them to take a view on whether there may be any adverse impact on competition in the relevant market as a result of the merger.
The Commission exercised this power in the case of the Hyundai and Kia Motors acquisition of a combined stake of under 5% in Ola Cabs’ parent company and under 7% in Ola Electric Mobility. Neither of these acquisitions match up to the 9.9% stake acquired by Facebook — nonetheless, the Commission directed the parties to produce more information on certain aspects of the transaction. Namely, to define “competitive landscape” for electronic vehicles and their use in cab-hailing services, and more importantly, whether Ola’s cab platform would provide any preferential treatment to cabs that are manufactured by Hyundai and Kia.
The second inquiry by the Commission is important to inspect, as it is the inquiry that brings into focus the roles across the supply chain carried out by the parties. The important competitive principle to ensure here was that Ola, a cab hailing service, did not provide preferential selection in favour of the parties to the agreement, who are engaged in the manufacture of these cabs. Despite neither company was a deemed an outright dominant entity within their respective market, the parties amended the original terms of agreement to clarify that there would be no preference from the platform for the booking of cabs based on the manufacturer of the vehicle.
The important distinction here was that Kia and Hyundai, car manufacturers, and Ola, a cab-hailing application, formed different points in the supply chain of “radio taxis”. Preferential treatment alongside acquisition of shareholding was an important question to look into, and the parties in this case clarified that no such collusion would occur.
Coming to the current deal, Facebook’s messaging platform Whatsapp, and Jio’s telecom network are both dominant entities in their respective services — those of messaging platform and telecom provider, respectively. Further, Whatsapp being a messaging platform, has already been deployed in conjunction with Jio’s E-Commerce platform. Here, Facebook’s messaging platform and Jio’s seller aggregator operate together to enable “O2O” commerce — a form of transaction where products are selected online, and the actual exchange takes place offline. While the model of commerce here is limited to customer-initiated transactions, and Facebook has publicly stated that the platform will remain open, it is nonetheless a pertinent question to keep an eye on for future developments.
Where the CCI will take further note is that of data-related questions on competitiveness. Given the outright domination of both parties in terms of user-base in their respective services, any measures taken as part of the deal will have a significant impact on the market. Even though there may not be per se data sharing between the companies, the Commission may also consider data as a factor in assessing their market power and effect on competition.
