Facebook-Jio deal: A sledgehammer to develop Indian e-commerce or a data monopoly?
The infamous “Project Redwood”, popularly known as the ‘Facebook-Jio partnership deal’ saw a successful closure, a few days back. The social media giant has invested approximately 4.3 trillion in Jio Platforms Ltd., only to acquire 9.99% stake in the holding company. The aberration turns out to be the ‘biggest’ minority investments by a tech player in India. Amidst the global pandemic, the huge capital infusion into the telecom sector could redefine Indian economy. The deal is yet to be given clearance by Competition Commission of India, while still receiving appropriate attention from TRAI (Telecom Regulatory Authority of India). Before understanding the impact of CCI, it’s important to take note of possible gains arising out of the deal.
A tech in need is a tech indeed:
The two corporate giants become the ultimate mutual beneficiaries via the signed agreement. Prima facie, it might seem to be a profitable FDI, however, it provides a mere scope for revival for the collaborating parties.
Ever since, Facebook saw a backlash to its ‘Free Basics’ model in India, in 2016, it has seen a downward market graph for its services in the country. The success story of Facebook acquired Whatsapp has also been deceptive due to its non-compliance with the Indian privacy and liability laws. Its end-to-end encryption policy has often put to question the regulatory framework of the service provider. In addition, Whatsapp couldn’t successfully launch its payment services in India, in 2019. The controversy claimed that WhatsappPay, while using UPI, violated its core objective i.e. interoperable payments through all financial channels using UPI platform. However, a partnership with Reliance Jio might turn the ball into Zukerberg’s court. An alleged Commercial Partnership Agreement between Facebook’s Whatsapp and RRL (Reliance Retail Ltd.) can possibly mould into a hi-tech collaboration. A specious dream to create a strong e-commerce network across 6,00,000 villages and initiating transactions amongst small, medium businesses in India, could turn into a reality soon.
The Ambani iconed Jio network services, had not just gained popularity but a myriad user base of more than 338 million in only 3 years, post its launch. Since then, Reliance has introduced a wide spectrum of services including JioMoney, JioMart, JioSaavn, JioHealthclub etc. Recently, the corporate has shown a similar interest in developing an e-commerce ecosystem via Jio platforms to enable easy transactions for small businesses. With more than 400 million users connected to Whatsapp, the bigger plan could be feasibly executed. The Jio mantra ‘Small is Big’ is about to come true as the deal is clinched. The accord might also lower down the debt of Indian telecom operator to less than 25000 Cr.
As plausible as it might sound, the deal envisages an attack on competition and raises concern regarding net neutrality in the country. It suggests that the Social Media giant and Reliance Jio will be sitting on a gold mine of data any sooner.
What is Net Neutrality?
Definition under Regulatory Framework, 2018
Net neutrality in the Indian context, refers to equal, fair and nondiscriminatory treatment of internet traffic by the intermediate networks. It follows a principle of keeping the internet accessible and available to all without discrimination. Further, it endows a responsibility over the Internet Service Providers (ISPs) to treat all communications equally, irrespective of the user, content, source address, website or method of communication. As suggested under the regulatory framework by DoT, Internet Access Services need to be governed by a principle that restricts any form of discrimination, restriction or interference in the treatment of content, including practices like blocking, degrading, slowing down or granting preferential speeds or treatment to any content.
Violation of Net Neutrality
In the instant matter, there is a slight chance for Facebook or Whatsapp getting preferential treatment, quicker speed and access over other social media operators, on the Jio network platform. This should definitely catch the eyes of the TRAI and DoT and calls for immediate action. Although Facebook has been a victim to Indian net neutrality laws in the past, the magnitude of the present deal has the potential to put the laws to test.
Not just this, Facebook has developed a global image of manipulating and swindling data, emerging out of the Cambridge Analytica scandal. Consequently, a deal bringing the two tech mammoths together would raise questions regarding the data security of more than a billion users. With the deal getting prospective approval, the two entities would have access to cumulative subscribers’ data creating a near ‘data monopoly’.
Scrutinising the above issues, it becomes equally imperative to analyse the impact of the agreement on competition in the e-commerce sector and e-payment services.
Competition Act, 2002 :
The 2002 Act, provides for the establishment of a Commission to eliminate the practices having adverse effect on competition, to protect the interests of consumers, to ensure and sustain competition and promote freedom of trade by other participants in the market.
Considering the Facebook-Jio Partnership, it will adversely affect the competition in the payment services and e-commerce sector. Reading through the law, the deal speculates violation of Section 3(4) and 4(2) of the Statute.
Section 3: Anti Competitive Agreements
Section 3(4) states that any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including—tie-in arrangement; exclusive supply agreement; exclusive distribution agreement; refusal to deal; resale price maintenance, shall be an agreement in contravention of Section 3(1), if such agreement is likely to cause appreciable adverse effect on competition.
Such agreements are vertical tie-ups and include combinations that are complementary to each other with respect to the nature of trade.
The $5.7 billion deal brings Facebook and Jio together through acquisition and limited control policy, expanding their data and network route, giving them a first-mover advantage. A social media platform and a telecom operator together form a part of the huge technology industry that the country sustains. The present arrangement is based on building a strong e-commerce base in the largest user market i.e India. Not just this, it even targets the payment platforms by getting the JioMoney and JioMart portals on Whatsapp for ease of transactions and better accessiblity. Besides, inviting millions of users, it poses a challenge on the competitors in the relevant markets including Paytm, Google Pay, Amazon pantry, Flipkart etc.
The agreement tends to invoke Section 19, underlining the duty of commission to take such matters into cognizance and act upon it. Section 19(3) states a few factors that need to be considered for determining an agreement as ‘anti-competitive’ including creation of barriers for new entrants, driving the existing competitors out of the market, promotion of technical development by improvement in provision of services etc.
Apparently, the preferential treatment to the Facebook/ Whatsapp users, while on a LTE network, will reckon the other Internet service providers to up their game. Subsequently, it lowers the customer base of the various other e-commerce hubs like Amazon, Flipkart, Oculus etc. The small tech startups and businesses will be drastically affected.
Section 4: Abuse of Dominant Position
Section 4(2) explanation, defines the “dominant position” as a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to affect its competitors or consumers or the relevant market in its favour.
With a massive database and two payment services (WhatsappPay and JioMoney) running parallel on the same network, Facebook and Jio are likely to establish a dominant position in the market. Significantly, it might influence the customer base of other competitors in the relevant markets, in its favour.
Green Channel Route: A hurdle or a way out:
Merger Regulations (Amendment), 2019 paved way for a ‘Green Channel Route’. It emphasized on green signal notifications to combinations for fast paced approvals, albeit, subject to certain conditions.
Considering the plausible market definitions, the route shall apply to the combinations that:
are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in product(s) or provision of service(s) which are at different stage or level of production chain.
are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in product(s) or provision of service(s) which are complementary to each other."
Scrutinizing the above elements becomes imperative before opening the doors for this magnificent deal. The nature of arrangement and impact on relevant markets are the two major factors that will decide the future of the collaboration.
After analysing the eventual breakout of the agreement, it is also essential to make note of the policy differences between the two entities. While Reliance Jio strongly supports data localisation and monitoring and regulation of social media platforms, Facebook wouldn’t get rid of the end-to-end encryption policy on Whatsapp messenger. Tracing the past, Facebook has also shown heavy support in data storage by foreign companies. A few fundamental policies of the tech companies might make this agreement an exclusive partnership with mere collaboration and limited control.
5. Competition Act 2002 section 3(1), section 3(4), section 19, section 4(2)