Facebook and Jio deal under scrutiny by CCI

iNDICA NEWS BUREAU-

A little over a month, in one of the first virtual deals, the news of Facebook investing in Mukesh Ambani’s Reliance Jio made waves across the trading world.

The deal was, Facebook would invest $5.7 billion in exchange for a 9.9% stake of Jio, making it the largest investment for a minority stake by a tech company in India.

Soon after the deal was announced, concerns on data privacy and national security came into focus.

Now, this deal is under review from India’s antitrust watchdog the Competition Commission of India (CCI), as it gives Facebook another foothold in one of the world’s fastest-growing internet markets.

The CCI looks to prevent misuse of data in all the deals it assesses, chairman Ashok Kumar Gupta said in an email interview, declining to comment further on the Facebook-Jio transaction pending examination.

The regulator is also considering whether new parameters should be included in its assessment criteria; currently, some mergers and acquisitions escape the threshold for scrutiny even if potential harm is evident, Gupta said.

Numerous times in the past, Facebook has come under fire for misusing users’ data. While Zuckerberg has admitted to breaches in Facebook’s system as ‘unintentional’, it cannot be overlooked yet again.

By partnering with Jio, Facebook gets access to a completely different level of the growing Indian market.

Gupta, without referring to any particular case, said that they are looking into peculiarities such as “strong network effects, high returns to scale and access to a huge amount of data” may incentivize digital firms to engage in anti-competitive conduct.

Approval of the deal will help Asia’s richest tycoon stick to his debt reduction plan and create a formidable homegrown digital force that can take on the likes of Amazon in India.

Facebook, in its application to the competition commission, argued that the deal does not alter the competitive landscape in any relevant market. Regulatory filings show Facebook and its unit WhatsApp Inc. have proposed to set up a digital marketplace as part of the investment in Jio.

This partnership facilitates horizontal movement into newer territories for both companies. In digital business models working at scale, the focus is always on developing a user base to encash on network effects, and instant revenue is a secondary concern. Thus, deals that do not meet the asset or turnover brink yet cause major competition risks are largely unregulated.

India, with its 1.3 billion population, is one of the world’s fastest-growing online arenas, where Amazon to Google is vying for dominance.

CCI is also probing Amazon and Walmart Inc.’s Flipkart over exclusive arrangements between the retailers and some mobile phone brands, and preferential treatment given to some sellers. Traders have been agitating against e-commerce companies who blame the industry for anti-competitive activities like deep discounting.

It is yet to be seen how the competition regulator will respond to this deal, and whether it establishes any apparent restrictions on matters such as data sharing.

However, what this deal makes clear, more than ever before, is that the competition regulations may need to be reconsidered to sufficiently address digital business models.