CCI approves acquisition of approximately 9.99% of Jio Platforms by Facebook

On June 24, 2020, the CCI approved the: (i) acquisition of 9.99% equity share capital in Jio Platforms Limited (‘Jio Platforms’), a subsidiary of Reliance India Limited (‘RIL’), by Jaadhu Holdings LLC (‘Jaadhu’), an indirect wholly owned subsidiary of Facebook Inc. (‘Facebook’); and (ii) Master Services Agreement (‘MSA’) between Whatsapp Inc. (‘Whatsapp’), another subsidiary of Facebook, Jio Platforms and Reliance Retail Limited (‘RRL’).[1]

Jaadhu is not engaged in any business in India. It is a wholly owned subsidiary of Facebook, which offers products and services in the market for social networking and advertisement. Its most popular products include Facebook, Messenger, Instagram, WhatsApp, Oculus, Workplace and Portal.

Jio Platforms operates digital applications and holds controlling investments in a number of technology firms. It also holds 100% of the share capital of Reliance Jio Infocomm Limited (‘RJIO’), a licensed telecommunications operator in India.

The CCI observed that as a result of the transaction, Jaadhu would hold 9.99% of the shares of Jio Platforms and have the right to appoint a director to the board of directors of Jio Platforms and an observer to board meetings. Jaadhu would also receive some benefits relating to buyback of shares and IPOs, and to receive financial information of Jio Platforms as would be necessary for tax and other compliances. Under the MSA, Whatsapp would develop an electronic chat feature to connect users with JioMart, an ecommerce marketplace developed by RRL.

The CCI observed that the activities of the Facebook group and Jio Platforms are similar in consumer communication applications and advertisement services. Moreover, the instant messaging application provided by Whatsapp and the telecommunication services provided by RJIO are complementary.

In its assessment of the horizontal overlaps, the CCI observed that Jio Platforms and Facebook horizontally overlap in two market segments: (i) consumer communication applications; and (ii) advertising services. The CCI observed that in the market for consumer communication applications, Jio offers telecommunication services and digital services including music and TV content and a messaging and calling application – JioChat. Facebook offers two similar communication applications i.e., WhatsApp and Messenger. The CCI segmented the relevant market based on functionality, platforms and operating systems. The CCI observed that the combined market share of Whatsapp and Facebook in the relevant market of consumer communication application is 45-50% and JioChat’s market share is 5%. The CCI also observed the presence of other players like Google and Microsoft in the market and noted that there was no barrier to entry. Accordingly, the CCI held that the transaction would not lead to anti-competitive effects in this market.

For advertising services, the CCI observed that both Facebook and Jio Platforms offer advertising services. The CCI noted that online advertising allows sellers to target the audience which is not possible in offline advertising. Moreover, search advertising offers more precise advertisements compared to non-search advertisements. The CCI observed that although Facebook earns a majority of its revenue from advertising, Jio earns less than 1% of its total revenue from advertising, and the presence of Google as a significant player in the market operates as a competitive constraint. Accordingly, the CCI concluded that the combination is unlikely to increase the concentration.

With respect to the business collaboration between Whatsapp and Jio Platforms under the MSA, which would enable Whatsapp users to access JioMart, the CCI observed that both Whatsapp and Jio Platforms would aim to penetrate into the e-commerce market using each other’s market presence. However, the CCI observed that Whatsapp is one of the several ways to access JioMart, and is free to offer its services to other market participants. JioMart is a new entrant in the market where other players like Flipkart and Amazon are present, and hence, the business arrangement between Whatsapp and Jio would not adversely affect the competition in any of the plausible relevant markets in e-commerce space in India.

In the market for digital payments based on the Unified Payment Interface (UPI), the CCI observed that according to the terms of the agreement between Whatsapp and RRL, JioMart will not limit its payment channels to only Whatsapp Pay. There are several other players like Google Pay and PhonePe that offer UPI based payment services in India who will impose significant competitive constraints. Further, digital payments in India are subject to strict regulation including from the National Payments Corporation of India (NPCI). Accordingly, the CCI concluded that there would not be any adverse effects on competition in any of the plausible relevant markets for UPI based digital payment application business.

The CCI observed that the product lines of Facebook group and telecommunication services by RJIO, are complementary to each other and examined whether the transaction would lead to any preferential treatment to Facebook applications or content in RJIO’s network. The CCI observed that according to the legal framework laid down by the Telecom Regulatory Authority of India, RJIO cannot provide preferential treatment to Facebook. The Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016, prohibit discrimination by service providers on the basis of content while the Unified License Conditions laid down in 2018 by the Department of Telecommunications further clarify that providing different speeds or blocking on the basis of content amounts to discrimination and is prohibited. Accordingly, the CCI concluded that the combination will not threaten net neutrality in India.

Investigating the possible harms from data sharing, the CCI noted that both Facebook and Jio Platforms collected non-personal information as provided in their privacy policies with a view to improve their services. The CCI observed that Jaadhu would acquire a 9.99% stake in Jio Platforms and the entities would remain distinct, so the possibility of information-sharing is bleak. It relied on Jaadhu’s claim that the aim of the combination is not to share data, and observed that there is nothing to apprehend any anti-competitive harms arising out of such sharing at present, but warned that investigations may be initiated in the future if it is observed that the parties are sharing information. Based on the above, the CCI approved the acquisition noting the absence of AAEC arising out of the combination.

 

[1] Combination Registration No. C-2020/06/747

Published In:Inter Alia Special Edititon - Competition Law - November 2020 [ English
Date: November 13, 2020