Facebook purchased a stake of 9.99 percent in Reliance Jio for INR 43,574 crore (USD 5.7 Billion). This investment by Facebook in the Indian technology market is one of the world’s biggest foreign direct investment (FDI) deals. The $5.7 billion transaction values the digital operations of Reliance at about $66 billion. It moves the Indian conglomerate forward to de-leverage its balance sheet. It will also speed up the launch of its new commerce business.
The Deal
A commercial agreement was signed between Jio Platforms, Reliance Retail, and WhatsApp. This will cross-leverage the e-commerce platform JioMart and WhatsApp. It will lead to the expansion of both businesses. The establishment of Reliance Retail ‘s commercial platform JioMart has already taken place. It is in association with small merchants and kirana shops. The companies will ensure that customers can use WhatsApp to reach JioMart ‘s nearest kiranas.
The scope of the deal and its possible impact on competition in various sectors, in which these two companies’ projects operate, may be of great concern for the anti-trust watchdog in India. Thus, the Competition Commission of India (CCI) will have to look into several aspects of the Jio- Facebook deal. The CCI will need to check any actual or possible conflict between the combining parties. It will also need to analyze the combined impact on the other players’ ability to compete with them.
The Aspect of Dominance
Dominant Player
Across their respective markets, Jio and Facebook tend to be dominant players. The data provided by the telecom regulatory authority of India points out that Jio has a 32 % stake in the 1.15 billion Indian mobile services industry. It has the highest customer base and revenue-sharing share in the telecom market.
Thus, bringing the overall customer base to 369.93 million. It exceeds its rivals Bharti Airtel and Vodafone-Idea. India is the biggest user base in the world for Facebook. The country is also the biggest market with over 400 million monthly active users for the social media platform Messaging service WhatsApp.
In combination with WhatsApp, Jio aims to revolutionize JioMart to integrate small and medium-sized ‘kirana’ businesses. It will, firstly, boost mom-pop shops in the local market by sewing them to a digital platform. Secondly, by using the dominance of WhatsApp, seek to penetrate another market.
Besides, WhatsApp could allow JioMart to operate through its messaging platform. If done so, and in a way that WhatsApp comes with pre-installed JioMart platform, it would lead to abuse of dominance under section 4 of the competition act. This is because the installation of WhatsApp would be the main contract and pre-embedded JioMart would be the unconnected supplementary obligation. This also implies that the users would not be allowed to use other e-commerce platforms on WhatsApp. This would disrupt competition and be unfair to consumers as they would have no choice but to accept the deal.
Impact on Payment Apps
This deal may also have an impact on payment apps due to the establishment of Facebook’s long-stalled WhatsApp pay project. The partnership with Jio will help this payment service to establish itself. This will happen at a time when WhatsApp already has approximately 400 million users. Facebook can now use Jio for WhatsApp Pay to reach all areas of the country. This will include shops, farmers, teachers, students, and SMEs.
WhatsApp Pay will give established industry players such as Google Pay, Paytm, and Pay a tough competition. The payment service is equipped with all the technology to dominate the industry. Thus, the CCI will have to consider whether Facebook would become dominant in the relevant markets for potential abuse of the dominant position to monopolize the market by WhatsApp Pay.
An Attempt to Monopolize
The CCI should also determine whether it would be likely that any anti-competitive acts by Jio or Facebook would have the possibility of creating a monopoly in the online grocery market and other new markets created via Jio Mart. It would be very difficult for any other platform to compete with the combined market power of Jio-FB. Jiomart could alone become a dominant power. It could also create a monopoly in the local market in the same way as Jio alone had 380 million users in three years.
Analysts at Goldman Sachs peg the firm’s grocery retail gross merchandise value at $83 billion by FY29, up from $5 billion in FY20 due to continued store expansion-driven market share in the offline grocery, and rapid expansion of the total available market in online grocery.
Adverse Effect on Competition
It may be difficult to determine the combined entities’ resources and market positions, particularly for the technology sector. Nonetheless, if such an evaluation was carried out, if data is viewed as a valid indicator for the resources and economic strength of the parties, the result would be different. It is now well known that there can be monetization of data. It is an important factor in determining an entity’s market power, particularly in digital environments. Various experienced competition regulators (in particular the European Commission) are rethinking their present regulations to define relevant markets and evaluate dominance in digital markets.
Thus, to ensure accountability, the data-sharing arrangement reached by the two companies must be shared with consumers and the government. Private data is one of the most critical aspects of competition in any sector. To avoid the consolidation of market power, CCI must control each aspect of data exchange in this agreement.
Where strategic investment seeks to penetrate a particular segment utilizing leverage on their respective markets to reach a completely new product market, criteria need to be comprehensive to check the potential adverse effect on competition. In the case of Google LLC, the CCI pointed out that it is necessary to delineate associated markets to relevant markets that may have been affected by the conduct of the parties involved.
Although no horizontal overlap seems to exist, vertical integration may certainly occur. Jio provides smartphones with Internet connections, smartphones use Internet connections to run WhatsApp, and JioMart now incorporates WhatsApp. The use of a dominant position on one market to enter into a new market goes beyond plain vertical integration. Thus, it may hurt competition.
Conclusion
It is crucial that, before the partnership, the CCI should examine the potential adverse impacts of this mega-deal. It should find no comfort in the fact that it can check the actual behavior of the parties after the combination. Ex-post rules are now well understood to be unfit for digital markets where healthy competition may not be reinstated once a player reaches a dominant position (especially because of large data access).
The government and the CCI must review and overlook this deal at all times, from start to finish, and also when the two companies operate on the market together.
Nevertheless, the agreement will do tremendous good to the Indian economy despite all the dangers it presents for market rivalry. A careful examination and a fair clearing of the CCI would also help both the entities in achieving great heights in the market without the use of anti-competitive practices.
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