The CCI Antitrust Watchdog has his watchful eye on the Reliance Jio Facebook Deal

Reliance has been on a spree to attract 11 investments in the past 9 weeks. The amount has totalled the investment to ₹115,694 crores. It has diluted almost 25% of its share value. And this all started with Facebook buying 9.99% of its shares, valuing the company at Rs 4.62 lakh crore ($65.95 billion) pre-money enterprise. Now, the Reliance Jio Facebook deal was the largest FDI deal in the Indian tech industry.

So, it got many wondering about the future of Indian tech startups and how it will impact the digital economy. And that brought the scrutiny of the CCI, too. CCI Chairman Ashok Kumar Gupta, in an email interview with Bloomberg, said that the CCI is looking to prevent the misuse of data in all the deals it assesses. It has also been devising new parameters that law should include in its assessment criteria. He declined to further comment on the Jio-Facebook deal pending examination.

Effect of the Reliance Jio Facebook Deal on the telecom sector

The duo- Reliance Jio and Facebook are known as “data elephants” in the industry. They have to deal with and collect a lot of data of Indian internet users. Thus, many fear the deal will provide an undue advantage to these companies over their competitors. Even tech giants like Google and Amazon might not be immune to the impact of the takeover.

Then Jio, even when it entered the telecom market, it has given a strong price competition to its competitors. The fight is so intense that Kotak Securities Ltd. stopped coverage on Bharti last month. It stated that it can’t value the company anymore as it’s not sure how far Jio will go to establish its dominant position.

Further, Jio Mart became live to more cities soon after the deal. In December last year, Reliance put all its digital businesses like MyJio, JioTV, JioCinema, JioNews, and JioSaavn under one umbrella platform — Jio Platforms Limited. Facebook will also get indirect access to all these platforms as well, if approved, expanding its already large network. Also, Facebook, along with WhatsApp and Instagram, is one of the largest social media platforms. Facebook has over 336 Mn users, WhatsApp has more than 400 Mn, whereas Instagram 155 Mn users in India alone.

So, the competition regulators risk worsening the disruption in India’s telecom sector. Jio has hurt the profits of even the biggest operators and smaller operators have either merged with the larger ones or chosen to exit. Therefore, officials believe that the Jio Facebook deal needs to be scrutinised from a data point of view, and not just market share or the transaction amount.

What did Reliance have to say on the matter?

Reliance highlighted that no technology company had ever made this large investment for a minority stake. This was also the largest FDI in the technology sector in India. It added that with this deal valued jio at among the top five listed companies in India through market capitalisation.

So, when the CCI eyes the deal and raised its eyebrows, Anshuman Thakur, strategy head at Reliance Industries Limited (RIL), added that the company would soon approach CCI for approval. This is because Jio has a subscriber base of over 388 Mn people. Also, its services are not limited to the telecom industry.

What did Facebook have to say on the matter?

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.

The CCI Watchdog

The CCI has reportedly sid that data is becoming a factor to reckon competitiveness. Therefore, the data aspects of the competition law need to be sharpened and revisited. CCI Chairman Gupta further said that with the current criteria, some mergers and acquisitions escape the threshold. Even though the potential harm is evident, they escape due to trivial sections. He added that the network effect of such deals, high scalability and access to tonnes of data may incentivise digital companies to engage in anti-competitive conduct.

Gupta told BS that peculiarities such as “strong network effects, high returns to scale and access to a huge amount of data” may incentivise digital firms to engage in anti-competitive conduct.

Meanwhile, CCI has also started conducting studies on the telecom sector as well as mergers and acquisitions in the digital market. This will enhance its capabilities to deal with unfair business ways. The Indian Council for Research on International Economic Relations (ICRIER) has also submitted an interim report to CCI. This was after it consulted the stakeholders in the industry.

Further, there is no timeline for a decision on the Facebook-Jio review. But according to Indian law, if the commission doesn’t decide on the deal within 210 days, it is deemed to be approved.

TRAI's Interference

Also, in late February, TRAI had written to Supreme Court, claiming 'exclusive jurisdiction' on the Telecom sector. It had pitched it against the competition panel, escalating a turf war in the sector grappling with uncertainty since the launch of Reliance Jio. But this was even way before Reliance Jio Facebook deal happened. Then, the antitrust regulator said in its petition to the top court that any dispute of anti-competitive practice or abuse of a dominant position in the market fell within its “exclusive domain regardless of the existence of a sectoral regulator.

The matter didn't rest there and all the investments and dilution have added to the other three telecom giants. These are Bharti Airtel, Vodafone-Idea and BSNL.

A round of Reliance Jio's Investment so far

Including the Jio Facebook deal, in the last nine weeks, Jio Platforms has raised ₹115,694 crores. It has diluted almost 25% of its share value. Reports also suggest that both Google and Microsoft are in talks with Reliance Jio to acquire a 6% stake.

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