COMPETITION LAW OBSERVER

A blog by Centre for Competition law & Policy, NLU Jodhpur

WHATSAPP PRIVACY POLICY: TRANSITION FROM SERVICE PROVIDERS TO DATA EXPLOITERS

Arnab Chakraborty

Introduction

In today’s data driven world, legislations such as the Dashboard Act and “Get Transcript” initiative to streamline data held by the Internal Revenue Service in the USA could serve as path-breakers in increasing transparency within the virtual space. The enactment of a consumer data right in Australia aims to introduce a regime that not only safeguards personal data but also provides an opening for new entrants to compete in a level-playing field. As cases of consumer data exploitation by Over-the-Top (“OTT”) messaging platforms have started receiving considerable attention over the last few years, governments across the world have urged their citizens to become more responsible and aware.

The enactment of the General Data Protection Regulation [hereinafter, GDPR”] embodied a statement by the European Union reiterating its stance of a no-nonsense policy towards deliberate and calculated acts of infringing personal data under the garb of providing better services. Although the legislation was primarily concerned with the data governance pattern of the region, several other violations have led to inquiries regarding their effect on the competition landscape and potential recourses. It is pertinent to understand that third-party tracking and first-party tracking are significantly different. While the latter attracts the watchful eyes of privacy regulators, the former has the potential to massively affect the competitive market in any virtual space. In this article, the author intends to elaborately highlight how WhatsApp and Facebook have combined to enhance their profits by exploiting the feature of third-party tracking to brilliant effect.

The Intertwining of Data Price and Network Effects

The Competition Commission of India’s [hereinafter, “CCI”] decision in the case of Vinod Kumar Gupta v. WhatsApp deliberated on the previous privacy policy notification update by WhatsApp dated 24th August 2016. Even though the latest update notified in January 2021 is also similar to the 2016 update, there is a fine line of difference in terms of how consent is sought from the users. While the 2016 notification provided leeway to the consumers of voluntarily opting for the policy change, the 2021 update mandates the same. Consequently, the CCI has taken suo moto cognisance of the matter. However, the 2016 decision does not hold ground in the present context due to how data rights and the economic landscape of virtual interactions have evolved since then.

The 2016 judgment falls flat on two major grounds. Firstly, even though accusations of predatory pricing were levelled at WhatsApp Inc. by the informant, CCI identified WhatsApp’s business strategy of providing its services for free as standard practice, drawing comparisons with zero-pricing models of other competitors such as Hike and Messenger. However, CCI failed to appreciate that WhatsApp’s zero-pricing policy was compensated by the user data that it had stored in its reserves. Facebook, the parent company of WhatsApp Inc. could mint money out of the data that WhatsApp collected through targeted advertisements by selling the data tracked to third parties. This implied that even though other competitors could provide the services for free initially, they would eventually lose out to WhatsApp because these companies did not have a third-party tracker to compensate for the revenue sacrificed.

Secondly, CCI also erred in observing that switching to other messaging platforms did not involve significant costs for users as other applications were either offered free or at a low cost. CCI failed to realise the enormous ‘network effect’ created by WhatsApp due to its sustained market presence and as a result of its merger with Facebook in 2014. This is also reflected by the lack of impact on the user base of WhatsApp despite an increase in downloads witnessed by the competing applications after the policy was announced.[1] Therefore, the cost of switching to other platforms does not appear in monetary terms but locking-in consumers undoubtedly cater to the benefit of the incumbent platform in enhancing its position as a dominant enterprise.

Why Whatsapp should be considered as a ‘dominant entity’?

The Commission shall consider all or any one of the factors enumerated in Section 19(4) of the Competition Act before tagging an enterprise as ‘dominant’. It is implicit to understand how WhatsApp creates and protects its dominant position in the relevant market through tracking of consumer data. Access to a large amount of data with an individually identifiable consumer database provides an edge to the company over the other market players as it tries to build a data-financed business model to engage consumers. The apparent zero-priced subscription helps the company to gain traction in the market. However, the user data that is shared by Facebook to third parties for targeted advertisements demolishes the economic parity. Consequently, new players are forced to reconsider their decision to offer services as they are unable to replicate the business model of Facebook.

Manipulation of consumers through profiling followed by micro-targeting of consumers helps big data companies to devise a strategy of personalised pricing. This strategy can prove to be detrimental if implemented by businesses with substantial market power. It has the potential to study consumer biases and take advantage of consumers’ vulnerabilities. Another factor that aids the cause of WhatsApp and Facebook is their deep resource-well. According to reports by market intelligence firm Tofler, Facebook India’s net profit witnessed a surge of over 107 percent in the financial year 2019-20. A close competitor to Facebook, Google India’s numbers are significantly less as compared to Facebook.

Analysis of consumer data is not cheap. It has been found that skilled labour proves to be the difference-maker when it comes to analysing consumer data. Replicating raw data is simple but the ability of companies like Facebook to use their massive resources to employ skilled labour and sophisticated data storage techniques helps them gain a clear competitive advantage in the market. Therefore, it is evident that WhatsApp not only creates a technical barrier for new entrants but also enjoys an economic status far superior than its competitors in the concerned market. These operating standards play a pivotal role in identifying the enterprise as a dominant entity in accordance with Section 19(4)(h) and Section 19(4)(d) of the Competition Act. The resources and mode of collecting data by WhatsApp, when combined with personalised pricing assumes the status of predatory action. This enables the intermediary giant to carve out a market for itself with the aim of foreclosing its competitors in the long run, eventually resulting in abuse of its dominant position.

THOROUGH IMPACT ASSESSMENT OF MERGERS IS A PRE-REQUISITE

In order to analyse dominance, it is essential to evaluate the impact of the merger between two dominant companies. Mergers have the potential to harm consumers by vertically integrating consumer data of two entities, thereby foregoing quality data protection measures.[2] However, courts in Europe and India have been extremely easy-going on mergers between data companies in the recent past. The shifting of the jurisdiction from competition law to data protection regulations has further complicated the situation without providing adequate clarity on the same. As a result, companies have managed to dodge antitrust scrutiny despite apparently being on the wrong side of the dispute.

WhatsApp also tried to evade CCI’s examination by playing the ‘shifting of jurisdiction’ card, contending that allegations of infringing data rights of citizens are already under consideration of the sectoral regulator.[3] However, CCI has refused to entertain such an argument after being consistently passive in examining the impact of data tracking and non-consensual usage of data over the years. Since the acquisition of Instagram in 2012 and WhatsApp in 2014, Facebook has become equipped with all the tools required to trace and commercially benefit from user data. In 2019, Facebook was considered to be paving its way to becoming a data-monopolist and the latest privacy policy can easily be viewed as the last piece of the jigsaw in the company’s bid to achieve that status.  The reinvigorated position of the competition regulator in India is exactly what was needed given the current scenario.

Conclusion

There have been several disputes between Facebook and competition regulators across the world. Since the negative impacts of data tracking have come to the fore, consumers have also become increasingly aware of retaining control over their data. The tussle between big data giants such as Google, Facebook, and anti-trust regulators could have been nipped in the bud or completely avoided if mergers were scrutinized holistically from the outset. Evolving data tracking techniques and manipulative behavior of these companies need to be considered by courts before allowing the merger of dominant platforms in the technology space.

While the suo moto cognisance of WhatsApp’s privacy policy has been applauded by the consumers, there is a lot more to be done by CCI in order to gain consumer trust and ensure equal market opportunities to the new entrants in the relevant market. In assessing the impact created by dominant duos such as WhatsApp and Facebook, it is imperative to understand the potential impact on the differences in privacy standards offered by the company after the merger. In the absence of a robust data protection regime like the GDPR in India, CCI might consider levying deterrent penalties or undertake thorough impact assessments before such privacy policies or mergers between dominant platforms are given the green signal. CCI’s decision in the case of Re WhatsApp and Facebook would mark a significant transition in the competition and data protection landscape of the country.

Arnab Chakraborty is third year student at National Law University, Odisha (NLUO)


[1]In Re: Updated Terms of Service and Privacy Policy for WhatsApp Users Suo Moto Case No. 01 of 2021 (CCI), ¶26.

[2]OECD, ‘Consumer Data Rights and Competition’ DAF/COMP/2020(1), ¶75.

[3]In Re: Updated Terms of Service and Privacy Policy for WhatsApp Users Suo Moto Case No. 01 of 2021 (CCI), ¶11.

Leave a Reply

Your email address will not be published. Required fields are marked *