Getting digital regulation right

By Mohit Kalawatia & Shivangi Mittal

In January, instant messaging platform, Whatsapp, revealed its updated privacy policy, which allowed the company to share user data with Instagram and Facebook, the app’s parent company. Whatsapp’s updated privacy policy prompted Indian consumers to flirt with rivals such as Signal and Telegram. Additionally, India’s IT ministry reportedly wrote a letter to WhatsApp CEO Will Cathcart, asking the company to withdraw the proposed changes. It has also objected to Whatsapp’s differential treatment of Indian and European users in the Delhi High Court. While India still awaits a data protection legislation, there is a need to analyse whether data protection is the principal concern at play.

Globally, antitrust regulators are considering the privacy implications of technology platforms’ ownership structure, their use of user data, and a ‘lock-in’ effect, i.e., the user’s inability to switch to an alternative service provider. In July 2020, the CEOs of Facebook, Google, Apple, and Amazon appeared before the US House Judiciary Antitrust subcommittee. They were questioned about their business practices, including privacy policies and their impact on consumers and competitors alike. Similarly, in their joint paper, the French and German Competition Regulators stated that privacy policies could be scrutinised from a competition standpoint, especially when it involves a dominant entity.

The Competition Commission of India (CCI)’s recent market study on the Telecom sector indicates that the Indian regulator is sensitive to possible issues of data concentration and privacy. Its jurisprudence suggests that the Commission has adopted a more conservative approach. For instance, in Vinod Kumar Gupta vs Whatsapp, it held that privacy issues are not a matter of competition law. They should be resolved as per the relevant provisions of the Information Technology Act, 2000.

According to media reports, the CCI may investigate WhatsApp’s updated privacy policy as an abuse of its position as the dominant instant messaging platform. Whether or not the CCI takes up the matter, this episode highlights the wisdom of market forces. They will automatically prevent abuse of dominance when enough alternatives are available.

The availability of alternatives like Signal and Telegram enables users to exercise effective choice, as switching costs are low, and they offer comparable functionalities. Therefore, network effects may not entrench dominant positions if most participants can easily migrate to other platforms. If data protection becomes the parameter for competition, regulatory authorities may not need to intervene. However, we cannot be as sanguine about the dominance of large businesses in each segment of the digital economy.

Market shares in a segment that require significant resources to attract users or maintain a strong user base may not witness such mobility across platforms, as communications applications. A market study released by the United Kingdom’s Competition and Markets Authority in July 2020 offers an instructive example. The study showed that Google raced past rivals like AltaVista, and Yahoo as the leading search engine because it offered faster and more relevant search results. It further highlighted that factors like crawling and indexing capabilities, among others, impact quality in search engines—financial and human capital required to develop these act as an entry barrier. Thus, even though it is seemingly easier to switch search engines, users are unlikely to do so if they are sceptical about the quality of alternative services.

Meaningful consumer choice in digital markets goes beyond the existence of multiple comparable services that users can access. It depends on a complex interaction of functionalities that businesses offer, their quality and the scale at which these are available. Competition rules are designed to not only remedy direct harm to consumers but also indirect harms due to lack of competition. In the quest to enhance consumer welfare, assessments by competition regulators in digital markets should adopt a nuanced and flexible approach instead of a one-size-fits-all one.

The Authors work at Koan Advisory Group.
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