Facebook Outage: Foreshadowing the Threat to Competition

Facebook Outage: Foreshadowing the Threat to Competition

Disclaimer: This article has been written prior to Facebook rebranding as Meta.

Communication has never been as quick and advanced as it is today, and yet communication has never been more vulnerable than it is now. The recent global outage of Facebook, Instagram, and WhatsApp, brought the communication abilities of nearly 3.5 billion people to a screeching halt. It need not be spelled out that communication is critical to human life, but as the outage showed, a staggering number of people depend on a single entity, Facebook, for much, if not all, of their communication needs. This outage highlights and heightens the need to assess Facebook and its practices in the communication space, which is seen to foreshadow critical threats to competition. From a market perspective, this simply means that an entity like Facebook is at a vantage point, the kind of power which should not be concentrated in one hand. The following analysis draws attention Facebook’s actions as a dominant player in the communications space. Assessing Facebook’s business policies and market behaviour, the authors seek to combat the defences that Facebook is likely to take and to highlight possible solutions that the Indian competition regulator can pursue.

Communication – Facebook’s Playground

Facebook purportedly aims to “bring the world closer together” and facilitate openness and connectivity. The present market structure reveals that Facebook, along with its acquisitions WhatsApp and Instagram, dominates the market for social networking services. However, these applications and the services, though primarily used for communication, have also incorporated payment mechanisms and online stores, which effectively makes defining the market a task in itself.

A major factor to be noted here is the presence of network effects. Network effects refers to the phenomena where the utility of a network (in this context, Facebook) is directly dependent on the number of users already on it. The more users there are, the more expansive the network is. For instance, when more and more people join Facebook, the platform becomes more valuable to its user base. Facebook derives greater benefit because there are more and more users on their side of the market. A classic example of direct network effects, Facebook makes it very difficult for new players in the market to compete against it, which boasts of a huge and ever-growing user base due to platform compatibility. Advertisers also latch on to such entities which are able to tell them what exactly this huge consumer base will buy.

Though there have been arguments against network effects, which cite its instability, the case of Facebook neatly overrides such concerns. For instance, the argument that users may utilize multiple platforms which increases competitive pressure, is untenable in the case of Facebook as Facebook itself owns the multiple platforms in question, like that of WhatsApp and Instagram. 

These factors ensure that the consumers are locked in, and a large-scale exodus of users to another platform is quite difficult. Even when users had qualms about the new WhatsApp Privacy Policy and tried to switch to alternatives like Signal or Telegram, most users were quickly back within the tight embrace of Facebook’s WhatsApp. 

Facebook has also been subject to allegations of aggressively acquiring potentially successful competitors and ensuring that no competition stands against it. In such a market, Facebook is easily able to pursue, and has been pursuing, excessive data collection, tracking, and facilitating intrusive advertising. In the US context, this would also be a situation likened to monopolization, which is different from having monopoly power.

Additionally, privacy concerns have been plaguing users for quite some time. While user data was allegedly not compromised during the recent outage, Facebook and WhatsApp do not have a clean track record when it comes to guaranteeing the privacy of their users. 

The solution, therefore, needs to be assessed on the basis of market regulation which does not operate ex-post. It is argued that in critical areas like communication, there should be determinate factors to assess the market power and ensure strict regulation of the players so as to not stifle competition. As a necessary pre-requisite, competition regulators should be able to categorize the markets that entities like Facebook cater to and recognize, preferably in quantifiable terms, the various factors that are unique to such identified markets. The concept of ‘big tech companies’ spells big trouble for competition regulators, and this is perhaps where the potential effects of monopolies should be addressed. The present market structure is quite concerning and though there have been moves to investigate and penalize these players, the ‘structure’ left in place should be rooted out to prevent the complete destruction of a competitive market.

The Indian Story

Competition law in India has been steadily taking note of the communication space, with WhatsApp coming under the scanner recently.However, the present form of relying on ‘abuse of dominance’ provides ample opportunity for entities like Facebook to continue its suppression of competition and proliferate. What such a mechanism fails to comprehend is that the presence of a player like Facebook warps the critical communication space into one that it controls. 

Indian consumers are also locked into this pool. The Competition Commission of India [“CCI”] has considered the presence of alternative options and the freedom of consumers to switch as reasons to dismiss complaints of anti-competitive behaviour. However, such alternative or choice is not practically meaningful as network effects are particularly strong. 

It has also been suggested that technology-based markets are high innovation markets and that any new player with ground-breaking technology can disrupt the market and gain a stronghold. The ‘innovation’ argument is used by tech companies when charged with competition law violations, on the grounds that they operate in a different competitive landscape driven by constant innovation, thereby not giving a corporation the opportunity to hold its pole position, and subsequently turn that into dominance. It is also likely that such an argument might have been relied on by Facebook before the CCI. However, the American Courts in United States v. Microsoft when faced with the innovation argument, rejected such a stance. This case presented a significant instance of a tech giant such as Microsoft pleading the high levels of possible innovation in tech-based markets. In the same vein, it is highly unlikely that Facebook can successfully plead the ‘innovation’ argument and downplay their dominance. Even where innovation operates and a new player enters the market, the strong network effects that exist in favour of Facebook prevents any competitor from gaining a foothold in the market. In case a competitor is relatively successful, Facebook follows the policy of aggressively pursuing competitors and acquiring them, thus never allowing the competitors a position to be able to threaten their position. 

The Google Plus example is a clear indicator as to why the simple presence of an aggressor like Facebook is a concern. Technically, Google+, Google’s attempt at a social networking platform, was crafted with a recipe for success, but it failed and was subsequently discontinued. Business strategy aside, one core reason why it failed was the presence of the behemoth Facebook, which had already cemented its user base by then. It may also be argued that the present dominant force exerted by entities like Facebook is also hindering the development and large scale consumer use of Indian applications. . This points towards a stifling of innovation and a chokehold being put on the market, with larger implications for communication and user safety concerns.

In this light, it would be viable to assess the possible way forward for India. In the 2020 case of Harshita Chawla v. WhatsApp Inc. & Facebook Inc., the CCI had the opportunity to assess the integration of WhatsApp Pay into the interface of WhatsApp. Although the CCI recognized WhatsApp’s dominance in the relevant market and also noted that the data with such entities was “amenable to misuse and may raise potential antitrust concerns”, it did not go so far ahead as to act on the said observation. Further chances to address the unique features of such markets came up before the CCI, with the interim order in Federation of Hotel & Restaurant Associations of India (FHRAI) v. MakeMyTrip India Pvt. Ltd. (MMT), Ibibo Group Private Limited (Ibibo) & Oravel Stays Private Limited (OYO) , wherein it recognised the notable presence of network effects.

Flowing from the earlier discussion on the potency of network effects, and taking into account the sheer number of users Facebook and its allied entities have in India, the CCI must widen the consideration of factors under Section 19 of the Competition Act, 2002 [“Competition Act”] to include network effects as a critical component to consider abuse of dominance. This can be done by reading it into the Section 19(4)(m) of the Competition Act which speaks of other relevant factors the CCI may consider.

Additionally, it might be advantageous for the Indian regime to consider the scrutiny of ‘monopolization’ under the US Sherman Act, and to read that into the ambit of Section 4 of the  Competition Act. This would enable consideration of Facebook’s model of acquiring competitors and the intensive data sharing between its various constituents by the competition regulator as anti-competitive conduct in the form of monopolization. Such a change would also ensure that entities like Facebook cannot actively engage in conduct specified under Section 4(2) of the Competition Act, which talks of “abuse of dominant position”. Thus, the focus can shift to the actual impact of their actions on the market rather than the form or structure of their market behaviour.

The communication space must be an incubator for healthy competition as it is a critical aspect even from the angle of a functioning democracy. In this light, the factors under Section 19 and the ambit of Section 4 of the Competition Act need to be interpreted in a way that allows for an objective market appraisal and for the CCI to use its powers under the Competition Act for efficient market correction. 

Conclusion

The ability to relay information is a core concern that the market should not hand on a platter to a single entity. Owing to the different factors at play, the present position of an entity like Facebook is problematic and needs to be regulated efficiently, both from a competition perspective as well as from the angle of public policy. India, especially, has a potent presence when it comes to the number of users and the sheer size and growth of the market. Recognising this potential, the competition regime needs to step in and fulfil its role to the consumers of the services in the communication space as well. This can be done by pursuing an impact based interpretation of the existing provisions of the Competition Act, namely Sections 4 and 19. The possibility of bringing in concepts like monopolization and increased emphasis on network effects and rejection of possible claims of innovation in the market as a defence also needs to be noted by the CCI. The outage of Facebook proved how vulnerable the consumers are and now the onus is on the CCI to step in and regulate the unfettered practices of Facebook and similar entities.


This article is authored by Neha Maria Antony and Tapamoy Ghose, students at National University of Advanced Legal Studies, Kochi.

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