The Competition Commission of India (“CCI”) vide its order dated August 18, 2020 has held that there is no alleged contravention of the provisions of Section 4 of the Competition Act, 2002 (“Act”) against Whatsapp or Facebook. The CCI after giving a detailed order held that there is no prima facie case of contravention and the information is directed to be closed under Section 26(2) of the Act.

Facts:

An information under Section 19(1)(a) of the Act was filed by Ms. Harshita Chawla, (“Informant”), a practicing advocate against WhatsApp Inc. (“WhatsApp”) and Facebook Inc. (“Facebook”) alleging contravention of the provisions of Section 4 of the Act.

The Informant alleged the following:

1. The users of WhatsApp automatically get the payment app owned by WhatsApp i.e. ‘WhatsApp Pay’ installed on their smartphones. This automatic installation of the payment option into the messenger app is nothing short of ‘pre-installation’ which is forced upon a user of the dominant product, WhatsApp messenger. This, as per the Informant leads to contravention of Section 4(2)(a)(i) of the Act as automatic installation of WhatsApp Pay on existing WhatsApp Messenger user’s device amounts to imposition of unfair condition on the users/consumers.
2. There are two separate markets for internet-based messaging apps on smartphones and for UPI enabled digital payments apps and that there is a sufficient consumer demand for use of these apps separately and independently. Thus, the conduct of WhatsApp amounts to bundling since the two products are offered as a package and are not available independent of each other, which contravenes Section 4(2)(d) of the Act. This bundling arrangement allegedly has an element of ‘coercion’ as WhatsApp enjoys a dominant position in the internet based instant messaging app market, having a pre-existing user base of more than 400 million monthly active users in India. A user who does not wish to install the payments app but only the messenger app does not have the option to do so. Similarly, vice versa, a user who desires to only use WhatsApp payment service will be mandatorily required to install the WhatsApp messenger.
3. Such automatic installation also amounts to contravention of Section 4(2)(e) of the Act as the dominance of WhatsApp in internet-based instant messaging app market favours and protects it in the UPI enabled digital payments applications market.
4. Acquisition of WhatsApp, Instagram and Oculus by Facebook causes an adverse effect on the competition as these companies have huge data sets of users which they can use for their commercial advantage.

Pursuant to the information filed, the CCI directed both WhatsApp and Facebook to file reply to the information. After analysing the allegations made in the information and replies submitted by both the opposite parties, the CCI observed as under:

1. The relevant product market in which WhatsApp operates is the ‘market for Over-The-Top (OTT) messaging apps through smartphones’.
2. The second relevant market for assessing the allegations of the Informant would be ‘market for UPI enabled Digital Payments Apps in India’.
3. Facebook and WhatsApp are group entities and though they may operate in separate relevant markets, their strengths can be attributed to each-others’ positioning in the respective markets in which they operate. Thus, as per the scheme of Section 4 of the Act, WhatsApp’s market position has been assessed keeping in consideration its affiliation to Facebook and several other group entities (e.g. Instagram) which are part of the same group.
4. Given its popularity and wide usage, for one-to-one as well as group communications and its distinct and unique features, WhatsApp seems to be dominant.
5. With respect to the dependence of consumers on the enterprise and countervailing buyer power, WhatsApp undeniably has the advantage of reaping the benefits of network effect. Network effect in turn ensures that customers do not switch to other platforms easily unless there is a new competitor entering the market with an altogether disruptive technology. Moreover, lack of interoperability between platforms is another concern, as a result of which customers may be unwilling to incur switching costs, despite the same being primarily psychological.
6. As regards the barriers to entry, they may arise indirectly as a result of the networks effects enjoyed by the dominant player in the market, i.e. WhatsApp, in the present case. Since networks effects lead to increased switching costs, new players may be disincentivized from entering the market.

Conclusion:

After making the above observations, the CCI held as under:

1. As regards Section 4(2)(a)(i), the Commission does not find much merit in the allegation of the Informant as mere existence of an app on the smartphone does not necessarily convert into transaction/usage. As highlighted by WhatsApp in its written submissions, to enable WhatsApp payment, the user has to separately register for it which necessarily requires the users to accept terms of the service agreement and privacy policy. Such registration requires providing additional information and undertaking additional steps to link their bank account, as per the NPCI laid down framework for UPI digital payment apps. As such, no transaction can be completed without the user taking these necessary voluntary steps. Incorporating the payment option in the messaging app does not seem to influence a consumer’s choice when it comes to exercising their preference in terms of app usage, particularly since there seems to be a strong likelihood of a status quo bias operating in favour of the incumbents, at present. WhatsApp has also categorically ensured, in its written statement, that the users will continue to have full discretion whether to use WhatsApp Pay app or not, which implies that the users will have an option to use any other payment apps which might already have been downloaded on their smartphones. Thus, in the absence of any explicit or implicit imposition which takes away this discretion, the mere integration does not seem to contravene Section 4(2)(a)(i) of the Act.
2. While WhatsApp Pay is embedded in WhatsApp messenger app when it is downloaded by users on their smartphones, the consumers are at freewill to use WhatsApp Pay or any other UPI enabled digital payments app in India to make instant interbank transfers. Installation of the WhatsApp messenger does not appear to explicitly mandate/coerce the user to use WhatsApp Pay exclusively or to influence the consumer choice implicitly in any other manner, at present. The UPI digital payments market consists of various established players e.g. Google Pay, PayTM, Phone Pe, Amazon Pay etc. which are backed by big companies/investors. In an already evolving market, these players seem to be vigorously competing, as is evident from offers/ discounts/ incentives offered by them to their users, apparent from the newspaper reports relied upon by the Informant. In such a market, to perceive that WhatsApp Pay will automatically get a considerable market share only on the basis of its pre-installation seems implausible. Besides, the Commission also observes that WhatsApp Pay had got approvals to act as a payment app in India in February,2020 in beta version, and only recently, it seems to have complied with the data localisation norms stipulated by NPCI to operate fully. Thus, its actual conduct is yet to manifest in the market. Therefore, the allegation of Informant under Section 4(2)(d) are not made out.
3. Given the fact that WhatsApp ecosystem does not involve paid services as such for normal users, it seems unlikely that the consumer traffic will be diverted by WhatsApp using its strength in the messenger market. Thus, this allegation under Section 4(2)(e) of the Act also does not seem to be made out.

This update has been contributed by R. Sudhinder (Senior Partner) and Prerana Amitabh (Associate).