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Big data a growing factor in competition assessments, says expert as Facebook receives sign off for WhatsApp takeover

Out-Law News | 03 Oct 2014 | 3:00 pm | 4 min. read

The access to and control of personal data that a business would have following a merger and the market power the merged business is to obtain as a result is likely to be subject to increased scrutiny by competition authorities, an expert has said.

Competition law expert Sammy Kalmanowicz of Pinsent Masons, the law firm behind Out-Law.com, said the European Commission's assessment of Facebook's planned takeover of messaging service WhatsApp was the latest case highlighting the issue. On Friday morning, the Commission confirmed its unconditional approval of Facebook's $19 billion takeover of WhatsApp.

The regulator said the deal would not unduly impact on competition or consumer choice in the market for communications apps. It had assessed, among other things, whether WhatsApp and Facebook's existing Messenger application competed with one another and whether the takeover of WhatsApp by Facebook would harm competition.

"Consumer communications apps keep European citizens connected and are becoming increasingly popular," EU Competition Commissioner Joaquín Almunia, said. "While Facebook Messenger and WhatsApp are two of the most popular apps, most people use more than one communications app. We have carefully reviewed this proposed acquisition and come to the conclusion that it would not hamper competition in this dynamic and growing market. Consumers will continue to have a wide choice of consumer communications apps."

The Commission said it had also assessed whether the takeover deal would serve to restrict competition in the online advertising market. It said it reviewed whether the pooling of personal data from both Facebook and WhatsApp users would give Facebook an unfair competitive advantage for delivering targeted advertising. It concluded that it would not.

"The Commission examined the possibility that Facebook could introduce advertising on WhatsApp, and/or use WhatsApp as a potential source of user data for improving the targeting of Facebook's advertisements," the authority said in a statement. "The Commission concluded that, regardless of whether Facebook would introduce advertising on WhatsApp and/or start collecting WhatsApp user data, the transaction would not raise competition concerns."

"This is because after the merger, there will continue to be a sufficient number of alternative providers to Facebook for the supply of targeted advertising, and a large amount of internet user data that are valuable for advertising purposes are not within Facebook's exclusive control," it said. "In the context of this investigation, the Commission analysed potential data concentration issues only to the extent that it could hamper competition in the online advertising market. Any privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the transaction do not fall within the scope of EU competition law."

Kalmanowicz said it is likely that issues concerning access to and control of large volumes of personal data are likely to become an increasingly important factor in the competition assessment of prospective merger deals.

"With advancements in analytics software and computer processing power, data is becoming an increasingly valuable asset for businesses," Kalmanowicz said. "Harnessing personal data to personalise services to consumers and better target advertising is seen by many organisations as an opportunity to differentiate their businesses from those of rivals. A merger of powerful data collectors can help those companies achieve a competitive advantage by aggregating the data, using the latest analytics software to organise it."

"Potential competition law issues arise if rivals are shut out from being able to access the aggregated data, do not have access to a similar bank of data or have to pay a premium for access to that information. In some cases, a merger of powerful data collectors could create a position of dominance in a market for the merged business. It is challenging for competition authorities to prove that companies dominant in a market have abused their position. The merger control regime therefore offers regulators the opportunity to review and address potential competition issues that can arise in the 'big data' era before they manifest themselves," he said.

The European Commission previously reviewed the impact on personal data markets in the context of its merger control assessment of the then-prospective acquisition by Google of advertising business DoubleClick in 2008. Kalmanowicz said that that case, and the assessment made in its review of the Facebook acquisition of WhatsApp, showed the Commission is willing to consider data as conferring market power on the merged entity and the potential network effects of concentrations in the big data age.

Indeed, the nominated new EU Competition Commissioner Margrethe Vestager claimed at a hearing in the European Parliament on Thursday that "near monopolies" have been established by some companies because of the access to and control of personal data they have, according to a report by legal news provider M-Lex.

As a consequence, she said the regulator needs to improve its understanding of how data confers power on businesses and suggested the Commission would factor the issue of businesses' access to and control of personal data into its assessments of competition in markets in future.

The European Commission previously confirmed that it had been formally notified of Facebook's intention to buy WhatsApp on 29 August.

In line with rules outlined in the EU Merger Regulation, companies are under a general obligation to "pre-notify the European Commission of a proposed merger and obtain its approval before completion … when certain turnover thresholds are met and the acquiring company would obtain 'decisive influence' over another business", competition law expert Guy Lougher of Pinsent Masons previously explained.

Upon notification of potential mergers or acquisitions, the Commission has 25 working days, subject to a potential short extension if the parties offer remedies, in which to analyse the proposed deals and decide whether to give clearance to the deals, with or without remedies to address competition concerns, or launch a more detailed investigation into the plans to better determine how merger deals could effect competition in the relevant market.

In April the US Federal Trade Commission warned Facebook and WhatsApp to adhere to promises made relating to the collection, use and sharing of personal data regardless of whether a merger of the two companies was completed or not.