EC Mulls Antitrust Review Changes for Digital Sector
EU transaction reviews might need to be revamped for digital companies, said Competition Commissioner Margrethe Vestager, though others were skeptical. The digital economy "isn't just one sector among many," and mergers and acquisitions don't "just affect how we buy goods and services," Vestager said Thursday in a Brussels speech. "They can change the way we live, and the opportunities we have," which is why competition authorities may have to look at more than just revenue to decide if there are antitrust issues, she said. Considering factors such as customer base or data sets in M&A probes is a reasonable approach, but it's not clear it will ever happen, telecom consultants told us.
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Vestager cited Facebook's 2014 buy of WhatsApp. Facebook paid $19 billion to buy WhatsApp, which has 600 million customers, a substantial proportion of whom were in Europe, she said. But the European Commission didn't have to be notified of the deal because WhatsApp's revenue wasn't high enough, she said. "The issue seems to be that it's not always turnover that makes a company an attractive merger partner." Sometimes, it's the assets that matter, such as a data set or simply the ability to innovate, she said. A deal involving those sorts of businesses could clearly affect competition even though the company's revenue isn't high enough to meet the EU merger review threshold, she said. "So by looking only at turnover, we might be missing some important deals that we ought to review." Facebook said it had "nothing additional to add on this."
Before changing the rules, however, "we need to be sure we fully understand what's at stake" and which important mergers the EC might be missing, Vestager said. Questions such as what the right value threshold is, and whether the EC would be better off relying on cases being referred to it from national antitrust regulators "deserve careful thought," she said. She asked the EC Competition Directorate General to "reflect on them" but a wider discussion is needed, she said. Whatever test is chosen must be "easy to apply, and has to give a definitive answer" about when the EC must be notified of a proposed tie-in, she said.
The German Monopolies Commission began tackling the issue last year. Its report, "Competition Policy: The Challenge of Digital Markets," focused on whether digitalization's "profound structural changes that affect many areas of life" require a rethinking of existing laws and regulations. It analyzed markets where services are provided by multisided platforms such as search engines, social networks and some areas of e-commerce, many of whose services are financed by advertising. "The multi-sided nature of services and the importance of data must be taken into account to a more significant extent by competition policy," it said. The commission recommended M&A notification thresholds be amended to capture takeovers where target companies have comparatively low revenue but relatively high transaction values.
What Vestager said is "exciting," said John Strand of Danish telecom consultancy Strand Consult. But he said "I'm not an optimist, and I guard against over-interpretation of what she says. Words are one thing; actions quite another."
An optimist would interpret Vestager's remarks as if there are two competition standards, one for the digital world and the other for classic markets, said Strand. The commissioner appears to have realized the decision not to allow Danish mobile operators TeliaSonera and Telenor to merge (see 1509110010) was incorrect, because all the things she feared from a combination -- price hikes, falling investment and less competition on the wholesale market -- happened anyway, he said.
In the digital domain, Vestager also realizes Facebook's acquisition of WhatsApp has an impact on the market, though she can’t touch the deal because WhatsApp's revenue is so low it doesn't meet the threshold requirements for scrutiny, said Strand. It's clear one can't weigh the competition in the digital market purely from revenue, he said: "There is no doubt that the emergence of WhatsApp has precipitated a decline in operators’ SMS traffic and revenue."
Vestager's reasoning is "very sensible," said consultant Innocenzo Genna, who advises smaller players on telecom and Internet policy and regulation. It makes sense for new-economy businesses whose values are frequently represented by intangible assets, including a community or a simple database of names, rather than by revenue, he said. M&A rules aren't adequate to "catch these realities," but it's not clear whether the commissioner will be able to extend current regulations or will have to seek legislative changes, which could take a long time, he said. "Nothing will change for traditional sectors, including telecoms."