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Are European Telcos Using Competition Law to Fight Against Competition from Facebook-WhatsApp Merger?

· May 28, 2014

The Wall Street Journal published a story today on Facebook requesting that the European Commission, not individual domestic competition regulators, review its recent transaction to acquire WhatsApp.  The announcement came as a surprise as the acquisition already sailed through U.S. approval and, as the WSJ points out, the EC “wasn’t expected to review the deal because the acquisition is unlikely to materially boost Facebook’s revenues.”

Although Facebook’s request might seem strange on the surface, it follows on the footsteps of political pressure from European wireless companies to oppose the deal.  Given that these companies are powerful political forces in their respective states, fighting for merger approval in many individual countries against politically powerful local incumbents doesn’t seem like a great proposition.

As the WSJ notes:

European telecom executives have nevertheless railed against what they describe as the assault by so-called over-the-top companies that they believe are competing unfairly against traditional phone companies. At a conference in Brussels last month, some lambasted the EU antitrust agency’s perceived lack of interest in the WhatsApp merger.

It’s pretty clear why telcos are opposing this transaction.  Combining WhatsApp, which has “been hugely disruptive to the [telco’s] traditional text messaging business,” with a well-heeled market leader with a huge user base promises to make the new combination a stronger competitor for the telcos.  Therefore, it is not surprising that the telcos are pushing back: consumers saved $33 billion in texting fees in 2013 alone thanks to WhatsApp and similar messaging applications.  The problem for telcos: that savings came out of their pockets.  The other problem for the telcos: the very purpose of the European Commission’s competition policy is consumer welfare, not incumbent revenue protection.

Other commenters have made similar observations, including Greg Sterling over at Marketing Land, who noted that this maneuver by the incumbent telcos is “clearly a case of vested interests petitioning the government to try to block disruption and protect revenues.”

Besides the obvious consumer benefits of a more robust WhatsApp, Facebook is also bolstered by a recent European General Court ruling validating a European Commission merger approval decision.  In its response to Cisco’s challenge of Skype’s acquisition by Microsoft, the General Court upheld the European Commission argument that competition is not harmed if there are no technical or economic impediments to downloading competing products:

“[T]here are no technical or economic constraints which prevent users from downloading several communications applications on their operating device, especially as the software concerned is free, easy to download and takes up little space on their hard drives.”

Given that WhatsApp and Facebook still offer separate applications (and should for a long time given Facebook’s pledge to keep WhatsApp ad-free), and the robust nature of competition in the messaging market (which I have written about here on DisCo), this should be a relatively straightforward merger approval.  That is… if it is decided on the merits.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.