How did Facebook fool the Commission that easily during the WhatsApp acquisition?

Press conference by Margrethe Vestager, Member of the EC, on a cartel case Date: 07/12/2016. Location: Brussels – EC/Berlaymont. © European Union, 2016. Source: EC – Audiovisual Service. Photo: Mauro Bottaro

The European Commission announced yesterday that a Statement of Objections was sent to Facebook accusing the company of providing incorrect or misleading information during the investigation under Facebook’s acquisition of WhatsApp. The aforementioned information was that Facebook had initially reassured the EC that it was not possible to match the user accounts of Facebook and WhatsApp.

However, it was last August when WhatsApp changed its privacy policy giving permission to share its users’ phone numbers and device information with Facebook; thus showing that the user accounts between the two companies can be easily matched after all. Was the tech giant acting deliberately or not? Did Facebook know this possibility and concealed it in fear of the EC cancelling the proposed acquisition? One thing is for sure, that tech giants like Facebook do not make so many naive mistakes every day.

EU Commission against Facebook

Facebook becomes the latest Silicon Valley target of the EU competition chief Margrethe Vestager, who has already demanded Apple to pay back billions in taxes to Ireland and severely hit Google with two market abuse investigations.

The Commissioner Margrethe Vestager, in charge of competition policy, mentioned that it is mandatory for companies to provide accurate information to the European Commission when investigated over a proposed acquisition. In the case of Facebook, the company had misled the Commission with incorrect data, stating during the merger investigation in 2014 that it is unable to provide reliable automatic matching between Facebook and WhatsApp user accounts.

More specifically, Margrethe Vestager said: “Companies are obliged to give the Commission accurate information during merger investigations. They must take this obligation seriously. Our timely and effective review of mergers depends on the accuracy of the information provided by the companies involved. The Commission’s preliminary view is that Facebook gave us incorrect or misleading information during the investigation into its acquisition of WhatsApp. Facebook now has the opportunity to respond.”

Will Facebook respond effectively?

Facebook has now until the end of January to respond in written to the Commission but the initial response by a spokesperson of Facebook was that the company acted in “good faith” respecting the investigation procedure.

More in detail, the spokesperson said in an e-mail statement yesterday: “We have consistently provided accurate information about our technical capabilities and plans, including in submissions about the WhatsApp acquisition and in voluntary briefings before WhatsApp privacy policy update. We’re pleased that the Commission stands by its clearance decision, and we will continue to cooperate and share information officials need to resolve their questions.”

The firm, in case the Commission’s concerns are verified, faces now a fine of up to 1% of its 2014 turnover. This means that the tech giant will have to pay almost 180 million dollars.

The outcome though remains the same

The Commission’s investigation in order to approve the acquisition of WhatsApp Inc. by Facebook Inc. focused on three areas: consumer communications services, social networking services, and online advertising services. The conclusion was that Facebook and WhatsApp were not close competitors in the messaging market, but they were rather distant competitors in the social networking market. Moreover, in the online advertising market there were sufficient alternative providers of advertising and sources of Internet user information.

Taking the investigation further, the EC examined whether the acquisition could strengthen Facebook’s position in the online advertising market and hamper competition even if WhatsApp was not active in that market. Particularly, the Commission probed about the possibility that Facebook could introduce advertising on WhatsApp or use WhatsApp as a potential source of user data for improving the targeting of Facebook’s advertisements.

The outcome was that regardless whether Facebook would introduce advertising on WhatsApp or start collecting WhatsApp user data, the acquisition would not raise competition concerns. This is because after the merger, it will still be a sufficient number of alternative providers to Facebook for the supply of targeted advertising. A large amount of Internet user data which are valuable for advertising purposes are not within Facebook’s exclusive control.

The next step

It is now at the hands of Facebook to examine the documents that the Commission has in its possession and reply in written to the European institution requesting an oral hearing to state its arguments.

However, the charges will not affect the approval of the acquisition of WhatsApp by Facebook and are unrelated to neighbouring privacy, data protection or consumer protection issues according to the EC. The point though is whether Facebook did mislead the Commission after all, either intentionally or negligently, in an attempt to make sure that the acquisition will be accepted.

It is quite hard to believe that Facebook, even for the most naive analyst, that one of the greatest U.S. tech giants, hadn’t tested the matching of the user accounts between the two companies before proceeding to the merger process.

Therefore, it is imperative that the European Commission keeps a rigid stance on the matter, exhausting all possible means to prevent other companies from following similar policies.

Let’s not forget the obvious, that similar company policies could have a crucial impact on the data privacy rights of the European citizen.