The European Commission unconditionally clears the Facebook/WhatsApp merger

By a Phase I decision the Commission unconditionally approved the Facebook $ 19 billion acquisition of WhatsApp (Case No COMP/M.7217,Facebook/WhatsApp). The Commission was required by the parties to review the transaction by means of a reasoned submission filed on the basis of Article 4(5) of the EU Merger Regulation. Indeed, the merger was not a concentration with EU dimension within the meaning of Article 1 EUMR falling within the Commission jurisdiction, since the EU turnover of WhatsApp in 2013 failed to met the financial thresholds in that provision.

The Commission identified three relevant product markets affected by the concentration. It restrained the first relevant market, the market for consumer communication services, to the communication apps for smartphones, because WhatsApp was available only for this device. Following its approach in Microsoft/Skype (Case M.6281), upheld by the General Court in the case T-79/12, Cisco Systems and Messagenet v Commission, the Commission viewed consumer communication service apps as a recent fast-growing sector, where large market shares might be ephemeral and not indicative of market power. For the same reason, the network effects that characterised this market did not constitute a relevant entry barrier. In addition, the Commission attached much importance to the multi-homing phenomenon. Communication apps were available for free download and took up little space on the users' devices. As a result, consumers could simultaneously use the apps of the parties and switch to those of rivals as they liked. Finally, the Commission ruled out that the parties were close competitors on considering that the functions of their apps were different.

Then the Commission examined the market for social networking services. It identified the essential functions of social networking services in the creation of a public or semi-public profile and a list of friends or contacts as well as exchanging messages, sharing information, commenting on posting and recommending friends. The Commission took the view that social networking services differed from consumer communications apps as they offered users a richer social experience. However, it reviewed the merger considering that also consumer communications apps belonged to the market for social networking services. The Commission found that the merger would not restrain the competition on this market on the basis of the following factors. First, there were many alternative operators, including providers of consumer communications apps, to which customers could easily switch due to the extensive reliance on multi-homing. Second, the products of the parties were not close substitutes since Facebook offered a richer user experience than WhatsApp. Third, a future integration between the Facebook and WhatsApp products was unlikely due to significant technical hurdles.

Finally, the Commission examined the effects of the merger in market for online advertising services. It ruled out that the merger would have anti-competitive horizontal effects because only Facebook operated in this market. The Commission also ruled out that post-merger Facebook would have a stronger market position, being able to use the user data of WhatsApp to introduce targeted advertising services on the latter or improve its advertising activities outside WhatsApp. There would be alternative providers of online advertising services capable to compete with Facebook. Strong competitors such as Google would have the control only on murch larger shares of Internet user data than Facebook. Moreover, reliance on the WhatsApp user data to improve the advertising services on the Facebook site would require to change the WhatsApp privacy policy with the risk that WhatsApp users, not trusting the Faceboook privacy policy, would switch to rivals as some did in the aftermath of the announcement of the transaction.

Incidentally in Facebook/WhatsApp the Commission confirmed that merger control should focus only on the economic effects of merger operations, privacy concerns being outside the scope of the EUMR. Privacy concerns, on the contrary, were taken into account by the US Federal Trade Commission (FTC) in the competition review of the merger. Though the FTC cleared the merger, it required the parties to continue to comply with the privacy policy of WhatsApp (FTC Press Release of 10 April 2014, FTC Notifies Facebook, WhatsApp of Privacy Obligations in Light of Proposed Acquisition).