Last year, the Internet Society unveiled the 2017 Global Internet Report: Paths to Our Digital Future. The interactive report identifies the drivers affecting tomorrow’s Internet and their impact on Media & Society, Digital Divides, and Personal Rights & Freedoms. We interviewed Payal Malik to hear her perspective on the forces shaping the Internet’s future.
Payal Malik is the Economics Adviser and Head of the Economics Division (Chief Economist) at the Competition Commission of India. She is on secondment from the University of Delhi, where she is an associate professor of Economics. Her areas of expertise are competition law, policy and regulation. She has many years of economic consulting experience in network industries such as power and telecommunication, information and communication technologies (ICTs), innovation systems, and infrastructure. She was previously a senior research fellow at LIRNEasia and a senior consultant at the Center for Infrastructure and Regulation, National Council of Applied Economic Research (NCAER), India. At NCAER she was a lead researcher on various infrastructure development projects, including telecoms, electricity, highways, and water and sanitation. She was also on the team that drafted the Electricity Act of India, ushering competition into the sector.
The Internet Society: This year we’re focusing our annual Internet Futures report on consolidation in the Internet economy. We’re specifically investigating vertical and horizontal consolidation trends in and across the access, services and application layers of the Internet respectively. Have you noticed any trends in this regard?
Payal Malik: Yes, we have observed both horizontal and vertical consolidation in the Internet society. Consolidation trends have been observed in digital payment services, digital farming applications, e-commerce platforms, etc. Many cases were related to acquisition of shareholdings in e-commerce firms by investment companies. For example, Walmart recently acquired a major e-commerce firm in India and entered the market of e-commerce platforms. Furthermore, many firms in the digital space, and most of the new-born companies, fall under the de minimis exemption thresholds and hence their acquisition is exempted from notification. Thus, there may be more consolidation going on that hits the “blind spot.”
You’ve long worked on competition issues in various network industries, including telecoms. How has technology’s role in societies changed in the time since you’ve been working in this field? Have you perceived a backlash against the tech industry in India (e.g., Facebook and Free Basics)?
The technology has changed drastically especially in case of the telecom sector. With the advent of Jio (a new entrant), the total telecom subscribers in India (936 million in March 2016) increased by a massive 28% to 1,202.22 million in March 2018. Further, the prices of telecom services declined significantly and data consumption per month increased by 924%. The growth of Big Data has led to innovation, the development of new sectors, and the penetration of technology even in case of traditional sectors like education and health. The rise of Big Data has also created issues of privacy, data monopolisation, etc.
Severe backlash was witnessed against Facebook’s Free Basics services in the country and the same was banned in 2016. Consequently, net neutrality rules were notified in 2018 that prevented “any form of discrimination or interference” with data, including “blocking, degrading, slowing down, or granting preferential speeds or treatment to any content.” The view of the telecom regulator was that competition alone will not be sufficient to address the problem of telecom firms becoming gatekeepers to the Internet and strong ex-ante rules are required to regulate the behaviour of infrastructure firms such that it acts as a non-discriminatory platform. The issue of data localisation is now gaining currency in India and there seems to be some protectionist undercurrents to the whole issue.
Does this the trend impact India, or is more of a global issue?
Digital economy by its very nature is such that effects will inevitably cross state-nation boundaries and India, being an open economy, does feel the impact. Technological advances in other jurisdictions percolate to India, leading to innovation within the country, complementing the existing innovation ecosystem. We also recognise the challenges concerning Big Data and consumer privacy in the competition realm, especially as we have more players entering local markets. To address such conflicting issues we are trying to find ways and means to balance user privacy and technological innovation. We are in process of drafting privacy law which may be finalised soon and become an Act of the Parliament.
What makes the technology sector different when it comes to competition regulation?
The technology sector is different than other sectors as there are numerous relevant markets having multiple sides, each with specific competition dynamics. This makes the delineation of relevant market difficult. Further, markets are such that given market at one point in time mutates into another through the exploitation of complementarities. Therefore, a nuanced assessment has to be adopted by taking into account the facts, market, and technology in question. With the advent of Big Data in digital markets, data-rich entities are able to generate more user data with the help of feedback and monetisation loops. This leads to concerns of abuse of market power, algorithms, and collusions, etc.
As a competition regulator, how do you balance the need to not hamper innovation with the need for promoting competition?
When the cases involving dynamic competition, the Competition Commission tries to strike a balance between short-term static efficiencies and the longer-term gains that arise from innovation. Assessing technology sector issues requires an understanding of the underlying technology and a comprehensive knowledge of market developments. We’re also very aware of the fact that a given market at one point in time might mutate into another through the exploitation of complementarities. Further, during the assessment, we don’t emphasise the fact that one firm has entrenched market power in a particular industry. This is because taking such a stance would damage incentives to innovate, and would be a denial of the realities of market preferences. A nuanced assessment, based on the facts of the case and the market and technology in question, is therefore the strategy that the Commission has adopted in the analysis of antitrust cases involving digital economies in India.
Germany recently announced plans to try to curb digital dominance using competition law. Have you noticed any trends when it comes to other competition authorities’ responses to tech dominance around the world, and particularly how they are defining relevant markets? How do they differ between regions?
We do keep a track of international developments taking place in field of digital economy. Developed economies across the globe have now stepped in for curtailing digital monopolies, which may be a consequence of the economic realities of their countries, however given the peculiarities of each country these issues may have a local context. As far as defining a relevant market is concerned, we do consider definitions defined by other jurisdictions. We feel that Germany and France have adopted an aggressive approach to prevent digital dominance, which India cannot adopt at present time when digital markets are at their evolving stage. With the help of complementary laws, we hope to create a level playing field for digital players in India, including startups.
Is competition law the best solution to these consolidation problems?
Yes, we do believe competition law is the best solution for consolidation problems. But there is a possibility that traditional asset/turnover criteria may fail to capture potentially anti-competitive transactions in the tech sector. Some transactions in this market may fall below turnover-based thresholds because the target’s products are offered for free, or have yet to come to market, and generate little turnover. In such instances, the target’s value may not best be correlated to its sales. The value of the target’s sales is a rather poor indicator of the merger’s significance for competition. Thus, asset/turnover-based notification thresholds may have a ‘blind spot’ if relied on alone. Therefore, thresholds levels must be modified to take these blind spots into account.
Is there potential in data portability as a way of countering data effects and addressing consolidation concerns?
Data portability allows users to receive their data back in a format that is conducive to reuse with another service. The purpose of data portability is to promote interoperability between systems and to give greater choice and control to the user with respect to their data held by other entities. The aim is also to create a level playing field for newly established service providers that wish to take on incumbents, but are unable to do so because of the significant barriers posed by lock-in and network effects. In line with the EU’s GDPR, Indian Data Protection Bill also gives right to data portability to users. This is important as we do believe data portability has the potential to counter data effects.
Besides the potential negative implications related to digital dominance, what are your fears for the future of the Internet?
The Internet has undoubtedly revolutionised the way people shop, work, socialise, entertain themselves, etc. It has had some very serious consequences on the democratic edifices of countries with the ability of the Internet to spread misinformation and changing people’s behaviours and preferences. Second, I will be very worried if perfect price discrimination is implementable based on the individual customer data that digital monopolies have, as this will lead to killing of the positive impact of competition in technology markets. Last, though there is no reason to believe chilling of innovation maybe the final nail in the coffin. But I think that is too apocalyptical as innovation is highly contestable.
What are your hopes for the future of the Internet?
I hope the Internet will continue to develop new ideas, increase entrepreneurship, help make consumers’ lives easier, bring in transparency in terms of prices and quality, reduce intermediaries in supply chain, help transform societies, etc. For all this to happen, innovation needs to be protected and the government and competition regulators are aware of this need.
We’re getting ready to launch the next Global Internet Report! Read the concept note and learn how the Internet Economy might shape our future.