Facebook misleads EU on $22 billion WhatApp merger

Facebook has been accused of misleading the European Commission over its $22 billion takeover of WhatsApp in 2014—when the Mark Zuckerberg-run company claimed that it wouldn’t be able to knit together user IDs, thereby combining the data of the two services.

Brussels’ competition officials issued a charge sheet against Facebook on Tuesday, in which it is alleged that the free content ad network failed to disclose that “the technical possibility of automatically matching Facebook users’ IDs with WhatsApp users’ IDs already existed” at the time of the merger.

Antitrust chief Margerthe Vestager said that companies must provide “accurate information” during routine competition probes into planned acquisitions.

“They must take this obligation seriously,” she said. “In this specific case, 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.”

Facebook has been slapped with a so-called Statement of Objections by the commission, which claims that the multinational “intentionally, or negligently, submitted incorrect or misleading information” to the competition wing of the EC, thereby allegedly breaching its obligations under the EU Merger Regulation.

It comes after WhatsApp confirmed in August that it planned to merge user phone numbers with Facebook user accounts—much to the chagrin of privacy campaigners in Europe.

At the time, it claimed that the information would be used to offer users “more relevant” Facebook ads, new “ways for people to communicate with businesses” via the app, and new friend suggestions.

By mid-November, Facebook had stopped sharing WhatsApp user data across Europe, after it was forced to respond to regulatory pressure in the UK and Germany. Weeks earlier, data watchdogs across the EU who sit on the Article 29 Working Group urged Facebook “not to proceed with the sharing of users’ data until the appropriate legal protections can be assured.”

Now Vestager’s office has separately entered the fray with tentative charges brought against Facebook that could lead to it being fined up to one percent of its annual turnover.

The commission also explained the rationale behind its decision to wave through Facebook’s buyout of WhatsApp unchallenged in late 2014. It said:

With respect to consumer communications services, the commission found that Facebook Messenger and WhatsApp were not close competitors and that consumers would continue to have a wide choice of alternative consumer communications apps post-merger. Although consumer communications apps are characterised by network effects, the investigation showed that a number of factors mitigated the network effects in that case.

As regards social networking services the commission concluded that, no matter what the precise boundaries of the market for social networking services are and whether or not WhatsApp is considered a social network, the companies are, if anything, distant competitors.

With respect to online advertising, the commission concluded that, regardless of whether Facebook would introduce advertising on WhatsApp and/or start collecting WhatsApp user data for advertising purposes, the transaction raised no competition concerns. This is because, besides Facebook, a number of alternative providers would continue to offer targeted advertising after the transaction, and a large amount of Internet user data that are valuable for advertising purposes are not within Facebook’s exclusive control.

Facebook now has until the end of January to respond to the EC’s charge sheet.

“We respect the commission’s process and are confident that a full review of the facts will confirm Facebook has acted in good faith,” Facebook said. “We’ve consistently provided accurate information about our technical capabilities and plans, including in submissions about the WhatsApp acquisition and in voluntary briefings before WhatsApp’s privacy policy update this year.”

It added: “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.”

Vestager warned at the start of this year that she was eyeballing US tech giants that hoard vast amounts of user data. She said that following close scrutiny, Google’s acquisition of DoubleClick and Facebook’s buyout of WhatsApp both got the go-ahead, adding that data issues did not, and should not, be linked only to investigations into alleged privacy abuses.

However, her concerns about the lack of clarity around how much data is being used by online services, such as messaging apps and video-streaming sites, clearly left the commission flat-footed given that it has only now spotted an alleged discrepancy with Facebook’s takeover of WhatsApp.

Source: ArsTechnica