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    Thought exercise: What would happen if the digital competition bill in its current form was applied to Tata Neu?

    If the draft Digital Competition Bill (DCB) in its current form were to apply to Tata Group’s super app — Tata Neu, how would the app be affected? The DCB, released by the Ministry of Corporate Affairs (MCA) in March this year, sets out regulations for large digital platforms (called Systemically Significant Digital Enterprises or SSDEs under the bill). It uses an ex-ante approach of regulation, seeking to pre-emptively prevent anti-competitive conduct. To do so, it requires them to not carry out any self-preferencing, tie or bundle services together, and not use the data of a business to compete with it, to name a few of the many regulations that would be imposed on SSDEs. But what would this bill look like in practice?

    To demonstrate how the digital competition bill would impact platforms, we’ve undertaken a hypothetical exercise—how would  Tata Neu fare under the Bill? For those who are unfamiliar with it, Tata Neu is an aggregation of all the services Tata has to offer which was rolled out in 2022. Services within Tata Neu fall under a range of categories like shopping, bookings, and payments. We’ve chosen Tata Neu because of the wide range of services it brings together under one platform.

     Is Tata Neu an SSDE?

    To become an SSDE, a platform is required to offer a core digital service, which includes services like—a social media platform, a search engine, and online intermediation services (including payment sites, e-commerce marketplaces, and aggregators). Here’s what Tata Neu offers:

    • Payment services: You can make bill payments, carry out recharges, pay for loans, and buy gift cards for Tata services on the app.
    • E-commerce marketplaces: The app allows you to buy—
      • groceries through Big Basket
      • clothes through Tata Cliq
      • medication through Tata 1mg
      • eyewear through Titan Eye+
      • Electronics through Croma
      • Jewellery through Tanishq
    • Aggregator services:
      • Aggregation of hotels owned by Tata Group
      • Flight aggregator
      • Restaurant aggregation

    What about the financial/user thresholds?

    SSDEs must meet both the financial and user thresholds set out in the bill in the past three years. Given that Tata Neu’s parent company, Tata Digital, is not public, we don’t know the exact contribution the super app has in its earnings. However, what we do know is the revenue brought in by the services the app provides.

    Financial threshold:

    An SSDE must have a turnover of greater than INR 4000 crore in India. Tata Digital earned a standalone revenue of Rs 204.35 crore in FY 23 and Rs 15.9 crore in FY 22. It is unclear what Tata Digital’s standalone revenue was for FY21, but its consolidated revenue was Rs. 5,315 crore, which crosses the financial threshold.

    Here’s the turnover (or revenue) of some of Tata services aggregated by the app—

    • Big Basket:
      • Rs 7434 crore in FY 23
      • Rs 7,098.4 crore in FY 22
      • Rs. 6065.8 crore in FY 21
    • Croma:
    • Rs 15,851 crore in FY23
    • Rs 8,207 crore in FY22
    • Rs 5,449 crore in FY21

    One could argue that just because the core digital services (like Big Basket, Croma, etc.) offered by Tata Neu meet the financial threshold of being an SSDE, it doesn’t mean that Tata Neu itself is an SSDE. “By virtue of clause 4(9) of the [draft Digital Competition] bill, a group company of Big Basket, so in this case, let’s say, Tata Neu, which is owned by Tata Digital and houses Big Basket, and therefore is directly or indirectly involved in providing core digital services. The commission may designate these group companies as ADEs [associate digital enterprises],” Parthsarathi Jha of the Economic Laws Practice told MediaNama, when asked about this. He added that as per the bill, ADEs have to comply with the same regulations as SSDE.

    User base:

    The SSDE must have more than 1 crore (10 million) end-users in India. It must be noted here that Tata Neu has been downloaded by over 50 million users on Google Play as of this year. It had 60 million downloads in 2023 after the Indian Premier League (IPL) season. Tata Group reported that it started with a cumulative consumer user base of 120 million in 2022.

    What provisions of the bill would Tata Neu violate?

    Self preferencing:

    The bill restricts SSDEs from directly or indirectly favoring their own products over those of other sellers. If you look up dals/pulses on Big Basket, the first three listings you find are for Tata Sampann, a brand of Tata consumer products. You can also observe similar patterns if you look up a thermometer on Tata1mg or air conditioners (AC) on Croma. But does this automatically mean that the company is indulging in self-preferencing?

    Thought exercise: What would happen if the digital competition bill in its current form was applied to Tata Neu?
    “There has to be some algorithm which will run and throw results which the algorithm thinks are useful or relevant for the search query. In doing so, if let’s say the product of the platform, first-party product, comes up in the first 5 hits, would I say that the platform is favoring, my answer to that would be perhaps not because that would be an extreme reading of the bill,” Jha argued. He mentioned that if the bill were to be read in this way, that would essentially mean that SSDEs cannot engage in certain business practices at all. “I think favoring has to be looked at in a context and if there is an objective criteria for how search results will be presented, and if that objective criteria is followed, and first-party products do come up on top of the list, I don’t think that should be called favoring,” he said.

    But how would you check whether a company is following objective criteria when ranking products? “Unless somebody can actually get out and prove that if you would have applied that algorithm, it’s not Tata Sampann, but maybe some other brand, let’s say the 24 Mantra or some organic brand, should have cropped up as number one. Until that demonstration is done, it’s going to be a little difficult to say that it’s [a] pure case of self-preferencing,” Deeksha Manchanda, from Chandhiok and Mahajan told us.

    Manchanda mentioned that this is what Amazon argued during its compliance with the Digital Markets Act in the EU. “Now, an investigation into the algorithm and whether certain factors in the algorithm are pre-fed in a way that always ranks your own products higher, that’s something only an investigation will be able to reveal, which will then become non-compliance,” she mentioned. Jha said that he didn’t believe algorithms would be open to scrutiny because of their proprietary nature, and, as such, proving that a platform has tinkered its algorithm to favor its own products would be a difficult task for the Competition Commission of India (CCI).

    Tying and bundling:

    Platforms must not require or incentivize users to use one or more of its services alongside the use of the Core Digital Service unless this is “integral” to the provision of the Core Digital Service. If you go to buy a phone over on Croma, you get the option to use “Tata Pay Later” and are incentivized to use it by saying that you will get an instant credit of up to Rs.25,000. You also get the option of joining Tata Neu HDFC Bank Credit Card which would give you 5% extra Neu Coins. Neu Coins are the rewards a customer earns when transacting on the Tata Neu app, website, or at any brand stores or hotels. While users are not required to use either of these, would the instant credit and reward points they offer be considered incentivizing them to use a bundled service?

    “So I think if you look at it strictly, it’s going to be a yes. And the problem is [that] the only exception there I have is something being integral to the provision of the core digital service. Nobody is going to say that a Tata Neu card or Tata points, et cetera, are integral to the core digital service. It’s going to be difficult to meet that standard, which is why I think the constant debate around tying and bundling right now is that you’re basically barring something which is pro-competitive because you’re essentially taking away the ability of the platform to be able to offer incentives,” Manchanda told us.

    Whether this should or shouldn’t count as incentivizing a customer to use a bundle, is a different question altogether and boils down to the context. “If they [the platform] has offered all payment options, technically its not an exclusion, which is the standard under the Competition Act, ” Unnati Agrawal from Indus Law explained, setting the context for how such a situation would be interpreted under the current competition law. “For their own [payment] options, they have given additional coupon, now the question will be: if the payment option is new and is trying to enter the market, then under the [current] competition act, it is fine,” she added. However, under the draft Digital Competition Bill, even incentivizing is an issue. Agrawal mentioned that even a new service would have regulatory obligations under the bill if it were to be categorized as an Associate Digital Enterprise.

    Does Tata Neu comply with the data usage obligations under the bill?

    On intermixing of data without consent:

    The digital competition bill says that platforms must not intermix or cross-use personal data collected from different services offered by the SSDE or permit the usage of such data by any third party without user consent. Tata Neu’s privacy notice makes it clear that it may share data with its partners, third parties, and Tata entities. The company advises users to carefully go through the privacy notice before availing any of its products/services but doesn’t explicitly ask for consent. But is that sufficient consent as per the bill?

    Manchanda explained that consent under this act is defined the same way it has been defined under the Digital Personal Data Protection Act (DPDP Act 2023). “Hopefully, the DPDP might come into force before this one does, the DCA does. So you’ll probably have a little more clarity on what is the exact standard of consent,” she said, adding that the way the DPDP Act is framed, anything other than a specific opt-in is not going to suffice in forms of consent. “You probably could be in a world where they require a specific opt-in for everything,” Manchanda added.

    It must be noted here that the intermixing of business users data also has to be done with prior consent. Jha explained that since the DPDP Act doesn’t discuss consent for business users, the meaning of consent for them will be specified during rule-making. “So again, that is left for deligated legislation of perhaps the CCI or maybe the central government,” he said.

    Tata Neu may allow for data portability:

    Tata Neu’s privacy notice says that depending on the country’s laws applicable to a user, they may have various rights with respect to their data. One such right could be data portability. While users may be entitled to request Tata Neu to transfer their data to another third party, this right only applies to certain types of data.

    Manchanda pointed out that data portability regulations are typically a part of a country’s privacy laws, however, India’s data protection law (DPDP Act) doesn’t have any portability requirements. She explained that data porting brings up challenges of consent acquisition, for instance, any interaction between a business and a consumer would be both the data of the business and the customer. “So if my user data being transferred also means that there’s some part of the data of a business that is being transferred, how will that work?” she questioned.

    The other major question that emerges here is in the context of business users—what constitutes the data of a business? “Your product pictures, price, description that’s, I think, an easy area. But then when you get into reviews, etc, that becomes complicated. Your product interactions on your platform is, again, complicated because this is something that I [the platform] am storing and generating and keeping. To what extent does it remain my data [the platform’s data] and what extent does it remain your [the businesses providing products/services on a platform] data is again a question that is to be answered,” she explained.

    Unclear whether Tata Neu uses business users’ non-public data:

    While the bill may restrict platforms from using the non-public data of business users to compete with them, it is hard to prove whether or not Tata Neu does so. So, for instance, Croma sells both its own brand of fridges and those of other companies like Whirlpool and Panasonic. It is hard to prove whether or not it uses insights from the sales of other companies’ fridges when creating/promoting Croma’s products. To prove this, you’ll have to point to some circumstantial evidence, Manchanda said.

    “For Amazon, the only thing you keep hearing is that the products which rank high are the ones that Solimo brand also introduces. But that may not really be non-public data because people might be able to see how much a product is flying off the shelves,” she explained, adding that companies could just as easily conduct a general market survey and rely on it to figure out what’s popular.

    Not only is it difficult for businesses to prove that their non-public data is being used, but it is also difficult for the platform to prove that it isn’t using said data. “The only thing I’ll be able to prove is that see, I have these mechanisms by which I ensure that my data is firewalled, and I’m not giving data from one to the other business department. Now, whether their data is actually flown or not, they’ll have to go back and probably check different people who have access to that data, which is a fairly intrusive and technical investigation,” Manchanda mentioned.

    What happens in a situation where the CCI begins an investigation of its own?

    The bill allows the CCI to carry out investigations into companies by itself to check whether they are violating provisions. But what would these investigations entail? Manchanda explained that the CCI would be similar to the exercise MediaNama undertook and would then form a preliminary view of potential violations.

    “Tata, of course, in its compliance report would have said that we rank products according to an algorithm, and that algorithm is not interfered with. And then it will be the exercise of proving and getting into the details of that algorithm, because the details may not be provided at the stage of filing the compliance,” she mentioned. She gave the example of the compliance reports for the Digital Markets Act (DMA) in the European Union (which the Indian act bears similarity to), adding that those have been fairly high level and don’t go into much detail.

    Jha mentioned that the compliance reports companies have to provide as per the bill may require more details, like the kind of market study a platform did before launching their own products and their market considerations. “And in that, if [the platform] throws up that some of the information was generated through the use of [the non-public data of a] seller on the platform, and you have utilized that to launch a new product, they [the CCI] may catch [platforms] through that.”

    Should the ex-ante approach taken by the bill be held off?

    “It is a standard understanding that competition laws are not to be in a sense proactive. Their job is more like a referee, which is sitting outside the field and is just seeing that the teams can play as hard, as well as they want, but they should not break certain rules,” former chairperson of the CCI, Vinod Dhall said during MediaNama’s discussion on the draft DCB in April. He explained that competition authorities tend to be called for only when an entity resorts to a practice prohibited under competition law.

    “On the other hand, in the ex-ante laws, in a manner of speaking, the verdict would have been passed before the inquiries. In light of these considerations, a heavy-handed ex-ante law needs to be reconsidered. Great caution needs to be observed. Blanket prohibitions of certain practices across the board may not be justified and innovation and technological development, along with the multifarious benefits these bring to consumers and to the broader economy,” Dhall mentioned. He added that given that the Digital Markets Act in the EU (which also follows an ex-ante approach) had only started out in March, the fallout of ex-ante regulation is yet to be seen. “As a broad principle, we should consider to what extent we can eschew the ex-ante approach in favour of an ex-post route. Perhaps certain provisions can be inserted into our existing competition law,” he suggested.

    The last date for submission of comments on the draft Digital Competition Bill is May 15, 2024.

    Earlier last month, MediaNama conducted a discussion in Delhi on the draft Digital Competition Bill, where Tata Neu had come up as an example.

    • Watch the video of our discussion on the draft Digital Competition Bill here.
    • Read our coverage of the discussion:

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    The post Thought exercise: What would happen if the digital competition bill in its current form was applied to Tata Neu? appeared first on MediaNama.

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