Online Industry Divided Over Draft Digital Competition Bill, Stringent Penalties

In just a few days after being proposed, the draft legislation has not just seen global players crossing swords and crying foul, parts of India’s domestic industry are divided too. The plain and simple reasons are some of the Bill’s impermeable clauses, especially those that propose hefty fines and stringent deterrents, including imprisonment, for non-compliance with some very exacting standards.

The problem confronting online players is exacerbated by an oxymoron, that India is a booming marketplace. The Committee on Digital Competition Law itself says India’s domestic market comprises over 759 million active Internet users and is now an established hub for digital sectors such as retail, healthcare and financial services.

Underlining this salience, the Committee underscores the need for developing a ‘broad consensus and understanding among different stakeholders’, along with creating a framework for ensuring fairness with regard to central digital services.

That is easier said than done, given the above nutshell—because this is a market that cannot be ignored, but the proposed measures cannot be taken lightly either.

Ex-ante Provisions

Admittedly, a legal framework to monitor and oversee digital competition is essential in today’s technology age, especially when traditional frameworks have been found wanting in addressing challenges posed by online platforms.

“A critical aspect of Digital Competition Law is to ensure a level playing field for all, including smaller businesses and start-ups,” says Gaurav Sahay of Fox Mandal & Associates. This logic hits home-base and is very valid; the problem stems from the proposed ex-ante provisions (see graphic), which have industry divided right down the middle.

Driving this wedge home is DCB’s proposed nomenclature of ‘Systematically Significant Digital Enterprises’ (SSDE), units offering digital services such as search engines, social networking, video-sharing platforms, etc. It has been further proposed that the Competition Commission of India (CCI) will be given powers similar to that of a civil court to look into non-compliance by an SSDE.

And impose punitive penalties… ranging from Rs 1 lakh for each day of non-compliance up to a maximum of Rs 10 crore, or at the extreme end (failure to pay the fine), imprisonment of up to three years and a fine of up to Rs 25 crore, or both. The CCI will also be empowered with powers to include, “at a later date as and when deemed fit, areas or platforms which today may not fall in any of the categories but may be seen to influence the market”.

Rivals are bonding

Herein lies another rub—while competition law experts say the dynamic digital space needs the proposed flexibility, most global and local players remain apprehensive and divided on the ex-ante regulation(s). An interesting paradox is that some die-hard competitors in the domestic market are seeing eye to eye on the proposed penalties, such as arch rivals Swiggy and Zomato.

The two mentioned food aggregator platforms and travel-tech platform Oyo have voiced their dismay over the ex-ante provisions. The Internet and Mobile Association (IMAI), which has both domestic and global members, is also against such provisions, perhaps because its current office-bearers predominantly represent domestic companies.

In contrast, some associations led by domestic firms disagree with the stand taken by domestic platforms. The Federation of Hotel & Restaurant Associations of India and National Restaurant Association of India are in favour of such a regulation, possibly on the back of their oft-repeated complaint that many domestic platforms (such as Zomato and Swiggy) are ‘predatory’.

Change is difficult to accept and manage, and the division in domestic digital platforms against the regulations proposed in the DCB is perhaps an offshoot of this aspect of human nature. If the ex-ante regulations become law and are imposed in their proposed entirety, they hold the potential to prevent anti-competitive conduct from occurring in the first place itself.

Simply speaking, ex-ante provisions would act against platforms that enjoy a dominant market position in any segment, and kick in when they are seen as anti-competitive by competing platforms.

Against this new, proposed formula stands the existing framework of ex-post intervention, where the CCI is called in to intervene by an aggrieved party after the commission of anti-competitive practices. It is the typical chicken and egg story being played out on a grand scale.

Behind the scenes

While the debate rages, there is a quiet movement within the ranks, not visibly seen or noticed yet, orchestrated by large domestic and international players who want to get their foot in the Indian digital door. While market players who stand to be impacted by the proposed Bill croon into administrative and media microphones to bag mindshare and mind-space, bigger guns are quietly strategizing their way into the digital market mix.

Part of the modus operandi is to back CCI’s existing practice of market management, albeit with strictures that Government studies delineate and define any ‘strategic sector’. Then, within the strategic sector, there must be criteria based on revenue, market cap and number of users to identify undertakings as the ‘Gatekeeper’—these would be the leading two or three players in the sector. Finally, obligations must be devised for the ‘Gatekeepers’, such as sales and marketshare ceilings, area of operations, profitability, etc., to deter a monopoly situation.

In a nutshell, Adam and Eve and their shenanigans have been cast aside by an evolved mankind that is focusing on a marketplace showing fast growth.

New partners are being embraced and old ones cast aside; Gatekeepers are being proposed and a new breed of Gate-crashers eyes opportunities to be seized; penalties and damages are condemned even as penalty-designers are embraced on the sly. Anything goes in the Indian digital market today, so long as sharpened knives have their personal digital sheaths in place to go home to.

(The writer is a New-Delhi based journalist and commentator. Views expressed are personal)