Tech industry groups oppose plans for digital competition law

Key industry associations representing technology companies, including Google and Meta (Facebook), were almost unanimous in voicing their opposition to the ex ante (prescriptive) competition regulation for digital markets in general, and the draft Digital Competition Bill in particular, in the third meeting convened by the government on the issue on Thursday, four people aware of the matter told HT.

This may have been the last in the series of meetings held by the ministry of electronics and technology (Meity) before it prepares its submission to the ministry of corporate affairs that is helming the bill.

Chaired by IT secretary S Krishnan, and attended by the likes of Broadband India Forum (BIF), NASSCOM, Digital Security Council of India, FICCI, Assocham, CII amongst others, the participants said ex ante regulation like the DCB could stifle innovation in a growing economy like India’s and the European Union’s Digital Markets Act, which was recently brought into force, cannot be the benchmark for India.

Apart from All India Gaming Federation (AIGF), nobody supported ex ante regulation or the DCB. AIGF, however, submitted that the DCB required alterations to ensure that the growth of startups and MSMES is not stifled.

‘Gauge the impact of amendments to Competition Act’

At least one participant (whose identity HT could not ascertain) submitted during the discussion that the extant competition framework in India is robust enough to deal with issues of competition in digital markets.

In the meeting, Assocham said that the government should gauge how the 2023 amendments to Competition Act plays out and affects the markets. The amendments related to settlement and mechanism — that allow parties to voluntarily comply with the Competition Act without needing to face an investigation from the director general for certain issues and subsequent penalties — were brought into force in March 2024.

The other amendment, related to deal value threshold (DVT), has not been brought into force yet. Under the amendment, an enterprise, which is involved in “substantial business operations” in India and is engaged in a takeover, merger or acquisition exceeding ₹2,000 crore, must notify the CCI thereby enabling CCI to scrutinise transactions based on monetary worth.

To be sure, the notification of the amendments to the Competition Act occurred while the Committee on Digital Competition Law (CDCL) — that drafted the DCB — was deliberating on the need for ex ante regulation and drafting the DCB. In its report, the CDCL took note of both the amendments.

‘Ex ante regulation adversely affects smaller players’

The industry associations, echoed the first two meetings in their opposition to ex ante regulation at large and the DCB in particular. Ex ante regulation is where the law defines what conduct is illegal versus ex post regulation where the regulator adjudicates whether certain acts are illegal after they have been committed.

Multiple participants submitted that ex ante regulation in competition is too new and untested to experiment with. They said that ex ante regulation has a disproportionate impact on startups and MSMEs.

The participants said that the EU’s DMA is not an appropriate comparison for India because of three reasons: first, India is a growing digital economy at a different point in its evolution than the EU and ex ante regulation could stunt that growth; second, EU is no longer known for innovation; and third, preliminary studies indicate that the DMA has an adverse impact on consumers and startups.

USIBC cited a study showing adverse impact of DMA on hotel industry, particularly small hotels.

The participants also raised concerns about the remit of the Committee on Digital Competition Law (CDCL) whose terms of reference made the Bill a foregone conclusion, even if the members disagreed about whether an ex ante regulation was the appropriate way of regulation competition in digital markets. HT had reported in March that many CDCL members felt that a separate competition law is not required for digital economy but were constrained by the remit of the committee’s constitution that mandated a bill.

‘Staff CCI better’

The CDCL, in its report, had taken note of the time-consuming nature of investigations and enforcement proceedings. In the meeting on Thursday, at least two participants, including Assocham and USIBC, talked about how the CCI is understaffed. They said that both the CCI and the CCI director general’s office have many vacancies which, if filled, would help address the CDCL’s concerns about the onerous nature of investigations, they said.

‘Thresholds for SSDEs need revision’

Almost all participants said that the qualitative and quantitative thresholds for designating entities as “systematically significant digital enterprises” (SSDEs) were not established through any market study and needed to be raised significantly. There were concerns raised that the low thresholds would affect far more entities than actually intended.

Under the Bill, a company which is engaged in “core digital services” (such as search engines, cloud services, etc.) can be designated as an SSDE if it has a turnover of at least ₹4,000 crore within India, or a global turnover of at least $20 billion, amongst other factors.

Another factor that will be considered by the CCI under the Bill is whether the entity has at least 10,000 business users in the preceding three financial years. DSCI submitted that this threshold of 10,000 business users was too low. In the meeting, DSCI said that even startups might have 10,000 business users, thereby creating a contradiction between two different laws as Digital Personal Data Protection Act, 2023, which was notified in August 2023, has exemptions for startups.

‘Definition of core digital services is too broad’

The participants also raised concerns about the what is included in “core digital services”. Under the DCB, an entity can be designated as an SSDE and attract additional obligations only if it is dealing with core digital services. It includes online search engines, online social networking services, interpersonal communication services, operating systems, web browsers, cloud services, and online intermediation services, amongst others.

Concerns were raised about the inclusion of cloud services in the list of CDS as the CCI has never raised a competition related issue in the past when it comes to cloud services. There was also some discussion about how cloud service providers arguably compete with on-site data storage solutions. In the report, the CDCL had recommended that the “pre-identified list” of CDS be drawn on the basis of CCI’s enforcement experience, market studies, and emerging global practices.

Participants also said that the inclusion of “online intermediation services” would become a catchall for all kinds of services available online. FICCI, for instance, asked if credit card services be considered “core digital services” by virtue of being payment intermediaries.

The ICEA submitted that the broad definition of CDS meant that even hardware industry, which is arguably not a digital service, would get included within the scope of the DCB.