Ola, uber control 90% of cab market would their merger get the cci’s nod business standard news electricity quiz grade 9

In a span of a few years, mobile app-based cab companies have drastically changed the face of public transport in bigger Indian cities. Ever since the homegrown Ola and the international darling Uber made their entry in Indian markets, they been engaged in an almost neck-to-neck battle.

Understandably, recent rumours of a possible Ola– Uber merger in India have raised many eyebrows. While it is unclear if the deal will actually go through, Japanese conglomerate SoftBank, which is a common stakeholder in both ANI Technologies (Ola’s parent company) and Uber, is said to be brokering a deal in order to consolidate its investments. This has also been seen as a move on the part of Uber to focus on their core markets, after being forced to bow out to fierce local competition in China, Russia and a number of South East Asian countries.

If such a deal were likely to be considered, the two companies would have to meet a number of legal and regulatory requirements, including the approval of the Competition Commission of India (CCI). As a part of its mandate of maintaining healthy competition in Indian markets, the CCI is responsible for regulating combinations (which may be in the form of mergers, acquisitions or amalgamations) in Indian markets. All combinations which meet the thresholds in the Competition Act, 2012 (Competition Act) and its accompanying Regulations have to be mandatorily notified to the CCI.

However, due to the design of the numerical thresholds (which are based on the value of the assets and the turnover of the entities involved), and the presence of a number of exceptions, only big-ticket combinations end up getting affected by this requirement. Further, various factors such as whether the transaction involves the acquisition of an actual or potential competitor, whether any of the parties have a global presence, the structure of the deal (merger vs acquisition), etc. have a bearing on whether a particular combination is notifiable to the CCI or not. Regardless of how a hypothetical deal between the two entities is structured, given the high value and stakes involved, it is unlikely that a proposed Uber- Ola merger would escape a CCI notification.

When it comes to assessing potential anti-competitive effects of a proposed combination under the Competition Act, the test is whether it would lead to an “appreciable adverse effect on competition in the relevant market in India” (AAEC). The Competition Act authorises the CCI to investigate mergers which have caused/are likely to cause AAEC in India.

T he Competition Commission of Singapore (CCS) recently used a similar provision in the Singapore Competition Act to stall a Grab-Uber deal on March 27 2018 and launched a more detailed investigation , (on the ground that such a deal would lead to substantial lessening of competition in the market), a day after the announcement of the deal was first made. Unlike India, merger notifications in Singapore are optional, though advisable in a number of circumstances such as high post-merger market share.

The mobile application-based ride-hailing in India is unique inasmuch it is restricted to two main players and a merger would result in these two entities controlling 90-95% of the market; figures which automatically set off alarm bells of likely abuse of dominance. However, market shares, while a critical factor, are not the sole determinant in the assessment of abuse of dominance. Several other considerations such as the level of competition in the market, prevailing barriers to entry, availability of substitutes, innovation in the market, power exerted by other market players like buyers, etc. have to be kept in mind.

Going by its recent record, the presence of network effects in the ride-hailing market will play a substantial role in CCI’s assessment. Higher the number of drivers and customers on Ola and Uber’s platform, a proportionately higher number are incentivised to join making the platforms, thereby increasing the value of the service for both the companies and the consumers.

While investigating a case of alleged abuse of dominance filed by Meru Cabs against Uber in Kolkata in 2016, the CCI held traditional taxis to be part of the same product market. The very next year, in a similar case against Ola in Bangalore, CCI took a different view and held that “radio taxis” because of their specific features like point-to-point pick up and drop, booking through the app, GPS tracking differentiated it from other modes of transport like the traditional taxis.

Therefore, the manner in which a “relevant market” is delineated can have a significant bearing on the outcome. It will be interesting to observe CCI’s approach to a deal which could result in a single entity controlling almost 95% of the cab aggregator market .

The European Commission, for instance, has blocked mergers in the past which would have led to very high concentration of market power. In November 2017, the US Justice Department sued to block a proposed AT&T-Time Warner merger, on the grounds that such a deal would create a media behemoth and harm both consumers and competition. In its recent decision against Google in February 2018, CCI said that intervention in technological markets should be targeted and proportionate, and regulation should not read to restraining innovation. Given the evolving nature of these markets and CCI’s own view on these markets, it is far more likely that CCI will take a middle path.

Approval from the CCI does not have to be unconditional, especially in cases which involve high market shares. Along the lines of other competition regulators around the world, CCI can use remedial and/or structural modifications to address anti-competitive concerns and preserve healthy competition and consumer choice in the market. An overwhelming majority of CCI merger approvals are unconditional, and only a handful till now have faced imposition of remedies. Structural remedies are commonly implemented through divestments in key markets. Interim measures used in the Grab-Uber deal in Singapore present a good example of behavioural remedies. Both Grab and Uber have been asked to maintain pre-transaction independent pricing, pricing policies and product options. Further, Grab has been directed to not take confidential information from Uber nor lock Uber drivers into driving for Grab.

While the CCI is a fairly young regulator, it has emerged as a strong, yet pragmatic market watchdog. An Ola-Uber merger, if it comes to fruition, will be a landmark, not just because of the staggering market shares involved, but also the unique nature of the market, and constant innovation in this space.