DIGITAL MONOPOLIES AND REGULATION OF DIGITAL ECOSYSTEM

Why in the news? 

The Ministry of Electronics and Information Technology (MeitY) has expressed strong opposition to Google's delisting of certain applications from the Play Store. 

More about the news

• Issue: Google's parent company Alphabet Inc. sent a notice to 10 companies for the non-payment of Google app marketplace fee to the big tech company.
• Google’s Decision: Subsequently, some of these apps were removed (delisted) from the Play Store, sparking a showdown between Google and the parent companies of these apps.
• Government Response: MeitY said it will not permit the de-listing of apps, flagging the concerns around abuse and misuse of dominant position by Google and creating digital monopolies. 

What is Digital Monopoly? 

• Digital Monopoly: Refers to a situation where a single company or platform holds significant control over their respective digital ecosystems and markets. 
  • Examples: Big tech companies like Google, Amazon, Facebook, Apple, and Microsoft. 

What are the threats posed by digital monopolies?

Digital monopolies can engage in Anti-Competitive Practices (“the ACPs”), affecting competition in the market and subsequently overall consumer choice and well-being. Following are some of the major anti-competitive practices- 

• Anti-steering: Exclusionary behavior that hinders business users and consumers from switching to third-party service providers. E.g., App stores mandating use of their own payments systems.
• Platform neutrality / Self-preferencing: A digital enterprise according favorable treatment to its own products on its own platform, thus creating a conflict of interest.
• Adjacency / Bundling and tying: Combining or bundling core or essential services with complementary offerings, thus forcing users to buy related services.
• Data usage: Using personal data for consumer profiling to offer targeted online services and products, thus raising data privacy concerns.
• Pricing / Deep discounting: Predatory pricing strategies, or intentionally setting prices below cost price to exclude competitors.
• Exclusive tie-ups: Exclusive agreements with business users or sellers, thus preventing them from dealing with other enterprises. E.g., Apple restricts installation of third-party applications on iPhones.

Regulation of Digital Ecosystem in India

• Competition Act, 2002: It aims to promote and sustain competition in markets and protect the interests of consumers among others. The Competition Act follows two approaches to regulation- 

• Ex-post approach where anti-competitive agreements and abuse of dominance are scrutinised after such contraventions have occurred.
• Ex-ante approach where parties intending to enter into a combination are required to notify and seek approval from the CCI before consummation of the transaction. 

• Information Technology Act, 2000: It is the primary legislation in India that governs various aspects of the digital ecosystem. 
  • However, it was enacted in the inception period of the Internet and may not address contemporary challenges.
• Sector-Specific Rules: The government issues regulations for specific sectors like social media (IT Rules) and e-commerce (Consumer Protection Rules) to address emerging issues. E.g.,
  • Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 was introduced to regulate digital media and over-the-top (OTT) platforms.

Need for Reforms in the Regulation of Digital Ecosystem in India

• Regulatory Fragmentation: Digital ecosystem in India is governed by multiple regulatory bodies and agencies, thus hindering the effectiveness of overall digital regulation.
• Regulatory Bodies Face Constraints: Such as technical expertise, data analysis capabilities, resources etc. to effectively monitor and address complex issues in the digital ecosystem.
• Balancing Innovation and Regulation: Overly restrictive regulations can stifle the growth of the digital ecosystem, while lax regulations can lead to the development of monopolies.
• Implementation Challenges: As digital companies often operate across jurisdictions and can quickly adapt their practices to circumvent regulations.

India’s Initiatives to Prevent Digital Monopolies 

• Consumer Protection (E-Commerce) Rules, 2020: Introduced to govern the operations of e-commerce platforms and digital marketplaces. These rules aim to prevent anti-competitive practices, ensure transparency, and protect consumer interests.
• Competition (Amendment) Act, 2023: Introduced new merger notification thresholds and deal value thresholds to capture acquisitions of high-value, data-rich firms that can potentially lead to digital monopolies.
  • Competition Commission of India (CCI) also investigates and takes action against anti-competitive practices by digital platforms.
• Digital Personal Data Protection Act 2023:  It emphasizes the importance of data to prevent the concentration of data in the hands of a few dominant players.
• Proposed Digital India Act (DIA): The DIA proposes to regulate a vast array of digital enterprises including social media websites, artificial intelligence-based platforms, and e-commerce enterprises. 
• Draft National Data Governance Framework Policy: It aims to create standardized data management and security for non-personal and anonymised data across all government bodies.

Way Forward (Recommendations of the Committee on Digital Competition Law, 2024)

• Introduction of a Digital Competition Act with ex-ante measures (using a form of financial analysis that uses forecasting for future events as against the prevailing practice of ex-post framework in most cases). 
• Systemically Important Digital Intermediaries' (SIDIs): Identification and designation of certain large digital platforms as SIDIs. They would be subject to ex-ante regulations and obligations. 
• Merger Control Reforms: Introduction of a deal value threshold and the consideration of non-price factors like data and innovation in merger assessments.
• Strengthening the Competition Commission of India (CCI): Enhancing the institutional capacity and expertise of the CCI to effectively deal with competition issues in the digital domain.
• Better coordination among various regulatory authorities, such as the CCI, the Telecom Regulatory Authority of India (TRAI) etc. 
• Increased international cooperation and alignment with global best practices in digital competition regulation.