When Facebook acquired Whatsapp for 19 billion dollars, the merger escaped scrutiny altogether in some countries, such as Brazil. In the EU, it was investigated by the European Commission, but only because it would have been otherwise subject to scrutiny in three Member States under a rule that has since been changed. If the merger happened today, the European Commission would not review it.
Designed for a different economic model, the existing rules focus on concentrations in which the revenue of the merging parties would be relatively high. But, in the digital economy, a high valuation often reflects expectations rather than revenue. This raises the question of whether the value of a transaction, should determine if the transaction should be investigated.
The mobile industry has frequently highlighted the unintended consequences arising from the application of the existing rules, such as a higher burden of notification for the traditional industries than for new Internet companies. The GSMA therefore welcomed the consultation launched by the European Commission at the end of last year, to modernise the procedural rules that govern merger control at the EU level. The GSMA’s reply can be read here.
Addressing these issues will not be easy. If the value of a transaction becomes the determinant factor for merger control, either alongside revenue or instead of revenue, what is the value that would trigger a merger control investigation? And further, how can the rules ensure that there is a link between the transaction itself and the countries whose authorities are scrutinising it? Some Member States within the EU (notably Germany), which are considering introducing value of transaction thresholds in their domestic merger control rules, have already consulted on this latter point. In the absence of a clear territorial nexus with the authority that scrutinises the merger, the same transaction may be subject to scrutiny in a number of jurisdictions, adding to the burden on the merging parties.
For this and the other reasons detailed in its reply, the GSMA has urged the European Commission to consider this consultation as the start of an iterative process. As the potential options are identified, a new consultation should ensure that all stakeholders have a say. Otherwise, any changes to the existing rules could make the merger control system more cumbersome.