Indian regulator delivers first of its kind warning on common ownership in its Uber, Ola decision

26 June 2018 9:28am

22 June 2018. By Phoebe Seers.

A recent decision that Uber and a local competitor in India, Ola, have not fallen foul of abuse of dominance provisions in the country's competition law would be of little significance were it not for the fact that India’s competition regulator took the opportunity to deliver its first warning ever that common investors are on its radar.

The Competition Commission of India, or CCI, said the information before it did not yet warrant an in-depth investigation, but it would not waste a second in bringing another round of proceedings if evidence of any interference by a common investor — particularly SoftBank — were to come to light.

The regulator also suggested that Uber and Ola might want to consider putting Chinese walls in place to safeguard against information leaks that could compromise competition.

Referring to investments by Japan's SoftBank in both ride-hailing firms, the CCI warned that “the market dynamics post common investments is yet to fully effectuate…i.e whether the common ownership has translated into control.”

“Needless to mention, the Commission shall not hesitate to take action…at any point of time in future wherein [Uber and Ola] are found to be competing less vigorously consequent to any interference by the common investors in the management decisions.”

The decision, published Wednesday, concerns abuse of dominance proceedings brought by a local ride-hailing taxi firm, Meru Cab Company, against Uber Technologies and its Indian unit, and ANI Technologies, widely known as Ola.

They are by far the largest players in the Indian market, together accounting for more than 95 percent of the market for radio-taxi services in Chennai, Kolkata, Mumbai and Hyderabad.

The case against the two companies failed, not least because neither was “dominant,” but the CCI wasted no time in using an allegation that Ola and Uber are “dominant as a group owing to common investors” as an opportunity to make it clear that the issue of common investors is a cause for concern.

The CCI described common ownership as a situation where large institutional shareholders, such as investment funds, foreign wealth funds and pension funds, hold minority stakes in many companies that are active in the same market. It said recent research had shown that common investors had led to higher prices in the airline and banking industries.

The concern with common ownership is that it may imply a reduction in the incentives for companies to compete.

In the case against Uber and Ola, SoftBank emerged to be an “active investor” with a significant stake in both firms, the CCI said. Although it is a minority shareholder, it “has the ability to exercise material influence over them.”

The regulator described SoftBank’s preference for investing in startups that “have the potential to dominate an industry” as a “bias” and said it made “lumpy investment in competing firms” and may have more voice in management, which “needs to be monitored carefully.”

There are at least four common investors in Uber and Ola, namely, SoftBank, hedge-fund Tiger Global, Sequoia Capital and Didi Chuxing, China's largest ride-hailing business.

SoftBank is reported to have a 25 percent stake in Ola and a 17.5 percent stake in Uber, making it Uber’s largest shareholder. It also has the right to appoint two directors to Uber’s board, while it already has two directors at Ola.

“Undoubtedly, there are apprehensions that common ownership may give rise to the possibility of efforts by or through the common investors to coordinate the decisions of competing entities to lower their risk and in doing so, dampen competition.”

“In addition, common ownership of firms with related and competing commercial interests may increase the risk of exchange of sensitive information which may facilitate price collusion or restrain capacity and volumes.”

However, the CCI acknowledges that as yet, there is no evidence on record to suggest that competition between them has been compromised because of the common investments, and in the absence of such evidence, it was not possible for the regulator to order an in-depth investigation.

In a warning shot, the CCI said it is aware that Uber and Ola are each other’s only effective competitor, and the degree of competition between them “may undergo a significant change, especially if the common investors try to control” the companies in ways that may “conflict with the interest of the firm or competition in the market.”

It will “keep a close watch” on the two companies and will “monitor whether safeguards/Chinese walls” are put in place to “ensure that competition is not compromised by the common investments.” At the moment, it is unclear how the CCI intends to do this.

The issue of common ownership, while currently being debated by regulators around the world, has not come up in India before.

A source, who did not wish to be named because his firm acts for both Uber and Ola in different matters, said it was baffling that the CCI said it could not find evidence that warranted an in-depth investigation: the CCI has power to compel that evidence, through a raid, if it wished. Possibly, the threshold that warrants an investigation has been set too high here, he said.  

Also, rumors abound in the local media that Uber is planning a Southeast Asian style exit from the Indian market, in which case, Ola would be the likely acquirer. The CCI would not want that to happen, the source said. Although it might be too early to say that the CCI is seeking to pre-empt such a move, it would be difficult for the parties, if they did wish to merge, to ignore the warnings contained in the order, the source added.

Another source familiar with the informant, Meru Cab Company, said an appeal of the non-infringement finding against Uber and Ola was still being considered.