Facebook to Vestager: Let’s be friends

Keeping European Commission regulators happy is critical for Facebook.

Facebook did something remarkable for a Silicon Valley company in Brussels on Thursday: It admitted it made a mistake.

And it essentially welcomed the €110 million sanction that ensued.

The conciliatory approach could mark a new era for Europe’s approach to Facebook, which has long riled privacy regulators and collected fines across the Continent. More likely, it signals the company’s fear towards Margrethe Vestager, Europe’s top antitrust enforcer, who unlike her privacy counterparts can impose eye-watering fines and order sweeping changes.

“Quite obviously, Facebook moved from contesting the facts to not contesting them,” said Jacques Lafitte of Avisa Partners, a consultancy. “Otherwise it is fair to assume it would have received the maximum [fine].”

The potential fine was capped at around €240 million — 1 percent of 2016 revenues — given that the inquiry related to a procedural error and was not a full-blown antitrust probe, for which the penalty could be 10 times higher.

At issue was whether Facebook lied to EU merger officials assessing whether its $22 billion takeover of WhatsApp would reduce competition online. Officials wanted to assess the implications of Facebook merging WhatsApp’s data with its own vast stash. Facebook, they say, told them it would be impossible for them to do that given it did not have the technology to link users’ accounts from one to the other — not once, but on two separate occasions.

But in August, WhatsApp revised its privacy terms, saying it would share certain data with Facebook so the latter could make better friend suggestions and better target ads. And when officials started investigating, they discovered Facebook employees knew they would be able to do this.

“The errors we made in our 2014 filings were not intentional,” a Facebook spokesperson said Thursday. “We’ve acted in good faith since our very first interactions with the Commission and we’ve sought to provide accurate information at every turn.”

The Commission said it did not find evidence Facebook acted intentionally, but that its conduct was “at least” negligent.

“Today’s decision … imposes a proportionate and deterrent fine on Facebook,” Vestager said.

That is not how it appears to the rest of the world.

“To imagine that 0.5 percent of the face value of the deal is a deterrent strikes me as ridiculous,” said David Cantor, a competition lawyer who warned in 2014 about the privacy and data implications of the deal worth some €20 billion. “From Facebook’s point of view, this looks like a routine cost of doing business.”

Yet broadly the same could be said had Facebook been fined the maximum €240 million. It’s net income in 2016 was €10 billion. The real benefit of settling was to avoid antagonizing Europe’s powerful antitrust regulators and ensure Vestager did not label the company a liar before the global press.

Breaking a pattern

To see the PR damage that Vestager can do, take Apple. Its press staff is still reeling after Vestager lampooned its tax affairs, declaring “if my effective tax rate would be 0.05 percent falling to 0.005 percent, I would have felt that maybe I should have a second look.” CEO Tim Cook later described the decision as “political crap.”

Vestager’s Apple press conference led news bulletins across the globe.

Or take Google, which has spent more than six years dealing with Commission allegations that its search engine distorts competition. As for Seattle-based Amazon, it made changes to its contracts earlier this year as part of a no-guilt and no-fine settlement — yet still insisted on describing the case as “simply wrong.”

By contrast, it was Facebook that flagged the WhatsApp changes to the Commission. It did not challenge the charges and also waived various rights that can drag cases out. Perhaps as a reward, Vestager chose to announce her verdict via press release while she was in Romania rather than from the podium in Brussels.

The big question is whether Facebook, for which this was the first run in with Vestager’s officials, would adopt the same playbook if Vestager challenged issues at the heart of its business model. There, it would be more difficult for the social network to play nice.

Keeping the European Commission happy is important for Facebook, which is facing a growing political backlash over fake news and whose size is increasingly attracting the attention of antitrust enforcers.

France’s agency is examining the market for online advertising, where Facebook and Google dominate and vacuum up almost all new advertising investment. Germany’s enforcer is probing Facebook on allegations it uses its position as the go-to social network to extract illegal amounts of data from users.

Facebook’s acquisition of potential rival WhatsApp has become the favorite example of those calling for a reform of Europe’s merger rules, as regulators consider whether to make changes to ensure they scrutinize established players snapping up smaller challengers.

While Facebook won, consumers lost out in the Commission deal, advocates said.

“It is very disappointing that the Commission decided not to revise its original decision on the Facebook merger with WhatsApp,” said Monique Goyens, director general of the European consumer organization BEUC. “It is crucial in our data economy that competition bodies more closely scrutinise the potential consumer harm of a merger between data-heavy companies.”

CORRECTION: An earlier version misspelled Jacques Lafitte’s surname.

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