3 Reasons Facebook Is Asking the EU to Review Its WhatsApp Acquisition

Source: Thinkstock

Source: Thinkstock

In a surprising move, social media giant Facebook (NASDAQ:FB) has approached the European Union’s central antitrust authority to review it’s acquisition of WhatsApp, which has already passed through the regulatory process in the United States. The action is unusual, as most companies don’t actively seek regulatory approval on their own accord. The rationale behind Facebook’s request might seem simple on the surface, or even admirable. But the issues it could be facing go deeper than it may appear.

Facebook made huge news when it announced the WhatsApp purchase in February for a blockbuster $19 billion. The move sent ripples across the tech and telecom industries, sending the message that Facebook was the big player in the pond, and was looking to gobble up any upcoming competition before it became a thorn in its side. The purchase did raise a lot of eyebrows, particularly from those concerned about consolidation and privacy issues in the tech and media world. Although the deal breezed through the U.S. regulatory commissions without any issues, Europe still looms with potential hang-ups.

So why exactly is Facebook going out of their way to square off with the European Commission? The answer is complex and nuanced, requiring a fairly in-depth examination. Varying from different industries interfering with Facebook’s goals to other recent tech rulings on European soil, the rationale boils down to three major factors.

european union gavel

1. Regulatory Hiccups

Perhaps the first thing that comes to mind when hearing of Facebook’s request is the most obvious: the company would rather face one regulatory commission than have to take on each member state individually. When looking at the possibility of 28 individual countries possibly wanting to probe and have their say on Facebook’s merger, the request actually looks completely reasonable.

CTR Capital analyst Neil Doshi told Fox Business that the move looks like an attempt to avoid legal troubles in the future. “This could slow the approval process, but we think that this could be a smart move on (Facebook’s) part in the long-run,” he said. 

Although it does seem unlikely that any of the EU’s member states would want to veto the acquisition, playing it safe by securing the European Commission’s blessing looks wise. As Techcrunch points out, by getting approval from the EU’s highest regulatory board, that decision could supersede any rulings from smaller jurisdictions.

Source: http://www.flickr.com/photos/16782093@N03/

Source: http://www.flickr.com/photos/16782093@N03/

2. Privacy Concerns

Another big factor in Facebook’s decision to approach the EU is its less than sterling reputation when it comes to privacy issues. Just recently, Europe’s highest court ruled that Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and other search engines would have to start complying with the wishes of individuals who wanted to remove themselves from certain search results. The ruling has been met with much acclaim and criticism, and showcases the gulf between European and America’s appreciation for citizen’s privacy.

In the wake of the decision, Facebook might also feel that it will be hit with similar regulatory ties. Recent news of the company’s upgraded mobile app listening in to users’ private home lives using the microphone installed on mobile phones has also raised flags among privacy advocates, and is something the EU’s commission will take a close look at.

As Yahoo! explains, the EU will need to take a good look at how Facebook plans to assimilate WhatsApp into its business fold, seeing as how the companies have generally had opposing policies when it comes to user’s privacy. As Facebook itself is, at its core, a giant data collection machine, the company may face a much harder time explaining away privacy concerns overseas than it did in the United States.

Source: Thinkstock

Source: Thinkstock

3. The Telecom Industry

The final big barrier for Facebook looks to come in the form of influence from the telecom industry. As telecom giants have been consolidating and growing massive user bases, both Facebook and WhatsApp, along with a slew of other smaller services, have been able to take a bit out of messaging revenues from companies like AT&T (NYSE:T) and Verizon (NASDAQ:VZN). The declining numbers haven’t gone unnoticed by the carriers, and they may attempt to use their political clout to take a shot back at Facebook.

Again, CTR Capital analyst Neil Doshi had some important insight for Fox Business, saying that telecom companies aren’t likely to sit back and watch Facebook take a huge bite out of their revenues. Carriers must be the most concerned about this deal, given that ‘texting’ is a high margin business for them,” he said.

While not directly competing with the telecom companies, Facebook does appear to be rattling the cages of some very big and important industry titans. With pending net neutrality rules baring down, this may be something the company wants to steer clear of, with the potential of backlash from the carriers and internet service providers a possibility in the near future.

So as Facebook has taken an interesting step in approaching the European regulators themselves, there are more issues at play than meets the eye. The only certainty before the EU can dig into its investigation is that Facebook can expect a more difficult time than it experienced on its native soil.

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