SoftBank’s Uber investment may run foul of CCI

NEW DELHI: A SoftBank-led consortium has agreed to invest about $9 billion, or close to Rs 57,500 crore, in Uber Inc in a transaction that could have ramifications in India, a critical market for both entities.
The deal, announced on Thursday after long drawn-out negotiations between the Tokyo-headquartered investor and shareholders of the world’s largest ride-hailing app, could raise questions about whether the investment violates India’s competitive practices under the Competition Act, 2002, along with price manipulations, given that SoftBank also holds a significant stake, estimated at 30%, in Uber’s domestic rival Ola.

A senior executive of domestic taxi operator Meru Cabs alleged that SoftBank’s investment in Uber was a clear indication that this was a case of monopolies being funded.


“Any such investment typically happens to ensure that their investments don’t keep bleeding,” Nilesh Sangoi, chief executive at Meru Cabs, told ET. “They will obviously try and buy peace. My guess is that they will orchestrate alignment, country by country, of competing businesses,” he said.

Meru Cabs has been vocal in its opposition to both Ola and Uber. In October, Meru was reported to have filed multiple complaints with the Competition Commission of India (CCI) against the two leading app-based taxi aggregators for allegedly abusing market dominance in four cities.

In its formal complaint, Meru alleged that the aggregators were disrupting the market by putting in huge sums of foreign investor money, and also revealed that it had filed four different complaints with the competition watchdog.

Sangoi said the latest development would only strengthen its case against both companies.

“Our cases are going on with the CCI and NCLAT (National Company Law Appellate Tribunal), and we will be pursuing it through those cases itself, as and when they come up for hearing,” he said Law experts, however, are divided as to whether the quasi-regulatory body will have enough ground to act on this.

“So long as these two products are competing with each other, that alone should not trigger a competition concern. To the extent that a combination could be an issue, if they were ever to combine, or merge,” said Siddharth Shah, partner at law firm Khaitan & Co. “But today, as a private equity investor effectively invested in both competitors, should not trigger any concerns, because that in itself does not have an appreciable diminishment in the competition,” he said.

Some others believe there is ground for further scrutiny by CCI.

"Yes, if it’s going to be dominant, and can influence the market price, it can be a challenge,” a partner with a law firm said. “The only thing to consider is how much of a market share they have in the overall vertical. Ola may be prevalent in certain market segments, and Uber in others. It’s a similar situation to what happened in the DTH segment,” said the person who requested anonymity given that his firm has represented one of the ride-sharing companies earlier.

"The question is here, they (SoftBank) are a significant shareholders in both companies, and how they flip the investments, going forward? Complaints can be made suo motu or by interested parties," he said.
After Uber recently reported that the company completed 500 million trips in India and claimed to clock double digit growth, in a conversation with ET the company claimed to be completing as many as 1.3 million cab rides a day in July.

Ola is estimated to have a share of 52-53% in the aggregators market in India with Uber on its heel with 46-48% share, according to analysis of active users by San Francisco-based mobile data analytics firm App Annie.

Ola's lead is likely to be higher in terms of revenues due to higher average ride costs, according to sources.

Sources claim the companies have seen the number of daily rides increase by over 40% for Ola, and over 50% for Uber, with the former completing around 1.6 million rides a day and the latter completing around 1.2 million rides a day. During the last quarter of 2016, Ola was completing approximately 1.1 million rides a day and Uber was completing close to 800,000 rides a day.