Jurisdiction conflict between Mexican antitrust regulators (uber/cornershop case) and its impact on multi-sided digital platform

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Ricardo Ríos Ferrer
Rios Ferrer, Mexico City
ricardo@riosferrer.com.mx

Fernanda Palacios Medinaz
Rios Ferrer, Mexico City
fpalacios@riosferrer.com.mx

Sonia Cancino Peralta
Rios Ferrer, Mexico City

Background

In June 2013, Mexico’s Congress approved a constitutional amendment on the telecoms sector, which resulted in the creation of two autonomous agencies: the Federal Economic Competition Commission (COFECE) and the Federal Telecommunications Institute (IFT). The IFT replaced the former telecoms authority, but its jurisdiction was broadened to become the telecoms regulator with full jurisdiction over the broadcasting and telecoms sectors, and also the competent authority for economic competition matters in these specific sectors. COFECE was appointed antitrust regulator responsible for supervising, promoting, and guaranteeing free access and competition in all markets, except for the telecoms and broadcasting sectors.

Anticipating there could be cases which could affect the scope of action of both IFT and COFECE, or where the jurisdiction of these agencies is not clearly delimited, Article 5 of the Federal Economic Competition Law (LFCE from its acronym in Spanish) established that in case of a jurisdictional conflict between COFECE and IFT, it would be the Collegiate Court Specialised in Economic Competition, Broadcasting and Telecoms ('Specialised Court') who would determine which authority is competent to resolve the matter in conflict.

Since the creation of the COFECE and IFT, the Specialised Court has resolved the following jurisdictional conflicts:

Nokia and Alcatel merger^[1]

In 2015, the Specialised Court ruled that IFT was the competent authority to review and resolve the merger between Nokia and Alcatel, pointing out that the infrastructure and equipment necessary to provide telecoms services are part of the telecoms sector. The Court ruled that since the merger involved the manufacture of necessary equipment for the operation of telecoms networks and services, and provided that IFT is the specialised authority in such sector, this agency was the one with jurisdiction to resolve the notified merger.

AT&T and Time Warner merger^[2]

In 2017, the Specialised Court ruled that both agencies, IFT and COFECE, have jurisdiction to review the notified merger. The decision of the Specialised Court was made considering that the merger would have effects in sectors or markets different from those related to telecoms and broadcasting (ie, commercialisation of licences for the exhibition of cinematographic works in cinemas, distribution of audio-visual content or video games in DVD, Blu-ray and other digital formats, etc).

The Uber and Cornershop merger

In October 2019, Uber announced its intention to subscribe additional shares in Cornershop, increasing its participation to represent more than 51 per cent of the share capital in the company (the 'Transaction').

Given that the effect of the Transaction in Mexico exceeded the thresholds established by the LFCE, in October 2019 Cornershop and Uber filed a merger application before COFECE; however, IFT claimed it was the competent authority to resolve such application (instead of COFECE) mainly because the transaction involved two digital platform operators, who under the view of IFT were part of the telecoms sector.

COFECE on the other hand, argued such market was not part of the telecoms sector and therefore requested the intervention of the Specialised Court to resolve such jurisdiction dispute and determine which agency had authority to review and resolve the merger application.

It is important to note that both Uber and Cornershop provide over-the-top (OTT) services, which means they have developed digital platforms that allow the interaction between different groups of users, all of whom required internet access to use such platforms, with different requirements for each of them. These requirements included for example: drivers that provide transport service; users that require transport service; and the buyers of advertising spaces. Such types of market have been classified as ‘double or multi-sided markets’ and cannot be analysed under the same terms as traditional markets.

IFT arguments

The following are the main arguments submitted by IFT to justify its jurisdiction over the merger application:^[3]

• Digital Platforms are considered innovative electronic communications, through which the end user can send and receive data or information transferred over the internet. Article 3 of the Telecoms and Broadcasting Federal Law (LFTR from its acronym in Spanish), defines ‘telecoms’ as ‘the emission, transmission or reception of signs, signals, data, writings, images, voice, sounds or information of any nature that is carried out through wires, radio electricity, optical, physical or other electromagnetic systems […]’. Such a definition recognises that electronic communications (including digital platforms) are part of the telecoms sector and therefore under IFT’s jurisdiction.
• Digital platforms are part of the telecoms sector, since their value chain involves different telecoms networks and services, such as internet access, cloud computing, data centre and algorithm development.
• Uber and Cornershop are participants of multi-sided markets, whose users can only access their digital platform through internet connectivity. In this regard, IFT as the telecoms regulator is the only authority with full knowledge on the technical considerations related to the operation of digital platforms, which are part of the telecoms sector as pointed out.
• Uber and Cornershop’s revenue results mainly from user fees, the commission scheme that they charge to the delivery persons and/or drivers, and from the selling of advertising spaces, which implies that their economic activity is linked directly to the use of the digital platforms which, according to the previous arguments, are part of the telecoms sector.
• The services provided through these digital platforms do not constitute a simple extension to the traditional services provided via the internet; since those platforms use technological resources that allow them to link different groups of users.
• Digital platforms’ characteristics are inherent to the telecoms sector; therefore, IFT’s specialised knowledge of this sector is required.

COFECE arguments

COFECE, on the other hand, claimed jurisdiction over the merger application based on the following arguments:^[4]

• The definition of ‘telecoms’ established in the LFTR does not include all the economic activities or services that can be provided through internet services.
• There is a difference between internet access service (which is a regulated service that requires a concession granted by IFT) and the services rendered via a digital platform, as these activities cannot be classified as telecoms services.
• Uber and Cornershop operations in Mexico are not subject to or require any type of telecoms concession, authorisation or permit; therefore, IFT does not have authority in this matter.
• According to the previous resolution from the Specialised Court regarding the merger between Alcatel and Nokia, a merger would be considered part of the telecoms sector when: (1) it is directly associated to such sector, or that the transaction involves essential telecoms inputs or equipment necessary to provide telecoms services or networks; (2) the merger’s purpose is strictly linked with various phases of the sector’s process; and (3) the provision of goods necessary or used for the operation of telecoms networks and related services. Therefore, and in terms of such precedent, the services provided by Uber and Cornershop cannot be considered part of the telecoms sector.
• Uber and Cornershop’s digital platforms operate in multi-sided markets, which are not related to the telecoms and broadcasting markets.

Specialised Court decision

On 8 June 2020, the Specialised Court ruled that COFECE was the authority with jurisdiction to review and resolve the Transaction between Uber and Cornershop.^[5]

The Specialised Court’s analysis pointed out that Uber and Cornershop provide their services in multi-sided markets through their digital platforms, which implies that their main economic activity is the provision of intermediary services between users that are not considered as telecoms concessionaires. That is, they are private drivers who provide transport services, or delivery persons who distribute products on request.

The Court also emphasised that none of the services provided by Uber or Cornershop can be classified as a telecoms services, and that none of the economic agents involved required a telecoms concession and/or authorisation to carry out their activities in Mexico. The digital platforms that Uber and Cornershop use for the provision of their services, should be considered as a service channel, additional to the ones traditionally used to carry out their economic transactions, so the economic activity of these companies remains the same regardless of the channel they use for the commercialisation of goods and services.

The analysis for the approval of a merger requires the regulator to analyse such a transaction to take into consideration the effects that such a transaction could generate on other economic agents and related markets. Therefore, the antitrust regulator requires a complete knowledge of the entire sector corresponding to the market where the transaction will have effect, as well as the related markets.

It is obvious that the operation of a digital platform requires specialised and technical knowledge as pointed out by IFT, which could be part of IFT’s jurisdiction. However, in the analysed merger application, the operation of Uber and Cornershop’s digital platforms is not the object of the analysis that the antitrust authority must carry out, but rather, the economic effects that such a merger could generate in the markets of each of the platforms, which do not correspond to IFT’s jurisdiction.

As both companies provide services through multi-sided platforms, the Transaction analysis should be focused on the effects on the intermediary activities such as, the delivery of restaurants orders, or the delivery of supermarket or convenience store products. These activities are provided by Uber and Cornershop, taking into consideration the different participants that interact in the digital platforms, which jurisdiction belongs to COFECE.

Final comments

The use of digital platforms has become an essential tool in our day-to-day life, which has proved especially important during the Covid-19 pandemic. Digital platforms are here to stay and multi-sided markets will continue developing. Furthermore, we anticipate that jurisdiction conflicts between IFT and COFECE will continue as new a generation of services evolve.

Under this scenario, the decision of the Specialised Court granting full jurisdiction to COFECE in relation to the Uber/Cornershop merger, is of great importance as it clearly distinguishes telecoms services from services provided using a digital platform and internet access. This will allow COFECE to gain expertise on multi-sided markets.

It is worth noting that on 24 August 2020, COFECE announced it has initiated an investigation in the market of digital advertising and related services, therefore, making evident the evolution and importance of the digital markets within its jurisdiction.

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