The UK's Office of Fair Trading (OFT) is to investigate Facebook's April announcement of its planned $1 billion purchase of Instagram due to concerns that the social networking giant could unfairly exert control over the competition by restricting the uploading of pictures via its smartphone apps, the Guardian has reported.
Instagram started back in October 2010 as an iPhone app enabling users to take pictures and then upload them to various social networking sites, or even email them. The service proved so popular among iPhone owners that the free app hit 30 million users in less than 18 months.
The OFT has the power to investigate any merger exceeding £70 million ($110m) in annual revenue, or any deal that would result in a combined market share of 25% or more. Because Facebook has offices in the UK, it does potentially give the British regulatory authority the right to investigate the merger, although the latter was cautious to note that it still needed to clarify jurisdiction.
Whilst its possible no further action will be taken, the OFT is concerned that Facebook could potentially restrict what sites Instagram app users can upload pictures to in a bid to limit competition, or restrict access to Instagram from other apps. It has asked interested parties to comment on the deal by July 5.
The OFT has until August 23 to conclude whether it has jurisdiction over the deal. Photo app developers and competing social networks are invited to lodge their comments and complaints by July 5. If a case appears strong enough to pursue, the OFT can seek undertakings from both parties to clarify whether the deal would have a negative impact on competitors, or refer the entire bid to the UK Competition Commission.
In the US, the Federal Trade Commission is also routinely investigating the deal, a process required for any deal exceeding $68.2 million, and will require close competitors to comment on the acquisition.
"We'll continue to work closely with the OFT and look forward to answering any questions that arise," a Facebook spokesperson said in a statement.