UK's Office of Fair Trading to investigate $1bn Instagram deal

By Lee Kaelin on June 25, 2012, 10:00 AM

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.




User Comments: 8

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Tygerstrike said:

Wouldnt determining the jurasdiction be the first thing that should be done before it is even announced that an investigation is being considered? Seems more then likely that FB will just close an office down in the UK and remove themselves from the jurasdiction of the investigators if they dont want to be investigated.

inventix1136 said:

The FTC is a joke and is more of a rubber stamping organization than anything else. When was the last time it actually blocked a merger due to the fact that it would result in virtually no competition and hurt consumers? Don't say T-Mobile & AT&T because that one was due due to outrage of customers that even FTC could not ignore and FTC was forced, kicking and screaming, to say that it was not a good idea...

Wendig0 Wendig0, TechSpot Paladin, said:

The FTC is a joke and is more of a rubber stamping organization than anything else. When was the last time it actually blocked a merger due to the fact that it would result in virtually no competition and hurt consumers? Don't say T-Mobile & AT&T because that one was due due to outrage of customers that even FTC could not ignore and FTC was forced, kicking and screaming, to say that it was not a good idea...

Of course they are. The EPA is no different. They've been fining oil companies for years for not including an ethanol additive in their fuel, even though the additive they require to be mixed in doesn't even exist (google cellulosic ethanol epa requirements). Add the Department of Education, Department of Energy, Dept. of Homeland Security, etc. etc., to the list of completely useless bureaucracies.

I could go on typing for hours about why dozens of Government bureaucracies need to be abolished. I won't, however, because I'm lazy, and this is a tech site, not a political site.

lawfer, TechSpot Paladin, said:

^ Wow. Did you two even read the article?

Wendig0 Wendig0, TechSpot Paladin, said:

^ Wow. Did you two even read the article?

I did, yes. Why do you ask?

Guest said:

^ Nope.

Either way they are right. Don't forgot other bloated and useless quasi-governmental agencies like USADA. Being a bureaucrat in the fed is about as secure a job as you can get. Remember its all fun and games before a scandal hits. Then a few scapegoats are sacrificed and the machinations of massive government overreach and blood sucking continue.

1 person liked this | Tygerstrike said:

The FTC is doing a routine investigation. So it will prolly be rubberstamped. However the OFT cant be as corrupt as the US is can it now? (sarcasm). We all know that if there is an investigation, it will only be a surface investigation. Makeing sure paperwork is all signed ect. If the UK is hurting financially in ANY way then we will see some trumped up fines that Google would pay just to get the UK off their backs. Seems like the UK and US have the same innept ppl running their govt. offices.

@ Inventix

The FTC was only the finally layer on the Tmoble/ATT merger. Both Sprint and Verizon both went to court to fight this merger. A few other groups were in on the legal battle as well. I think the FTC had no choice but to call that merger as bad.

lawfer, TechSpot Paladin, said:

^ Wow. Did you two even read the article?

I did, yes. Why do you ask?

Simple. Facebook is acquiring Instagram, not merging with it (read here for a clearer explanation). According to Facebook, Instagram will still work they way it does and it will also be separate of Facebook. It is widely known this buyout is nothing but a move from Facebook to shift up into the mobile space; not to compete with Instagram's competitors (which there are none, really).

The example of AT&T's and T-Mobile's (admittedly shady) deal is different than Facebook's buyout.

While one could argue both scenarios are different but with similar outcomes (to reduce competition), the process in which each is evaluated is fundamentally dissimilar.

While I certainly have my share of opinions regarding redundant, useless agencies and bureaus in our government, I think the comments and comparisons made towards the FTC--especially when the article is primarily focusing on the UK's OFT review of the deal--are not necessarily applicable to the situation. At the end of the day this is a protocol review, and in reality none of Facebook's direct competitors are (or were) Instagram's; acquiring it will not imbalance competition.

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