Facebook's Kustomer deal may hurt competition, EU regulators say


FILE PHOTO: Facebook logo is reflected in a drop on a syringe needle in this illustration photo taken March 16, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

BRUSSELS (Reuters) -Facebook's acquisition of U.S. customer service startup Kustomer may hurt competition and boost its market power in online advertising, European Union antitrust regulators warned on Monday as they opened a full-scale investigation into the deal.

The move by the European Commission comes amid regulatory concerns on both sides of the Atlantic that a buying spree of startups by big firms, which normally don't trigger competition scrutiny because of the low value of the deal, may be so-called killer acquisitions aimed at closing down nascent rivals.

Facebook, the world's largest social network, announced the purchase of Kustomer to scale up its instant messaging app WhatsApp in November last year.

The EU executive, which acts as the bloc's competition enforcer, said the deal may result in Facebook blocking rivals' access to its units WhatsApp, Messenger or Instagram, which are key to customer relationship management (CRM) software.

Kustomer sells CRM software to businesses so they can communicate with consumers by phone, email, text messages, WhatsApp, Instagram and other channels.

The EU watchdog also cited concerns about Facebook's ability to better personalise and target online display advertising services using Kustomer's client data, giving it an advantage over rivals.

"It is important to closely review potentially problematic acquisitions by companies that are already dominant in certain markets," Commission Vice President Margrethe Vestager said.

"This applies in particular to the digital sector, where Facebook enjoys a leading position in both online display advertising and in over-the-top messaging channels," she said.

Facebook said it would continue to cooperate fully with the Commission's review.

"The transaction is pro-competitive and will bring more innovation to businesses and consumers in the dynamic and competitive CRM space," it said in a statement.

The U.S. company had declined to offer concessions during the Commission's preliminary review of the deal.

The Commission took over the case, citing a rarely used power known as Article 22 and following an Austrian request even though the deal falls below the EU turnover threshold.

Germany's antitrust agency last month said it was looking to see if Facebook should also seek its approval for the deal, based on the effect in the country and if Kustomer is active to a significant extent there.

Its UK peer the CMA last month kicked off an investigation into the case.

(Reporting by Foo Yun Chee; editing by Philip Blenkinsop and Mark Potter)

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