Bloomberg News

Facebook-WhatsApp Risks Sparking Privacy Probes Across EU

February 26, 2014

Facebook & WhatsApp

The Facebook Inc. logo for 'like' and the WhatsApp Inc. mobile-messaging application on iPhones. Photographer: Chris Ratcliffe/Bloomberg

Facebook Inc. (FB:US)’s plan to buy WhatsApp Inc. for as much as $19 billion risks triggering privacy probes across the European Union as watchdogs seek to know how the mobile-messaging startup’s treasure trove of client data will be used, the European Union’s top privacy regulator said yesterday.

The biggest Internet acquisition in more than a decade may spur interest from authorities who so far ignored the emergence of WhatsApp, said Jacob Kohnstamm, who leads a group of EU privacy officials known as the Article 29 Data Protection Working Party as well as the Dutch agency already investigating the 450-million client company.

Kohnstamm said in an interview that colleagues in other EU countries “could, having heard about the merger, decide to do research into the product as well” and as such “28 data protection regulators could open an investigation.”

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The proposed cash-and-stock acquisition would be the biggest by Facebook, the world’s largest social network, and gives WhatsApp roughly the same valuation as Gap Inc. and more than half the market value of microblogging service Twitter Inc.

Facebook shares (FB:US) advanced 1.7 percent to $71.04 at 11:23 a.m. in New York trading.

WhatsApp lets users send messages through its service on mobile devices based on different operating systems including Apple Inc.’s iOS, Google Inc. (GOOG:US)’s Android, Microsoft Corp.’s Windows Phone and BlackBerry Ltd.’s software.

Unlike traditional text messages, which consumers pay for through their mobile-phone plans, WhatsApp is free for the first year, and costs 99 cents a year after that.

Data Collection

Any one of the EU’s 28 data privacy authorities can choose to probe WhatsApp because the company isn’t established in Europe and has said it will continue to act independently, Kohnstamm said.

The main concern for privacy regulators is the collection of data from its users’ address books on their phones when they download the application, Kohnstamm said.

The risk with such a database is that “it is tempting to use this data” for a completely different purpose, said Kohnstamm. The company’s “collection of data of people that aren’t using WhatsApp is extreme and is not compliant with Dutch and European law.”

A decision will be made in the course of this year on a possible Dutch fine, which would “be quite impressive,” said Kohnstamm.

No Limits

The Dutch authority has no limits of how much it can fine and any decision will be based on the seriousness of the case and whether the company “deliberately” failed to comply, said Kohnstamm.

Facebook Chief Executive Officer Mark Zuckerberg said this week that WhatsApp is “worth more” than $19 billion.

While WhatsApp had low revenues, it would be worth more because of its strategic value, huge business potential to double its users and its fit with Facebook.

Facebook has come under intense scrutiny by privacy regulators worldwide in recent years and in Europe was forced in 2012 to delete data collected for its facial recognition program after a probe by Ireland’s privacy regulator, which oversees the company because its European base is in Dublin.

“Facebook is not only buying a popular messaging app, it is also acquiring the addresses and telephone numbers of 450 million users worldwide,” said Wim Nauwelaerts, a lawyer specializing in EU data protection law at Hunton & Williams LLP in Brussels.

“Many of these users are already signed up to Facebook, so through this deal Facebook will be able to build complete profiles on users” and “this begs the question to what extent Facebook intends to ‘monetize’ the data.”

Jan Koum, WhatsApp’s chief executive officer who co-founded the company with Brian Acton in 2009, has said the company will remain independent from Facebook. The company didn’t immediately respond to an e-mail about Kohnstamm’s comments.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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