SoftBank’s billion-dollar Indian startup is under investigation

Hospitality chain Oyo is being probed for allegedly stifling competition.

India's Oyo Hotels and Homes is disrupting the country's tourism market while facing growing backlash from its partner hotels for taking more fees than initially disclosed and violating rules barring uncompetitive agreements, charges the Federation of Hotel and Restaurant Associations of India [File: Adnan Abidi/Reuters]
India's Oyo Hotels and Homes is disrupting the country's tourism market while facing growing backlash from its partner hotels for taking more fees than initially disclosed and violating rules barring uncompetitive agreements, charges the Federation of Hotel and Restaurant Associations of India [File: Adnan Abidi/Reuters]

An Indian regulator has ordered an investigation into allegations that hotel-booking service MakeMyTrip Ltd gives special treatment to SoftBank-backed hotel chain Oyo Hotels and Homes on its platform, stifling competition in the industry.

There is a “prima facie case for investigation” against MakeMyTrip and Oyo for alleged violations of rules barring uncompetitive agreements between parties, the Competition Commission of India (CCI) said in an order dated October 28.

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The order follows a complaint from the Federation of Hotel and Restaurant Associations of India (FHRAI), an industry body.

Both Oyo and MakeMyTrip allow guests to book hotels through their mobile apps while charging hotels a fee on room revenue, but Oyo also franchises its brand and offers standardised amenities at hotels on its network.

Gurugram-headquartered Oyo, valued at $10bn and one of the world’s largest hotel chains, is already facing backlash from an increasing number of Indian hotel operators who are complaining about being blind-sided by fee increases.

The backlash against Oyo has come at a sensitive time for its major investor SoftBank, which is struggling to close its second $100bn plus Vision Fund and has faced challenges at some of its other marquee bets such as office-space sharing company WeWork and ride-hailing firm Uber.

While Uber has seen its valuation slide after a poor market debut in May, SoftBank has also had to endure a painful bailout of WeWork following a failed public listing.

The FHRAI said agreements between Oyo and Nasdaq-listed MakeMyTrip were restricting market access to Indian hotel chains such as FabHotels and Treebo Hotels, according to the CCI’s order.

“[MakeMyTrip] and OYO have entered into confidential commercial agreements wherein [MakeMyTrip] has agreed to give preferential treatment to OYO on its platform, further leading to a denial of market access to Treebo and FabHotels,” the CCI’s order said, quoting from the FHRAI’s allegations.

An Oyo spokeswoman told Reuters the company was reviewing the order and would cooperate with the CCI’s investigation.

“We will co-operate with CCI and demonstrate that the allegations are unfounded,” a MakeMyTrip spokeswoman said in an email.

The complaint from the FHRAI also included a long list of other allegations. It says Oyo and MakeMyTrip are hurting competition by offering deep discounts and charging “exorbitant” fees from hotels.

Oyo’s prices in small Indian markets are about 30 percent lower than average industry prices, which helps it attract more customers at the cost of smaller, independent hotels that are then forced to join Oyo’s network or lose out on potential revenues, the FHRAI said.

However, the CCI said it would not provide a finding on the allegations around discounts before investigating the “market structure, entry conditions, cost structure of platforms” in the industry.

“There are no clear standards to determine what price is excessive or fair,” it said.

Source : Reuters

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