The Competition and Markets Authority (CMA) this week proposed a new regulatory framework for digital competition which offers a tantalising insight into current UK thinking on tech regulation. Does the prospect of a new Digital Markets Unit with tough new rules for the biggest companies mean that tech giants are finally going to be obliged to serve our interests rather than the other way around?
Shouldn’t we just break up Google like we did with Standard Oil and big telecom?
The report confirms that the UK approach stops short of recommending a breakup of the tech giants. For now. It has not completely taken “ownership separation” off the table. In fact in its July 2020 market review the CMA indicated that there was a strong prima facie case for separation of Instagram from Facebook for example. This report proposes that the discretion to order or even advise such divestment should not rest with the DMU. It should be the subject of a market investigation by the CMA. Thus breakup of the UK operations of tech companies can serve as the ultimate big stick to ensure that the tech giants work within the rules, for example observing the codes of conduct that will apply detailed rules to the biggest players.
The report suggests that the UK will be substantially aligned to the EU approach to digital competition. Like the German approach it develops a specific regime for dominant companies: those deemed to merit Strategic Market Status. This is a new concept in competition regulation, which departs from previous definitions of Significant Market Power which in previous regimes required a range of behavioural standards. According to the report “A firm will have a strategic position when the effects of its market power are particularly widespread or significant”. In part this is about sheer size, and in part it will require evidence of particular behaviours that indicate or exploit a lack of competition, similar to the German concept of the “super-market ruler”. Inclusion on the list of such companies, and their obligations will be decided by the DMU using tighter criteria, to protect competition from their market power. The EU’s proposed Digital Services Act is expected to take a similar standpoint.
Interestingly, the regime incorporates behavioural rules and these are limited to market based measures of abuse of dominant position. This is to ensure that the market works better and to ensure more competition. But fascinatingly, this is not only a competition regime, in which competition and consumer switching are required to create incentives to increase consumer welfare: the proposed regime also, rightly, proposes using competition incentives to create a specific behavioural standards regime to change platform behaviour.
How will it relate to the Online Harms framework?
The report mentions the need to prevent harm, but does not define harm. It does call for more coordination with the proposed new online harms legislation. In effect, what we have here is a potential new integrated regulatory regime for platforms that offers both such a ‘negative’ aspect – seeking to use competition incentives to ensure compliance with prohibitions, and a positive aspect, for example to trade more fairly with news publishers.
Is this a new deal for the news media?
The proposed Digital Markets Unit is charged with implementing one important recommendation of the Cairncross Review on Journalism: namely the proposed code of conduct for trade between publishers and platforms. This is a sector specific regime which aims to protect in particular news publishers, in effect offering them privileges in the light of the beneficial impact of news. The most challenging aspect may be that such a regime may thus require legislation to define a news publisher: history is littered with the corpses of wonks who tried to do that.
Is the stick big enough?
This regime places a lot of control in the hands of the DMU. These kinds of regulators do not have a great record for boldness, so they have to be given the tools and also the political cover to use the tools they have at their disposal. The pro competition interventions that can be deployed against players with strategic market status are open ended and could be very powerful, but the need for regulatory certainty will demand that they are more narrowly defined in legislation and guidance at the next stage. The CMA has asked the government to provide the DMU with sufficient powers, but these remain somewhat vaguely defined. Will it have powers to access data held by the platforms to understand the operation of market power or its implications for consumer interests beyond price? There is specific mention of data portability and interoperability, which are potentially very powerful tools, but again these will likely be narrowed and specified: the potential for legal challenge is great.
The CMA point out something that the T3 report and others have pointed out for a long time: there is a need for the regime to be ‘joined up and coherent with the wide r regulatory landscape”. They point out in particular the need to link to data protection and online harms. They recommend closer information sharing with Ofcom, and other regulators, building on the Digital Regulation Cooperation Forum (DCRF.)
Will this change the business model?
Those hoping for a radical departure from Surveillance Capitalism will need to bide their time. Nick Couldry and Dipayan Ghosh argue that this anti-trust led model is broken and needs a complete reset. In theory, a regime that aims to intensify competition but not fundamentally alter incentives may make the model of surveillance capitalism worse. Put bluntly, if there are grave concerns about a model of data extraction and behaviour modification, is the answer to have more companies competing harder for smaller margins in the data economy? This will divide opinion, but only if consumers are able to switch away from those companies that fail to protect interests and rights will this model work. The need for regulatory convergence and cooperation between the CMA, the DMU, Ofcom and the ICO, and a radical approach to transparency will be crucial.
If the government follows this advice, this confirms that the UK is likely to remain substantially aligned to the EU when it comes to regulating the Tech Giants, since it offers a regulatory model broadly in line with that proposed by the EU, which is in turn based on the German model. But the danger of a race to the bottom remains. Expect a lobbyfest as the big 5 use their new-found leverage to play off Brussels, Berlin, London and Dublin for jobs and HQs of tech giants.
The Second Volume of Digital Dominance, Martin Moore and Damian Tambini (eds) will be published by Oxford University Press early in 2020
Damian Tambini, is Distinguished Policy Fellow at the LSE.