Regulation of Digital Platforms in Australia and UK

The latest policy and strategy reviews in the UK and the recent market inquiry in Australia will likely be springboards for tighter competition law enforcement and regulation (including co-regulation via codes of conduct), to ensure that the benefits to society those platforms and search engines bring are not at the expense of consumer welfare, high quality news and journalism and market driven innovation. 

UK

2019 is seeing a significant focus of UK competition policy on competition in the digital environment, the Competition and Markets Authority (CMA) launched its Digital Markets Strategy in July 2019. This was preceded by the report by the independent Digital Competition Expert Panel (chaired by Jason Furman and known as the "Furman report") to the government in March 2019. The Furman Report can be seen as in large part the basis or inspiration for the CMA's Digital Markets Strategy.

The CMA has launched a market study into online platforms and digital advertising, on 3rd July 2019. Broadly the study will assess three main areas: to what extent online platforms have market power in user-facing markets; how online platforms are using people's personal data (including the provision of this data to advertisers for payment; and whether competition in the digital advertising market may be distorted by platforms holding market power. The CMA will be required to publish a final report within twelve months, i.e. by 2nd July 2020, and this may result in a referral for a full, 18 months market investigation. The CMA could also seek undertakings from relevant digital platforms to make remedial changes, as an alternative, so called "undertakings in lieu" of a full market investigation.

The Digital Expert Panel included the launch of such a market study into the digital advertising market, as one of its six strategic recommendations. The Digital Expert Panel made a range of recommendations concerning the application and enforcement of anti-trust rules in the digital environment and on the need for merger control assessments in digital markets to be given a reset.  This took account of the fast-moving characteristics of digital markets, the high levels of concentration of the main digital markets in the hands of one or two powerful platforms, and the tendency of digital platform features to result in markets "tipping" to a single winner in a short period. The Digital Expert Panel further recommended that to sustain and promote effective competition in digital markets, the government should establish a Digital Markets Unit (within the CMA or Ofcom) which would be responsible for ensuring competition, particularly in relation to digital companies holding strategic market status, by means of an ex ante digital platforms code of conduct.

The CMA's Digital Markets Strategy includes the general aims on the part of the CMA of using existing tools effectively and efficiently in its anti-trust enforcement and merger assessments in digital markets, building knowledge and skills to understand digital business models, considering the case for new regulatory structures and digital markets, and increasing the digital-focus of potential remedies, such as data portability or interoperability. The priority focus areas of the Strategy include, in addition to the market study on online platforms and digital advertising, a review of the CMA's approach to assessing merger in digital markets, and policy work with regard to a possible Digital Markets Unit as recommended by the Furman report.

A first step has been taken regarding the CMA's merger assessments in the digital sector, through the CMA's publication in May 2019 of a report for the CMA by an independent economists' firm, Lear, Ex-Post Assessment of Merger Control Decisions in Digital Markets. This report emphasised the importance of potential competition and potential competitors in digital markets. It indicated the complexity of defining a counterfactual in digital markets because of the dynamic development of such markets and because of the need to assess whether the target could develop independently (or by attracting external resources) to become a significant competitive force. The report drew attention to certain specific previous merger control decision, highlighting that the CMA's fore-runner, the Office of Fair Trading, may have under-estimated the target's potential to become a significant competitor in the relevant digital market.

Both the Furman Report and the CMA's Digital Markets Strategy emphasise the importance of international co-operation between competition authorities, taking account of the fact that the incumbent digital platforms are global forces and that their data flows over national boundaries. In this regard it is important to note that the European Commission obtained an Expert Advisors' Report in April 2019, on Competition Policy for the Digital Era. By contrast to the Furman report, the EC Expert Advisors' Report did not propose any new type of public utility regulation for the digital economy.  This was because of the risk of rigidity and lack of flexibility in relation to establishing fixed ex ante rules. With or without Brexit, it will be interesting to see the UK government's eventual decision on the Furman report's recommendations, especially as regards the establishment of a Digital Markets Unit, and whether its policy in this area diverges from the EU's.

The Furman report's strategic recommendations: a snap shot of the Digital Expert Panel's most high level proposals:

The CMA's Digital Market Strategy: the CMA's high level statement of its strategic aims and priority areas of work:

Australia

The 26th July 2019 marked a significant milestone for the Australian Competition and Consumer Commission (ACCC), when the Final Report into the impact of digital search engines, social media platforms and other digital content aggregation platforms on consumers and news media businesses, was published.  While the 619 page report may have heralded the end of an 18 month long inquiry for some, it is only the starting point. The Government has indicated it will respond to the report by the end of the year.  

Like several countries before it, Australia’s inquiry has a particular focus on the impact of digital platforms on the choice and quality of news and journalism, but unlike those inquiries, the breadth of the ACCC’s remit which has the protection of consumer welfare at its heart, means the ACCC has been able to take a more holistic approach.  This has resulted in recommendations that address matters concerning the fitness of current media and advertising regulation, but also suggests amendments to 'future proof' Australia’s competition laws, consumer laws and privacy laws more generally.  

The non-binding recommendations will need to be adopted by the Government and passed into law before they have any force.  The ACCC's recommendations propose to amend laws and introduce new ones, create new processes and bodies, which in summary, aim to:

• redress the ability of dominant platforms to acquire potential competitors;

• create a more level playing field for content production and delivery in Australian media and advertising markets;

• use grants and tax incentives to address the under provision of public interest journalism that generates broad benefits to society and to increase digital media literacy in the media via programs and schools;

• chip away at some of the 'opaqueness' shrouding ad tech services and the supply of online advertising services to test or bring about more efficiently operating markets;

• provide the ACCC with quicker (and more) access to information concerning digital platforms, enabling it to identify and investigate practices that deteriorate consumer welfare before it's too late; and 

• shape norms of engagement that promote fairness, reduce information asymmetries in the market, and provide consumers with more bargaining power and control over the value of their data.

A key aspect of the Final Report was that the ACCC made a finding that several digital platform operators – namely Google and Facebook – had substantial market power. Like electricity and utilities before it, these platforms were described as ‘gateways’ for businesses to reach Australian customers.  In the ACCC's view, this privileged position comes with special responsibility, and there is a growing community perception that in some quarters this special responsibility has not been embraced.  It is therefore unsurprising that there have recently been a spate of government inquiries and investigations into industries or particular companies, such as Google, Apple, Facebook and Amazon. 

What this responsibility is and the standard to which digital platforms must operate will be hotly debated over the course of the coming months as the Government prepares its response to the report and global regulators deal with similar issues.  Sensibly, Facebook has beseeched global regulators to coordinate their regulatory responses to avoid a 'balkanisation' of the internet.  While big steps are also being taken in Europe and the US (particularly in relation to fines), we suspect Australia will forge ahead with attempts to regain some control and setting various norms for tech companies meet. Australia might be a minnow in this fast-moving global landscape but the ACCC's pursuits are not going unnoticed.

The ACCC's 23 recommendations: a snap shot of Australia's solutions to the issues uncovered by the inquiry