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Jul 06, 2020

CMA Signals New Path for UK Clamp Down on Big Tech

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CMA SIGNALS NEW PATH FOR UK CLAMP DOWN ON BIG TECH

On 1 July 2020, the U.K. Competition and Markets Authority (CMA) published a statement outlining a series of regulatory initiatives aimed at Google and Facebook, focussed on digital advertising. This follows the release of the CMA’s report on digital advertising and online platforms the same day.

Among the suggested initiatives is unprecedented cross-collaboration across different U.K. regulatory bodies—the CMA, the Information Commissioner’s Office (ICO) and Ofcom—to help establish a new regulatory regime. The proposal reflects the CMA’s belief that its current competition law toolkit is not adequate to tackle big-tech issues.

It will be interesting to see how the Government reacts, given the politics of Brexit and the desired U.S. trade deal. Regardless, the CMA is showing no signs of easing back from its interventionist enforcement agenda.

Report Finds That Google and Facebook Have Entrenched Positions of Market Power

The CMA has spent more than a year researching online platforms and digital advertising, and its findings build on the previously published Furman and Stigler reviews. The 450-page final report concludes that:

  • Google and Facebook are dominant in their relevant digital advertising markets.
    • Google has more than a 90% share of the £7.3 billion search advertising market in the U.K., while Facebook holds over 50% of the £5.5 billion display advertising market.
    • High market shares in these markets are protected by strong incumbency advantages—network effects, economies of scale and unmatchable access to user data—that stifle competition.
  • The CMA’s current powers are insufficient to address this dominance, since the competition concerns in these markets are so wide-ranging and self-reinforcing.

The CMA therefore recommends establishing a pro-competition ex ante regulatory regime for online platforms, and a Digital Markets Unit to enforce that regime. The regime itself would comprise two broad categories of intervention:

  • An enforceable code of conduct, which will ensure that platforms like Google and Facebook do not engage in exploitative or exclusionary practices; and
  • A range of pro-competition interventions. These include behavioural measures such as ordering Facebook to increase its inter-operability with competing social media platforms, whilst also leaving scope for more drastic ‘separation measures’ such as divestments and operational ring-fencing.

The CMA report also advocates a competitive-neutral approach to implementing privacy regulation, in order to make sure that big platforms are not able to exploit privacy regulation to their advantage.

Cross Regulatory Supervision Mooted as the Solution

The CMA’s press release sets out a framework of how to address the conclusions of the report, focussing in particular on unprecedented collaboration between U.K. regulators: 

  • Establishing a Digital Markets Taskforce—a cross-collaboration with ICO and Ofcom—to build on the conclusions of the market study.
    • The Taskforce will advise the government on how a new regulatory regime for digital markets should be designed, with formal advice due at the end of this year.
    • The CMA will publish a call for information and reach out to a number of market participants to inform the Taskforce’s work. 
  • Establishing a Digital Regulation Cooperation Forum—again, a cross-collaboration with ICO and Ofcom—to facilitate open dialogue and collaboration between the three regulators on a variety of areas, including future policy-making.

The press release does confirm, however, that no CMA competition law market investigation reference is being made. Instead, the CMA notes that: “after the work of the Taskforce has concluded, it will assess whether the actions being taken by the government are sufficient to address the full range of issues identified by its market study, or whether direct action by the CMA is likely to be required.” A market investigation would represent the logical next step towards direct CMA remedial action against Facebook and Google using the CMA’s current competition law powers.

Following the Money

The CMA is one in a long line of competition regulators to try to put structure in the techlash debate. The European Commission issued its report into Digital Markets in 2019 and launched a consultation in June 2020 on a new competition tool to include under its Digital Services Act, including the power to subject sectors to investigation and order changes without finding an infringement or ordering a fine; we’ve also had the U.S. Stigler report (2019) and the Dutch ACM’s Digitalisation Strategy (2019), among others.

These previous studies have posed general questions about how to assess the markets and what tools should be used in this new world: How to quantify market power in two-sided markets? Is there a market for data? How do you measure consumer harm if a service is free?

The CMA has in this report, however opted to follow the money—advertising. Advertising is the monetisation of a two-sided digital market. Data is an input for advertising. Advertising is how customers pay for “free” services. It is therefore a pragmatic and sensible place to start getting to grips with whether or not “digital” markets need regulatory intervention and how.

The report is being welcomed as one of the first to be released on this basis, but it is unlikely to be the last; France, Germany and Sweden are proceeding with similar studies (as mentioned in the CMA’s report), and the Australian ACCC launched its own investigation into the digital advertising technology supply chain and advertising agency services in March 2020. It has also sparked calls within other jurisdictions for similar measures to regulate digital advertising (see, e.g., the U.S.).

Addressing the issues in a holistic way involving different regulators is also an expedient and efficient way to proceed. In the EU, criticisms were aimed at an institutional design which drew the regulatory arm of the Commission and its competition enforcement arm under the same person. Formalising links and cooperative efforts between regulatory departments, if it works, retains the necessary synergies and ability to innovative from such collaboration whilst avoiding some of the concerns related to the concentration of power and politicisation of competition enforcement. Commentators have already noted that the CMA’s work plan will formalise the previously ambiguous level of cooperation between the relevant agencies.

The CMA Showing Its Ambition to Be a Leading Enforcer Post-Brexit

The report and announced work plan are further evidence of the CMA’s increasing interventionism and desire to be seen as a leading international regulator, particularly post-Brexit. The press release acknowledges this expansionist ambition: “Whilst this recommendation is U.K.-focused, many of the problems that the CMA has identified are international in nature. It will therefore continue to take a leading role globally in relation to these issues as part of the CMA’s wider digital strategy.” The CMA notes that its own Digital Markets Taskforce will “pay close attention” to regulatory proposals being developed in other jurisdictions

The report and press release are also evidence of the CMA’s growing interventionist stance towards Big Tech. The regulator had already intervened in Amazon/Deliveroo in July 2019, citing concerns that Amazon’s investment could damage competition, potentially by discouraging Amazon from either independently re-entering the U.K. market for online restaurant-food delivery or from developing its presence in the market for online delivery of convenience groceries.[1]

The report and announcement coincide with CMA Chairman Andrew Tyrie’s premature retirement. In a letter to the Secretary of State for Business, Energy and Industrial Strategy dated 25 February 2019, Tyrie asked for several extended powers for the CMA, including mandatory notification of cross-border deals and a “standstill” obligation which would stop deal completion while an investigation is taking place. Several sources cite Tyrie’s frustration at being unable to deliver these changes as the reason behind his departure, with Tyrie noting ‘inherent limits’ in what he could achieve for the CMA from within the organisation.

Tyrie advocated for increased powers on the basis that markets were not working effectively for the consumer. The fact that Tyrie has met resistance not only shows uncertainty as to what kind of power the U.K. wants the CMA to have post-Brexit but also possible unsureness as to how the CMA will fit within the U.K.’s geopolitical strategy post-Brexit. For example, adopting Tyrie’s stance would inevitably lead to having to deal with the likes of Google, Amazon, Facebook and Apple; this isn’t necessarily aligned with the free-market attitude that would facilitate a trade deal with the U.S.

So whilst the report and press release are bold steps in the ‘fair markets’ direction advocated by Tyrie, it will be interesting to see what and how quick the CMA’s next steps are, particularly in the absence of Tyrie himself.

If you would like further information on the above or responding to these consultations, please do not hesitate to contact the authors.

Footnotes

[1]  However, the regulator provisionally cleared the merger by allowing Deliveroo to use the ‘failing firm’ defence on the back of Covid-19. A revised provisional decision was subsequently issued, still clearing the deal but significantly changing its findings in the first provisional decision; this inevitably drew criticism of inconsistency.

Authors and Contributors

Matthew Readings

Partner

Antitrust

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+44 20 7655 5937

+32 2 500 9866

+32 2 500 9866

London

James Webber

Partner

Antitrust

+44 20 7655 5691

+44 20 7655 5691

+32 2 500 9800

+32 2 500 9800

London

Sara Ashall

Counsel

Antitrust

+32 2 500 9818

+32 2 500 9818

Brussels

Edward Rarity

Associate

Antitrust

+44 20 7655 5782

+44 20 7655 5782

London