Government warned on introducing ‘bad regulation’, following release of digital competition report

Profile picture for user slauchlan By Stuart Lauchlan March 13, 2019
Summary:
The UK government is threatening the break-up of Facebook, Google and other tech behemoths.

Philip Hammond Tory Conference
Bad regulation can be as bad as monopolistic activities, the government is told following the release of a major report looking into the market effects of digital competition.

The call to rein in social media firms comes as part of a major report – Unlocking digital competition – commissioned by the UK’s HM Treasury on competition in the digital economy. The report, ordered by the UK’s finance minister, Chancellor of the Exchequer Philip Hammond, is based on a six month review conducted by Harvard professor Jason Furman, formerly economic advisor to US President Barack Obama.

The main conclusions in what is a wide-ranging report include:

  • Updating existing competition rules to reflect the evolving digital landscape, including giving regulators more power to tackle “bullying tactics by market leaders’.
  • The creation of a new competition unit with expertise in behavioural science as well as technology and economics.
  • Empowering social media users to have more control over their own data and enabling them to switch platforms more easily.
  • The Competition and Markets Authority (CMA) should be given more scope to block mergers likely to reduce future competition.
  • A CMA investigation of the digital advertising market, currently dominated by Facebook and Google.
  • Large companies should be required to provide access to key data sets to smaller firms.
  • The report cites a number of “problematic” tech mergers and takeovers to support its case, including Google’s £1.3 billion takeover of YouTube in 2006, Facebook’s £765 million grab for Instagram in 2012, and Apple’s £2.3 billion takeover of headphones firm Beats Electronics in 2014.

Furman says that there’s a lot of room for improvement in terms of making the digital economy more competitive:

The digital sector has created substantial benefits but these have come at the cost of increasing dominance of a few companies which is limiting competition and consumer choice and innovation. Some say this is inevitable or even desirable. I think the UK can do better.

Response

For its part, the CMA welcomed the report, noting that it reflects many of its own previous recommendations. It added that it had been considering probing the digital ads market, but that “its ability to launch new projects is heavily dependent on the outcome of EU Exit negotiations”. In other words, one more thing that Brexit’s beggared up.

UK tech industry association techUK has a mixed reaction, with CEO Julian David striking a note of caution:

Bad regulation can be as big a barrier to competition and innovation as monopolistic activities. We hope that Government ensures that this expertise is not just limited to the CMA, but spreads across all of those Government bodies engaging in digital policy.

However, while the report contains some positive suggestions, significant further detail is needed on what a proposed code of conduct might look like. Equally, there must be a full assessment of the risks and benefits of requiring companies to open up data sets. Such issues raise important questions around the protection of personal data which may not easily be overcome. There may also be technical barriers to such a proposal due to the interoperability of data sets. techUK will continue to engage with Government on these issues, but is clear that any new requirements must be developed in partnership with the industry, and not brush over the practical challenges that may arise.

It is also vital that Government recognises the global nature of the tech sector and does not seek to work in isolation. The UK must remaining a welcoming place for digital business from around the world, and ensure that the UK competition and wider regulatory framework is not in conflict with the other leading digital economies with which we must compete.

But Chancellor Hammond has the bit between his teeth now and will use the report’s findings to engage in a bit of political saber-rattling in the direction of Facebook and Google. He got underway with his Spring Statement to UK legislators in the House of Commons, telling the CMA to get a probe into digital advertising dominance underway.

My take

With 16 days to go before the UK leaves the European Union and publication of ‘No Deal consequences’ data this morning, a bit of Facebook-bashing in Hammond’s statement today is unlikely to attract too much scrutiny. That’s unfortunate in some respects because, as techUK’s David alludes to, bad regulation is usually worse than no regulation. Google-taming needs to be more than just a ‘look how tough I am’ exercise by politicians on manoeuvres and Hammond has form here.

As we’ve observed before, with growing cynicism, empty gesture politics when it comes to tech regulation, particularly from non-US authorities in relation to US firms, are empty calories in terms of responsible action. The current occupant of the Oval Office may have no time for Jeff Bezos, but in the run-up to re-election, Trump is not going to look favorably on foreign efforts to break up great American companies, especially when his home-grown enemies are making this an electoral issue.

And if the UK somehow does make it out of the current Brexit chaos in one piece, it’s an agenda item that’s going to crop up alongside hormone-packed beef and chlorinated chicken in trade deals talks with the US. I suspect the chicken would be easier to swallow than the idea that there’s a good outcome to be had here.