Tech giants to be given ‘Strategic Market Status’ in UK and forced to follow code of conduct

Profile picture for user ddpreez By Derek du Preez July 20, 2021 Audio mode
Summary:
The UK’s newly created Digital Markets Unit has been given powers to tackle the market dominance of big tech firms - but will it work without global consensus?

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The British government's newly created Digital Markets Unit (DMU) will be given powers to designate tech firms that hold "substantial and entrenched market power" with ‘Strategic Market Status', which will require them to follow a new code of conduct aimed at boosting competition in the sector. 

The DMU, which sits within the Competition and Markets Authority (CMA), was launched back in April and has been set up to tackle the dominance of online platforms that hold considerable market power. The likes of Apple, Google, Amazon and Facebook will likely be in the firing line. 

A recent independent review, which formed the thinking around the new unit, said that the regulator should focus on network monopolies, which charge nothing upfront, but harvest and use customer data to make money. 

Digital Secretary, Oliver Dowden, said:

The UK's tech scene is thriving but we need to make sure British firms have a level playing field with the tech giants, and that the public gets the best services at fair prices.

So we will be giving our new Digital Markets Unit the powers it needs to champion competition and drive growth and innovation, with tough fines to make sure the biggest tech firms play by the rules.

The tech giants have been in the spotlight in recent years and there has been increased global cooperation to form consensus around how best they can fairly operate. However, as we have seen on the issue of the digital services tax, reaching a global consensus isn't easy

As such, the UK is making some moves independently with the DMU to try and legislate for new rules that force greater competition, support smaller tech firms and boost consumer protections. However, the question remains, will it make much of a difference acting in isolation? 

What's being proposed? 

As noted above, the DMU's aim is to boost competition in the UK's digital tech sector, with the hope of fostering innovation and bringing in fairer terms for UK businesses, including startups, news publishers and advertisers. It also hopes that it will result in better consumer choice and control, making it easier for people to take their business elsewhere. 

The powers aim to make it easier for British startups and scaleups to compete more fairly against the tech giants that hold powerful positions in the market. 

The new mandatory code of conduct - which will be followed by those granted the ‘Strategic Market Status' - will set out what is expected of firms for "fair trading, open notices and trust and transparency". The DMU says that this could include tech platforms not pushing their customers into using default or mandatory associated services, or ensuring third party companies that depend on them aren't blocked from doing business with competitors. 

The code will be underpinned by investigation and enforcement powers, which may include imposing fines of a maximum of 10 percent of a firm's turnover for the most serious breaches. 

The DMU could also be given powers to suspend, block and reverse code-breaching behaviour by tech giants - for instance unfair changes in their algorithms or T&Cs - and order them to take specific actions. 

Business Secretary, Kwasi Kwarteng, added:

Tech has transformed our lives for the better, whether it's helping us to stay in touch with our loved ones, share content, or access the latest news.

Nobody wants to see an unassailable monopoly and our common sense reforms will help protect consumers, support ground-breaking new ideas and level the playing field for businesses.

The DMU has also said that in addition to tackling specific poor behaviour by these firms, it will also look to see whether or not it can impose a set of measures to tackle the root cases of competition issues in digital markets. This is significantly more challenging, especially when considering the global context within which these firms operate. 

Some of the examples the DMU points to include implementing measures to support interoperability, which could make it easier for digital platforms and services to be compatible with each other and for customers to switch between them. 

It is also being considered whether or not the CMA can be given greater powers to scrutinise and intervene in harmful mergers involving firms with ‘Strategic Market Status'. 

The government has said it will legislate to give the DMU its powers as soon as parliamentary time allows. 

My take

The general sentiment and ambition behind all of this is admirable. I can absolutely get behind government intervention when it is taking on what are effective monopolies in the digital market, to support competition for smaller firms and to improve the experience for users. However, I do have significant concerns that the UK tackling this in isolation will not surmount to much. Given the global nature of these companies, the UK acting on its own isn't going to carry much weight compared to the US or the EU, unfortunately. If the UK can show the benefit of this and get the two trading blocs on board, then there might be significant movement. However, given most of the tech giants in question are US firms, that's likely one trading bloc that will put up resistance. We will be following this closely.