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The UK Digital Markets, Competition and Consumers Bill – does the dial point to hope or pessimism?

Chris Middleton Profile picture for user cmiddleton April 30, 2024
Summary:
As a postscript to our previous report on the DMCC, we look at whether the Bill is an innovation powerhouse in waiting, or, to quote one speaker, “a bit iffy”.


swing

In my earlier report on the UK’s Digital Markets, Competition and Consumers Bill – final amendments to which are being debated in the House of Commons today (30 April) – I explored the big picture of the UK Government’s proposals. Is this putative legislation, though far from pointless, too late to be meaningful in a fast-changing world? Answers on a postcard from the Noughties, please.

Yet there is another perspective: namely, the regulations’ potential impacts on innovation and investment, both of which they are designed to nurture and protect. 

Politicians’ rhetoric in recent years has suggested that the UK’s tech sector is doing remarkably well in the status quo: a “superpower” in AI, robotics, space tech, and fintech, no less, with a thriving start-up and venture capital scene that is behind only the US and China. So, in that context, can the DMCC Bill make a positive difference? 

Regard this as a postscript to my previous report, given that we are now in the territory of ifs, buts, and maybes, rather than legislative certainty.

Kelli Fairbrother is co-founder and CEO of digital reading app, xigxag. Welcoming the Bill in both spirit and fact, she didn’t mince her words about the ‘David and Goliath’ aspects of being an app-developer in a world dominated by US Big Tech platforms. Speaking at a Westminster policy eForum on the proposals last week, she said:

I want to talk about the future in terms of what we see as the potential aftermath. But there's a whole lot of pain to go through before we get to that point – if we look to Europe [which passed its own Digital Markets Act two years ago] as a hint of what's going to happen in the UK.

We know that the likes of Apple and Google are going to offer the most cynical, self-serving remedies they can possibly devise. And this from one of those companies whose motto was once ‘Don't be evil’! 

Now they are going to attempt to [in Fairbrother’s personal view] delay, to move fees from one place to another, to do as much as possible to scare UK app developers and consumers just enough to stick with the painful status quo.

Strong words. Did she have hard evidence to back up such an allegation? She continued:

There are already some examples of this. They've moved their [app store] fees from 15% and 30% to 10% and 17%, which is still like something like two to five times more than typical online payment fees. 

The developer terms and signposting constraints are so consumer unfriendly. They're basically unimplementable for us. So, if we wanted to offer our customers the ability to buy a book on our website from our app, we could send them only to our website. We can’t pass any parameters that allow a link to take the consumer where they want to go.  They also enforce the use of self-serving and alarmist warnings to customers to discourage them from leaving the ‘safety’ of their environments.

In short: sit in our walled gardens and smell the roses – or else!

Enabling

But how will the legislation itself do anything to remedy this, when it sounds like they are lowering their fees anyway? Fairbrother argued:

The Bill has the potential to unleash a UK-led wave of innovation...It will take some time, but it's great news for app developers. It will be brilliant for innovators, and it will be brilliant for competition. So, I'm hopeful, but we need to be incredibly patient. It's essential that we pass the Bill.

On that point, its passage through the British Parliament in the autumn seems all but guaranteed – a likely UK General Election notwithstanding. Then she added:

It really is just the beginning. Who knows, maybe the DMCC and the Digital Markets Unit [DMU, within the Competition and Markets Authority] together have the potential to create the next era-defining global mobile brands like Apple and Google.

No one doubts the UK’s innovation or entrepreneurship, but the idea of the Bill itself kickstarting a process that will finally give rise to a UK Apple, Alphabet, Amazon, Meta, or Microsoft sounds like an overstatement. Such a company would have to start in a relatively small domestic market whose balance of payments is, to use a nautical term, listing to port – and a country that, in trade alliance terms at least, is all at sea, post-Brexit.

That said, the UK did give us DeepMind (now part of Google) and Arm Holdings (now owned by SoftBank). And once upon a time, a Brit invented the World Wide Web, albeit while at CERN. So, the problem is not the UK’s entrepreneurship or ability to give the world some brilliant ideas – it has gifted the world hundreds. Rather, it is the challenging reality of growing a tech company without decamping to the world’s biggest English-speaking market, the US.

That said, we must acknowledge the Bill’s new powers to regulate M&As whenever a US Big Tech goes shopping.

But could anyone add crucial detail on just how the Bill might spur innovation and investment, beyond some future triumph of hope and ambition? That was the billed purpose of a presentation from Dr Nicola Mazzarotto, Global Head of Economics at financial auditing, tax, and consulting giant KPMG. Yet in the end, he took a rather more even-handed approach:

Clearly, regulation, when set up, can have both positive and negative effects on the rate of innovation. There are definitely regulatory costs that are imposed on firms. And, depending on how the regulatory framework is set up, there may also be regulatory risks that potentially decrease the level of innovation. 

Conversely, you can have regulation that provides more certainty, and therefore reduces risks – as well as, in many cases, hopefully opening access and increasing the range of players that can participate in a market.

So, which way does the Bill jump? Mazzarotto did not offer a clear view. But he did say:

You can make things worse, both for entrants and incumbents, if you intervene badly. But we'll do our best. And, hopefully, we'll do we'll do a good enough job that will move the dial. 

The CMA has an ambition to be at the top of the world's authorities, and it has all the resources it needs to devote to this and be the best. But I worry that the results will fall below the best intervention scenario, and, just generally, be a bit iffy. Possibly creating more problems than anything else.

My take

Thanks, Nicola! Perhaps he didn’t get the memo from Westminster about being upbeat, positive and entrepreneurial. But that’s auditors for you. 

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