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UK Digital Markets Competition and Consumers Bill – the right idea 20 years too late?

Chris Middleton Profile picture for user cmiddleton April 30, 2024
Summary:
The DMCC is one step closer to becoming an Act, which is likely this autumn. But is the whole thing a well-intentioned mistake?

market share
(PIxabay)

The UK’s Digital Markets, Competition and Consumers Bill reaches its final stages in the days ahead, before it receives Royal Assent (probably) and becomes an Act. Final amendments to the proposed legislation were made by British Parliament's second chamber, the House of Lords, on 27 March, and will be debated this week in the House of Commons.

In the wake of the 2019 Furman Review, the Bill – and, if approved, the Act – seeks to rein in the power of technology companies that have ‘strategic market status’ (SMS), which in practice means US Big Techs such as Amazon, Meta, Alphabet, Microsoft, and Apple. Or rather, it aims to promote growth in the UK, thus ensuring free and vigorous competition among businesses. 

In the eyes of the Bill, those are implicitly one and the same concepts. But are they?

One challenge is that much has changed since Furman. For example, Brexit is now a reality, rather than a divisive ambition, and it finds the UK becoming more, not less, bureaucratic. A pandemic has pushed even more consumers into the arms of cloud-based service providers – including players such as TikTok and Spotify, neither of whom are covered by the Bill. And the AI sector now dominates strategic decision-making, to an extent that Furman could not have anticipated. Again, companies such as OpenAI are not touched by its provisions.

All of this calls into question the founding principle of the Bill. What does ‘strategic market status’ mean, when companies like TikTok, Spotify, and OpenAI are not deemed to be strategically important – despite setting the pace and business models of their respective sectors? - but companies founded 30 to 50 years ago are

Put simply, aren’t Big Techs really market incumbents, albeit ones that are vying for the title of most valuable company on Earth? And doesn’t this really tell us that legislation moves far too slowly for the digital realm; that these well-intentioned provisions are 20 years too late?

Innovation

But one thing is stubbornly unchanged: despite three decades of the Information Age, with innovations that include the Web in all its forms, the cloud, e-commerce, Wi-Fi, high-speed broadband, mobility, apps, big data analytics, social networking, the IoT, cheaper storage, faster processors, and generative AI, UK productivity growth refuses to rise more than a fraction above zero – it currently measures 0.3%. 

While not directly related to competition, perhaps, that is useful context for the overall state of an economy that was once the world’s fifth largest, but is now the sixth, with GDP growth increasing by an even smaller amount - 0.1%. Since Brexit, services exports have boomed, but the balance of payments has worsened: the UK now has a primary income account deficit of nearly $11 billion – 1.3% of GDP, and rising. 

Will 'punishing' Big Tech make a positive difference? Perhaps competition law is the wrong priority for legislators; especially when citizens are told how vibrant, successful, and well-invested the UK’s start-up communities are. Meanwhile, government is by far the biggest IT buyer in the country and seems more than content to court – and increase – Big Tech’s business.

Denny Jicheva is Head of Digital Markets Strategy and Institutional Design for the Department for Science, Innovation and Technology (DSIT) – a long-overdue department that is younger than the Bill itself. Speaking at a Westminster policy eForum on next steps for the legislation, she said:

Traditional competition enforcement has not been well suited to dealing with some of these challenges, which is why we've introduced a new purpose-built regime, which is very targeted, but allows the regulator to respond to the fast-moving nature of those markets. 

Strategic market status is a very high bar, so it's really the most powerful firms that will be captured, which will be those with £1 billion [UK] revenue [$1.25 billion] or £25 billion [globally] [$31 billion], and there are a series of high tests on that.

As suggested above, these figures exclude the likes of TikTok, Spotify, and OpenAI, with global revenues of $16.1 billion, $13.2 billion, and $2 billion, respectively. Yet those companies would seem be the very definitions of fast-moving and strategically important, dictating the pace of change in their markets. 

Therefore, it is not that the legislation itself is bad, necessarily, but the language it uses emphatically is, which does not bode well for the long term. It suggests a deep lack of comprehension among policymakers.

Indeed, those companies’ success proves that fierce competition, disruption, and market redefinition has taken place in several digital sectors, despite the presence of Big Tech in them. A cynic might suggest this undermines the whole point of the legislation. But the subtext remains: by the time a company has reached what the UK terms ‘strategic market status’, it will have become a behemoth with entrenched power – unable, perhaps, to be as fast moving as it once was.

(It's a bit like joining a small, privileged private members club, to whose members the government will say, “Now, do behave, chaps! So a British firm can join too!” Put like that, it makes very little sense.)

That said, there are conduct requirements on each behemoth, punitive sanctions, and – perhaps most significantly – M&A brakes, checks, and balances to prevent, perhaps, the loss of another DeepMind or Arm Holdings to foreign buyers. (But didn’t those companies want to be acquired? Isn’t being snapped up by a Big Tech the preferred exit for many start-ups?)

So, what is the thinking behind this SMS designation? Georgina Clarke is Bill Manager for the legislation at DSIT. She said:

This is pretty big stuff, and these are quite exciting new powers. There's not a roadmap for us to follow, necessarily, but we're designing something brand new here. We are giving the CMA [the Competition and Markets Authority, via the new Digital Markets Unit] some really significant powers, which are balanced by robust oversight and accountability.

This is not just big firms, once they've got seriously significant market power, that are harming the market for consumers – who are ultimately the beneficiaries of this regime.

This is about “fixing the market for consumers”, she explained, and “remedying the harms that we can see”, so that the digital market – which is surely every market? – works for those consumers.

I put to Jicheva and Clarke the question about whether decades-old Big Techs with market capitalizations bigger than the GDPs of nearly every nation on Earth could really be considered of strategic importance, when the pace of change is often being dictated by others? Jicheva responded:

When we were designing this regime, we were very keen that it doesn't just mean ‘big’, because we recognize that big isn't necessarily bad. One of the strengths of our regime, compared to other jurisdictions [The European Union introduced the Digital Markets Act Regulation two years ago] is that it allows the regulator to have some clear, quantitative criteria and bright lines [sic], which provide clarity to everyone on what scale of firms we're talking about, but also qualitative criteria. 

For example, does it have substantial, entrenched market power? Part of the implementation work of the CMA will be designing guidance on the definition of ‘strategic’. But one of the ways in which we were thinking about it was the strategic importance of markets to the economy, and how many businesses and consumers rely on it.

Clarke added:

I think the monetary thresholds are a bit of a red herring, and people get a bit hung up on them [so does the Bill!]. I think the important thing is what else is out there, which is the substantial and entrenched market power and whether that affords you a position of strategic significance.

So, the test for the scope of this regime is not ‘Are you of strategic importance?’ or ‘Have you created a product that's strategically important?’ It's ‘Have you got substantial and entrenched market power in a specific section of the market?’ and ‘Does that power afford you a position of strategic significance?’ That is what the regulator will be the assessing.

And yet, red herring or not, those monetary thresholds do exist. Clarke explained:

So, the monetary thresholds are helpful for smaller firms to be reassured that they won't even be considered within the broader parameters, such as whether they should be assessed to be in scope at all.  What we really need to be thinking about is market power, giving a firm a position of strategic significance.

That brings us right back to the beginning of this argument. Arguably, therefore, the DMCC Bill/Act is a dog that keep circling on its bed, chasing its own tail. Its rules and designations can’t resolve their own contradictions.

Consumers

But let’s stick with consumers for a moment. No-one doubts that long-term customers of Amazon Prime, for example, will be angry that they are now being force-fed adverts in movies and TV shows they have already paid for – where previously there were none – unless they pay a premium. Yet the Bill, assuming it becomes an Act this autumn, would make no difference to that strategy of ‘piling pelion on ossa’ and seeing customers as captives in an experiment to find out how much pain they will tolerate.

Another problem with the legislation is that it appears to regard digital markets – which, surely, are every market – in simple, binary terms: a vendor or platform provider, plus consumers. But that is far from the reality. Most digital markets are complex.

For example, they include app providers who have no choice but to engage with the likes of Google, Apple, or Microsoft to sell their wares. To a limited extent, these may be covered by a DMCC Act, in that the CMA would have powers to limit anti-competitive behaviour – 20 years too late. 

But digital markets include other players too. For example, creatives who sell or stream content through major platforms on what are currently punitive terms, such as video or filmmakers using YouTube, or musicians who receive a fraction of a cent per stream – anywhere from $0.000006 to $0.004, depending on which platform they are using, and where in the world that stream took place. (And that is only if the creator owns all the rights to their work. Imagine if they only own a fraction of them, and/or are in a four-piece band of co-creators!)

Who protects those people’s interests? No-one, unless they are part of a larger organization or alliance that is taking class action or campaigning for change. And certainly not this Bill. How could most such people even recover their costs, let alone make a profit?

At this point, strategic significance becomes the critical factor once again. For a musician, Spotify is the only platform of strategic significance – the one that, more than any other, has taught consumers that music is free of any financial cost. Yet Spotify does not come close to the DMCC Bill’s purview. As a result, those creators are unprotected in law from a rapacious system, and will continue to be so. 

I put this point to delegates. Matthew Sinclair is Senior Director, UK, for the Computer and Communications Industry Association. He said:

It’s a really important question, because from an economics perspective these platforms are multi-sided markets. And disentangling when there is a genuine problem, versus a litany of complaints or a collision of interests [is difficult].

One of the things that really worries me about what's happening here is we are turning these into regulated markets, but some of those groups are more coordinated than others, and so will be better able to engage with the regulatory process. And we keep coming back to consumers as the party that we're worried will lose out.

But these markets need to work for everyone involved. These markets are multisided. So, we need to be super careful about listening to just one side’s list of grievances.

Tim Cowen, Chair of the Antitrust Practice at law firm Preiskel & Co, was even more blunt in his assessment of the Bill:

A lot of the debate [about regulating digital markets] seems to be informed by looking at a world which doesn't exist.

My take

This legislation was needed 20 years ago. So, the question must now be: what legislation will we get round to introducing in 2044 that we really need today? 

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