UK digital markets watchdog gets statutory go ahead - confirms powers for big tech fines

Derek du Preez Profile picture for user ddpreez May 9, 2022 Audio mode
Summary:
The Digital Markets Unit will be given powers to provide tech giants with a ‘strategic market status’ and ensure that they follow a tailored code of conduct.

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The British Government’s new digital markets and competition regulator - the Digital Markets Unit (DMU) - is set to receive statutory powers, following a period of consultation with the public. Once legislation is introduced, this means that the regulator will be able to force some of the world’s largest technology companies to follow a new code of conduct, or face fines of up to 10 per cent of global turnover. 

The DMU has been operating in earnest within the Competition and Markets Authority since April 2021, whilst the government has sought feedback on how to define its full regulatory powers. The thinking behind the creation of the new watchdog is to tackle the dominance of online platforms that hold considerable market power. 

The government believes that a dedicated unit is needed to take the fight to big tech, stating that digital markets hold unique characteristics, such as network effects and use of AI and data. Given the dominance of some of the largest technology companies in the market already, and how they have shaped industries over the past two decades, questions have been raised as to whether or not the DMU can make much change at this point in time. 

There are also a number of legal and economic challenges to the DMU’s proposed plans, which diginomica has previously highlighted. It’s also worth noting that the impact of the UK operating in isolation to take on global tech giants remains to be seen. 

However, it’s also true that the UK’s ambitions are rooted in global concerns about how tech firms wield the power to directly impact the revenues of smaller businesses, as well as shape entire industries. 

In the government’s response to the public consultation, it said:

The size and presence of ‘big’ digital firms is not inherently bad. Nonetheless, there is growing evidence that the particular features of some digital markets can cause them to ‘tip’ in favour of one or two incumbents as outlined in, for example, ‘Unlocking digital competition, Report of the Digital Competition Expert Panel’ (Furman Review) and ‘Online platforms and digital advertising: Market study final report’. This market power can become entrenched, leading to higher prices, barriers to entry for entrepreneurs, less innovation, and less choice and control for consumers.

TThe regime [the DMU] will be targeted at a small number of firms with substantial and entrenched market power, which gives them a strategic position (‘Strategic Market Status’) in one or more activities.

Most respondents agreed that, in order to be effective, the DMU will need a range of enforcement powers. We will provide the DMU with the power to impose financial penalties of up to 10% of a firm’s global turnover for regulatory breaches and to apply to the court to disqualify individuals from holding directorship roles in the UK. 

In order to embed a culture of compliance within Strategic Market Status firms, the DMU will also be able to apply civil penalties to named senior managers who fail to ensure that their firm complies with requests for information. 

Ambitions

As noted above, the government’s response to the public consultation confirms that those firms that are given strategic market status will be subject to fines of up to 10 per cent of global turnover for breaches of any new code of conduct. Senior tech bosses will also face penalties for failure to comply with the rules. 

The proposals also aims to make it easier for people to switch between Apple iOS and Android platforms, or to switch between social media accounts without losing their data and messages. 

The overarching goal of the new DMU is to ensure that consumers have more open choices about the digital services that they use. For example, the DMU will aim to stop companies limiting consumers to pre-installed software on their devices and to give people more decision-making power over how their data is used and handled by tech firms. For example, by opting out of targeted personalized adverts. 

Big tech firms - which will be granted special status, defined by how much revenue they make - will also have to meet the regulator’s expectations around trust and transparency, informing businesses using their services of significant changes that could impact them. 

For example, the government highlights how search engines have extensive powers to determine which sites consumers can find. Any changes in their algorithm could mean traffic is steered away from certain sites and businesses, which could directly impact their revenue. 

The DMU also wants to intervene to “tackle the root causes of market dominance”. Potential interventions that have been highlighted include forcing forms with strategic market status to share more data with smaller competitors to help them overcome the advantages of bigger firms. 

The requirements will also set out how dominant firms should trade with content providers, such as news publishers. The DMU’s powers will include the ability to resolve pricing disputes, with the aim of news providers being paid fairly for their online content. 

The hope is that with the DMU acting as a regulatory middle man will increase the bargaining power of national and regional newspapers, and force social media platforms to be more transparent on how they position publishers on their platforms, and what algorithms are being used.

Commenting on role of the DMU, Consumer Minister, Paul Sculley, said: 

We’re ensuring our modern, digitised economy gives consumers better products, greater choice and lower prices by having companies compete for customers on a level playing field.

The customer is always right but sometimes they don’t get a choice. We’ll stop companies from using their power to harm customers, whether they’re limiting shoppers’ choices to certain software on their devices or making it hard for people to decide how their data is used.

My take

As I’ve noted previously, I think the overarching ambitions of the DMU are pretty reasonable and sound. However, I do have significant reservations about the ability of the UK to force through change for how global tech giants operate, when acting in isolation. The UK is a significant market for these companies, but I’m not convinced that the UK has the leverage to be taken seriously without the backing of other global superpowers. That being said, we will have to wait and see if the UK’s moves influence other regions to follow suit. There is something to be said for showcasing how regulatory powers could be used for greater good in digital markets. As ever, time will tell..

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