The UK Finally Published its Competition Bill. Was it Worth the Wait?Max von Thun / May 9, 2023
Max von Thun is the Director of Europe & Transatlantic Partnerships at the Open Markets Institute, based in Brussels.
At the end of April, the UK government published the long-awaited Digital Markets, Competition and Consumers Bill (DMCC). Years in the making, the 400-page Bill establishes a new pro-competition regulatory framework targeting the very largest tech firms, while upgrading the UK’s competition and consumer protection regime in other significant ways. Largely living up to its promise, the Bill will go a long way toward ensuring that the UK’s digital economy benefits society as a whole, not just a handful of tech giants. Yet there are still important ways in which it could be improved.
Although new digital markets legislation was originally recommended by the government-backed Digital Competition Expert Panel in 2019, and endorsed by the government in 2020, the drafting and publication of the Bill was stymied by a combination of the pandemic, turbulence within the ruling Conservative Party, and internal political disagreements over the Bill’s substance. Meanwhile, in anticipation of its new powers the UK’s competition regulator, the Competition and Markets Authority (CMA), has set up a new Digital Markets Unit that is eagerly awaiting the passage of the legislation to start its work.
The DMCC not only establishes a new ex-ante regime for Big Tech similar to the European Union’s Digital Markets Act (DMA), but also grants a range of new powers to the CMA, primarily in the area of consumer protection. For the purposes of this article, I will focus on the Bill’s ex-ante regime, touching on other provisions only as they relate to the tech sector.
As expected, the DMCC’s standalone ex-ante regime targets only a handful of the very largest tech platforms, which will need to generate at least £1 billion of revenue in the UK or £25 billion globally. They must also hold “substantial and entrenched” market power, as well as a “position of strategic significance.” The CMA deems a company to have “substantial and entrenched” power if it expects the firm’s power to persist over the next five years, while the regulator evaluates a company’s strategic position based on four criteria – among them scale and providing a critical service upon which other businesses depend – of which only one needs to be met. When a firm meets both conditions, it is designated as having “Strategic Market Status” (SMS) with regard to relevant digital activities.
Much of this will sound familiar to connoisseurs of the EU’s DMA, which also designates Big Tech firms as “gatekeepers” based on a combination of quantitative and qualitative criteria. But the DMCC and the DMA diverge when it comes to the obligations that designated firms must comply with. While the DMA specifies an exhaustive set of rules that all designated platforms must follow, the DMCC gives the Digital Markets Unit (DMU) substantially more room to customize obligations to individual platforms.
These obligations can take one of two forms. The first are conduct requirements, which need to align with certain core principles (fair dealing, open choices, and trust & transparency) and fall within a set of “permitted types” of requirement, such as having in place effective dispute-handling processes or giving users clear information. The second and more substantial form are called pro-competition interventions (PCIs), which allow the DMU to take robust action following an investigation to address anti-competitive practices by SMS firms.
The options available to the DMU with regard to PCIs are practically endless, from requiring a company to make its messaging service interoperable with rival services or stop self-preferencing its own products, to forcing it to spin off part of its business. The flexibility afforded by PCIs will give the CMA – compared to, say, the European Commission – substantial freedom to ensure its interventions can keep up with rapid changes in business models and technology, including but not limited to generative AI.
SMS firms will also be required to inform the DMU of any planned mergers (including joint ventures) that meet certain conditions, primarily whether the value of the deal exceeds £25m and crosses specified thresholds relating to share ownership and voting rights. This requirement is rather weak compared to an original proposal by a taskforce of UK digital regulators, ultimately rejected by the government, that would have lowered the burden of proof needed to intervene in SMS acquisitions.
Fortunately, this is partly compensated for by the introduction, elsewhere in the Bill, of a new “acquirer-focused threshold” to the UK’s overall merger control regime. This will allow the CMA to investigate, and potentially block, takeovers by dominant firms – in tech and other sectors – of nascent startups that do not yet generate much revenue (and therefore do not meet the UK’s merger thresholds), a tactic notoriously deployed by Big Tech firms to eliminate rivals and entrench their market power. This will enable the CMA, for example, to prevent Big Tech firms from hoovering up innovative AI startups in a bid to lock down the emerging market for the technology.
As for penalties, the DMCC imposes hefty fines of up to 10% of global annual turnover for breaches of the legislation, or 5% of daily global turnover for ongoing infringements. While certainly high enough to act as a compelling stick, the ceiling is only half as high as the 20% fines levied by the EU’s DMA in cases of repeated non-compliance. And unlike the DMA, the DMCC does not give the Digital Markets Unit the option to break up Big Tech firms or ban them from pursuing acquisitions as punishment for non-compliance. The UK legislation does, however, go further than the EU’s in allowing for the possibility of penalties – including director disqualification and fines – for individuals at companies that fail to comply with the legislation.
How could the Bill be improved?
Given the impact it will have on their bottom lines, one can expect Big Tech firms to lobby aggressively as the DMCC makes its way through Parliament. While they are unlikely to oppose it outright, the companies will channel their efforts towards defanging the legislation by creating loopholes and watering down certain provisions. Fortunately, one major battle was won when the government firmly rejected Big Tech’s attempts to lower the bar for appealing the DMU’s decisions, which would tie up the CMA in ceaseless court cases, ahead of the Bill’s publication.
Advocates for a fairer digital economy will need to stay alert to further efforts to weaken the legislation, and work together to stop them. But putting this threat aside, there remain some important gaps in the Bill that could be filled, particularly when it comes to merger control and limiting SMS firms’ ability to blunt or evade the DMCC’s provisions.
The first major risk relates to the DMCC’s tailored approach to designing obligations for Big Tech firms. This has been vaunted by the UK government and CMA as an advantage of the DMCC compared to the EU’s standardized approach. But while being able to design rules and interventions for each firm could result in more effective remedies, it also increases the risk of regulatory capture, whereby SMS firms write their own rules and get them rubber stamped by the regulator. The answer isn’t necessarily to copy the DMA’s rigid approach, but at the very least ensure that affected parties – be they consumers, businesses, or civil society – are able to scrutinize the regulatory process and call attention to any attempts to subvert it.
The second major risk is the Bill’s so-called “countervailing benefits exemption.” This would allow SMS firms to get away with anti-competitive practices where these result in “benefits for users that outweigh the negative consequences for competition.” Worryingly, the Bill does not specify what kinds of “benefits” Big Tech firms will be able to claim, giving them substantial leeway to use creative license in the kinds of arguments they put forward, from the opaque security claims often favored by Apple to vague appeals to efficiency and innovation. Companies may also opt to “spam” the DMU with endless commissioned studies, a well-documented practice that Big Tech uses to stifle EU competition enforcement. Addressing these risks will entail removing the exemption from the legislation, or heavily limiting it at the very least.
The third risk, which again relates to the threat of underenforcement, is the clause mentioned above requiring the CMA to look ahead five years when assessing whether a firm has “substantial and entrenched” market power. The high degree of uncertainty as to how digital markets will evolve, particularly as AI is rolled out at scale, will help Big Tech firms in claiming that their power is transient and threatened by all kinds of real and imagined competitors. While it makes sense to take a longer-term view in determining whether market power is entrenched, this should be backward rather than forward-looking, given the existence of actual reliable data on the past. This is the approach taken by the EU’s DMA, which defines an entrenched position as one held over (at least) the past three financial years.
The discussion above focuses on areas where the DMCC could be strengthened to minimize the risks of regulatory capture or obstruction by Big Tech. But there are also areas where the legislation needs sharper teeth. Higher fines and other types of penalties for non-compliance, such as forced divestment, were options given earlier. Another straightforward way to bolster the Bill would be to go beyond mere reporting requirements and introduce a tougher merger regime for Big Tech acquisitions, for example by shifting the burden to prove a merger is beneficial onto SMS firms, and/or lowering the evidentiary threshold the CMA requires to block or impose remedies on mergers. Given Big Tech’s well-documented strategy of using acquisitions to expand and entrench its market power, such a move would be well justified.
All things considered, the DMCC is an ambitious and comprehensive piece of legislation which shows that the UK government is serious about tackling Big Tech’s dominance. With a few key improvements – and no watering down – during its passage through Parliament, it could be even better.