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  1. Government Computing
July 30, 2021

A new pro-competition regime? Consultation launched on powers of new Digital Markets Unit

By Matthias Barker

Darwin Laganzon from Pixabay

The UK government has launched a consultation on a new competition regime, to be led by the newly minted Digital Markets Unit (DMU), part of the Competition & Markets Authority (CMA). The consultation aims to develop plans, first announced in April 2021, to categorise certain large tech firms with substantial or entrenched market power as having ‘Strategic Market Status’. Under the plans, businesses in this category would have to operate under a specified code of practice, bound by new powers that would allow the regulator to suspend, block or reverse any actions or mergers deemed to be harmful to competition or innovation. To enforce this, it is proposed that the Unit have the power to fine companies up to ten percent of global turnover.

The bearer of the proposed powers, the DMU, is a non-statutory division of the CMA, funded by £20 million in government cash. It was established in December 2020, in response to growing concerns over the dominance of (mainly US) tech giants like Google and Facebook. According to the Secretary of State for Digital, Culture, Media and Sport, Oliver Dowden, the reforms are designed to ensure that ‘British firms have a level playing field with the tech giants’. The creation of the Digital Markets Unit is part of a wider post-Brexit expansion of the UK’s competition regulator, as it takes on powers previously held by the EU.

The announcement makes clear that regulators are not seeking competition for competition’s sake, but simply want to ensure that the hegemonic position of large firms is not stifling innovation and preventing smaller businesses from gaining a foothold in digital markets. Kwasi Kwarteng, the Business Secretary described the reforms as ‘common sense’, saying ‘nobody wants to see an unassailable monopoly’.

High on the list of ministers’ and officials’ concerns are that big firms are using the vast amounts of user data they hold to push would-be competitors out of the market. An April 2021 report into digital competition commissioned by the regulator also pointed out that network effect and opaque decision-making algorithms meant consumers were more likely to stick with a larger provider, even where the services provided were sub-par. Greater transparency and trust would allow smaller businesses to compete more effectively.

Plans published suggest the DMU would be happy to pass on cases to other regulators where appropriate. One instance where this may be relevant is between BT and Openreach, two of the largest technology employers in the UK, who have been embroiled in an antitrust case with Ofcom since 2019.

The backlash against the dominance of big tech players is a global trend, with legislation actioned or in the pipeline in most developed economies. Examples include the EU’s Digital Markets Act (2020) and the USA’s Competition and Antitrust Law Enforcement Reform Act (Feb. 2021).

While it remains to be seen how effective the new regulator will be, previous attempts to hold big tech firms to account have met with limited success. European Commissioner for Competition, Margrethe Vestager, said in 2019 that simply fining top tech firms would not be enough to disincentivise bad behaviour.

Nonetheless, major public sector suppliers should take note. Capita, for example, has already encountered CMA investigations for its role in a merger between ParentPay Ltd and Education Software Solutions (though ultimately cleared of anti-competitive behaviour).

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Within the digital sector, stronger regulation of big tech firms may give a boost to smaller providers in sectors like cloud computing. Major players Amazon and Microsoft seem likely to be given ‘Strategic Market Status’, requiring them to follow a more transparent and collaborative code of practice. This could help prevent further cases like DataCentred, a cloud computing provider who went bust in 2017 after losing a major government IT contract to Amazon Web Services.

If the consultation goes according to plan and the proposals are passed into statute, then it is likely that SMEs will be the biggest beneficiary of these reforms. According to the consultation document, the new competition regime will ensure ‘smaller firms are not unfairly pushed out of the market, so that they can grow and compete’.

The consultation invites submissions from both small and large businesses, especially those in the technology sector. Responses are encouraged to consider the scope, mechanism, extent and content of the proposed powers over large tech firms. Responses must be in by 1st  October, but legislation is not expected until 2022.

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