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April 8, 2021updated 21 Jun 2021 4:09pm

How will the UK tame Big Tech’s market power post-Brexit?

The UK no longer has the heft of the EU behind it, so will it be able to put a dent in Big Tech's market dominance?

By Laurie Clarke

The UK is gearing up for an attack on Big Tech’s market power. Like the EU and US, it is sharpening its regulatory tools, with this week’s launch of the Digital Markets Unit (DMU), a body that will be dedicated to policing tech giants. But without the heft of the EU behind it, and with a government firmly in thrall to techno-utopianism, how effective will the UK’s approach to Big Tech regulation really be?

Tame Big Tech

The UK’s Competition and Markets Authority has made it clear that the UK won’t be a light touch on companies such as Google following Brexit. (Photo by Alain Jocard/AFP via Getty Images)

The UK government has been pondering how to solve the problem of Big Tech and competition for a while. Last year, the Competition and Markets Authority (CMA) completed a study into online markets that found Google had shored up significant market dominance in search and search advertising, and Facebook exerted monopoly power in social media and display advertising.

Specifically, Google claims more than a 90% share of the £7.3bn search advertising market in the UK, and Facebook has locked down 50% of the £5.5bn display advertising market. Together, both companies accounted for 80% of the £14bn that was spent on digital advertising in the UK in 2019. And there are signs this could be harming the companies embroiled in their ecosystems – in the UK, Google’s prices for search advertising are roughly 30% to 40% higher than Bing’s, its major competitor.

The CMA’s report concluded that both Google and Facebook benefit from incumbency advantages – including network effects, economies of scale and unparalleled access to user data – that help to cement their market positions and stifle competition. 

The new DMU was established to tackle these issues head-on. “There was a feeling that, post-Brexit, the immediate priority of the CMA would be mergers, and that they might well be quite swamped such that they didn’t have the resources to look into as many of the Big Tech issues as they wanted,” says Lesley Hannah, a partner at Hausfeld law firm who specialises in competition. Sitting within the CMA, it will focus on developing and enforcing an ex ante regulatory regime for large online platforms.

Strategic Market Status

The EU’s forthcoming Digital Markets Act legislation identifies the category of ‘gatekeeper’ companies – those big and powerful enough to control other firms’ access to certain digital markets. The UK has come up with a similar category, specifying companies with ‘Strategic Market Status’ (SMS) in particular sectors.

The criteria for SMS platforms will include annual earnings of more than £1bn in UK revenues, or £25bn globally. To put that in perspective, Google makes more than $160bn (£120bn) in worldwide revenues annually, and Facebook makes more than $70bn (£50bn).

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The CMA has said that Google and Facebook are “highly likely” to be designated as having SMS in online advertising markets. Other companies likely to be defined as SMS platforms include Apple, Microsoft, Netflix and Airbnb, according to the BBC.

The DMU will at first be tasked with designating SMS companies and making sure they conform to a newly devised code of conduct, which will be designed to tackle exploitative or exclusionary behaviour. Digital minister Oliver Dowden has said that the DMU will “begin by looking at the relationships between platforms and content providers, and platforms and digital advertisers”, and assess whether this code of conduct could remedy the power imbalance between SMS platforms and players operating within their ecosystems.

Beyond the code of conduct, the government supports the DMU being invested with powers to implement pro-market interventions in the digital advertising, general search and social media markets. This could include mandating consumer control over data, interoperability (for example, letting a proprietary app run on a rival’s operating system), data access and data separation powers, the CMA has said. 

If you want to have a really competitive Big Tech landscape, what does that actually mean in a way that benefits consumers?
Nicky Morgan, Travers Smith

“I would have thought that the powers the CMA asked for are probably more likely to be granted than not,” says Nicky Morgan, consultant to the technology sector group at Travers Smith law firm. “But I think that there is definitely a lot more work to be done to understand, if you want to have a really competitive Big Tech landscape, what does that actually mean in a way that benefits consumers?”

Morgan uses the example of the DMU aiming to facilitate the creation of a rival to Google. “What’s the best way to do that? For example, is it to break Google up? Or is it to lower the barriers to entry into the market to allow other smaller rivals to really gain a foothold?”

Removing the barriers to competition

Lesley Hannah was part of a working group that was consulted on the draft code of conduct, and says that the feeling is “the code needs to be enforceable, but that fining companies is a last resort – so there’ll be a more discursive approach to how to resolve problems”. She says there’s a lot of interest in interventions that remove the barriers to competition, in the same way that a government open banking initiative introduced data transferability between banks – something considered a great success. 

In much the same way, Hannah says that it is likely that a company such as Facebook would be encouraged to “make data portable, so that you as a user can pick up your data and move it to a different platform relatively easily”. 

This could also apply to aggregate data, Hannah says, so that the tech giants no longer hold a monopoly on online behaviour trends. An important question for the DMA is whether there is “any way that data can be anonymised and shared with other search engines such that they can use that data to improve their algorithms, and therefore improve their product offering?” She uses the example of Google sharing data on what people are searching for and clicking on with smaller a search engine like DuckDuckGo.

Post-Brexit probes

The DMU is not the UK government’s only approach to regulating Big Tech. It is currently piloting a connected approach, called the Digital Regulation Cooperation Forum (DRCF), under which the CMA will work with the Information Commissioner’s Office (ICO), the FCA and Ofcom on developing policy for the regulation of digital markets

I think what we can now see is that Big Tech gets its fingers into absolutely everything and its influence extends everywhere,” says Morgan. “It’s not enough, it’s not possible, to have it just under the auspices of one regulator.” 

The CMA has made it clear that the UK will not be a light-touch post-Brexit. Its director Andrea Coscelli told the Financial Times that the DMU is set to bring antitrust cases against Facebook, Google and Amazon. But this week, it was reported that the DMU may have to wait up to a year before legislation is passed to give it powers. Right now it is operating in a “shadow” form. However, Coscelli said last year that these cases would be brought even in the event of delays to establishing the DMU – signalling they might go ahead regardless, using the CMA’s pre-existing regulatory tools. 

Before Brexit, the European Commission was responsible for most blockbuster competition cases that affected the UK, and Coscelli has said the UK will continue to work next to Brussels on a handful of joint antitrust investigations until the end of the year. But going forward, the CMA is set to take over these responsibilities.

Coscelli has said that the CMA won’t seek to replicate probes already underway in different jurisdictions, but will aim to tackle areas that have so far evaded investigation. “We are actively scanning the players, the complaints we have received, the cases that others are doing, what could be done in parallel with others, where are the gaps in the work the European Commission is doing,” he told the Financial Times.

There is a current UK investigation into Google over its Chrome browser, as well as antitrust proceedings against Apple. 

Global regulation

Governments around the world have been vexed by the emergence of digital marketplaces and their gatekeepers. Regulators are plagued with questions like how to quantify market power in a two-sided market, how data can be used to block competition, and how to ascertain whether the consumer is being harmed if the service is free to use. 

The UK is looking to tackle these questions, but a question mark hangs over how much it could really hope to achieve on its own. Although the DMU is set to gain powers to fine companies up to 10% of their global turnover, Big Tech – comprising some of the most valuable companies in the world – has shown itself to be largely impervious to the threat of financial penalties. 

More likely to incite fear would be the “pro-competition” regulation that could, for example, compel these companies to share data or offer up algorithms for regulatory scrutiny. The CMA has shown increasing interest in algorithmic regulation. More radical interventions, however, such as forcing the companies to divest of certain operations, might be untenable. 

“These tech companies are so big and so global, that, as we’ve seen with things like digital taxes, a jurisdiction like the UK can make moves to introduce digital taxation, [but] it’s really only going to be effective for the big global companies if it’s applied on a global basis,” says Morgan. 

Regardless, the CMA aims to be seen as a leader in the regulation space post-Brexit. Its report into digital advertising and online markets declares that “many of the problems that the CMA has identified are international in nature. It will therefore continue to take a leading role globally in relation to these issues as part of the CMA’s wider digital strategy”.

But the techno-utopianism of the UK government – with Dowden prefacing recent remarks on the DMU with the assertion that he is “unashamedly pro-tech” – has caused some to ponder whether there will be a true attempt to rein in Big Tech. 

Competition lawyer Michelle Meagher wrote in the Guardian, “What we’re seeing, broadly, is the spell that a free-market, “tech solutionist” ideology casts over our authorities, allowing monopoly power to run wild, encouraging waves of mergers and paying little attention to questions of power, democracy or inequality.” Meagher bemoans the relative weakness of the DMU’s planned “code of conduct” in the face of Big Tech’s ruthless way of operating. 

But Dowden’s tech priorities for this year include plans to ‘fuel a new era of start-ups and scale-ups by opening up the market to new companies’ – something levelling the playing field could greatly help with. 

There’s also the nascent promise of an international approach. “I think the different jurisdictions of the US, the EU, the UK, do have very different long-term views on the best way to implement antitrust regulations,” says Morgan, noting this means “it’s unlikely you’d end up with global antitrust regulations”.

“But you certainly would end up, I suspect, with global regulators working together more and more, because… I think if the UK really tried to force Google to break up, I’m not sure that UK on its own could ultimately have the reach that it wanted.”

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