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Will regulators be given the right tools to enact the UK Digital Markets Bill?

The bill has been five years in the making, but MPs fear it doesn't go far enough in addressing healthy competition.

By Sophia Waterfield

The UK’s Digital Markets, Competition and Consumers Bill, which will give regulators statutory powers to rein in Big Tech companies such as Microsoft, Apple, Google and Amazon, was debated in parliament this week. Backbenchers raised concerns about enhancing the powers that could be given to the Competition and Markets Authority (CMA) under the legislation, and questioned whether it had the right tools to deal with the digital economy.

An image of the Houses of Parliament and Big Ben
MPs took to the House of Commons to debate the Digital Markets Bill. (Photo by Drop of Light/Shutterstock)

Presented by Business and Trade Minister, Kevin Hollinrake on Wednesday, the House of Commons was told that while the UK’s digital economy had developed at an exponential rate, its competition framework had failed to keep up. The last legislative overhaul was nearly 25 years old, before the age of smartphones.

Hollinrake said that competition across the broader economy had declined and the tech sector had become prone to having a small number of firms “exert immense control across strategically critical services”. This allowed for self-preferring, restricting operability and exclusivity requirements.

“The CMA estimates that in 2021 alone, Google and Apple made excess profits of more than £4bn in the UK,” Hollinrake said. “Apple and Google determine which apps are in the App Store, how they are ranked and how they are discovered. They often charge significant levels of commission, up to 30% of revenue, and require all transactions to be made through in-app systems – which, as we all know, means that at the end of the day, all charges, commissions and taxes are paid for by consumers.”

However, while he said there was a need for regulators to have more power to address these concerns, competition still remained the best way to provide the “best outcomes for consumers” and that governments and regulators should only step in when there’s a market failure or excessive market power. A recent example has been Microsoft’s acquisition of Activision Blizzard, which was blocked by CMA this month.

As part of the Digital Markets bill, CMA’s Digital Markets Unit will oversee and enforce a new “pro-competition regime”. Set up in 2021, the DMU has not previously had statutory powers, but under the new bill will be able to tackle the causes and consequences of the tech giants’ dominance of the digital economy, which Hollinrake said will ensure that people and all businesses are treated fairly by the most powerful companies. The government believes by doing this, consumers will have more choice and control over online goods and services as well as leading to lower prices. He was also keen to point out that the bill wasn’t a “war on tech.”

The Digital Markets Unit will also establish a process for designating the “strategic market status” of firms that meet specific criteria in relation to certain specific digital activities. Firms will be subject to regulated behaviour regarding such digital activities, in the form of conduct requirements to help ensure fair competition.

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The new bill could bring a direct cost to businesses of £183.7m. According to the impact assessment, these would occur through compliance and familiarisation with the digital regime, loss of subscription revenue due to changes to consumer management of unwanted subscriptions, implementation costs, additional merger investigation costs, costs due to “effective consumer law enforcement”, administration and legal costs and more. Hollinrake said it could benefit the public to the tune of £10bn over the next ten years.

The Digital Markets, Competition and Consumer Bill doesn’t go far enough

Seema Malhotra, shadow business, energy and industrial strategy minister, said that the opposition party welcomed the bill, saying that “levelling the playing field” would benefit innovative smaller businesses in the UK. However, she criticised the delay in the bill, which had been introduced the year before.

“Labour [has] led the way in calling for large tech companies to be properly regulated to ensure competition in digital markets,” she said. “We have long called for measures to protect consumers, enhance innovation and promote competition in digital markets, to unlock growth and level the playing field for innovative smaller businesses.

She also criticised the government for taking five years, since the establishment of the digital competition expert panel, to bring the first reading: “With these delays, we have fallen behind our European neighbours in this vital policy area, so this is an important Bill and we will support its second reading.” The EU’s Digital Markets Act, similar legislation which covers the activities of what it calls “gatekeeper” tech companies, came into force in October 2022.

“The challenge is now to get the legislation right,” Malhotra told the House of Commons. She expressed concern that the powers awarded in the current draft of the bill would get “watered down” as it went through the legislative approval process. But she also said there needed to be clarity on how the new powers would be used, along with the right “scrutiny, transparency and accountability” of the CMA and the government to parliament.

Malhotra also said there were gaps in the bill, such as including that it would not come into force until 2025 at the earliest: “[…] Action is needed now. We are prepared to work with the Government not only to ensure effective scrutiny of the Bill, but to get it onto the statute book as soon as possible.

“That includes ensuring speed on guidance and codes of practice, and sufficiency of resources,” Malhotra continued. “There should be no more delays.”

CMA should be scrutinised by a specialist committee of MPs

Sir John Redwood, Conservative MP and a former minister of state for the old Department of Business and Trade, said there was concern about the Digital Market Unit’s powers might add more of a regulatory burden as their powers build up over the years.

There was cross-party support for the CMA to be reviewed and scrutinised by a special select committee of MPs if they were to receive enhanced powers as an independent government department. Darren Jones, chair of the Business, Energy and Industrial Strategy Committee, raised the point as part of the debate. He said that while reviewing regulators fell into his committee remit, it required a new resource to be able to do the job properly.

“CMA is an independent regulator, but it is directly accountable to parliament for the performance of its functions and duties,” Jones said.

“In practice, Committees such as mine only really scrutinise regulators, agencies and arm’s-length bodies on their day-to-day performance perhaps on an annual basis at best, or once there has been a failure,” Jones continued. “We gave ourselves an action in the [Ofgem] report, as well as in our post-Brexit competition and consumer law report, to enhance our oversight of the CMA and other regulators to avoid this happening again.”

The MP for Bristol continued that his committee had taken evidence on the Microsoft and Activision acquisition case and understood that the Chancellor, Jeremy Hunt, had commented that regulators needed to understand their wider responsibilities for economic growth.

“If the regulator does not already understand that and if the Chancellor does not have confidence in the regulator, we have a problem,” Jones commented.

Bill doesn’t adequately address interoperability harms

Another issue brought up is the lack of provision for addressing interoperability harms. Matt Warman, Conservative MP for Boston and Skegness, told the House of Commons that while the bill did some “excellent work on interoperability of software” it didn’t consider that it was linked to interoperable harm.

“It is obviously great that operators such as Apple are able to build their own superb and unique ecosystems – the same goes for Android and so on,” he said. “What would be useful to try to guard against, probably via the Digital Markets Unit rather than directly via government, is the current situation whereby, to take one example, the way we use iMessage or video calls is fundamentally limited if we seek to do it on a different platform.”

He explained that without the regulator understanding the interoperability of hardware and software, a situation could be created with the metaverse, where there are a series of emerging and conflicting metaverses that “fundamentally embed monopolistic behaviour”.

“Again, it is potentially hugely beneficial to have a unique and brilliant metaverse under the personal command of Mark Zuckerberg and one under the personal command of Tim Cook, as a competitor,” Warman added. “However, a regulator may take a different view and it is important that we think through these emerging opportunities.”

There is nervousness about CMA’s ability to deal with AI’s impact on digital markets

Dominic Raab, former deputy prime minister and Conservative MP, asked the undersecretary Paul Scully whether he believes CMA would have the “tools” to deal with the effect artificial intelligence would have on the markets over the decade. Other MPs had echoed similar concerns regarding CMA’s skill set and ability to hire people with the right knowledge to be able to regulate the technology market effectively.

“We have to keep this under review because AI is moving at such a pace,” Scully told the House. “The AI white paper is under consultation at the moment, and we are looking at its impact and how we will regulate it.”

He continued that the bill had the flexibility to be able to “cope” and that the Digital Markets Unit would be able to cope as well.

“There are currently about 70 people working in DMU roles, with many more working on digital markets issues across the CMA,” he explained. “The CMA itself will continue to assess what level of staffing it will need.

“It has the data, technology and analytics unit, which is a world leader in technical expertise and has invested heavily in building its capability ahead of the new regime coming into force,” he continued. “I, therefore, think it has the expertise, know-how and wherewithal to be able to respond to AI and so on.”

The bill will now be sent to the public bill committee stage of the process, which is scheduled to reach its conclusion in July.

Read more: UK and Japan pen ‘Hiroshima Accord’ on semiconductors and cybersecurity

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