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UK Government Gives Green Light to Platforms Regulator

1st December 2020

It looks like the UK is set to have a specialist Platforms Regulator! It is interesting to look back at how the tone of the debate has changed on regulating Big Tech. A few years ago regulators were ready to put their faith exclusively on competition law enforcement to restrain market power of Big Tech. Fast forward a couple of years and the effects of the Covid pandemic and now ex ante regulation of dominant digital platforms appears as a “given”.

However, despite the immediacy of the tone of the Government response it is likely to be some time before the new Platform Regulator opens its doors for business let alone on curbing the over exuberance of platforms having strategic market status.

On 27th November 2020, the UK Government published its response to the Competition & Markets Authority’s (CMA) final report in its Market Study into Online Platforms and Digital Advertising.

The CMA’s Market Study was published in July 2020 and found that digital advertising markets have a number of characteristics that can lead to the market tipping towards one or a small number of winners. These include network effects; the use and importance of data to platforms’ success; economies of scale and scope; consumer behaviour and the power of defaults; and the role of ecosystems of complementary products and services.

As part of its inquiry it found that Google has significant market power in the general search market and in search advertising, and Facebook has significant market power in the social media market and in display advertising.

As a result of its investigation the CMA recommended that the government legislate to establish a pro-competition regulatory regime for online platforms and to give the green light to establish a platform regulator called the Digital Markets Unit (DMU). The Unit would be empowered to enforce a code of conduct to govern the behaviour of platforms funded by digital advertising that are designated as having strategic market status (SMS).

The DMU would also have powers to make pro-competitive interventions to tackle the existence of market power and increase competition, including powers to increase interoperability and provide access to data, to increase consumer choice and in extreme cases to order the breakup of platforms where necessary.

In its response the Government accepted the CMA’s findings. It has asked the Digital Markets Taskforce, a body previously set up following the Furman Inquiry, to provide advice on the potential design and implementation of a code of conduct and approach to designating firms that have substantial and enduring market power with SMS.

The Government states in its response that it will legislate for this as soon as Parliamentary time allows. But given the fallout from Covid and the likely on going effects of Brexit don’t hold your breath! Legislation could be a long time in coming given the overpacked legislative timetable.

However what the Government expressly committed to was to establish and resource a new DMU within the CMA from April 2021, to build on the work of the Digital Markets Taskforce (which is due to report before the end of 2020) and begin to operationalise the key elements of the regime. The Government intends to consult on the form and function of the DMU in early 2021 with legislation following when time allows.

The devil is in the detail. The Government’s positive response to the CMA’s recommendations and the setting up of the DMU is to be welcomed. However, it is likely to be a long time before the Platforms Regulator officially opens its doors for business as a fully-fledged statutory body for the first time. Finding legislative time is only part of the problem. The real challenge is working out which platforms have SMA and what the  nature of the DMU’s powers should be and how it will interact with the existing elements of the regulatory landscape, including the CMA’s role in promoting competition, the Information Commissioner’s Office’s role in overseeing the data protection regime and Ofcom’s role in related markets. In addition, if the DMU is really going to have the extreme power to order divestment and break up Platforms what checks and balances are going to be in place to protect the rights of the Platforms themselves.

This is why the job of the Digital Markets Taskforce in setting out its advice to Government on the design and implementation of a new pro-competition regime for digital markets is going to be crucial.