UK and EU race towards regulating digital markets: who is winning?
by Alessandra Venier on 24 Feb 2021
This month, the UK’s Competition and Markets Authority (CMA) updated its ambitious Digital Markets Strategy. The 2019 strategy was originally meant to address the growth of digital markets and its effect on consumers and competition. The recent update reflects the work that the CMA has done since it first published the strategy - including its all-important recommendations for a pro-competition regime for digital markets - and comes as debates around digital competition continue to gather pace in the UK and beyond.In fact, the EU has also been working on its European Digital Strategy upgrading the rules governing digital services, and has proposed two legislative initiatives: the Digital Markets Act (DMA) and the Digital Services Act (DSA).
Now that policymakers on both sides of the Channel have unveiled their long-awaited packages to rein in so-called ‘gatekeepers’, or companies with ‘strategic market status’ (SMS), how do these two regimes compare, and who got there first? This blog seeks to identify some key similarities and differences between the UK’s and EU’s approaches to digital competition.
Timing of publications
The UK unveiled its proposed regime before the EU, as did Germany with its Competition Act (GWB). However, at the time, UK negotiators were also scrambling to reach a Brexit deal with their EU counterparts, making the timing of the publications of their sweeping regulatory proposals all the more interesting: on 8 December in London, and 15 December 2020 in Brussels, just one week apart.
In its advice, the CMA explicitly urged the UK Government “to move quickly” as “there is a clear opportunity for the UK to lead the way”. Digital Secretary Oliver Dowden doubled down by stating that Britain was “one of the first countries in the world” to announce a “new pro-competition regime for tech giants”.
On 15 December, the European Commission published its legislative proposal for a “Regulation on contestable and fair markets in the digital sector” also known as the Digital Markets Act, targeting large online platforms that qualify as ‘gatekeepers’. The European Commission stated that “together with the Digital Services Act (DSA), the Digital Markets Act is one of the centrepieces of the European digital strategy”. On the same day, the UK Government unveiled its full response to the Online Harms White Paper consultation, setting out the framework and direction of its upcoming Online Safety Bill to regulate online content.
The UK’s proposed pro-competition regime for digital markets
Last November, the UK Government backed the creation of a Digital Markets Unit (DMU) within the CMA in its response to the regulator’s market study into online platforms and digital advertising. The CMA’s study recommended establishing a code of conduct for firms with ‘strategic market status’, creating a Digital Markets Unit (DMU) to maintain and enforce the code, and providing the necessary powers to the DMU to introduce pro-competitive interventions (PCIs).
In December 2020, the CMA’s Digital Markets Taskforce, established in April 2020, issued its advice to the Government on the design and implementation of the UK’s strategic market status (SMS) regime. The Digital Markets Taskforce advice contains 15 key recommendations on a new regime to proactively shape the behaviour of the most powerful tech firms: companies with ‘strategic market status’ – both ‘substantial’ and ‘entrenched’ market power.
The proposed SMS regime includes a new, legally binding code of conduct, designed and overseen by the DMU, which will be tailored to each firm. The code will govern elements of how SMS firms do business with other companies and how they treat their users. It will also provide powers to the DMU, including the ability to impose hefty penalties on companies. The regime will include pro-competitive interventions such as imposing interoperability requirements on tech firms and better enabling consumers to control and share data. Enhanced merger rules will enable closer scrutiny of transactions by SMS firms, including mandatory notifications to the CMA of any transaction, blocks on deals not previously investigated by the Authority, and legal tests with respect to consumer harm.
The DMU will be housed within the CMA and will work alongside other regulators, including Ofcom, the communications regulator in charge of the upcoming Online Safety Bill, and the Information Commissioner's Office (ICO), the data protection watchdog. Alongside the SMS regime, the Digital Markets Taskforce also recommended the UK Government to create a new, overarching competition and consumer regime fit for the digital age.
Differences and similarities between the UK’s and EU’s digital competition proposals
Both the UK and EU regimes aim to level the playing field for smaller tech firms and strengthen competition in digital markets by targeting the largest players. Both regimes are also based on the principle of being ex-ante, or action-based sanctions, rather than ex post. This means the regimes will be focussed on prohibiting the actions that cause harm to consumers and businesses, rather than fixing the harm once it has taken place.
Both the UK and EU will designate firms with strategic market status, or ‘gatekeepers’, based on predefined quantitative and qualitative factors - currently being debated in both jurisdictions. The European Commission has made a proposal on “qualitative criteria translated into quantitative thresholds”, which includes having “significant impact on the internal market”; a core service acting as “an important gateway for business users to reach end users”; and an “entrenched and durable position”.
The UK CMA is also advising that the DMU sets out in formal guidance its “prioritisation rules” for SMS designation assessments, which should include the firm’s revenue and activity, as well as consideration of whether another regulator is better placed to address the issues of concern. This formal guidance should provide further clarity as to which firms may be within scope of the regime.
Both the UK and EU also favour a participative process: the DMA, through Article 7, allows gatekeeper companies to start a dialogue with the Commission on their obligations. In the UK, the CMA’s taskforce recommends the DMU resolves concerns using a participative approach; for instance, the SMS designation process “should be open and transparent”, with a consultation, and within an enforceable deadline.
Finally, the EU proposal also directly imposes application prohibitions and obligations enforceable through fines, as well as potential structural and behavioural remedies – where deemed necessary by the Commission. These platform obligations are similar to the CMA’s principles (and soon-to-be obligations, once the codes of conduct become enforceable).
Some important differences lie in the UK’s decision not to create a “blacklist” of areas into which gatekeeper companies can move without regulatory approval. Indeed, the UK’s codes of conduct will have an added level of ‘tailoring’ to individual companies’ abusive practices. Nonetheless, market investigation tools and remedies (the so-called ‘pro-competitive interventions’) could be significantly enhanced in the UK’s final proposals compared to the EU’s.
Next steps and engagement opportunities
There is ample opportunity for stakeholders to engage with EU and UK officials. Indeed, the CMA has yet to assess which firms to designate with ‘SMS’ and has not yet developed its corresponding codes of conduct. Besides bilateral engagement, there will also be a public consultation on the nature of the DMU in the coming months.
The UK Government has committed to establishing the DMU within the CMA by April 2021 and to put the Unit on a statutory footing “when parliamentary time allows”. As mentioned in its updated Digital Markets Strategy, the CMA will now focus on designing the unit in collaboration with the Government, Ofcom and the ICO, through the Digital Regulation Cooperation Forum, while also supporting the Government in elaborating a new overarching competition regime.
The regulatory process in the UK will likely be faster than the EU’s: the DMA will be adopted through the ordinary legislative procedure, which has only recently started. The European Parliament’s Committee on the Internal Market and Consumer Protection Committee (IMCO), responsible for drafting a position on the proposal, plans to finalise its report by November 2021. The Council of the European Union will have to issue a position as well, and the two bodies will need to reach an agreement – which could take years. In parallel, the European Commission has opened the DMA proposal for public feedback until 19 April 2021.
The UK’s CMA has launched the ‘Analysing Algorithms Programme’ through its Data, Technology and Analytics (DaTA) unit, to show how algorithms can reduce competition in digital markets and harm consumers. The CMA has also consulted on its approach to analysing mergers in digital markets and the findings are likely to affect the nature of the DMU. More recently, the UK Government also published a long-awaited review of competition policy conducted by John Penrose MP, which broadly endorses the Digital Markets Taskforce’s recommendations - although it somewhat criticises the ex-ante nature of the regime - and which will influence the UK’s next steps.
While both the UK and EU ex-ante regulatory regimes clearly intend to rein in (often foreign-based) large tech companies, the extent to which their approaches will diverge now that the new EU-UK Trade and Cooperation Agreement has officially come into force is yet to be seen. Additionally, given the implications for powerful tech platforms, discussions in both jurisdictions will continue to attract significant interest from governments, industry groups, civil society, and researchers alike.
The final legislations will need to strike a delicate balance between economic, political, and legal concerns that will likely shape the behaviour of current and future digital platforms. The EU’s and UK’s regimes, along with others being drawn up worldwide, could put an end to the dominant position of a small number of actors that has allowed them to thrive until now.