The Competition and Markets Authority (CMA) is gearing up to impose its new powers on the largest tech firms to ensure competitiveness in digital markets, alongside more positive outcomes for consumers.
On Tuesday 7 January, representatives from the CMA gave evidence to the House of Lords Communications and Digital Committee regarding its readiness and plans to deploy new powers under the Digital Markets, Consumer and Competition Act (DMCC) that came into force on 1 January.
Introduced to protect consumers, promote competition, and regulate digital markets, the DMCC Bill gives the CMA tools to stop technology businesses with strategic power from misusing their position to disadvantage competitors and consumers.
Only the largest firms (such as Google and Apple) are subject to the Act. These firms must have:
- a UK turnover that exceeds £1billion or a global turnover of over £25billion
- substantial and entrenched market power in relation to the digital activity
- a position of strategic significance
These businesses will need to provide clearer information to consumers before they begin a subscription, remind consumers when their free trial is coming to an end, and ensure consumers can easily exit a contract. Companies will also need to clearly outline any (previously hidden) unavoidable fees at the start of the purchasing journey.
At the House of Lords, Sarah Cardell, CEO of the CMA, explained that the regime represents a “critical opportunity” to enhance opportunities for effective competition, and to drive growth, investment and innovation across the UK economy.
Prior to the session, the CMA published details on the new regime and explained its plans. It revealed plans to launch Strategic Market Status (SMS) designation investigations in relation to two separate areas of digital activities in January – with a third to begin in around six months.
These investigations will not only establish whether a firm should be designated with SMS, but also help the CMA consider and consult on potential conduct requirements to help introduce an initial set of requirements.
The three Ps
Throughout the two-hour session, Cardell and Will Hayter, senior director of the digital markets unit, repeatedly reiterated that the CMA is focusing on characterising its approach to the regime in a way that is “participative, proportionate and predictable”.
To achieve this predictability, the CMA’s announcement just before the session outlines its expectations for activity throughout the first six months of the regime. As part of this, it plans to sequence the launch of its first two major investigations, and not launch them at the same time, to avoid hitting milestones in each simultaneously – giving firms more time to take in the information emerging from them.
In an effort to maximise the proportionality of the approach, the CMA plans to take a ‘highly tailored’ and bespoke approach to identifying and addressing specific harms.
Finally, the CMA is placing a lot of focus on ensuring there is a strong participative nature to the regime. Hayter said: “The helpful thing about our framework is the flexibility inherent within it. We’re not giving the rule up front in the law for the long term. Our approach enables us to consider the right amount of tailoring specification of any conduct requirements alongside stakeholders.”
“Through this participative approach, we do want to work collaboratively together to try and identify solutions,” Hayter added. “However, there is a hard backstop – which is potentially substantial fines – if the firms in question don’t engage in the process in the way we hope they do.”
Maximising growth and innovation
The regulator’s representatives also explained how it was reconsidering its approach to mergers and acquisitions.
Cardell commented: “Over the last few months, we have stepped up our engagement more broadly with businesses and investors. We’ve had very good discussions with venture capitalist investors where we were talking about the fact we might look at a merger and be concerned about whether a startup one that could provide a future competitive challenge and ask whether it is being taken out of the market.
“But we are aware that this buyout might be freeing entrepreneurial capital and capability to go off nd launch the next innovation or initiative that might create that opportunity. So we want to make sure that we’re not inadvertently reinforcing a chilling effect that closes off innovation or diverts some of that activity outside of the UK.”
Hayter also explained that the CMA is looking to maximise economic growth, competition and innovation by ensuring that it listens to smaller organisations during enquiries and that it caters to different types of audiences.
“We need to be mindful of the fact that, at the smaller end, many stakeholders may not have regulatory affairs teams or lawyers that can go off and talk to competition authorities. So we need to make it as easy as possible. Recently, for the guidance consultation, we issued an overview summary of our guidance draft for consultation – which was a legal requirement. We recognised the original document is probably most likely to be read by the legal advisor community in full and not by many other people.
“We also used a mix of in-person and virtual roundtables to make it accessible to people all around the country and beyond.”
Overcoming operational challenges
The House of Lords Communications and Digital Committee also quizzed Hayter on the operational challenges it expected to encounter while enacting its new digital market competition powers.
“There’s a question on how the firms that engage in this choose to do so. We’ve set out our stall in terms of the participative approach and wanting to act in a collaborative and transparent way – but that requires the firms to play by that mantra as well.
“Regulatory failure and regulatory capture could be a risk too. That’s why we have to think carefully about how we go about this participative approach. This doesn’t just mean cosiness with the designated SMS firms. It means drawing on a real range of inputs from all participants in any ecosystem. We want to hear from the candidate or designated firm itself, as well as its customers, partners, consumer groups, and broader civil society.”
The CMA also faces challenges in recruiting tech expertise, given that the private sector is able to offer substantially higher salaries to attract talent. However, while recognising this fact, the CMA remains confident that its own offer is compelling, given the “public service ethos, positive and diverse environment, flexibility and different working patterns” that it offers.
However, Hayter admitted, despite this approach enabling the CMA to build “a very strong body of tech experts”, that it is not “impervious” to approaches from the private sector.
