CMA seeks new regulatory regime to regulate online platforms

United Kingdom

The Competition & Markets Authority (“CMA”) last week released its interim report outlining its preliminary findings into its Online Platforms and Digital Advertising Market Study. In finding broad concerns in the sector, the CMA is seeking early views on potential interventions including the introduction of a code of conduct, the introduction of rules to provide consumers with greater control over their data, and measures to address concerns about market power in the sector, including possible separation remedies.

The report is a significant step for the CMA. Not only does it put forward a broad range of policy initiatives addressing competition, data and regulation, it marks the first clear step by the CMA into the wider international debate about how to tackle some of the difficult issues competition authorities are facing in digital markets.  

The market study commenced in July 2019, arising out of both an awareness of the increasingly prominent role that online platforms play within society and a concern that digital markets were not operating effectively. In particular, the CMA’s Statement of Scope outlined three areas of consumer harm that it was particularly interested in exploring:

  • the extent to which online platforms exercise market power through economies of scale and network effects. The CMA was interested to explore what impact, if any, this has on consumers.
  • whether consumers have the knowledge and skills to control how their data is collected online, as well as the degree to which they are actually able to exercise such choice.
  • the extent to which platforms’ market power might distort competition in digital advertising, as well as whether there were transparency and conflicts of interest concerns in the intermediation of advertising.

Big is not bad, but…

The CMA’s interim report highlights that whilst platforms have brought many benefits to consumers, including fast internet searching and enabling innovative and valuable products and services to come to the market, the CMA has concerns that the position of the largest online platforms may have become entrenched and that these platforms have such extensive access to data that potential rivals cannot compete on equal terms.  Further, whilst online platforms appear to be providing a free service to consumers, users are, in reality, paying with their time and personal data. This data is then used by platforms to sell targeted digital advertising (a market now worth around £13 billion), the costs of which are reflected in the prices of goods and services across the economy.

Consumers and data are at the heart of the CMA’s review

Core to the CMA’s review is the impact on consumers, in particular in the level of control they have over their data and the choices that they are able to exercise when interacting with online platforms.  These issues are obviously not just of concern to competition regulators, and the CMA acknowledges the difficult interplay with existing data privacy regulation and regulators.

Whilst consumers can access online platforms easily and for free, the CMA has concerns about the relationship between platforms and their customers, finding that user engagement with privacy measures is low, and consumers have a lack of awareness of how their data is used and how they can control it.  The CMA points to the default settings used by online platforms being difficult to use and leading to a significant effect on choice and competition. The CMA also explores in the report the ability to access users’ data and finds that many smaller rivals are unable to access, or face difficulties in accessing, user data which may act as a barrier to expansion for competitors.

Digital advertising is complex

The CMA concedes that it needs to undertake further work to understand the issues within the “complex ecosystem” of digital advertising but its preliminary conclusions focus on high levels of vertical integration leading to a lack of transparency, conflicts of interest and the ability of the large platforms to consolidate and leverage their market power. However, the CMA identifies a conflict with data regulation finding that privacy concerns and the application of the GDPR are likely to reinforce the trend towards vertical integration as well as providing a data advantage to the large platforms, making it harder for other providers to compete.

Possible interventions are broad and potentially far-reaching

Whilst this is only an interim report, the direction of travel is clear: “The evidence we have seen at this stage strongly supports the case for the development of a pro-competitive regulatory regime for online platforms funded by digital advertising, as envisaged by the Furman Review”.

The CMA identifies a number of possible elements to such a regime:

  1. A code of conduct based on high-level principles (as opposed to detailed and prescriptive rules) to govern the behaviour of platforms with market power and other firms with strategic market status requiring them to act in a way that ensures that consumers and businesses dealing with them are fairly treated and competition can take place. The CMA contemplates that the focus of the code would be to address ‘fair trading’, ‘open choices’ and ‘trust and transparency’.
  2. Rules to improve transparency and give consumers greater control over their data. This includes a rule that all platforms should be required to give consumers an option to use their services without requiring in return, the use of consumer data for personalised advertising.
  3. Introduction of a ‘fairness by design’ duty on platforms in the design of their data collection practices to complement the GDPR duty of ‘data protection by design’.
  4. Interventions to address the sources of the market power the large online platforms. This includes addressing default settings on devices and browsers, as well as proposals to separate aspects of the large integrated platforms, ranging from accounting separation to full ownership separation. However, the CMA recognises that these “highly interventionist” remedies are challenging and potentially difficult for the UK to implement unilaterally, commenting “We are aware that the threshold for such interventions is high and that we need to think very carefully about the likely costs and benefits arising from them”.
  5. Measures to require operators in the ad-tech stack to provide greater information to enhance transparency for advertisers and publishers.

There are, however, obstacles in the CMA taking these ideas forward.  Not only does the CMA acknowledge that there needs to be strong cooperation between competition and data protection authorities, to address the interface between consumer, competition and data protection law, it is mindful that it needs to work with other international regulators.  It is this challenge, together with the fact that the current government “is committed to regulatory reform in this area”, which seems to have influenced the CMA’s preliminary view that it will not make a market investigation reference at the end of the market study.

The CMA is now consulting on its report until 12 February 2020 following which it is looking to publish its final report on 2 July 2020.

The interim report can be found here.