This webpage summarises how governments and regulators are beginning to tackle the misbehaviour of the Big Tech companies (summarised here). It supplements a separate web page which examines the technical and practical problems associated with such regulation.
Another separate web page tracks efforts to reduce the harm done by social media for instance by carrying fake news or allowing vulnerable people over-easy access to damaging material.
The following is broadly in chronological order.
New EU rules - the GDPR - came into force in May 2018.
Facebook was fined the pre-GDPR maximum of £500k in 2018 for allowing Cambridge Analytica to access users' personal data without their explicit consent.
The government-appointed Digital Competition Expert Panel (aka the Furman Review) published its report - Unlocking Digital Competition - in March 2019. It shied away from recommending a break-up of the big US digital groups, believing that this was something for the American political process to determine and would involve costs as well as benefits for consumers. Instead it recommended that the UK should create a digital markets unit, which could sit within the Competition and Markets Authority or a sector regulator, to supervise companies deemed to have “strategic market status”. The unit would enforce a code of conduct as well as open, shared standards and make it easier for people to move their personal data from one digital platform to another and improve general access to non-personal or anonymised data. The need to do this arose because large companies benefit from their ability to accumulate and combine user data. This creates a significant barrier to new entry in digital markets so we need data openness and enhanced interoperability to help new entrants compete.
The review also said that there was a strong case for updating merger and antitrust policy to tackle killer acquisitions and make competition assessments more forward-looking - that is concerned with competition yet to come. So far, the major platforms have been able to gobble up potential competitors unchecked by any competition authorities. The report quotes Facebook’s purchases of WhatsApp and Instagram, and Google’s acquisitions of YouTube, Nest and DeepMind as some of the best known out of hundreds of examples. The problem is that mergers of giants with minnows do not lead to a substantial lessening of competition and so cannot be prohibited under current legislation. So Furman proposed:
- a new test based on the Balance of Harms. RBB published a useful brief on this proposal in April 2019.
- more powers to take interim measures in fast-moving markets,
- more scope to exercise judgment about potential economic harms, and
- a faster, better-targeted process.
Frontier Economics noted in response that the 'killer acquisitions' idea originally arose in the pharmaceutical sector, with the idea being that incumbents would acquire firms seeking to develop the next generation of a particular product. Furman etc. applied this analysis to acquisitions by large digital firms. However, the read-across from the pharmaceutical sector is far from clear.
- Pharmaceutical markets are typically characterised by clear and lengthy innovation pathways. Initial investment in a particular innovation space, if successful, is likely to lead to a product in that space, and innovation in a different innovation space is unlikely to lead to a competing product. Acquisitions in the same innovation space, however, are likely to lead to a reduction in potential competition.
- But digital innovation does not typically proceed on the same lines. There might be many firms that are currently innovating to develop new attention-grabbing products with different characteristics to existing firms. Each may potentially be a strong competitor for the existing firms in the future, depending on how attractive their product ultimately is to consumers.
The “killer acquisitions” hypothesis does not therefore, in Frontier's view, provide competition authorities with a silver bullet for preventing acquisitions. They should analyse the markets in great depth and consider issues such as ease of entry and the efficiencies that might arise from mergers.
The CMA published its Digital Markets Strategy later in 2019, foreshadowing the development of new tools and new remedies such as data interoperability, data mobility/portability and data openness. suggesting new rights for consumers around use of their 'consumer data', mobility of such data to new providers of tech services (similar to mobility requirements already in place in the energy and banking sectors) and interoperability between different providers of tech services. The proposals also suggest an openness to exploring recent proposals to foster or mandate providing access to anonymised data between businesses as a remedy to boost competition in some markets.
The CMA also began a market study on online platforms and digital advertising. This was focused on the UK market but as the reach of many market players is global, the CMA will look for opportunities to work collaboratively with other competition agencies as work progresses. The CMA is interested in a number of areas including the perceived market power of digital platforms; the degree of consumer control over data; and competition in the supply of digital advertising. It reported in the summer of 2020 with recommendations for new legislation. The first few paras of the CMA's press release read as follows:
The dynamic nature of digital advertising markets and the types of concerns identified by the Competition and Markets Authority (CMA) in its market study are such that existing laws are not suitable for effective regulation. It is therefore recommending a new pro-competition regulatory regime to govern the behaviour of major platforms funded by digital advertising, like Google and Facebook.
UK expenditure on digital advertising was around £14bn in 2019, equivalent to about £500 per household. About 80% of this is earned by just 2 companies: Google and Facebook. Google enjoys a more than 90% share of the £7.3 billion search advertising market in the UK, while Facebook has a share of over 50% of the £5.5 billion display advertising market. Google’s revenue per search has more than doubled since 2011, while Facebook’s average revenue per user has increased from less than £5 in 2011 to over £50 in 2019.
The services provided by Facebook and Google are highly valued by consumers and help many small businesses to reach new customers. While both originally grew by offering better services than the main platforms in the market at the time, the CMA is concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms:
- Their large user base is a source of market power – it means that Facebook is a “must-have” network for users to remain in contact with each other, and enables Google to train its search algorithms in ways that other search engines cannot.
- Each has unmatchable access to user data, allowing them to target advertisements to individual consumers and tailor the services they provide.
- Both use default settings to nudge people into using their services and giving up their data – for example Google paid around £1.2bn in 2019 to be the default search provider on mobile devices and browsers in the UK, while Facebook requires people to accept personalised advertising as a condition for using their service.
- Their presence across many different markets, partially acquired through many acquisitions over the years, also makes it harder for rivals to compete.
Each of these factors individually presents a potential barrier to new competition, but together they work to reinforce each other and are extremely difficult to overcome.
The EU's DG-Competition requisitioned a very thoughtful and detailed report, published in 2019:- Competition Policy for the Digital Era.
And the US Department of Justice announced in July 2019 that it would start an antitrust review into how the internet giants had accumulated market power and whether they had acted to reduce competition. Similar inquiries were already underway in the Federal Trade Commission which shares antitrust responsibilities with the DoJ.
Facebook's About Turn ?
Facebook's Mark Zuckerberg - probably influenced by his new British 'Head of Global Affairs',Nick Clegg - called for more regulation of internet companies in late March 2019. But his intervention was met with scepticism.
He set out four areas he said needed to be regulated: privacy, election integrity, harmful content and data portability. His recommendations include updating rules around online political advertising, and rolling out a global framework for privacy and data protection regulation, where companies that fail to follow the rules can be sanctioned. But he failed to explain why the industry in general - or his company in particular - were unwilling to regulate themselves.
One commentator :said “They should step out of the way as they’ve lost the trust of the public to be involved in how it’s actually done.” David Cicilline, the Democratic chair of the House of Representatives’ antitrust subcommittee, wrote on Twitter: “Mark Zuckerberg doesn’t get to make the rules any more. Facebook is under criminal and civil investigation. It has shown it cannot regulate itself. Does anyone even want his advice?” Other critics argued that Mr Zuckerberg was trying to shift responsibility. “It’s designed to lock in the current business model and transfer the blame to governments,” said one. Others thought it came down to a matter of dollars and cents. Online platforms were designed to stir up strong reactions in their users. The most controversial content plays a key role in provoking the powerful responses from users that enable them to model and predict human behaviour. “The problem with hate speech is that it is fundamental to the business model of Google and Facebook."
Mr Zuckerberg's campaign was continued by Nick Clegg when he toured Europe in June 2019. But critics were not impressed. Damian Collins, chairman of the digital, culture, media and sport committee said the company was seeking regulation to evade wider responsibility for the problems that it was creating. He told Today on BBC Radio 4: “What they’re saying to parliaments and governments is, ‘Well you make things illegal and we’ll obey your laws but other than that don’t expect us to exercise any judgment about how people use our services’.”
And Jim Steyer, chief executive of Common Sense Media, an American charity, said: “Facebook has a history of choosing growth over all else, without regard to the consequences, be they to democracies or the wellbeing of children. But ask any parent, teacher or anyone that works with kids every day and they will tell you, without any hesitation, that media and tech is definitely affecting the social, emotional and cognitive development of kids.”
The Government asked the CMA, in March 2020, to lead a Digital Markets Taskforce whose members also included staff from Ofcom and the Information Commissioner's Office. The taskforce was to take into account the Furman Review (see above) as well as the emerging conclusions of the CMA's market study (see above and below).
Then, in July 2020, the CMA published its market study calling on the government to introduce a new pro-competition regulatory regime including a Digital Markets Unit to tackle Google's and Facebook's power in the digital advertising market. It introduced the concept of 'platforms funded by digital advertising that are designated as having strategic market status (SMS)'
The government responded in November 2020 accepting the recommendations.
The Digital Markets Taskforce report was published in December 2020.
- The taskforce recommended the creation of a new regulatory framework which would be 'evidence-based' but also - crucially - be 'proactive and forward-looking'. This was a radical departure because much competition enforcement (other than merger control) is backward looking (ex post) and does not attempt to intervene in anticipation of harms that have yet to materialise.
- In more detail, the taskforce thought that companies designated as having strategic market status (SMS). should be subject to a regulatory regime consisting of these three pillars:
- An enforceable code of conduct that sets out clearly how an SMS firm is expected to behave in relation to the activity motivating its SMS designation. The aim of the code is to manage the effects of market power, for example by preventing practices which exploit consumers and businesses or exclude innovative competitors.
- Pro-competitive interventions like personal data mobility, interoperability and data access which can be used to address the factors which are the source of an SMS firm’s market power in a particular activity. These interventions seek to drive longer-term dynamic changes in these activities, opening up opportunities for greater competition and innovation.
- SMS merger rules to ensure closer scrutiny of transactions involving SMS firms, given the particular risks and potential consumer harm arising from these transactions.
- The taskforce also recommended:
- action to address unlawful or illegal content (such as fake online reviews and scam advertisements), and
- action to address manipulative and unfair 'choice architecture' which leads to customers making unintended choices.
Also in December 2020, a combination of Federal and State antitrust prosecutors accused Facebook of illegally stifling competition by buying up rivals such as Instagram and WhatsApp. Whilst critics welcomed the move, suggesting that 'Big Tech faced its Standard Oil moment', they noted that it might have been better of regulators has opposed the original mergers rather than scramble, years later, to force the conglomerates to separate. Others suggested that ... "Facebook provides nothing essential. If Google or Amazon or Apple were broken up, then there would be real-world consequences. Facebook? Not so much ... So if a government wants to be seen to be "doing something about big tech," then Facebook is who they'll hit."