CMA seeks new regulatory regime for digital markets following market study

On 1 July 2020, the UK Competition & Markets Authority ("CMA") published its final report following a 12-month market study into online platforms and digital advertising in the UK (the "Final Report").  The Final Report concludes that, due to the dynamic nature of digital advertising, existing laws are not suitable to effectively regulate the concerns that the CMA has identified.  Therefore, the CMA has recommended that a new "pro-competition regulatory regime" is established to govern major online platforms in the UK.

Background

The CMA launched its market study in July 2019 amid concerns over how the digital advertising market was functioning in the UK and following calls by the UK House of Lords and the UK Government's Digital Competition Expert Panel (the "Furman Review") to investigate the market (see our April 2019 newsletter).

Market studies are used by UK competition authorities to examine the causes of why particular markets may not be working well.  The possible outcomes following a market study are wide-ranging, including giving the market a clean bill of health, regulatory intervention, making recommendations to Government, initiating enforcement action or a market investigation reference (for more information, see our Quickguide on market studies and market investigations in the UK).

Competition concerns identified in the Final Report

With around GBP 14 billion spent on UK digital advertising in 2019, approximately 80% of which was spent on Google and Facebook, the CMA's market study has found that both Google and Facebook have market power in their respective markets for search advertising and display advertising.  Although the Final Report acknowledges that high market shares in digital advertising are not necessarily 'bad', the CMA has found that competitors of Google and Facebook face substantial barriers to entry and expansion, which results in weak competition.

The CMA's analysis raises concerns in relation to the following areas:

• weak competition in the provision of digital advertising has impacted the rate of innovation and the prices paid by advertisers (which are ultimately reflected in the prices of goods and services across the economy);
• the compensation that consumers receive in exchange for their attention and personal data;
• the degree of control that users have over how their personal data is used; and
• wider social, political and cultural concerns arising from the impact of digital advertising on authoritative and reliable news media.

What remedies has the CMA proposed?

The Final Report confirms that the CMA will not be referring the market for an in-depth market investigation, which would typically involve the CMA conducting a further 18-24 month inquiry.  Instead, the CMA has recommended to Government the establishment of a "pro-competition ex ante regulatory regime, to oversee the activities of online platforms funded by digital advertising".

The CMA's proposed regulatory regime comprises two broad categories of intervention:

• an enforceable code of conduct, which is designed to protect competition by governing the behaviour of platforms that have strategic market status ("SMS"). The objective of the code of conduct would be to address the harmful effects that can arise from the exercise of market power. The CMA has proposed that the code should be based around three high-level objectives of fair trading, open choices and trust and transparency. The code will apply to platforms that are designated as having SMS, as envisaged by the Furman Review, and each platform would have its own tailored code and published guidance on its practical application; and
• a range of pro-competitive interventions, which are designed to tackle the sources of market power and promote competition and innovation. This includes data-related remedies such as the provision of third-party access to data and measures to increase interoperability (as suggested by the Furman Review), as well as remedies including consumer control and separation measures.

In order to implement the proposed regulatory regime, the CMA has also recommended that the UK Government legislates to establish a "Digital Markets Unit" to undertake SMS designation, although the Final Report does not determine which platforms will be designated as having SMS, the CMA has indicated that Google and Facebook are likely to be included and that this may also be extend to others.  The Digital Markets Unit will also be responsible for introducing, maintaining and enforcing the code, as well as introducing any pro-competitive interventions.

When will the new regime come into force?

There is currently no timetable for establishing the Digital Markets Unit or implementing the CMA's interventions.  However, on the same day that the CMA published the Final Report, it also announced the formal launch of a Digital Markets Taskforce (the "Taskforce").

The Taskforce, which was commissioned by the UK Government in March 2020 (see our March 2020 newsletter), will build on the conclusions of the Final Report and advise the Government as to how the new regulatory regime for digital markets should be designed.  The Taskforce intends to report to the UK Government by the end of 2020.  Therefore, it is unlikely that any draft legislation implementing the CMA's recommendations will be published by the UK Government until early 2021 at the earliest.

With thanks to Emile Abdul-Wahab of Ashurst for his contribution.