Competition watchdog considering regulating big tech

The Competition and Markets Authority (CMA) is considering a range of potential interventions against Google and Facebook over growing concerns that the duo’s dominance in digital advertising is negatively affecting consumers and businesses alike.

The competition watchdog has been running a consultation into online platforms and the digital advertising market in the UK since July 2019, the findings of which will assess how digital advertising can harm consumers.

In its interim report, published 18 December, the CMA found that Google accounted for more than 90% of all revenues earned from search advertising in the UK at around £6bn, while Facebook accounted for almost half of all display advertising revenues in the UK, surpassing the £2bn mark.

“We have found that the profitability of both Google and Facebook has been well above any reasonable estimate of what we would expect in a competitive market for many years,” said the report.

“In 2018, we estimated that the cost of capital for both Google and Facebook was around 9%, compared to actual returns on capital of over 40% for Google and around 50% for Facebook. This evidence is consistent with the exploitation of market power.”

This has led the watchdog to consider “a range of potential interventions”, including an enforceable code of conduct, rules to improve transparency and give users greater control over data, as well as company specific measures to address their distinct sources of market power.

All of these options will be deliberated during the next phase of the consultation, with a final report due on 2 July 2020.

For Facebook, the CMA will be specifically assessing whether it should be made interoperable with other social media platforms, and whether there should be limits on its ability to restrict competitor’s use of these interoperable features.

Google, on the other hand, may end up having to provide click-and-query data to rival search engines so that they can compete with the company’s huge scale.

The interim report explicitly backs the Furman Review’s conclusion that new regulatory approaches are needed to deal with these platforms, and that relying solely on enforcing existing competition law is insufficient.

“So far in this study, we have used our legal powers to discover how major online platforms operate. Digital advertising fuels big businesses like Google and Facebook and we have been building a picture of how this complex new market works,” said CMA chief executive Andrea Coscelli.

“We’re now inviting comments on what we have found. At the end of the study, we’ll present our findings to the new government as it decides whether and how to regulate what is an increasingly central sector in all our lives.”

However, the CMA stated in a press release that it stands ready to act directly using its own powers if these issues are not adequately addressed, which includes market investigations and criminal proceedings against cartel offences.

Antony Walker, deputy CEO of trade association TechUK, has welcomed the “rigour and thoughtfulness” of the report, adding that personalised advertising must place consumers in the driving seat and ensure that they feel in control of their data.

“This is a balancing act and techUK is committed to working with the CMA over the coming months to find the best way forward that promotes competition and continued innovation while protecting consumers,” he said.

In the US, the Federal Trade Commission (FTC) is potentially seeking an injunction to bar Facebook from further integrating its apps, including WhatsApp and Instagram, which federal regulators might want to unwind as part of a future breakup.

On 18 December, the FTC also granted final approval to a settlement with Aleksandr Kogan, former CEO of Cambridge Analytica, and app developer Alexander Nix.

As part of the settlement, Kogan and Nix are prohibited from making false or deceptive statements regarding the extent to which they collect, use, share, or sell personal information, as well as the purposes for which they do so.

Facebook and Google have both said they would cooperate with the CMA and the British government as the consultation moves forward.