UK's CMA seeks new regulatory regime to take on Google and Facebook

The UK Competition and Markets Authority has published the eagerly awaited final report from its market study into online platforms and digital advertising. There are no significant changes to the list of competition concerns outlined in the interim report. But there are two important takeaways which we’ll explore in this post: the CMA’s far-reaching remedies proposals, and its decision to propose a new regulatory system, rather than make a market investigation reference.

Blueprint for radical and controversial reform

The CMA has added to the UK Government's already ambitious digital agenda by tabling a range of legislative recommendations to reimage the digital advertising industry, as well as online search and social media. This new regime would be policed by a similarly new digital regulator, the Digital Markets Unit.

The substantive recommendations fall into two buckets:

  • On the one hand, the CMA has proposed bespoke enforceable codes of conduct for each digital advertising platform with "strategic market status". The CMA highlights that it would expect both Google and Facebook to hold strategic market status with the codes intended to “manage” the effects of their market power.
  • In addition, the CMA has proposed a range of pro-competitive interventions in relation to Google and Facebook, which are intended to tackle the sources of their alleged market power and increase competition.

The CMA’s pro-competitive interventions are the most eye-catching of its proposed recommendations. The proposal that the Digital Market Unit would have the power to compel Google to provide access to the data underpinning its search algorithm goes to the heart of Google’s business. Proposals for unbundling Google’s role at different levels of the adtech “stack” would likewise fundamentally change the current structure of the digital advertising industry. Finally, proposals for interoperability and the creation of a “secure common digital ID” for user data would overturn the existing competitive landscape for Google and Facebook alike.

In short, the CMA has provided the UK government with a blueprint for radical – and highly controversial – reform of digital advertising, even if only half of its proposals reach the statute book.

Political solution needed for global adtech industry

At first blush, the CMA’s decision not to pursue a market investigation is puzzling. The final report acknowledges that the competition concerns outlined meet the statutory test to trigger a market investigation reference, and that the CMA has the power to implement a number of its proposed remedies. The CMA’s reasoning that a reference would not be appropriate – in part because the UK’s market investigation regime is insufficiently flexible – is faintly ironic given that the European Commission is currently consulting on introducing a market investigation regime of its own to address similar problems.

But the CMA’s decision to focus on legislative reform of the adtech industry reflects the (political) limits of the market investigation regime. It makes more sense when put into its wider political context. European proposals to introduce “digital taxes” on tech companies have sparked political controversy given their disproportionate impact on US-domiciled tech platforms. The CMA’s proposals would put these proposals in the shade, marking an unprecedented intervention in the operation of Google and Facebook, raising the risk of potentially far wider political repercussions.

Ultimately regulatory reform of the adtech industry is an intensely political question to which the CMA can suggest answers but not impose solutions. 

What's next?

The CMA's report is limited to platforms funded by digital advertising. But the CMA intends to expand its scope by leading the work of the Digital Markets Taskforce. The CMA has also established a Digital Regulation Cooperation Forum with the ICO and Ofcom to support regulatory coordination in online services. The CMA will continue to actively consider enforcement cases in the sector, drawing on the work done as part of the market study.

The real question mark now is over whether and how far the UK government will decide to take the CMA’s proposals and if so, how fast.