DCMS and BEIS consult on new pro-competition regime for digital markets

The question

What will a future pro-competition regime look like for digital markets and how will it potentially impact businesses operating in the digital marketplace?

The key takeaway

The consultation presents the digital market with big potential changes to how companies can operate in the space, including a fully enforceable code of conduct. Additionally, companies with significant influence in digital activities will be subject to potential merger controls by the Competition and Markets Authority (CMA). It is therefore important for these companies to keep a close eye on the results of the consultation (which closed on 1 October 2021). 

The background

Following recommendations made by the Digital Competition Expert Panel (DCEP) in early 2019, the Department for Digital, Culture, Media & Sport and Department for Business, Energy & Industrial Strategy (BEIS) has released its hotly anticipated consultation on a new regime for the digital market that is aimed at promoting competition in the marketplace. In the consultation the Government is setting out its proposals for reforms to the regulatory regime, which looks to drive greater dynamism in the tech sector, empower consumers and drive growth across the economy. 

The development 

The consultation notes that there is unprecedented concentration of power amongst a small number of digital firms, which impedes competition within the space. Therefore, it is aiming to undertake an evidence-based assessment to identify those companies with substantial and entrenched market power in at least one digital activity, which will then be designated as having a Strategic Market Status (SMS). 

Any companies designated as having a SMS are set to be subject to an enforceable code of conduct that will set out how they are expected to behave in the digital market, which attempts to promote fair trading, open choices, trust and transparency, and protect both consumers and smaller companies in the space. The newly established Digital Markets Unit (DMU) will monitor the digital market, and it will also have enforcement powers over the new code, allowing the DMU to levy data-related remedies and measures to enhance consumer choice. 

The code of conduct will cover several principles for companies with SMS:

• Fair trading: trade on fair and reasonable commercial terms; not to apply unduly discriminatory terms, conditions or policies to certain users; and not to unreasonably restrict how users can use a firm’s services.
• Open choices: not to unduly influence competitive processes or outcomes in a way that self-preferences or entrenches the firm’s position; not to bundle or tie services in a way which has an adverse effect on users; to take reasonable steps to support interoperability with third party technologies where not doing so would have an adverse effect on customers; not to impose undue restrictions on competitors or on the ability of users to use competing providers; and not to make changes to non-designated activities that further entrench the firm’s designated activity/activities unless the change can be shown to benefit users.
• Trust and transparency: provide clear, relevant, accurate and accessible information for users; give fair warning of and explain changes that are likely to have a material impact on users; and ensure that choices and defaults are presented in a way that facilitates informed and effective customer choice and ensures that decisions are taken in users’ best interests.
  In addition to the code the Government is considering introducing new merger rules for firms with SMS, seeking to prevent harmful mergers where those mergers would further enhance or entrench the powerful positions of firms with SMS. The merger rules are set to be overseen by the CMA.

Why is this important?

The new regime will profoundly reshape how the digital market works, and in particular what bigger companies in the space can or cannot do. The new code of conduct is set to restrict the activities those companies will undertake, and can be enforced by the DMU, as well as by the CMA which will have the ability to block mergers that it deems harmful and anti-competitive. It is imperative that companies that are at risk of being subject to this new code of conduct understand how it will potentially impact their business going forward once it is finalised, and take care in avoiding enforcement actions by either the DMU or the CMA. 

Any practical tips?

Review the final code of conduct once it is published and undertake a review of how it potentially impacts your company and its operations in the digital market. It is also important for companies to keep a close eye on the actual outcome of the consultation and resulting legislative actions in the near future.