Australia's rift with Facebook, Google could deepen over proposed digital regulator

Calls for the establishment of a digital regulator to monitor Facebook and Google’s use of algorithms in ranking online content are expected to feature prominently in the final report on Australia’s world-first inquiry into the impact of digital platforms on the advertising and news industries.

As the June 30 publication date approaches, it’s unclear, though, whether the Australian government actually has the appetite to heed that advice, given that to do so would risk a backlash from a tech industry that has been openly hostile to many of the inquiry’s proposals.

Because the recommendations by the Australian Competition & Consumer Commission, or ACCC, aren’t binding, the final decision on whether to embrace the report’s expected call for a new regulator lies entirely with the newly returned Australian government.

It won’t be an easy choice. Canberra must decide whether to rock the boat and become the world’s first jurisdiction to establish a digital regulator, or simply tweak powers held by existing authorities, sidestepping a showdown with the online platforms.

Opinion among lawyers and industry insiders in Australia is mixed about which direction the government will choose.

There’s broad agreement that the ACCC won’t entirely drop calls for an industry-specific regulator, because doing so would signal a retreat from one of the most controversial ideas in the regulator’s interim report published in December.

Luke Woodward, a partner with Gilbert & Tobin in Sydney, says there’s a “strong likelihood of the recommendation being in the final report and getting picked up by the government.”

Yet, observers also agree that the creation of a new regulator could see Canberra engaged in another battle with the tech sector, hot on the heels of clashes with US-based technology giants over laws involving encryption and abhorrent-violent content.

Woodward added that he expects there to be pressure to give the ACCC that regulatory role, if a separate authority isn’t set up.

But bowing to industry pressure and shying away from setting up a new regulator could see Australia fall behind in a global crackdown on Facebook and Google. A softer stance would leave the government open to criticism after it had been outspoken on the need to regulate the platforms.

One industry lawyer told MLex that all of the recommendations in the interim report will probably end up in the final text in some form, and that arguments against a new regulator just aren’t good enough.

What’s more, a new government-backed authority, along with policies to tighten data-privacy requirements for digital platforms, would bring Australia in line with other jurisdictions, including the UK.

The suggestion is that by the time the recommendations come out at the end of this month, the policy approaches they suggest are likely to be in line with international standards. Australia wouldn’t be an outlier, but the leader of what is likely to become a regulatory stampede.

Algorithm arbiter

The ACCC’s preliminary report called for a new regulator to take aim at the algorithms Facebook and Google use to rank advertisements and news content.

The report calls for “a regulatory authority to be tasked with monitoring, investigating and reporting on the criteria, commercial arrangements or other factors used by relevant digital platforms.”

The regulator would monitor how these factors affect the ranking of advertisements, news and journalistic content “with the aim of identifying effects of algorithms or other policies on the production of news and journalistic content or competition in media markets,”.

The preliminary recommendations don’t call for algorithm information to be made publicly available, but the idea of a regulator to oversee the process is enough to worry industry giants that don’t want to share the information that drives their businesses.

Facebook has argued that releasing the algorithms it uses to select news stories — even to a government regulator —  would allow rogue media players to game the system and would do nothing to save Australia’s moribund media industry.

The social media company is concerned about a global policy push by news outlets to recapture the advertising revenue the journalism industry has lost in recent years.

They believe that setting up a new regulator would give media giants such as Rupert Murdoch’s News Corp. — a strong proponent of a global algorithm board — a chance to get a bigger slice of Facebook’s advertising pie.

Lighter touch

Google and Twitter have both argued that Australian regulators could damage market development by seeking to introduce a watchdog to oversee their use of algorithms to select news content. That argument has some support.

Patrick Fair, a partner with Baker & McKenzie in Sydney, says the establishment of a digital regulator requiring reporting on the use of algorithms would be “problematic” and “runs contrary to normal business practice, which treats that kind of detail as strictly confidential.”

According to some lawyers, the problem is that the ACCC’s inquiry marks the first time that the Australian government has looked at how Facebook and Google have impacted competition in the advertising and media industries. It’s also the widest-reaching report of its kind in the world.

With that in mind, some believe that it would be more prudent for regulators to start regulating the online platforms with a “lighter touch” and encourage industry to come up with guidelines which the government could to oversee them.

This would be a much more industry-friendly approach to monitoring any possible threats to competition and would avoid the need for a new, tailor-made digital regulator.

Fair says the success of the inquiry would be marked by allowing the industry “to negotiate with government the steps it could take, without the need for aggressive regulatory intervention.”

The case for a regulator

Still, there are those prepared to argue that if Australia wants to stay on top of a global push to take a closer look at the dominance of Facebook and Google in today’s media landscape, simply letting the industry put its own measures in place may not be enough.

After all, it was Facebook's Mark Zuckerberg himself who called for more government-driven regulation of the Internet earlier this year. If Australia were to drop the ball now, it could risk falling behind regulatory moves in the US and Europe.

If Australia were to establish a digital regulator, it’s likely that other jurisdictions would be hot on Canberra’s heels.

A report from the University of Chicago’s business school published last month proposed the introduction of a digital authority to be charged with overseeing interoperability, or nondiscrimination rules, and separately to consider mergers that involve digital platforms.

The 100-page report built on suggestions seen in the UK and elsewhere in Europe for tackling competition in the digital-platforms industry. Even if algorithms were excluded from the purview of new digital regulators, there’s little doubt that new regulators will be established to oversee the industry.

Strained relationship

Australia’s relationship with Silicon Valley and its homegrown technology industry has already been strained, and this may weigh on the mind of a returning government considering ways to keep the local economy in full health.

Last year, new laws on encryption and abhorrent-violent content that were put in place with little or no industry consultation had companies threatening to leave Australia and warning of increased surveillance in the country.

The re-elected government of Prime Minister Scott Morrison has already established that it is prepared to go after digital platforms when it believes the public interest is at stake. Yet, the government’s recent election victory had little to do with its stance on digital companies.

Setting new rules for Facebook and Google isn’t on the minds of most people, meaning the government could easily leave this issue in the too-hard basket and face little to no public backlash.

Instead, the most that might come from the ACCC’s recommendations could be a tweak to the regulator’s own role, or that of the Australian Communications and Media Authority, ACMA, which oversees the media and telecommunications industries.

This solution would be the easiest to implement.

A broadened mandate for an existing regulator would allow the government to respond to the ACCC’s demands without creating a huge amount of industry disruption, or risk falling behind other jurisdictions as they look more closely at these companies.

Yet, a mere tweaking of existing powers would inevitably kick some of the regulatory issues into the long grass. It would press pause on any speculation of a deeper regulatory involvement in Facebook and Google’s use of algorithms.

What was a world-first inquiry could quickly fall flat on its face, if it were found to have been able to think big, only to see the government dial down any regulatory ambitions.