Tech firms to see UK's Digital Markets Unit hit the ground running

Big Tech companies operating in the UK will get an early sense of what lies ahead for them, in real terms, from April when the competition regulator's long-awaited Digital Markets Unit begins work.

The Competition and Markets Authority’s recent refresh of its digital markets strategy shows the watchdog will be proactive and won’t wait for legislation to start the delicate tasks of informing the design of the DMU and ensuring UK proposals are in step with international efforts.

The DMU, housed within the CMA, will be run by a dedicated pool of staff across teams working on the watchdog’s digital portfolio and more widely. The first task: To advise the government on the unit's organization, including key decisions relating to funding, governance, decision-making structures and how the unit will interact with existing CMA functions.

The CMA will also develop guidance on how the DMU will exercise its powers once it gets clarity on the proposed new regime. It will publish drafts of the guidance for consultation so it is in a position to finalize measures by the time the legislative framework comes into effect, MLex understands.

It means that the months from April to legislation will be pivotal for the regulator, not least in ensuring its ambitious DMU hits all the right notes, both domestically and internationally.

Unsurprisingly, the revamped digital markets strategy, unveiled last week, puts the DMU front and center and notes that supporting its establishment is the watchdog’s “overarching ambition” across its work in digital markets.

The CMA anticipates the DMU delivering a “step change in regulation and oversight of competition in digital markets” and, in turn, driving dynamic innovation. “Our ambition is to establish the DMU as a center of expertise for digital markets, with the capability to understand the business models of digital firms, including the role of data and the incentives driving how these firms operate,” according to the strategy document.

The regulator's balancing act will from early on include gathering evidence to help assess which firms should be designated as having strategic market status, or SMS, and in relation to which activities, and develop corresponding codes of conduct.

While doing this, it will also need to support the government in developing the regulatory framework for digital markets and ensure UK proposals are coherent not just with other regimes domestically but also proposed digital regimes internationally.

International alignment

The domestic aspect shouldn’t be too hard for the CMA, given its considerable progress in getting its digital agenda on the UK government’s radar. But on the international front, its efforts may be complicated by the fact that its plans for the DMU do differ, in some aspects, to initiatives being floated by its closest counterpart, the European Commission.

For digital reforms to be most effective, international coherence is needed to ensure tech companies face similar, if not the same, levels of regulation elsewhere — particularly for regulators that don’t have the economic weight of the US, the EU or China behind them.

With the UK no longer a part of the EU, and its own efforts to regulate Big Tech progressing significantly, any willingness to mirror EU proposals is currently unclear.

In fact, the CMA’s chief executive Andrea Coscelli has indicated that Big Tech regulation efforts will be an “early test of Brexit'' in terms of how far the UK government is willing to diverge from emerging approaches in the EU. Coscelli, while emphasizing the value in converging approaches to other jurisdictions, including the US, acknowledged that lawmakers could look for other options in some areas.

Other CMA executives have expressed similar reservations. Chief economist Mike Walker said he prefers its company-specific approach to tackling the market power of companies with SMS over the catch-all approach adopted by the EU’s planned Digital Markets Act — though he acknowledged that it’s in no one’s interest to have vastly different methods.

There are three proposed pillars of the UK regime for SMS businesses. First, a legally binding code of conduct which, crucially, will be tailored to each firm and overseen by the DMU. Second, it allows for pro-competitive interventions to address sources of market power. Third, it includes enhanced merger rules that require mandatory notification for deals involving SMS companies and a more cautious legal test when assessing the likelihood of harm.

The EU’s Digital Markets Act, by comparison, is less tailored and will give the commission sweeping powers over companies designated as “gatekeepers” to ensure they don’t hoard critical data or favor their own businesses. It has also attracted its own fair share of criticism.

Whether the differences are significant enough to provoke alarm remains to be seen, but it's apparent that there isn’t complete alignment in thinking.

As the CMA gears up to launch a “shadow” DMU ahead of legislation to power it up later this year, its priority will be ensuring that the unit is a force to be reckoned with, both in the UK and further afield.