Digital Markets, Competition and Consumers Bill

Andy Carter Excerpts

2nd reading
Wednesday 17th May 2023 Commons Chamber

[Kevin Hollinrake]

I am grateful to my hon. Friend for his engagement on this. We have discussed this at length many times, both in my role as a Minister and in my previous role as a Back Bencher, when we looked at the best form of regulation. I think we both agree that ex post regulation is preferable to ex ante regulation, as is a pro-competitive environment, as I said earlier. We should step in only when there is market failure. Of course we should look at the powers and ensure that they are being used wisely, and I have confidence that the CMA will do that. There are a number of checks and balances on the CMA and the DMU, not least through the competition appeal tribunal and the courts, which ensure that decisions are valid and worthwhile, but we should also have a good debate on how we scrutinise the DMU and CMA generally. Obviously they report to Parliament every year, and the Select Committee work is also important. I think that my hon. Friend and I would agree that the best way to regulate markets is through competitive environments, and that is what we should always favour in this discussion.

[Andy Carter (Warrington South) (Con)]

I echo the comments of my colleagues who have welcomed the Bill. The Minister will know that the DMU will be regulating a highly specialised area and that detailed knowledge of the sector will be critically important. Can he assure me that the DMU will have sufficient powers to recruit people who really understand the sector? Will it be able to pay accordingly in order to recruit those people, and not be bound by civil service contracts and pay bands that might limit its ability to recruit very experienced people?

[Kevin Hollinrake]

My hon. Friend makes an important point. The tech industry is clearly very powerful in terms of its resources and its ability to recruit the best people. My experience of the CMA is that there are good people within it, and I expect that to be reflected in the DMU as well. People who have been connected to the CMA, including former chairs, have spoken highly of its abilities, but my hon. Friend makes the important point that we need to have the best people so that we can hold those powerful entities to account.

The legislation will be delivered through making market inquiries more efficient, focused and proportionate, updating the merger regime and amending existing legislation concerning anti-competitive conduct and abuse of a dominant position. The measures in parts 3 and 4 make important updates and improvements to consumer law. The UK is currently the only G7 country without civil penalties for common breaches of consumer protection such as unfair trading. Part 3 creates a new model that will allow the CMA to act faster, tackle more cases and protect consumers’ interests while creating a level playing field for businesses.

Part 4 tackles the subscription traps that cost consumers £1.6 billion a year. We expect there to be a £400 million saving for consumers as a result of the measures we have proposed. I am sure that many Members know constituents—

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[Andy Carter (Warrington South) (Con)]

It is a pleasure to be called to speak on Second Reading of this important and much anticipated piece of legislation.

I will start by making one or two comments from a consumer perspective. I particularly welcome the steps to address rip-off scams and rogue traders. For too long, they have been allowed, and in some cases encouraged, by platforms that have not always policed this area in a proactive manner. They have been able to post fake reviews online and to tie people into subscription contracts when they simply did not know that they had signed up. Every Member will have received correspondence from constituents who have been caught in such traps, and I welcome the steps that the Bill takes to address this issue.

I am keen for us to improve consumer rights and, at the same time, the enforcement of those rights, which I hope will drive competition and spur growth. I see the Bill as a welcome addition that will facilitate the right market conditions to encourage innovation, while protecting consumers from modern harms. This morning, I met representatives of Amazon here in Parliament, and I was struck by the fact that although it has been in the UK for only 25 years, over that period it has transformed retailing in the digital space and people’s engagement with media on digital platforms. However, its impact on global dominance has consequences, and it is therefore right that we introduce legislation to respond to that changed market.

As chair of the all-party parliamentary media group, I want to say a little about how the Bill addresses issues in the media publishing industry. I was very struck by the comments of my hon. Friend the Member for Folkestone and Hythe (Damian Collins), but I do not intend to repeat them because he made them incredibly well, and that will allow me to shorten my speech somewhat. The media publishing sector has for some time considered the need for legislation, and I have chaired a number of sessions examining the Digital Markets Unit and the impact that it can have within the sector.

I should make it clear that I welcome much of what is in the Bill. I want it to be passed without delay and, crucially, without any watering down of its provisions. It is needed to ensure that British businesses and consumers do not remain at the mercy of super-companies which, while providing services for consumers, can stifle growth and innovation in the UK economy. The Competition and Markets Authority estimates that Google and Meta together made excess profits of about £4 billion in 2021 alone, and I am sure that the figure for 2022 will be even higher. Big tech platforms extract these excess profits not by being the best businesses on the basis of free-market competition, but by leveraging their market power.

Digital markets are particularly susceptible to tipping, whereby one firm becomes dominant and entrenched with little prospective challenge. I am therefore pleased that the Bill allows the Digital Markets Unit to designate the very largest digital firms with substantial and entrenched market power as having strategic market status. The DMU will be able to enforce conduct requirements tailored to the business models of those strategic market firms, which will ensure that big tech firms act in a way that ensures fair dealing, trust and transparency in their interactions with smaller businesses and individual consumers who rely on their services.

It would be helpful if the Minister could provide further clarity on a couple of specific points. I am keen to explore the interaction between news publishers and organisations such as Google. As my hon. Friend the Member for Folkestone and Hythe pointed out, local newspapers are particularly challenged. The final offer mechanism will allow the DMU to select bids from a strategic market firm and a publisher for the value of news content. That will be a very protracted process. Will the Minister consider introducing interim measures to avoid the risk of local newspapers going bust before some form of resolution is agreed? Will he also consider a requirement to ensure that the final offer mechanism is initiated and completed at an early stage?

I urge the Government to look at ways of expediting the processes, which would enable the DMU to prioritise platform-publisher disputes in the interests of ensuring a sustainable news media industry. In other jurisdictions, platforms have either restricted or threatened to restrict news content to avoid payments, and there is evidence that Google has reduced the share of domestic news sources on its platforms, particularly when the content can be replaced with English language alternatives, as is the case with international news. Will the Minister provide an assurance that the fair dealing objective and the conduct requirements that allow the DMU to prevent a service from being withdrawn in a discriminatory way could be used to prevent Google or Meta from withdrawing or reducing the volume of UK news to reduce the value of deals with news publishers?

Getting really into the weeds, it is important that the countervailing benefits exemption in clause 29 should not be drawn too broadly. The exemption allows designated SMS firms to continue conduct that contravenes the conduct requirements if they can prove that it has an overriding public benefit. I gently suggest to the Minister that if the exemption is too broad, SMS firms will be able to regularly avoid complying with conduct requirements by citing things such as security and privacy claims, as well as, frankly, by spamming the CMA with numerous studies, thus diverting resources to addressing those studies rather than tackling the issues at hand. This would undermine the entire regime by severely limiting the efficacy of the conduct requirements.

I am keen to ask the Minister if he would be willing to consider placing a non-exhaustive list of acceptable grounds for exemptions in the Bill. While the great advantage of the Digital Markets Unit is its agency and ability to write tailored conduct requirements for SMS firms, that leaves it open to regulatory capture. Can the Minister can give me an assurance that there are adequate provisions requiring the DMU to consult third parties so that SMS firms are not able to write their own conduct requirements or construct their own remedies in cases of conduct requirement breaches?

I welcome the measures the Government have brought forward in the Bill. This is strong, forward-looking digital market regulation and it will ensure that digital markets can live up to their potential, allowing consumers to enjoy the full benefits that technology can deliver. It is also important that we look at this Bill alongside the media Bill, because so many of the issues that are addressed across the wider digital industry are covered in the two Bills and it is good that this legislation is coming through hand in hand with that Bill. By giving the Digital Markets Unit new powers to tackle the dominance of monopolistic big tech platforms, we will be able to unlock the growth and innovation that have been stifled by a severe lack of competition, which will hopefully give start-ups and smaller firms proper access to markets and consumers.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I want to limit my comments on the Bill to how it affects journalism. The National Union of Journalists has long called for the enforcement of levies on tech giants that unfairly consume editorial content without contributing to its production. That point was highlighted in the Cairncross review:

“Publishers frequently complain that the relationship is excessively weighted in favour of the online platforms. In most cases, the latter do not directly remunerate news publishers for placing their content on their platforms, although there are some exceptions.”

The review went on to state:

“Platforms are not subject to the same press rules of accuracy and fairness as news publishers are. And in all these ways, argue publishers, the increasing grip of certain platforms over news distribution channels is threatening the future of high-quality news.”

Without adequate regulation of news provision beyond the regulated news titles or compensation for publishers whose content is used, we risk a wild west of news provision that is chopped, coiffured or skewed without a publisher’s consent and outside the scope of normal news regulation. That should worry us all, because journalism is critical to upholding democracy, to holding local and national politicians like myself to account, and to holding Government and local government to account.

None the less, the Bill’s provisions that will provide a mechanism for payments to publishers from tech giants are welcome. They have been called for by the NUJ, including in its news recovery plan. I also welcome the Bill’s efforts to provide publishers with data that allows for a better understanding of how content performs on platforms. I stress that these provisions must be implemented without any further delay or weakening of conditions, but I fear that the Government will already be under pressure. Indeed, Google and Meta have attempted to ward off similar negotiations in Australia and Canada by restricting or threatening to restrict access to trusted domestic news.

The News Media Association has said:

“Denying citizens access to reliable information to avoid payment serves only to emphasise the primacy that these firms place on profits rather than citizens’ interests. The government should not give in to similar threats in the UK.”

I stress that the Government must not bow to pressure to water down these provisions—in fact, quite the opposite. There are a number of areas where they could strengthen the Bill or provide much-needed clarity. The hon. Member for Warrington South (Andy Carter) highlighted a few areas where we are on the same page, so there is clearly cross-party support.

First, there appears to be a protracted process to reach the final offer mechanism in the Bill that allows the Digital Markets Unit to select bids from a strategic market status firm and a publisher for the value of a news contract. That means that, even if an SMS firm has no intention of complying with a conduct requirement to negotiate with a news publisher, it could take years from the issuing of such a conduct requirement for the final offer process to be initiated and completed. What will the Government do to expedite this process?

Secondly, as I have already mentioned, in other jurisdictions, platforms have restricted or threatened to restrict national news content to avoid payments. What assurances can the Minister give today that the fair dealing objective and the conduct requirement that allows the Digital Markets Unit to prevent a service from being withdrawn in a discriminatory way, could be used to prevent a platform from withdrawing or reducing the volume of UK news sources to reduce the value of payments to UK publishers?

Thirdly, the hon. Gentleman gently suggested it, but I am strongly suggesting that clause 29 is not satisfactorily drafted. It allows for a firm with significant market status to continue conduct that contravenes a conduct requirement if it can prove the conduct has an overriding public benefit, but that overriding public benefit is not defined in the Bill. This presents a glaring loophole that could be significantly abused. I hope this is just an oversight on the Minister’s part, and that the clause is not deliberately drafted in that way, but will he clarify this by adding a clear list of acceptable grounds for exemption?

Finally, as we have heard, there is a concern that, although the DMU is able to write tailored conduct requirements for firms with significant market status, not consulting a wider stakeholder base risks leaving it open to regulatory capture. Like the hon. Member for Warrington South, I would be grateful if the Minister considered adding provisions to the Bill to require the DMU to consult third parties to avoid such risks.

The Bill will go some way towards rectifying a murky quagmire, but there is much more beyond the scope of this Bill that needs to be addressed. Members will no doubt be aware that BBC members of the National Union of Journalists will walk out on strike on 7 and 8 June over plans to cut local radio provision. Cuts to local news provision matter because local journalism is vital to democracy by enabling people to hold local government and public services to account at a time when national news outlets primarily focus their attention on the latest Westminster scandal. Local journalism matters because it helps to build strong, happy communities by allowing local people to hear about the things that matter in their area and by giving them a voice to raise things about which they are unhappy. Local journalism matters because it supports local economic activity by celebrating local businesses and giving young journalists a chance to cut their teeth and gain the skills they need for a career in broadcasting.

Sadly, we know what happens when local news services are eroded. We have watched as the local, community-driven newspaper sector has collapsed over the past 10 years. In my constituency, we no longer have a dedicated Salford newspaper, and when publicly funded news providers such as the BBC also start to curtail their local offering, there is a risk of there being no democratic scrutiny or local news coverage at all. So the Government must recognise that, although the Bill is a welcome step forward, they must urgently turn the tide and act upon the local journalism sustainability recommendations made this year by the Digital, Culture, Media and Sport Committee. If they do not do so, we risk continuing centralisation of news coverage and erosion of democratic scrutiny, where only the most sensational—

[Andy Carter]

Will the hon. Lady give way?

[Rebecca Long Bailey]

I am coming to the end of my comments—I do apologise. Where only the most sensational news stories that drive the most clicks make it to our computer screens.

Digital Markets, Competition and Consumers Bill (Second sitting)

Andy Carter Excerpts

Committee stage
Tuesday 13th June 2023 Public Bill Committees

[The Chair]

Thank you. We have time for one more question, so I call Andy Carter.

[Andy Carter]

Q Professor Fletcher, picking up on something that you mentioned earlier, I want to look at innovation and investment. You said that we are leading the world in the some of the work that we are doing. Can you quantify how that work will benefit UK plc? I am conscious that that is a big question, but has any work been done on our approach and the benefits to our economy that we might see?

Professor Fletcher: I have to confess that I am not aware of work that has specifically been done on that. It is worth seeing this as a global thing, and we are trying to play our part in creating a global environment that will foster global innovation. I think that by doing it here, we will set rules that foster much of that innovation and encourage it to come here. There will be people who have made estimates; my hunch is that most of them will be pretty back-of-the-envelope, but I confess that I have not seen them.

[The Chair]

Thank you very much. That brings the allotted time for this witness panel to an end. On behalf of the Committee, I thank you all very much for giving us your time.

Examination of Witnesses

Noyona Chundur, Peter Eisenegger and Tracey Reilly gave evidence.

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[Jerome Mayhew]

Q Do you also recognise that there are people like me out there who signed up for a contract, and to be asked every single time, “Do you want to renew it?” when it is a core level of services that I benefit from, year in, year out, would be less constructive for my wellbeing? That is poor English, but you know what I am trying to say.

Noyona Chundur: Respectfully, I would say that most people will want the reassurance that the deal that they are getting every year is the best deal possible, is coming at the best price, is being delivered with the best service in mind and meets their needs, rather than the assumption that an algorithm or someone else has made that decision for them. Certainly the consumers we speak to want transparency, accessible communication and more choice. This is one way of giving them exactly what they want. I echo the sentiment of what was said this morning: if the product or service is good enough, people will sign up to it. It is nothing to fear, but it will raise standards and make for better competition and a more sustainable economy. Those are all good things, because they are being viewed through the prism of consumer accessibility and affordability.

[Andy Carter]

Q Tracey, you mentioned in your opening statement that a number of markets operate differently in Scotland. I wonder whether I could ask you to expand on that a little. What particularly were you referring to, and where does the Bill need to be amended to accommodate those markets operating differently?

Tracey Reilly: I probably had two or three examples in mind. One would be legal services, which are entirely devolved, so they are regulated entirely differently. Key parts of that market around complaints are regulated differently. Another would be one that we share in common with Northern Irish colleagues: the prevalence of off-grid heating systems. There may be ones where how you access services is simply different according to where you live; for example, there is the perennial issue of postal delivery in Scotland and Northern Ireland. Those were the types of thing that I had in mind.

We have regular and very constructive dialogue with the CMA about local issues, and about regional and sub-national issues. We hope that the Bill’s provisions will enable the CMA to deal flexibly and responsibly with those concerns. The framework that they operate, as with any body that has limited resources, makes prioritisation decisions on a UK-wide basis. We would like to ensure that regional and national differences, and differences for specific communities within the nations, can be dealt with as part of that. I think Noyona would probably welcome coming in on that point.

[Andy Carter]

Q Do you want to pick up on that from a Northern Ireland perspective?

Noyona Chundur: Absolutely. A key regional difference, both for Tracey and for me, is the microbusiness economy. In Northern Ireland, 89% of our businesses employ 10 people or fewer. We are absolutely a microbusiness economy. We know that the experiences of many consumers and of many small businesses and microbusinesses mirror each other in multiple markets. Tracey’s point is about ensuring that the prioritisation principles, or the applications of how the Bill is operationalised on the ground, need to be mindful of the diverse experiences that can happen among the four nations.

[Andy Carter]

Q I have one further question. You touched on nudge techniques. Can you expand on that and on what action you think needs to be taken?

Noyona Chundur: It is when you are pressurised into purchasing a product or service without even knowing that it is being served up to you because of an algorithm.

[Andy Carter]

Q Can you give me an example of where that is happening?

Noyona Chundur: It can happen in retail; it can happen in any digital market; it can happen in telecoms. It is a technique that is growing, and there needs to be further investigation and exploration of what that means for regulation. That is not just the job of the CMA; it will need sector regulators to play a part. It needs the whole ecosystem to coalesce, but also trading standards and trading standards in Northern Ireland.

[Andy Carter]

Q Sorry to pressure you on this, but I want to understand what you mean by a nudge technique. If I go on to a website and then I get an email afterwards, is that a nudge technique? What do you mean?

Noyona Chundur: That is probably an algorithm. A nudge technique is perhaps a little bit more sinister than that: it is where you are being prompted to purchase products and services that you never thought you might need, based on your previous purchasing patterns and purchasing decisions. That may not come at the best cost or the best specification, and it certainly may not be the best offer to use.

[Andy Carter]

That is really helpful. Thank you.

[The Chair]

I call Dean Russell to ask a brief question.

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[Vicky Ford]

Thank you—and sorry, colleagues, for the family discussions.

Max von Thun: I am not a huge gamer, but that is my take.

[Andy Carter]

Q Can I ask about the whole area of innovation, particularly for smaller start-up tech firms? What is your feeling towards the Bill with regard to the attitude that they might take to operating in the UK?

Max von Thun: Overall, I think it would be very positive for those types of firm. As others have said, this Bill is very targeted: the actual regulatory obligations apply to only a very small handful of dominant firms. It is not legislation like the Online Safety Bill or privacy regulation, where you are creating a compliance burden for the whole tech sector; it is very targeted at dominant firms.

As I mentioned earlier, if you look at what the Bill is trying to do, it is very pro-innovation. It is really about introducing contestability into the market. The combination of the conduct requirements, which are more about stamping out some of the problematic anti-competitive practices that we have seen over a long period, and the PCIs, which we think are a more significant tool because they allow you to inject competition into the market through interoperability and opening up data, will be very good for start-ups. I think it will give them more confidence to launch businesses that directly take on the dominant tech platforms.

At the moment, if you are a smaller firm, your strategy will often be to grow to a certain point and then get bought up. That is how firms design their business model, and investors will often look at it that way, but if through legislation you change the picture, you will change the incentives and create more opportunities for companies in the UK to scale up to a global level.

[Andy Carter]

Q You wrote an article in The Times recently about fast-growing British tech firms seeing acquisition by the US giants as a viable exit route. Do you think the Bill might change any of that?

Max von Thun: Yes, to an extent. The merger requirements for SMS firms are really just about reporting. They require SMS firms to let the CMA know if they are acquiring companies that meet certain thresholds. That will allow the CMA to avoid things slipping under its radar. Another part of the Bill is about what is called an acquirer-focused threshold, which is basically designed to prevent what have often been called killer acquisitions from taking place. Those are acquisitions that do not meet the UK’s merger control thresholds when it comes to turnover or market share, because they are very small start-ups that do not generate much revenue but that often produce very innovative technology.

The tech giants buy them up either to prevent eventual rivals from emerging or to use that technology to extend their dominance into new markets. The Bill will prevent some of that. That means, to an extent, that in some cases involving very large platforms it will be harder to be bought up if you are a start-up. It is important to acknowledge that to an individual founder being bought up by a big tech firm can often be attractive. Big tech firms can pay a lot of money to acquire you. They can offer all sorts of technical and logistical expertise to help you to grow, but if we look at the wider ecosystem, those deals can be very harmful, essentially by eliminating competition.

Think of what Instagram might have become had it not been bought up by Facebook. Rather than just being part of Meta’s business model, it could be challenging Facebook. To take a more local example, DeepMind, a leading AI company, was bought by Google in 2014. Had it not been, it would be an independent AI company. That would have put the UK at the forefront of a lot of the development in general AI. Obviously, the UK is already doing well in AI, but now DeepMind is part of Google’s empire and subordinate to Google’s business objectives. Those are some of the reasons we should care about this.

Also, if you make it a little harder for these companies to buy up start-ups, the market will respond. The UK already has a lot of alternatives. It has a very healthy venture capital scene—I think the best in Europe. If it is harder for big tech purchases to take place, investors will partly fill that space. I am sure that there are things that the Government can do as well to incentivise private investment—maybe investing themselves in some cases, as they did with the Future Fund, and so on. There are a lot of other routes that, in the long run, are better for the tech sector than these types of deals.

[Kevin Hollinrake]

Q Thank you for your evidence. You probably heard my questions from earlier. We are very keen to ensure that innovation continues, not just in terms of the start-ups and scale-ups but with our big tech firms. Do you see anything in the Bill that will inhibit that?

Max von Thun: Honestly, not really. If I look at what is in the legislation, focusing on the conduct requirements and the PCIs that the large firms will have to comply with, what I see is something that says, “You’re allowed to operate in the UK. You’re allowed to grow in the UK. You’re allowed to invest. You just have to play by the rules. You can’t use your dominance to unfairly exploit small businesses or prevent rivals from emerging.” It does not stop them investing lots of money in R&D or hiring top talent. We are seeing all the innovation that they are doing now, and I do not see anything in the Bill that will stop that.

More broadly, there is quite a lot of evidence, not just in tech but in other sectors, that more competitive and less concentrated markets are better for innovation because challengers invest a lot of money in trying to take on the incumbents because they believe that they can replace them. The dominant firms have to defend themselves, and they invest more to protect themselves. The Bill will have that effect.

Lastly, particularly since the whole debate around Microsoft and Activision, we have seen to an extent an attempt to conflate the interests of a small subset of dominant firms with the wider tech sector. That is often a mistake. What is good for a large majority of tech start-ups may not necessarily be good for big tech firms. It may be, but it is important to separate out the two.

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[The Chair]

I will bring in Andy Carter to ask a brief question. I would like us to be able to wrap up soon to avoid detaining our witnesses for up to an hour. If everybody is agreed and there are no further questions other than Andy Carter’s, I will call him to ask his question.

[Andy Carter]

It is a question to Dan. I am very conscious that you have sat here and not had an opportunity to say anything. Could you give us a broad overview of how the Bill might affect the publishing sector?

Dan Conway: Thank you for the question. I will keep it brief, as I am conscious of everybody’s time. I am primarily here to talk about the role of Amazon in our area of publishing. Amazon has done great things to expand digital markets in books, has great partnerships with UK publishers and has got books into the hands of readers all over the world—and that is a great thing. But we firmly believe that we are now at a tipping point in terms of regulation with Amazon, as they have such entrenched market power in the book market that we need modern proportionate regulation to make sure that that entrenched market power does not lead to anti-competitive outcomes.

By our best estimates, Amazons sell over 50% of the print books in the UK market and about 90% of the e-books and audiobooks. That is monopoly power in selling print books and monopsony power as the sole buyer in retail books. It makes them a gateway company for my members; they are an unavoidable trading partner for any UK publishing company in the UK market, and we strongly support the Bill because we think it will help.

We think Amazon should be assigned strategic market status with the code of conduct that goes alongside it. We particularly support clause 20(2)(a) on trading on “fair and reasonable terms”. It is our view that currently, because of Amazon’s role in the market, publishers are not often able to trade on fair and reasonable terms. We heard from other witnesses about “take it or leave it” terms; effectively, if you are a small publishing business in the UK market, if you enter into a negotiation with Amazon, you are offered “take it or leave it” terms and you cannot negotiate with a retailer of that size.

[Andy Carter]

Q Can you write to us at some point and share those terms with us, so we can see the experience some of your members face?

Dan Conway: Yes, absolutely. As a trade association, we have to be one stage removed from that for obvious legal reasons, but our members have fed back to us on areas of concern, and we hear that Amazon is removing buy buttons, labelling products as out of stock, delisting products and refusing to stock products without reasonable cause—and all that is in the middle of a commercial negotiation. You have a major retailer that is able to use its size effectively to distort upstream competition through those kinds of tactics. I can absolutely look and see what we can write to you about that.

[The Chair]

Unless there is anything else, I will bring this session to a close. On behalf of the Committee, I am grateful to you all for the rapid responses you have provided. Thank you very much.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

Digital Markets, Competition and Consumers Bill (Third sitting)

Andy Carter Excerpts

Committee stage
Thursday 15th June 2023 Public Bill Committees

[Jerome Mayhew]

Q So if you could not limit it to six months, that would be self-defeating in its own right in many cases.

Neil Ross: I think there is a balance to be struck depending on what the case is and what is being discussed. Ultimately, the aim would be speed and flexibility. There are going to be trade-offs between the two, depending on what is happening. We want to give the CAT as much discretion as it needs to make that judgment, depending on what is being put before it. Because this regime has enormously flexible and very invasive powers at the upper end, we do not know exactly what kind of cases are likely to be brought forward or discussed. That is why we will want that focus on flexibility as well as speed.

[Andy Carter (Warrington South) (Con)]

Q This follows on from that question. Do you think the Bill is designed with sufficient flexibility for the CMA and the digital markets unit to respond to the changing nature of the sector? Five years ago some of the things we have today just did not exist. What is your view on that?

Neil Ross: Yes. Sorry to repeat points I have made before. I think it depends on exactly how the DMU exercises the power. They have to look ahead five years when making an SMS designation, which puts a lot of pressure on the digital markets unit to make an assessment about how a market is going to be used.

[Andy Carter]

Q Do you think five years is the right length? Should it be a shorter period?

Neil Ross: It is as much as five years; it could be longer. It is really how the digital markets unit looks at that. Companies in the broader sector would be given a lot of certainty if the DMU came out fairly early on and set up a priority list of where it is likely to look first. There is quite a good precedent in the Communications Act 2003 of the reporting powers conferred on Ofcom. I know the CMA has some reporting capabilities, but given the wide-reaching powers of the Bill, it might make sense to also think about applying the same standards to the digital markets unit.

[Vicky Ford (Chelmsford) (Con)]

Q You have mentioned a few times the importance of accountability to Parliament. I guess that needs transparency so you can get scrutiny. Do you think there is adequate accountability and scrutiny in this Parliament? How does it compare with other Parliaments?

Neil Ross: With this Parliament, the CMA is here quite a lot and so are the other regulators, so there is regular scrutiny of the regulators themselves. As the various different Bills go forward, whether that is the Online Safety Bill, the Digital Markets, Competition and Consumers Bill or the Data Protection and Digital Information (No. 2) Bill, we might have to think again about exactly how we are scrutinising those interrelated bits of digital regulation. That is a decision for this House and how you want a change of structures. It would be important to make sure—

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[Kevin Hollinrake]

Very useful. Thank you.

[Andy Carter]

Q Mr Burrus, could I just put to you something that I suspect some of the platforms might say? They have spent billions and billions and billions developing their platforms. Is it not reasonable that they make charges for app users to access those platforms? What they are doing is just recouping their costs, so making a reasonable profit from your members who get access to these fantastic platforms.

Gene Burrus: I think that ignores and rewrites the history of how these platforms got to be as powerful as they are today. If you go back in time to 2008, for example, when there was intense competition among mobile platforms to be your phone, right? There were dozens of firms that you barely know exist any more, like Blackberry, like Nokia, like Microsoft. There were lots of firms competing in that space. And the game then was actually to be as attractive as possible to developers, to the point where those platforms were paying developers to be on their platform, because they were going to recoup that investment through the sale—in Apple’s case—of very expensive mobile devices. And that is where they have recouped—handsomely recouped. It is probably the best business in human history, actually. It is only after they gained a degree of market power that they then began to use that power to try to flip the game and try to extract. Once they had developers in a place where they could not leave, that is when they attempted to go and extract those rents from developers.

I think that argument is a false argument. Apple has recouped its investment in these markets through the sale of very expensive hardware, and Google has recouped its investment in Android through billions and billions of dollars in ad revenue that it has continued to generate. The recoupment argument is a false one, I think.

[Andy Carter]

Q Thank you very much. I just want to pick up on one of the points that you make in your written submission to us, where you talk about a timeline for imposing an initial set of conduct requirements. I think you talk about a relatively short period—a three-month period. Would you just like to expand on that, because I think that is quite an interesting proposal?

Gene Burrus: Yes. I think the reason we are at this place today in the UK and why the European Union has come to a place in seeking to ex ante regulate these markets, and why even the US is considering it, although unfortunately quite slowly, is because of the speed that these markets move and the reality we have experienced in the past that often the competition cases against these dominant digital firms end up being an archaeological dig for the dead bodies and bones of the companies that did not survive long enough to see the outcome of the cases.

It is also the case that continuing to flout the law is extremely profitable for these dominant digital platforms; there almost is not an ex post fine that is large enough to deter them from engaging in the conduct going forward. The ability to find a way to quickly impose the codes of conduct means that, first, it is of benefit to the companies that are actually being harmed today and, secondly, tit will bring certainty to the market in a way that allows firms to reliably make investments based on those codes of conduct, instead of where we are today, where there are probably lots of firms that are declining even to start on mobile devices today because they know that they might not be able to recoup their investment, even though they have great innovative ideas for products that they know people would love. They also know that, absent action, it is likely that all of their investments might eventually just flow to the dominant players.

[Andy Carter]

Q Thank you. I have one question for you, Mr Smith, if I may. We are taking action to legislate; the EU has taken action to legislate. Many other countries are not yet in that place. Are we not just going to drive innovation outside of the UK?

Tom Smith: I think a lot of major economies are in the same place and moving forward in the same direction anyway. There are rulings against Google in India. There is app store legislation already in force in Korea. The Netherlands has a ruling against Apple’s app store. Australia is proposing a very similar regime to this one. There are lots of proposals, obviously, in America. Germany already has its regime in place and in force, as does the EU. There is a major benefit to all the major economies moving forward together because these are global issues.

As for deterring investment, I would say that monopolies do not stimulate innovation, competition does. That is the whole point of the Bill—to open up competition and get rid of artificial restrictions. When Apple bans alternative app stores on its devices, it is just holding the market to itself. If the DMU removes that ban, new app stores can come in and innovate. Maybe they will offer a better service than Apple; maybe they will not, and people can stick with Apple and Apple can make lots of money. That is great if it has a better product, but currently it is not being challenged.

[Vicky Ford]

Q Can you give us an example of the rent inflation you mentioned? For the app, how much would they have been paying five years ago and what are they being charged now, just to contextualise this?

Gene Burrus: The problem bothering a great number of our members is the forcing of the use of an in-app payment system that comes along with a 30% tax on any apps that sell what are called “digital goods” from within their app. If it is a digital subscription for a gaming app, for a news app or for music streaming, that comes along with a 30% charge. Those digital platforms did not contribute anything to those products; they simply take it off the top.

Ten years ago, the game was the opposite. People were actually paying those developers to come on to the platforms. To some degree, it has been a bit of a bait and switch for these platforms. When they were facing competition, they had one business model and, once they achieved dominance, they altered their business model to try to extract those rents. Making the bet with that 30% is probably one of the best examples of that.

--- Later in debate ---

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Q Briefly, you were saying that the app subscriptions that you might have will be through Apple, so the relationship is between the customer and Apple. We will look at the issue of subscription traps as the Bill progresses. Will the renewal relationship be between you and the customer or Apple and the customer? How will that end up working?

Mark Buse: We believe that the relationship should be between us and the customer—that Apple should not intermediate between us and the customer. Then we will, rightly, have the responsibility to ensure that there are not subscription traps or any other issues around subscription. At this point, generally what happens is that we are still blamed but the subscription is actually with Apple. We do not think that in an ideal world it should necessarily be just us. If some of our users want to subscribe via Apple, we are more than happy to let them use our service and continue to subscribe through Apple. If they believe that that is a safer, more private way to do it, great. We want to bring as many people as possible into our business. It is not about excluding; it is about different ways to include.

[Andy Carter]

Q May I pick up on the point that you made about Match payments and Uber payments? I was not sure why there is a difference. Why is Uber treated differently from Match?

Mark Buse: It is a historical anomaly. When the store was created, in a brilliant move by Steve Jobs, he needed to get companies to build apps. Apps did not exist. People my age were bombarded with commercials. The slogan for Apple was, “There’s an app for that.” Apps have become the way we use our phones because they make it easier. He had to go to all these physical companies and say, “Build me an app. I’ll put it on the phone.” The Walmarts and Tescos of the world said, “We want people coming into our stores. Why on earth would we want them not to, and to use the app?”

What Jobs did, again because he was a brilliant man, is say, “Look—it won’t cost you anything. In essence, it will just increase sales. It’s you-branded. It’s yours. You operate it.” That is why apps are distinct. Uber had just come on to the scene and was the hottest thing going. It went into New York and into London—some would argue illegally, not abiding by the rules. What happened is that Jobs—you can see this from various biographies and public court documents—said to Uber, “Come into the store, but because you’re a digital product, and the whole idea of the walled garden is that they hold on to your digital data, you’re going to have to pay 30%.” Uber said, “No. We won’t do it.” Because the store was nascent and Uber was popular, Jobs said, “You know what? Go into the store anyway. It’s fine. I won’t make you pay.”

Match at the time was a fledgling, super-small company, and our business was not big and growing because there was a lot of stigma around online dating at the time. People thought that if you cannot meet a date in real life, in person, you go to the online dating world. Now online dating is the No. 1 way that people meet in the UK. More relationships start online than in any other way. In the LGBTQ community, over 70% of all relationships start online. The market has changed. If the store was being created today, our market power might enable us to say, “Don’t include us in that.”

[Andy Carter]

That is really helpful.

[The Chair]

I am afraid that we need to wind up. Mr Carter, very briefly.

[Andy Carter]

Q Just a quick question to Tom. In your written submission, you commented on the scope of the Bill. Are you confident that it is broad enough, and future-facing enough, to cover things that we do not yet know about?

Tom Fish: Largely speaking. The one issue that I raised in my written submission was a small concern around a degree of ambiguity regarding operating systems. It is critical that operating systems can be designated with strategic market status. Half the potential interventions that have been talked about for opening up markets will not be possible if you cannot designate operating systems. This is just a plea really to insert the words “operating systems” as an example. It will not cost anything, but it will solve a lot of problems.

[The Chair]

Thank you. I am sorry that we have run out of time. On behalf of the Committee, I thank our witnesses.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

Digital Markets, Competition and Consumers Bill (Fourth sitting)

Andy Carter Excerpts

Committee stage
Thursday 15th June 2023 Public Bill Committees

[Seema Malhotra]

Q On a slightly different area, there were some concerns raised by some Members in the debate on the Bill about the Government changing the appeals process to one based on judicial review, as opposed to a merits-based review. How important, in your view, is that, and what would you want to see if the Bill progresses through Parliament?

Kelli Fairbrother: It is absolutely critical that judicial review is the standard that is used, because I think we have seen time and time again, in markets all around the world, that when Governments act, Apple and Google do their best to try to get around the work that is being done. They lawyer up—they have millions to spend on appeals slowing things down—and there really is a sense of urgency. This is existential for a lot of small app developers, so we would really urge that the Bill passes, it is not watered down and it passes without delay and without dilution, I think we would say.

Christian Owens: I agree.

[Andy Carter (Warrington South) (Con)]

Q I have just downloaded your app, so you have got another customer there.

[Vicky Ford]

He is such a charmer.

--- Later in debate ---

[Andy Carter]

I was interested in what you said about the cost of transactions. You suggested 3%. Where does that figure come from?

Kelli Fairbrother: Because of the constraints that Apple and Google put on us, we built a website, and on our website we use Stripe integration. The Stripe fees come out at about 3% to 4%, and it pays us every seven days. Again, this is where you can see competition; in the online payments ecosystem, there is healthy competition. Then you compare that with the app store monopolies and the control that it exerts over payments. The terms and conditions say that I am not allowed to use a prohibited payment method—for example, Christian is a prohibited payment method. That is not a free and fair ecosystem.

[Andy Carter]

Q Christian, do you want to add to that? You are in that space. Is 3% or 4% the sort of—

Christian Owens: We take the action that Apple and Google are taking, in terms of processing a transaction. We do this for thousands of companies outside the realms of the app store. The average price that a business will pay us will be somewhere in the region of 5%, and we are able to provide all the same services. We do payment processing. We are able to pay local sales taxes. We are able to deal with fraud. We review, with a human, every product that we sell before we sell it to ensure consumer safety. We are able to do all that in a profitable way by charging 5% on transactions.

[Andy Carter]

Q Sorry to flip between you, but Kelli, are your prices higher as a result of what you are having to pay? If there is freedom to choose who processes, will we see prices come down?

Kelli Fairbrother: For our site, because of the 15%, we tend to break even on most of our transactions—on a transactional basis. So for us, there actually is not a great deal of room, because we also pay the content providers. The challenge that we have at the moment is that we are trying to raise investment and look as investible as possible. The reason why we built the website is that we were given a really difficult decision: should we force people into a web-based experience, to try to regain the margin that we have lost, or should we raise our prices? For us, it may not be that you will see this immediately delivered back to the customer. For us, the position is that we are going to continue to deliver an exceptional experience to the customer and we are going to be able to afford to do that. That is the crux of it for us.

[Andy Carter]

Q This will be the final question from me. If we look at the Bill overall, is there anything that it does not tackle that you think it should?

Christian Owens: In its current form—as it is now—this is a very good Bill, and I really encourage it to go through without being watered down any further. It is great as it stands; it is a great start. I think that it is going to allow small businesses in this country to be more competitive and not be giving away a third of their revenue, effectively, to Apple and Google.

Kelli Fairbrother: I agree.

[Paul Scully]

Q This is a question that I forgot to ask Kelli earlier about payment. You said something about Apple paying you over a period of time. Is it not automated? Is there any reason why it cannot be? Late payments are always an issue for small businesses. You were talking about Stripe, which pays on a regular basis. Is this not on a regular basis as well?

Kelli Fairbrother: It is regular in the sense that the company takes a month of data and then pays me a month and some days later. So it happens every month, but it is happening every month on a timeline that is, again, at least five times as long as what I would be getting—using Stripe as an example.