Online Platforms and the Digital Single Market (EUC Report)

Lord Stevenson of Balmacara Excerpts

Wednesday 9th November 2016 Grand Committee

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank my noble friend Lord Whitty for a very interesting report and for introducing it so well this afternoon. Other members of the committee reflected on his style, which I can understand would translate into a very effective and interesting committee. I am glad we were able to get an insight into how it worked.

As I have said before and am sure I will say again, the committee system is the jewel in our crown. It is good that we have yet again a fine example of its work. It may seem a little odd to noble Lords that I was so taken by the report that I took it to bed with me last night and read it while waiting for the result sequence to start on the American election. I will not say which I enjoyed more, but I was still reading it at two o’clock so it obviously weighed heavily.

Like my noble friend Lady Donaghy, I was a bit disappointed by the response from the Minister. It may be that she was deflated by the recent referendum result and felt that she could not therefore rise to the full exercise of responding to such a fine report because it dealt so well with the UK dimension and also a presumed continuing European Union relationship. Obviously that was not the case. As my noble friend Lord Whitty said, the report was published before the referendum. I do not think the response did justice to the report. I hope the Minister, who is standing in for the noble Baroness, Lady Neville-Rolfe, who is on other duties—I left her at it in the Select Committee upstairs—will be able to extend a little bit some of the points that were made. On reflection, as I am sure has come through in the speeches we have heard so far, much of what was said in the report, although it may have been focused on systems that will not be in operation after 2019, is still relevant to the way we will deal with online platforms in future. It is worth spending a bit more time on this issue than has been the case.

The main point that comes out of the report, which does not need to be said too often but is rather important, is that these new disruptive technologies are a good thing and are to be supported wherever we can, but they will cause really big problems for our competition area, data protection and for our broader legislative task of seeing how they affect how we operate as a society and therefore how and when they need to be regulated. They will also bite deep into some of the current regulatory structures. I will refer a couple of times to a recent experience I have been having, which is well known to your Lordships’ House and will come back in the Digital Economy Bill. Secondary ticketing arrangements, which are often made relating to big sporting and recreation events, are a very good example of the dangers that can happen if we do not have the right regulatory framework. If we do not have even the right definitions for some of the things that have been happening relating to this part of the consumer space, we will end up in trouble.

The noble Lord, Lord Aberdare, in his well-shaped presentation, gave us four main points under which he wanted to address the issues. I have a couple more that I want to add, but I will broadly follow him in what he said, which is not too difficult. The first point is whether we have the right competition law in place for the new technologies and the online platforms and the way they operate. On this, I disagree with the committee, which was broadly of the view that competition law as it presently stands will be sufficient to take us into the new world. I do not think it is because of the speed of transactions and the way new technologies will eat away at our basic understanding of what we judge to be imperfect competition. As the committee report says, there will not be the same sort of price signals and information about operating. That will not be present.

As the report goes on to explain, although not in these words, we will not be talking about perfect markets. Economists will have to come up with a better understanding of the way markets such as these operate. We will accept, in plain light, the fact that certain of these platforms will effectively be monopolies. We are not saying that that is wrong. If it was a traditional market, we would be attacking anybody who had market dominance of the proportion that Google has. I do not pick on Google particularly, but it is an example of a commercial operation, which, as my noble friend Lord Whitty said, is apparently free and provides a route for many consumers to get information and then subsequently engage in market operations. We know about Amazon and others. Effectively, if these were traditional operations, we would be talking about monopolistic situations, and we would want to attack them with the sort of regulatory practices we have had. That will not work because that will destroy the very impact these operations are having.

The second point is that the speed of operation is so quick and so different that it would be difficult for a traditional approach of notification, asking for undertakings and moving forward in a way that has been the case in the past for the OFT and now the CMA. I go back to my example of ticket touting arrangements. The situation there was that those bodies decided that there was a possibility that unfair practices were taking place in respect of the law as it stood in 2014. They asked the four major contractors—there are now only three because a merger has taken place since then—to give undertakings and said that they would measure them a year on from the point at which the undertakings were given to see whether they happen. I simplify to make the point that we are talking about probably another year before we get the results from that. That is two years, working on a system that has changed so much in that time in the use of computer technologies to access tickets that have been on sale and reselling them in ways that are innovative and different. All this stuff will have moved on way beyond where the Competition Commission was at the time that it was starting this process. I give that as an example, and I think that there are much wider issues arising from that.

The committee’s report is good on issues to do with merger thresholds and valuations, and all the issues that would have been applicable in a traditional economy with a sense of a perfect market. They cannot operate when we are talking about start-up companies providing issues that will immediately go wide inside the space in a way which would not be followed.

Thirdly, on pricing, the committee rightly raises issues about personalised pricing and the way in which market access will be affected by that pricing. Again, with the secondary ticket arrangement, the ability to buy all available tickets and then resell them immediately at a much higher price is a completely novel view of the way in which markets operate. This is something that needs to be addressed.

Fourthly, on data protection, the issues raised were about the lunacy that most consumers—I include myself in this—are happy to surrender all their personal information to these online platforms, in which they trust, while at the same time expressing considerable disquiet and unhappiness about the way in which they operate. We have got to get ourselves right. The noble Lord, Lord Aberdare, was right to make the point about consumer education because it is crucial. We need to think much harder both as a Government and more widely in society about how we are going to get people to realise the risks they run if they do not operate sensibly in this space.

Transparency is an issue that I want to add. Points were made about the need for companies to be more open about their algorithms and about how they deal with individuals in the process. It is fine to call for that, but unless we have a regulatory approach or there is the threat of legislation, it will not happen. They are the private IP of the companies concerned and obviously they will not give it up, but it is completely wrong for consumers to be operating in a knowledge vacuum. That point was well made by the committee, but we need to be able to back that up, possibly through revisiting the Consumer Rights Act.

For the future, the report tries to bring us up to date to what the situation was in early 2016, and we are grateful for that. Things are moving on now, obviously, with Brexit and other things. My noble friend Lord Whitty made the plea that we consider, within our UK dimension—and, I presume, within the post-Brexit scenario—how we would regulate, because the digital single market, on which a lot of this is based, is a good idea, even though we will be outside the EU. It is very hard to see how we will operate. Indeed, the figures reflected in the excellent Library report, showing the proportion of online sites that operate within Europe, based in Europe and based in America, show that there is a huge imbalance already away from Europe. That needs to be addressed. It is not 50-50. When we are outside, how will we manage an arrangement under which we can trade effectively with those new corporations in Europe, but also create and develop our own unicorns—that is their technical term—which are going to be able to operate across Europe and indeed worldwide, because that is what the digital market can do?

This really is an excellent report. It allows us to think very carefully about what this new world will look like, and it will send some very good signposts of where we want to go. As I said, much of what has been discussed and recommended will be applicable post-Brexit, although the circumstances will be very different. We will not get a commentary, I am sure, from the Minister about whether these points will be taken forward, but we all assume that they will be. I hope that it will be done in a way which is a bit better than the initial response from the Government, and I hope that on reflection they will realise that some of the issues raised here need to be dealt with. It will not be sufficient to bat off some of the bullet points made to the CMA or to the data protection area because they are important. They will be the key to regulatory action in the future, and we need to deal with them.

The noble Lord is standing in for the IP Minister, and I know that it is a bit of a stretch for him. I am sure that he enjoyed the report as much as I did and that he will be able to respond in exactly the same way.