Digital Markets, Competition and Consumers Bill

Lord Vaux of Harrowden Excerpts

2nd reading
Tuesday 5th December 2023 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, it is always good to be able to start a speech with the words, “This is a good Bill”. I am not the only person to have used those words. They have been used all around the Chamber; it is an unusual situation and very welcome. It is also getting to the point of the evening where it is quite difficult to say anything that has not been said several times before. I am going to try to avoid repeating what has been said. I may not manage that, partly because, as the Minister will have spotted, there is a high-level of consistency of theme emerging on all sides of the Chamber.

The various ways in which the large tech platforms can stifle competition have been well described by many noble Lords, including the Minister at the outset. Part 1 of the Bill empowers the Digital Markets Unit of the CMA to tackle the monopolistic behaviour of companies with strategic market status with a quicker, more flexible, tailored approach and a more efficient regime. It should make it easier for new, innovative companies to enter the market on a fair basis—so far, so excellent. It is a shame, then, that the Government have chosen to amend their own Bill in ways that may water down the effectiveness of Part 1. This has been alluded to by noble Lords all around the Chamber and I am sure that we will have a lot of discussions on those matters as the Bill progresses through its stages—but I will very quickly touch on the matters that worry me most.

First, it seems entirely wrong, and to conflict badly with the CMA’s independence, that any guidance issued by the CMA regarding the exercise of its functions relating to digital markets must first be approved by the Secretary of State. Worse, there is no timeframe or process for obtaining such approval; I think that is inappropriate. I can see a case for a defined period of consultation, but approval goes too far. Why did the Government decide that was required?

Secondly, again as we have heard several times, the Government have potentially weakened the ability of the DMU and CMA to implement and enforce rulings quickly by introducing a countervailing benefits exemption, proportionality restrictions and watering down the judicial review appeal process. The danger here is that these, individually or together, may provide an anti-competitive SMS entity with more ways to bog down the process in appeals and so delay implementation of any enforcement. In such a fast-moving market, speed and agility are critical; anything that delays the enforcement of a ruling could be the difference between a new entrant’s success or failure. We are talking about some of the world’s biggest companies here, with extremely deep legal pockets.

Part 4 of the Bill, which covers consumer protections, introduces some really welcome additions to consumer protection law, especially around subscription contracts. But they do not go far enough and there are some important omissions in what the Government have proposed. Others have pointed out the omission from the Bill of fake reviews. This is an important area and I look forward to hearing from the Minister what the Government are planning—I know they are consulting, but I would like to understand what they are planning on doing in respect of fake reviews.

The other area that the Bill does not tackle is the more difficult question of drip pricing. This is perhaps a more nuanced area. There are genuine benefits to consumers from disaggregating pricing of core and non-essential elements of a service, such as an airline ticket: those who are prepared to travel without an assigned seat, with no luggage and so on, clearly benefit, but that is different for a parent and child, for example, for whom sitting together is essential. Having said that, I can think of a number of occasions when I would have paid good money to sit at the other end of the aeroplane from my children. I hope Ryanair is not listening; that might give it ideas.

There are those companies that push drip pricing too far by hiding unavoidable charges, fees for essential elements, commissions and so on until the very end of the process. That is clearly unacceptable. A well-known train booking company does this, as do event ticket sellers: you get to the end of the process, you are bought into going to see that particular concert, it is too late to turn around, and suddenly they hit you with all the fees and whatever at the end. It is time that real action is taken to ensure fairness and transparency, and this Bill seems the ideal opportunity for that.

On subscription traps, the Bill introduces some welcome changes that will help consumers, but I do not think they go far enough. That said, I have some issues with the cooling-off period; I am not sure that is necessarily the best way of doing it. As a point of principle, it cannot be right for businesses to make their money by deliberately designing subscription arrangements that rely on forgetfulness or making it difficult to cancel. For subscriptions that involve a free or reduced period up front, the contract should end by default unless it is actively renewed at the end of that initial period. It is too easy at the moment to join a free trial and then find yourself locked in because you forget to cancel on the due date. That will probably remain true even with the reminders the Bill will introduce.

It is often too difficult to find the end date of a subscription. For example, I have been looking at my home broadband contract recently. I ended up having to ring the company because I could not find the end date anywhere in any of the account details. The Bill will require a reminder as the end date nears, which is welcome, but it is often helpful to be able to find the date well in advance—for example, as in the case of my broadband, when a new and better service becomes available and you want to know when you will be able to transfer. Why not insist that the end date is included clearly on every invoice or other piece of correspondence? That would not add any great burden—companies seem to be able to do it easily enough if they are pushing you to upgrade—but it would make it a lot easier for the consumer to find out, at any time, when the contract will terminate.

Another pernicious trend seems to be emerging, especially among telecom providers, for longer, two-year contracts. That may be fine, but there is often a very small print price kicker, where periodically, often on a fixed date such as 31 March, the price rises by significantly more than inflation. That can happen within a short period of entering the contract—for example, if you sign up in March you can be hit by that price kicker within a couple of weeks of signing the contract. These price hikes are often hidden with an asterisk and a footnote in small print. I looked at my provider this morning. Down at the very bottom of the page it says, “Legal stuff”. In there, there is a sentence that says it will go up by 3.9% over inflation on 31 March. That is not acceptable.

Finally on subscriptions, it cannot be right that companies should be able to continue to take subscriptions for services that are clearly not being used after the initial period has come to an end. I suggest that, if a service has not been used for three months after the initial contract period has ended, it should be terminated automatically, unless the subscriber actively confirms that it should continue. It is not acceptable to rely on the fact that the subscriber has forgotten and said nothing if there is no use of the service.

At the risk of being predictable, I will put in a word on fraud, which I do not suppose will surprise anybody. One of the biggest risks that consumers face at the moment is online and digital scams. The majority of these arise from the telecoms industry or the online services industry, particularly where scammers use these organisations’ services to make contact and create the scam. This is a missed opportunity in the Bill, and I hope it is one we will come back to.

Overall, this is a good Bill, but there are areas where we can improve it. I look forward to working with everyone to do so.

Digital Markets, Competition and Consumers Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Wednesday 24th January 2024 Grand Committee

Moved by

[Lord Vaux of Harrowden]

59: Clause 57, page 33, line 24, at end insert—
“(c) an undertaking which has received an SMS investigation notice in accordance with section 11(1), unless the initial SMS investigation has been closed in accordance with section 12 or an SMS decision notice has been given in accordance with section 14; and where such an undertaking is part of a group, any member of that group.”Member’s explanatory statement
This amendment would apply the merger reporting requirements to undertakings that are being investigated by the CMA as to whether they have strategic market status.

[Lord Vaux of Harrowden (CB)]

I hope that this group of amendments will not be as much of a marathon as the previous group—or indeed that performance from the Deputy Chairman. I start by apologising that I could not attend the first day in Committee, due to a combination of Avanti West Coast and Storm Isha. I would have liked to have spoken in support of amendments in the first group that day, and I entirely agree with what has been said about ensuring that we do not create opportunities for large tech firms to use their immense legal firepower to slow down the process of designating them as having strategic market status, and ensuring that the information and work already done by the CMA can be taken into account. It is fair to say that the same themes have continued today, and Amendment 59 is a continuation of them in a slightly different way.

As a number of noble Lords have already pointed out, we already know who the main strategic players are and that they are already abusing their strategic market positions, as the noble Lord, Lord Tyrie, said so clearly on day one. The noble Baroness, Lady Harding, described how the big tech players know that the regulation is coming, but they are walking backwards as slowly as they can. As she pointed out, we see that very clearly with the EU’s Digital Markets Act, in which so far every potential SMS-equivalent firm has challenged its designation through every stage of the courts that it can. So at best we are unlikely to see any SMS designations until well into 2025, and possibly much later, if they are able to spin out the process.

If I read the Bill correctly, there is actually only one immediate additional obligation that designation imposes on a company: a requirement to report possible mergers on a more enhanced basis than currently applies. But this obligation does not come into force until the SMS designation has been made.

As I said, we already know who the main players are. That is not just speculation—the CMA has already confirmed some of them in its previous work. As an example, in its Mobile Ecosystems market study report of June 2022, just a year and a bit ago, the CMA confirmed that both Apple and Google would meet the test of having strategic market status in the supply of mobile operating systems and the devices on which they are installed, in native app distribution, and in mobile browsers and browser engines. It is not speculation; we know who these people are. Why, then, would we want to wait for another year or more, allowing them to game the system during that period, before applying the enhanced merger reporting requirements on them?

Amendment 59 would apply the enhanced merger reporting requirement to companies that have been given notice that they are under SMS investigation, rather than having been designated. We do not have to wait until the designation has been made. We have heard already the fears that the large tech players will seek to spin the designation process out. Without Amendment 59, the large tech companies would have an additional incentive to game the system by deliberately prolonging the designation process so that they could complete a merger that would be reportable once designated but which is not reportable before the designation is made. I do not think that it is a good idea to give them further incentive to do that.

This is important. For much too long, the large tech companies have been able to entrench their market power through acquisitions with relative impunity. Very few have been passed to the CMA for investigation. In the 10 years to June 2023, according to Wikipedia—admittedly not the best source, but the only one I could find easily—Alphabet, the owner of Google, has completed at least 129 acquisitions, Apple 81 and Microsoft 110. In each case, that has happened across an extraordinarily wide area of activities. These big companies can afford to gamble on acquisitions, even if all they do is succeed in taking out a competitor, or potential competitor.

The enhanced merger reporting regime that this Bill will introduce is a really important step, and I very much welcome it, but we should ensure that it cannot be side-stepped by making it applicable as soon as a company has been informed that it is under SMS investigation. This does not prejudge the merits of any merger; it would simply allow the CMA to take a look while the SMS investigation is under way, rather than it going through under the radar.

I am sure that the Minister will argue that it would be unfair to apply the more stringent merger reporting rules to companies that have not yet been designated, but I do not believe that that is right. First, under Clause 9, the CMA is able to investigate an SMS firm only when it has reasonable grounds to consider that it may be able to designate an undertaking as having SMS. As previously pointed out, we know who those companies are, and we know that there are reasonable grounds for a lot of them that exist at the moment, as the CMA has already pointed out. More importantly, would not it be extraordinary if a merger that would meet the new threshold, and that therefore might impact the strategic status investigation itself, was not reported to the CMA during the investigation? That cannot make sense.

This is very simple: we know who the strategic players are, we know that they abuse their market power, including through mergers and acquisitions, and we know that they are likely to seek to challenge and prolong designation to avoid regulation—we have seen them do it. So let us at least put them under the enhanced merger reporting rules at the earliest opportunity, rather than leaving it for another couple of years.

[Lord Lansley (Con)]

My Lords, I am very glad to follow the noble Lord, Lord Vaux of Harrowden, who presented very well the context to both of these amendments and made a very good point about the desirability of extending the scope of Clause 57 in the way proposed in Amendment 59.

Amendment 60 stands in my name and that of the noble Lord, Lord Clement-Jones—who may be able to say something in his absence through the medium of the noble Lord, Lord Fox.

From my point of view, Amendment 60 goes back to the Furman review of 2019, which noble Lords will recall, which reflected a similar point to one that was made by the noble Lord, Lord Vaux of Harrowden. Paragraph 3.44 of the review referred to the preceding decade and said that in that preceding decade

“Amazon, Apple, Facebook, Google, and Microsoft … have made over 400 acquisitions globally”.

Under the Competition and Markets Authority in this country, in that decade none was blocked, none was notified voluntarily and none was called in for phase 1 or phase 2 investigation. There were European Commission investigations—and that might be regarded as the more appropriate umbrella as a competition authority—but it cleared Google and DoubleClick, Apple and Shazam, and Microsoft and LinkedIn. They were not blocked.

The world has moved on since Furman, and you might say that we have learned more and know more about some of the benefits that are obtained by some of those acquisitions. But the Furman review looked very carefully at whether we should regard mergers involving digital companies differently. That is, I suppose, my point.

I refer to paragraph 3.81 and subsequent paragraphs of the Furman review, which said:

“In mergers involving digital companies, the harms”—


the balance of benefits and disbenefits in relation to future competition—

“will often centre around the loss of potential competition”.

It goes on to say:

“Although potentially harmful to consumers, these outcomes are likely to be relatively uncertain at the time of the merger. This may make it hard to demonstrate that a substantial lessening of competition is more likely than not”.


I will come back to “substantial lessening of competition”, which will be a term familiar to many noble Lords. It gave the example, at this point, of the 2012 Facebook acquisition of Instagram, which at the time was a small photo-sharing platform. It said that even if the OFT had gone on from its phase 1 to a more thorough phase 2 investigation—which of course is more than a decade prior to the period it was looking at—it may have been limited in its ability to block the merger by the balance of probabilities standard: looking at a substantial lessening of competition, would it be more likely than not that there would be a substantial lessening of competition? We do not need to debate Facebook and Instagram and how it all turned out.

The Furman review said:

“The CMA should take more frequent and firmer action to challenge mergers that could be detrimental to consumer welfare through reducing future levels of innovation and competition, supported by changes to legislation where necessary”.


That was its strategic recommendation B. It went on to say, in a recommended action:

“Digital companies that have been designated with a strategic market status should be required to make the CMA aware of all intended acquisitions”.


That is indeed exactly what Clause 57 achieves. To that extent, the recommendations of the Furman review were carried through.

Interestingly, the Furman review went on to discuss the question of whether the balance of probabilities standard could be replaced by a balance of harms standard. I am not going to pursue that, because I can see that it was very difficult to vary a standard which is, in effect, not in the statute but is in the substance of the practice. What I have done instead, in Amendment 60, is to ask what it is that is lacking, or may be lacking, and should we, through the mechanism of the Bill, examine very carefully whether we can do more to strengthen the powers of the Competition and Markets Authority in relation to digital competition in particular.

Once there is a notification in relation to a potential merger, Clause 57(9) refers to the steps that the CMA may take in relation to a merger. It refers to Section 33 of the Enterprise Act 2002. It does not change it; it just refers to those steps. I have the benefit—I may not be the only one here, I am not quite sure—of having been on the Standing Committee in the other place on the Competition Act 1998 and the Enterprise Act 2002. I see that my noble friend was on the Standing Committee on the Enterprise Act—and maybe both.

We will come back to the issue, but I say to my noble friend the Minister, in parenthesis, referring to the previous debate, that trying to compare a block exemption under the Competition Act, which is ex post regulation, with an exemption applied in relation to an ex ante imposition of a conduct requirement by the regulator is, I am afraid, a false analogy. I will not go back to that, but I think it does not really apply.

What I have done in Amendment 60 is to seek to vary Section 33 of the Enterprise Act 2002—quite a big thing to do—but only in relation to designated undertakings. The amendment says that if one is a designated undertaking, not only does one have to notify but there is a difference in the structure of Section 33, so that where it says that a reference can be made in relation to

“(a) arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and (b) the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”,

I am seeking adding an “or”. So (a) would apply in all cases; (b) might apply; or (c ) would apply, which the amendment makes clear would say

“or, (c) if the relevant merger situation involves a designated undertaking under section 2 of the Digital Markets, Competition and Consumers Act 2024 the creation of that situation may be expected to result in the loss of future benefit to consumers in the provision of digital activities as a consequence of the forestalling of prospective competition”.

The drafting may be deficient, but I make the point that we need to put in the drafting what we are trying to do. That is to give the CMA explicit statutory cover to look forward—as it does in its five-year forward designation—identify a merger situation and ask, in the context of its forward-looking assessment, which it must do for designation purposes, whether there is an expectation that that merger situation would result in the loss of future benefit to consumers if it were brought into effect. That is a reasonable alignment between the nature of the designation process and its forward-looking character and the desirability of the assessment of any potential merger situation having the same characteristic.

--- Later in debate ---

[Viscount Camrose (Con)]

I very much thank the noble Lords, Lord Vaux and Lord Fox, speaking on behalf of the noble Lord, Lord Clement-Jones, and my noble friend Lord Lansley for using these amendments to raise the very important and quite subtle issues of merger reporting and assessment in digital markets. I also thank the noble Lords, Lord Tyrie and Lord Bassam, and my noble friend Lady Harding for their thoughtful contributions.

Amendment 59, tabled by the noble Lord, Lord Vaux, would extend the duty to report possible mergers, provided for in Chapter 5 of Part 1, beyond firms designated with SMS to also include firms that are subject to a designation investigation. Firms can use anti-competitive mergers to further entrench their powerful market positions, especially in digital markets, where fast-acting damage to competition can be difficult or impossible to reverse. That is why SMS firms will be required to report certain possible mergers to the CMA before they complete. However—this may be a philosophical objection as much as anything else—it would not be proportionate or in keeping with the targeted and evidence-based approach of our regime to apply this duty to firms before the conclusion of a designation investigation.

I agree with the noble Lord, Lord Vaux, that firms under designation investigation may hold powerful positions in the market; some may even have been the subject of previous CMA scrutiny. Nevertheless, it is right that the duty to report should apply only once a firm has been found to have substantial and entrenched market power following a rigorous assessment and SMS designation. To reassure noble Lords, firms under SMS designation investigation will of course remain subject to the economy-wide merger regime. The CMA will be able to intervene where their mergers would harm competition in the UK.

Amendment 60 from my noble friend Lord Lansley—

[Lord Vaux of Harrowden (CB)]

Before the noble Viscount moves on to the next amendment, there seems to be a slight logical problem here, in the sense that presumably the new enhanced regime was set at the level it was because those mergers are felt to be significant for a strategic market status entity. If it were to do such a merger during an investigation, it would presumably impact potentially on whether the CMA believes that it meets the SMS, and therefore it must be important that the CMA is informed about acquisitions that could impact the investigation itself. It seems that there is a circularity here, but the noble Viscount has not addressed that.

[Viscount Camrose (Con)]

I do indeed recognise it. As I say, it is a difficult one because equally, one cannot treat undesignated firms as designated until the designation has taken place. I am very happy to carry on considering this with the noble Lord, because the point is a powerful and important one. Before moving on, I just point out that over the course of the necessary consultation activities, it would of course emerge that a firm was considering or evaluating a merger.

[Lord Vaux of Harrowden (CB)]

As somebody who spent most of his life doing mergers and acquisitions, I can say that they are not always made public.

[Viscount Camrose (Con)]

As I said, I am very happy to carry on with this; there is a sense of rounding up the usual suspects otherwise.

Amendment 60 from my noble friend Lord Lansley is intended to give the CMA jurisdiction to intervene in a merger when an SMS firm seeks to remove or absorb a smaller firm that could reasonably be expected to compete with it in future. I agree that it is important to ensure that the CMA can act against harmful mergers, including so-called killer acquisitions. I reassure my noble friend that the CMA can and does do so under the current legislative framework.

When reviewing a merger, the CMA can already consider whether it removes a potential future competitor. This can be seen in the Meta/Giphy case where, in its forward-looking assessment, the CMA found that the merger removed Giphy as a potential challenger and consequently ordered Meta to sell Giphy. The decision was upheld by the CAT, which I hope and think shows that the CMA has the necessary legislative cover.

It has been suggested that the CMA and other regulators have not scrutinised mergers by large digital firms enough in the past. However, since the Furman review, the CMA has undertaken a comprehensive review of its merger assessment guidelines and updated them in 2021 to ensure that they more clearly reflect the CMA’s current thinking and practice on digital markets, drawing on conclusions from expert reports, analysis and cases.

[Viscount Camrose (Con)]

I thank the noble Lord for raising that point. He has alluded a number of times during our conversations to ensuring that the working culture within the CMA is suitably postured to deal with a fast-moving regime. I can indicate that I certainly have sympathy with the intent of enhancing the accountability both to Parliament and government of the CMA—with this and other ends in mind, but to ensure that it remains assiduous in its identification of opportunities to intervene.

The Bill will enhance the CMA’s ability to act to prevent harmful mergers by SMS firms. The reporting requirement will improve the transparency of merger activity in digital markets. Additionally, Clause 127 in Part 2 and Schedule 4 will introduce a new acquirer-focused jurisdiction threshold, which provides an additional basis for the CMA to review mergers involving large firms, including SMS firms.

For these reasons, I hope that the noble Lords, Lord Vaux and Lord Clement-Jones, and my noble friend Lord Lansley will be reassured for the time being and not press their amendments.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank all noble Lords who have taken part in this short but interesting debate. I should say that I forgot to thank the noble Lord, Lord Clement-Jones, who sadly really is not here at the moment, for supporting my amendment. He is here in the spirit of the noble Lord, Lord Fox.

We have heard some excellent points—in particular the description from the noble Lords, Lord Lansley, Lord Fox and Lord Tyrie, of how regulating acquisitions in this sector is difficult and challenging. It is a sector where even quite small and apparently insignificant acquisitions can end up having a really substantial impact; we had the description from the noble Lord, Lord Tyrie, of the change in culture that will be required at the CMA to deal with that. This is an area that the Government will have to continue thinking about. We might want to discuss this further between now and Report.

I am also grateful to the noble Baroness, Lady Harding, for correcting me on Google’s desire to co-operate with the competition authorities, which is obviously most welcome. I am grateful for her correction. She is also right that my Amendment 59 is a small one, but I think that it is important, and I very much welcome the Minister’s offer to discuss it further as the process goes on. On that basis, I beg leave to withdraw Amendment 59.

Amendment 59 withdrawn.