Digital Markets, Competition and Consumers Bill (Third sitting)

Vicky Ford Excerpts

Committee stage
Thursday 15th June 2023 Public Bill Committees

[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—

[Vicky Ford]

Q Have you looked at how other Parliaments scrutinise their regulators in this space? Is there best practice that we should be looking at? I recall my time in Europe, when we had much bigger Committees that held regulators to account, often much more regularly and with bigger Committees.

Neil Ross: That is certainly one example to look at. I know a number of people in this House are actively thinking about that, given the loss of those Committees following the referendum.

[Vicky Ford]

Q But you have not given your thoughts as an industry as to how we could approve it?

Neil Ross: Not really. I do not think we would necessarily go so far as to advise Parliament on how to set up a Committee structure.

[Vicky Ford]

Q I am not asking that. I am asking whether your members have experience of other places where they think it works better or worse.

Neil Ross: They certainly do, and we can get back to you on that if that is something you wanted in more detail.

[The Chair]

Mr Ross, you have been a complete star. Thank you very much indeed for your time.

Examination of Witnesses

Gene Burrus and Tom Smith gave evidence

--- Later in debate ---

[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.

[Vicky Ford]

Q How quickly have we gone from zero to 30%?

Gene Burrus: In 2008, it was zero, and the 30% probably came in about 2012. Once the markets settled down and it was clear that there were two phone platforms to be had, that is when Apple began to try to extract that.

Tom Smith: We focus on the app store stuff, but there is potential at other SMS firms. There are a lot of allegations about Amazon’s fees going up over time for small sellers, for example, and them being pushed into buying Amazon’s logistics operations, which are said to be expensive. The DMU can go and investigate whether they are expensive and whether they should be freed up to competition more. The CMA published a very good market study report on Google’s advertising businesses. It was 2,000 pages long and detailed the excessive profits made. Google charges 30% to 40% more than Bing to reach the exact same eyeballs. Those prices are going up.

[Jerome Mayhew]

Q You are buying a service to reach the same number of eyeballs. The process does not have greater reach. You said that, to achieve the same outcome as a facilitating business, they charge 30% to 40% more. Why doesn’t everyone use Bing?

Tom Smith: You may have seen yesterday that the European Commission is threatening to break up Google in the ad-tech business. The European Commission is formally alleging that Google is abusing its dominant position in ad tech. That is on the display side of the business. On the search side, Google has a 90%-plus market share in this country. It is a must-have product, and people are buying that product. There are lots of allegations about why it should be able to sustain such prices, but I do not want to make an unfounded allegation.