Guidance

Digital markets taskforce: terms of reference

Published 11 March 2020

Background

Technology is a force for good in the UK. Digital innovation is a major driver of opportunity, productivity and creativity across the whole economy.

Government wants to ensure that we can sustain, intensify and spread this growth. We are committed to making sure that digital markets work for all:

• to enable disruptors to challenge incumbents
• to empower consumers through choice and control
• to support quality services and content online
• to provide industry, especially SMEs, with fair access to digital markets to be able grow their businesses

To support this, we are developing a coherent and innovation-friendly approach to governing digital technologies to ensure their benefits are shared far and wide^{[footnote 1]}. This includes setting out the government’s response to the Cairncross Review on the sustainability of journalism in the digital age, working to foster fair, transparent and ethical online advertising^{[footnote 2]}, and working to protect users from harmful content^{[footnote 3]}.

The government believes that to truly spread the benefits of digital technology, competitive digital markets that empower consumers, innovators and small businesses are needed across the economy.

The Digital Competition Expert Panel (DCEP) report highlighted several competition problems in some of the most important digital markets. They recommended that the government establish a pro-competition Digital Markets Unit (DMU) focused on digital platforms tasked with a remit to:

• set a code of conduct for companies whose position means other markets depend on them, agreeing acceptable norms of competitive conduct on how firms with ‘Strategic Market Status’ should act with respect to smaller firms and consumers
• pursue data interoperability, mobility and systems with open standards between platforms, products and services to promote innovation and consumer choice, and address specific competition issues in digital platform markets
• pursue secure access to non-personal and anonymised data where data access represents a significant barrier to entry for smaller and newer firms, while protecting privacy and security

The Competition and Markets Authority’s (CMA) ongoing market study into online platforms and digital advertising is considering in detail how a number of the DCEP’s proposals could be applied to solve competition issues identified in the online advertising, social media and general search markets, alongside other specific remedies. In particular, the interim report sets out the initial view that:

• a number of characteristics of these markets may inhibit entry and expansion by rivals, undermining effective competition. These include network effects and economies of scale; consumer behaviour and the power of defaults; unequal access to user data; problems relating to a lack of transparency; and vertical integration and conflicts of interest
• an enforceable code of conduct for firms with ‘Strategic Market Status’ may help address the issues identified in these markets
• a code of conduct should take the form of high-level principles, with provisions falling under one of 3 overarching principles: ‘fair trading’; ‘open choices’; and ‘trust and transparency’
• platforms with ‘Strategic Market Status’ should have specific obligations to improve transparency and give users greater control over their data
• specific remedies, including data access and interoperability, may be justified to address concerns relating to Google’s market power in general search and Facebook’s market power in social media

The government will make decisions on these matters in due course. In the interim, further work is needed on the appropriate form, content and coverage of a potential code, how it might be enforced in practice and how it might interact with other measures currently under consideration in government. The government also wants to better understand the case for other more specific data access, interoperability and openness remedies.

Across all proposals the government is clear that any future interventions must strike the right balance between promoting competition and innovation on the one hand and avoiding disproportionate burdens on business on the other hand. The government recognises that timely action is needed in these fast-moving markets. Failing to act could allow poor competition outcomes to persist with consumers ultimately suffering.

That is why the government is establishing a dedicated digital markets taskforce (the ‘taskforce’). This will provide the government with expert advice on the functions, processes and powers which may be needed to deliver on the government’s objectives in these markets in a proportionate and efficient way. The government will make final decisions on what proposals to take forward. This includes where any additional functions and associated powers to manage market power and to promote competition in digital platform markets should ultimately sit.

The government is mindful of the need to ensure that any future changes to the regulatory system are coherent and cohesive, build confidence and clarity for businesses and consumers, boost innovation and investment, and reinforce the UK’s position as a global leader in stable, innovation-friendly regulation. The government will keep these factors in mind when considering next steps following the taskforce’s advice, and will consult on any final proposals in due course.

Scope of advice

Digital platform markets

The taskforce will build on, rather than re-run, the DCEP review. Specifically, its remit is to consider the practical application of the potential pro-competitive measures set out by the DCEP.

The taskforce will focus its expert advice on how to promote competition, and how to address the anti-competitive effects that can arise from the exercise of market power in digital platform markets: online services that intermediate between different groups to buy, sell, share and exchange different goods and services, typically collecting and using vast amounts of data to deliver their services^{[footnote 4]}. This includes, but is not limited to, e-commerce platforms, peer-to-peer platforms, social media networks and search engines, which have become an everyday part of modern life.

The unique characteristics of the technologies and processes that underpin these markets means they can rapidly ‘tip’ to become dominated by one or a small number of players. Incumbents benefit from strong network effects which make users reluctant to switch, and strong economies of scale and scope make it harder for disruptors to challenge incumbents.

These characteristics have led to some digital platforms occupying a critical ‘bottleneck’ position. This may inhibit innovation and the development of new services for consumers and businesses, result in higher prices, and make it harder for disruptors to challenge incumbents. It may lead to platforms imposing terms and conditions which are unfavourable to consumers and businesses, including, but not limited to, the types of conditions often imposed on data collection^{[footnote 5]}.

Key areas of focus

The taskforce will provide specific advice to inform the government’s decisions on how to promote competition in digital platform markets to the benefit of consumers and businesses.

The taskforce will publish a final report for the government in December 2020 that will contain:

1. Advice on a potential methodology to designate digital platforms with ‘Strategic Market Status’ (SMS).

2. Consideration of whether intervention to promote competition is justified in relation to platforms or platforms’ activities that do not fall in scope of a potential definition for SMS, but in some other ways exhibit characteristics that may have adverse effects on competition.

3. Advice on the form that a code of conduct to promote competition could take, including:

• whether it is principles-based, outcome-based or rules-based
• whether the code could apply to platforms’ relationships with businesses or also consumers
• whether separate codes or detailed supporting guidance are needed for individual platforms or markets

4. In considering the form of a pro-competition code(s) of conduct, the taskforce will be mindful of interactions with other relevant regulations, such as the Platform to Business Regulations. The government expect that a pro-competition code is likely to address many of the issues in scope of Dame Frances Cairncross’s proposed codes of conduct, and the government will consider the taskforce’s final advice with this in mind.

5. Advice on the content that could be covered by such a pro-competition code(s) of conduct. This will draw insights from but go beyond the issues considered by the CMA’s market study on online advertising, to cover the wider range of potential issues and markets that the DCEP report has identified.

6. Detailed advice on the associated powers and processes that would be needed to operate and enforce any potential code(s).

7. Advice on whether there is a case for remedies relating to data access and interoperability outside of search and social media markets, and whether such remedies should be captured through a code(s) of conduct or through more specific additional powers.

8. Advice on whether additional supporting functions and associated powers beyond those proposed by the DCEP may be needed to effectively promote competition in these markets.

9. Advice on where a pro-competitive regime might interact with existing regulatory regimes, such as relationships between promoting competition and wider regulatory objectives, including but not limited to economic growth and innovation, privacy, data protection, and intellectual property rights.

10. Advice on where international cooperation between a pro-competitive regime and other jurisdictions and multilateral fora would be most valuable or necessary, and how this cooperation can be achieved in practice.

The taskforce will agree the programme of work to deliver this project with government officials. The government will consider the appropriate institutional design for a coherent regulatory and competition system and will be making final decisions on these matters. This will be informed by the taskforce’s advice.

Broader context for this work programme

When developing this pro-competition advice, the taskforce will have due regard to potential interactions with the government’s wider digital and competition policy and objectives, including economic growth and innovation, data strategy, privacy objectives and ensuring safety online, among others.

The taskforce’s scope will complement the insights that can be drawn from the CMA’s market study to provide the government with the advice needed to take decisions to implement a pro-competitive regime. In particular, the taskforce will provide advice across the full range of digital platform markets that a pro-competitive regime should cover.

In making final decisions on the design of a pro-competitive regime, the government will draw upon the taskforce’s advice as relevant, alongside consideration of broader policy objectives, including but not limited to those covered by the Cairncross Review and Online Harms White Paper.

Stakeholder engagement

The taskforce will consider relevant evidence to inform its advice. This may, for example, include consideration of the full findings of the CMA’s independent market study into the online advertising market, government research, and evidence from other relevant reports, for example the Centre for Data Ethics and Innovation’s (CDEI) recent review of online targeting.

It will draw on academic and industry expertise and will conduct bespoke research as relevant to supplement existing evidence. The government recognises that the powers available to the taskforce to gather new evidence are different to those the CMA has through a market study process. The government will assist the taskforce where it can to have the strongest evidence on which to base its advice. The Intellectual Property Office (IPO), the CDEI and other relevant bodies will also be consulted.

The taskforce will also call upon experts from other sectors as relevant, for example, the Open Banking Implementation Entity or the Open Data Institute, as well as industry and academia.

The taskforce will engage with digital platforms, consumer and business groups as relevant to ensure its advice supports proportionate and effective measures to promote growth and innovation and improve consumer and business outcomes.

Governance and reporting

The taskforce will be housed in the CMA and will be headed by a senior CMA official. It will be made up of:

• officials from the CMA
• the Office of Communications (Ofcom)
• the Information Commissioner’s Office (ICO)

The taskforce will operate until December 2020 unless otherwise agreed with the government.

It will be important for the government to be regularly apprised of the taskforce’s work, and for there to be an open dialogue between the government and the taskforce as appropriate. The government will provide the taskforce with initial steers on scope and prioritisation and will provide further input as relevant. The mechanisms to achieve this will be agreed between the government and the taskforce.

Following the taskforce’s report to the government in December 2020, the government will consider these matters in the round, and set out next steps and any ongoing activities of the taskforce.

1. Read this speech by Baroness Morgan of Cotes on how we can make technology work for everyone, and setting out 5 principles. ↩

2. The government has launched a call for evidence on the effective application and enforcement of advertising standards relating to content and placement online. ↩

3. Government has published its initial consultation response to the Online harms white paper. ↩

4. The OECD provides a more technical definition: “An online platform is a digital service that facilitates interactions between two or more distinct but interdependent sets of users (whether firms or individuals) who interact through the service via the Internet”. ↩

5. Such issues are described variously in: Chapter 1 of the DCEP report; p.8 of the CMA’s online platforms and digital advertising market study interim report; the Stigler Center Committee Digital Platforms report, pp.57-78 ↩