Reining in the digital giants

It is time to curb the unchecked monopoly power of big tech and offer end users genuine choice in the digital economy. By Richard Alston.

History is replete with examples of monopolies exercising unacceptable power to the detriment of consumers and having to be curbed by regulation or even break up – think Standard Oil and AT & T. And now, as we move deeper into the 21st-century, regulators face similar challenges, with the inexorable growth of gargantuan tech platforms such as Apple, Google, and Facebook. It‘s deja vu all over again.

In the 1990s, governments and regulators recognised the need to open up the fixed line telecommunications bottleneck that was holding back competition, investment, and innovation and which, if addressed, would reduce prices, and deliver better quality of service for consumers and business users.

Entrenched telco monopolies swore blind the world would come to an end if the last mile of the copper networks they controlled was opened up to third parties. They fought tooth and nail against policymakers and regulators for years, ultimately all to no avail. The market was opened up, the local loop unbundled, and anti-competitive conduct was clamped down upon, in Australia through bespoke telecommunications powers that were legislated with strong cross-party support. Opening up the telecommunications sector resulted in the entry of a plethora of new carriers and service providers, driving down prices and offering real choice for consumers.

Cast one’s mind forward 25 years and there are new bottlenecks holding back the ability of would-be competitors to deliver an array of cheaper and more innovative digital offerings to consumers and business users. These digital bottlenecks are controlled by technology behemoths like Google, Apple, and Facebook. As with the domestic fixed line telco monopolies before them, end users have little or no choice but to use these global giants to access an array of digital services in areas like search, content, apps, and mobile payment systems. And like the traditional telcos, the global tech giants have become horizontally and vertically integrated, with growing concerns about self-preferencing and their commercial use of customer data, similar to the concerns that resulted in the need for declarations, undertakings, and standard access obligations in the telco space.

At this point, it is not clear if replicating the regulatory approach taken in the 1990s would be effective in addressing these new digital bottlenecks. For many, including Australia’s current Communications Minister, Paul Fletcher, and the former ACCC Chairs, Allan Fels and Graeme Samuel, there is a real question whether the 1997 reforms ever went far enough, evidenced by the later need to require the effective structural separation of Telstra and its replacement by the NBN as the national fixed network operator and wholesaler.

Nevertheless, it is increasingly recognised that the status quo of allowing a small number of global giants to maintain their largely unregulated gatekeeper positions and set their own rules of access and pricing across multiple digital markets is no longer tenable. The Australian Government and the ACCC have led the way with the legislated News Media Bargaining Code which addresses the bargaining power imbalances between traditional news media outlets and global digital content distributors like Google and Facebook. As occurred with the telco monopolies who cried wolf in the 1990s, the digital giants claimed the News Media Bargaining Code would have all sorts of adverse consequences for end users’ access to news content, none of which have come to pass. It is noteworthy that this legislation passed the parliament with bipartisan support.

Other governments and regulators are turning their attention to the global digital bottlenecks with market inquiries, enforcement action and legislation. These include broad approaches like the EU’s proposed Digital Markets Act which would regulate the conduct of designated digital gatekeepers, to more specific actions. A current example of targeted action is South Korea, which is considering legislation to open up Apple and Google’s in-app payment systems which currently charge digital apps a 15-30% commission for in-app subscriptions and in-app purchases, including for their Australian users. The fact that South Korea is taking the lead in this area is unsurprising, given its record of monopoly busting in areas like the parallel importation of music, and its leadership in the deployment of high-speed broadband and the use of wireless technologies like CDMA.

As ACCC Chair Rod Sims has made clear, competition regulators around the world are working collaboratively on these digital bottlenecks to ensure there is maximum international alignment. Given their pervasive global impact, this makes sense and is similar to the approach to multinational tax which is being driven multilaterally by the new OECD Director-General, Mathias Cormann.

In Australia, the ACCC’s five-year Digital Platform Services Inquiry (DPSI) is methodically working through the considerable number of individual areas where global tech firms have market power, identifying issues and proposing solutions. Parliamentary Committees are undertaking their own inquiries, with the Senate Select Committee on Fin Tech and Reg Tech raising the prospect of an access regime for in-app payments and the Joint Committee on Corporations and Financial Services looking at mobile and digital wallets, particularly Apple Pay and Google Pay.

As Rod Sims points out, there are common themes across the various inquiries and a likely need to go further than the individual DPSI recommendations, potentially through legislation that addresses a broad suite of ‘gatekeeper’ issues. To be effective, such legislation must be technology agnostic, based on the core competition principle of opening up identified bottlenecks, and include strong powers to combat anti-competitive conduct.

Just as the telco reforms in the 1990s drove investment and consumer benefits, a comprehensive, evidence-based approach to regulating the market power of the global tech giants will be a macroeconomic reform that will underpin Australia’s transition to a digital economy. Regardless of who wins the next election, it is unfinished business that should be tackled in the next term of government.

Richard Alston was Communications Minister from 1996 to 2003. He is Chair of National Advisory which advises a range of companies and organisations, including the Match Group.