The Digital Markets Competition & Consumers Act is now law

At a glance

• The much-anticipated UK Digital Markets Competition and Consumers Act (‘the Act’), received Royal Assent on 24 May.
• The Digital Markets Unit (‘DMU’) of the Competition and Markets Authority (‘CMA’), established in 2021, has a central role in operationalising this new pro-competition regime.
• In terms of priority digital markets topics that the DMU is expected to address, it is certainly not starting from scratch. The CMA has already considered, or is considering, a number of different competition issues in digital markets, many of which are potentially relevant to its new powers under the Act.
• In this blog, the first of a two-part series, we explore five digital topics that we think are likely to be prioritised by the DMU for consideration under the new regulatory regime, namely AI, Cloud, App Stores, Digital Advertising and Mobile Browsers. For each topic, we set out specific regulatory issues to look out for. We also make certain comparisons with activity under the EU Digital Markets Act where relevant.
• In our follow up blog, we will provide an overview of how the CMA proposes to implement the new regime, in light of its recently published draft guidance, and the actions that companies can take to prepare.

Introduction

The new competition regime for digital markets aims to give the CMA the ability to respond more quickly and flexibly to developments in UK digital markets. It has been designed to give the CMA new powers to address both the sources and effects of market power of a small number of technology firms. The DMU is an administrative unit within the CMA that will make the day-to-day decisions on the new regime.¹ Now that the Act has received Royal Assent, attention will shift towards the issues that the DMU should prioritise as part of implementation.

These are fast moving markets, with developments in Gen AI (relevant to CMA’s ongoing review of AI Foundation Models (‘FM’)) providing a recent illustration of this. However, there are other digital markets topics, in particular those already considered by the CMA in the context of earlier concluded market investigations (such as Online Platforms and Digital Advertising in 2020 or Mobile Ecosystems in 2022) which will also be equally relevant to the potential exercise of its new powers. Indeed, the CMA has made statements on the potential applicability of the new competition regime across all of this activity. 

Another dimension to be considered is the interplay between the DMU’s implementation activity and recent compliance measures by designated gatekeepers under the EU Digital Markets Act (broadly speaking, the EU equivalent of the Act). The UK and EU regimes clearly have important procedural differences. That said, it would be surprising if there was not a degree of commonality in the companies that will be subject to these new rules, as well as the issues to be addressed. The extent to which the DMU will in practice address the same issues as those currently within scope of the EU Digital Markets Act, variants thereof, or substantively different ones will be a key area to watch out for.

We therefore set out five areas below (a non-exhaustive list) that we think are likely to be prioritised by the DMU for consideration under the Act, based on CMA public statements. We also provide examples of specific regulatory issues in relation to each area that we think the DMU may focus on if the required tests for regulatory intervention are met. Finally, we highlight a number of comparisons with current gatekeeper compliance activity under the EU Digital Markets Act.

AI

Clearly, there has been and remains a significant focus on AI at UK regulatory level, in particular given the strategic plans published by both the CMA and other leading UK regulators at the end of April. The CMA’s current review of competition risks in relation to AI FMs, including Large Language Models and Generative AI, is a key element of the UK’s current approach. The CMA has identified the following three interlinked risks to fair, open and effective competition in relation to FMs:

• firms that control critical inputs for developing FMs may restrict access to them to shield themselves from competition;
• powerful incumbents could exploit their positions in consumer or business facing markets to distort choice in FM services and restrict competition in FM deployment; and
• partnerships involving key players could reinforce or extend existing positions of market power through the value chain.

The Act would, if necessary, enable the DMU to address firms’ conduct that it considers may hinder effective competition in AI-related markets. In fact, the CMA has already noted that AI and its deployment by firms will be relevant to the selection of candidates for regulation under the Act, particularly where AI is deployed in connection with other, more established digital activities such as compute, mobile ecosystems, search and productivity software. A similar regulatory sentiment, in the context of the EU Digital Markets regime, can be found in the recent High-Level Group for the Digital Markets Act Public Statement on Artificial Intelligence.

Regulatory issues to look out for relevant to AI

• Third-party access to AI data (e.g., model pre-training data), compute, expertise, and funding (noting that access to compute is also relevant in the context of the CMA’s ongoing cloud investigation, see below).
• Consideration of self-preferencing, tying or bundling (e.g., in relation to integration of AI within web search functionality or other functionalities provided by the AI owner). 

Cloud

The UK cloud market has also been the subject of close regulatory attention in the past 18 months, with the CMA’s current market investigation into the market for public cloud infrastructure services following a 12-month market study and subsequent referral from Ofcom.

The issues within scope of the ongoing investigation are technical barriers to switching, egress fees (i.e., charges related to the transfer of data from one provider to another), committed spend discounting and software licensing practices. Again, the CMA has stated that it may consider how its new powers under the Act could interact with potential remedial action relevant to the scope of this investigation.

If the DMU does address any such competition concerns using the CMA’s new powers under the Act, it would mark a procedural departure from the equivalent approach in the EU, where to date there have been no gatekeeper designations for cloud computing services under the EU Digital Markets Act.

Regulatory issues to look out for relevant to cloud

• Interoperability, relevant to ‘service level’ interoperability, data migration processes, and the more holistic process of migrating applications or workloads from one cloud service provider to another.
• Pricing, relevant to egress charges and also committed spend discounts. On egress charges, it is notable that the EU Data Act already provides for their ultimate removal, something we have previously written about here. Indeed, a number of cloud service providers have already made announcements about their global removal. This is something the CMA has noted in its recent working paper, asking for industry feedback on the extent to which these ‘voluntary commitments’ (as far as the UK is concerned, that is) should be taken into account in its remedies assessment.

App stores

Of particular relevance here is the CMA’s mobile ecosystems market study, which considered issues relevant to (amongst other things) competition in the supply of mobile devices and operating systems, competition in the distribution of mobile apps and competition in the supply of mobile browsers and browser engines.

Following completion of this market study, the CMA opened investigations into the conditions of competition relevant to two prominent app stores, with commitments being entered into with one. A key issue relevant to both investigations concerned the use of alternative payment options for in-app purchases. At the time of writing, both investigations are still open, and subject to further CMA consideration or analysis and review. 

Given the central importance of app store access in digital markets, the prominence of this topic under the EU Digital Markets Act and the recent investigations opened by the European Commission on potential EU Digital Markets Act non-compliance, it would seem likely that it will also be an important element of the DMU’s activities under the Act.

Regulatory issues to look out for relevant to app-stores

• Interoperability, in particular relevant to side-loading, where an app developer’s native app – or an alternative app-store – is downloaded by the user directly from the developer’s web page or via peer-to-peer transfer.
• Terms relevant to use of alternative payment systems and the ease with which app developers can ‘steer’ consumers to offers outside of app stores, free of charge.

Digital Advertising

In its online platforms and digital advertising market study, the CMA stated very clearly that that an enforceable code of conduct should be established to govern the behaviour of companies funded by digital advertising that could be subject to ongoing regulation under a new digital markets competition regime. In so doing, the CMA identified responsibilities that could fall to the DMU relevant to achieving fair trading, open choices and trust and transparency in this area (as well as specific concerns that could be investigated under each of these principles).

Data access and transparency underpin many of the competition concerns in digital advertising markets. As such, data-related interventions on topics such as mandatory third-party data access are also likely to have a prominent role to play in any DMU activity under the pro-competition intervention provisions of the Act.

Clearly, advertising services are also now a regulated service under the EU Digital Markets Act. Given the very specific advertising-related recommendations that the CMA made in 2020, the DMU will no doubt be focusing closely on this area. It will be expected to consider whether the conditions of competition in the market have changed since its market investigation. And, if the various tests for regulation under the Act are met, whether compliance measures now taken by designated gatekeepers under the EU Digital Markets Act go far enough to address its existing concerns.

Regulatory issues to look out for relevant to digital advertising

• Conduct requirements relevant to fair trading (e.g., to address an unfair balance of power between publishers and platforms), open choices (e.g., to prohibit self-preferencing in adtech and specialised search) and trust and transparency (e.g., to address a lack of transparency in digital advertising on topics such as fees and verification).
• Pro Competition Interventions on topics such as increasing consumer control over data, mandating third-party access to data and mandating data separation / data silos.

Mobile browsers

The CMA is currently carrying out a market investigation in respect of the supply of mobile browsers and browser engines, and the distribution of cloud gaming services through app stores on mobile devices in the UK.

In the CMA’s Board’s advisory steer to the inquiry group of the CMA’s mobile browsers and cloud gaming investigation, it advised that, in the conduct of this inquiry and in considering any possible remedies, the inquiry group should keep abreast of the new digital markets regulatory regime.

Therefore, it would seem highly likely that issues that have been raised by the CMA in this context will be further explored in the context of its activities under the Act.

Regulatory issues to look out for relevant to mobile browsers

• Whether the use of online choice architecture hinders competition on mobile operating systems, for example by making it more difficult for consumers to switch to alternative browsers (for example, via pre-installation and defaults).
•  Third-party access to browser functionality, in particular whether there are restrictions on access to certain browser functionality which makes it more difficult to compete.

Conclusion

As can be seen from the abovementioned CMA activities, the DMU has a significant amount of experience to draw on when implementing the Act. In saying that, its work will certainly not be limited to areas which it has already considered. To give just one example, the FCA has already stated that it may refer any issues relating to data asymmetry between ‘Big Tech’ and firms in financial services to the CMA for consideration as part of its implementation of the Act.

In terms of the ‘heavy lifting’ required to implement this regime, a high-level comparison can be made with Ofcom’s new online safety obligations under the Online Safety Act, which Ofcom has itself described as the biggest change to its duties in its history. Some might say that the CMA’s new ex-ante regulatory responsibilities under the Act could be viewed in similar terms.

A key strategic consideration for the companies affected by this regime is clearly the interplay between activities that will now be taken forward by the CMA in the UK, and those currently being pursued by the European Commission in the EU under the Digital Markets Act. We have already highlighted some examples of this above. Returning to the comparison with online safety, it is notable that both Ofcom and the European Commission each announced in May that they have signed a new administrative arrangement to support their supervisory work towards online platforms. This new arrangement will allow both organisations to share, amongst other things, insights and best practices, and is intended to (as Ofcom has stated) reduce cross-border frictions for companies required to comply with both the Online Safety Act and Digital Services Act. It remains to be seen whether the CMA and the European Commission adopt a similar approach in relation to their respective competition regimes.

In our follow up blog, we will delve much more deeply into the operational and strategic considerations for those companies who may be within scope of the UK’s new digital markets competition regime. This will consider the implications for those companies who could be designated by the CMA as having Strategic Market Status (which the CMA has described as ‘the gateway into the regime’), and the actions that can be taken to prepare.

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¹ It should be noted that the powers and accountability for the new regime have been conferred on the CMA. The CMA has stated that the most strategically significant decisions will be reserved to the CMA Board or a Committee of the Board. References in this blog to DMU implementation should be interpreted in this context.