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The ACCC has been looking closely at digital platform markets since 2017.
Digital platform markets, of course, provide significant social and economic benefits to consumers and business alike. However the characteristics of, and importantly the behaviour in, these markets sees only one or two large providers.
This creates challenges for competition enforcement and for policy makers to both protect consumers and competition, and encourage the innovation we need.
The ACCC completed its original 18-month Digital Platforms Inquiry in July 2019, making 23 recommendations to address the dominance of the leading digital platforms and their impact in Australia. Pleasingly, nearly all of these recommendations were accepted by the Australian Government, and I will briefly touch on some of them.
First, the DPI report recommended addressing the bargaining power imbalance between Australian news businesses and each of Google and Facebook. At the request of the Government, we worked closely with relevant Government Departments to develop a mandatory code requiring good faith negotiations between designated platforms and news businesses, with compulsory arbitration as a backstop.
Legislation enacting this code was passed in February and it has already encouraged both Google and Facebook to complete sizeable voluntary commercial deals with some large and many small Australian news businesses.
We are extremely pleased with the results so far.
Second, the DPI report recommended that large digital platforms implement an industry code of conduct to govern complaints about disinformation. The Government directed the Australian Communications and Media Authority (ACMA) to oversee the development of this industry-led voluntary code, which was published in February this year with signatories including Facebook, Google, Twitter, Microsoft, TikTok and Apple.
The ACMA provided a report to Government in June on the adequacy of the code, and will continue to oversee its implementation.
Third, the DPI report proposed some specific changes to the Privacy Act 1988, as well as broader reform of Australian privacy law. Our recommendations are being considered through the review of privacy law now being conducted by the Attorney-General’s Department.
Finally, as the DPI report recommended, the Government has funded a permanent, specialist digital platforms branch within the ACCC to ensure continuous and close scrutiny of this complex sector. As part of this role, the Government directed us to carry out two further inquiries into digital platforms, enabling us to maintain our scrutiny on particular issues.
What’s on the agenda for the ACCC
Our 5-year Digital Platform Services Inquiry (DPSI) is empowered by a broad-ranging Government Direction to examine the workings of digital platforms in various markets and to outline our findings on the competition and consumer concerns in 6-monthly public reports. The length and remit of this direction is an indication of its importance.
We have published the first two reports of this inquiry and are finalising the third. We have examined online private messaging, search and social media services in Australia, app marketplaces, which I will touch on in more detail shortly, and our report on the provision of web browsers and general search services is due to the Treasurer at the end of September.
Our second Inquiry Direction relates to digital advertising technology (or ‘ad tech’) and digital advertising agency services. This report investigates the lack of competition and transparency in the famously complex ‘ad tech supply chain’, and its impact on publishers, advertisers and consumers. We published the interim report for of this inquiry in January, and we will provide a final report to the Treasurer by the end of this month.
Through all of this work, we have observed a number of issues common to digital markets.
Digital markets often feature one or two dominant firms with significant market power, which allows them to impede competition and have a huge influence on the consumers and businesses reliant on their services. In ad-tech, this is Google; in app marketplaces, this is Apple and Google; in social media, this is Facebook.
Many of these firms are also vertically integrated and there is evidence of anti-competitive self-preferencing where firms favour their own interests over downstream rivals.
We have also observed the important role of data, and how access to large amounts of user data can help entrench a strong market position by creating significant barriers to entry and expansion. The growing field of study around data, privacy and competition is fascinating.
Further, many of these digital markets lack transparency for consumers, particularly around the collection and use of their data. Many consumers do not understand which data is actually collected and how it is used. Often they are unable to opt out of data collection, meaning they must forgo use of that service altogether if they wish to avoid providing access to their data.
The ACCC’s existing powers under the Competition and Consumer Act 2010 allow us to take some action against digital platforms. We have had success in court against Google in relation to misleading consumers about the collection and use of location data. We have taken two other cases to court and have a number of investigations underway.
However, we are considering whether our toolkit needs strengthening.
Around the world, there is growing recognition among relevant authorities that existing regulatory frameworks and merger law have not held up well to the challenges posed by digital markets.
General competition law is often inadequate to address the significant competitive concerns associated with the large multinational digital platforms. This is because of the necessary narrowness of cases, and the length of time taken to investigate and enforce competition law, combined with the fast-moving nature of these businesses. This has led to growing recognition of the need to regulate digital platforms to prevent anti-competitive or harmful conduct before it arises, as I will discuss later in more detail.
Competition agencies and law makers around the world are also grappling with big tech’s ability to entrench and extend their market power through acquisition, and in doing so often remove potential competitive threats. In the last decade to 2019, Google, Facebook, Microsoft, Amazon and Apple together made an estimated 431 acquisitions worth a combined USD155.7 billion.
These acquisitions have visibly contributed to the substantial market power that the leading digital platforms hold and there is growing recognition by competition agencies and policy makers that scrutiny of the potential competitive impact of such acquisitions needs to greatly intensify.
The App Marketplace Report
As I mentioned earlier, our second DPSI report looked into app marketplaces, and closely examined competition and consumer issues associated with the distribution of mobile apps on smartphones and other mobile devices.
We considered the concerns and experiences of consumers as well as businesses of all sizes involved in providing apps through these marketplaces.
The report focused on the Apple App Store and the Google Play store. These stores clearly dominate app marketplaces, a dominance that is inextricably tied to Google and Apple’s respective mobile operating systems, Android and iOS. If consumers use an Apple mobile, they can only download apps from the Apple App Store. For consumers using a mobile running the Android OS, the dominant place they effectively must download apps is the Google Play Store.
These two companies account for close to 100% of the global market, excluding China, for mobile operating systems, with Google holding approximately 73% of this global market and Apple around 27%. In Australia, the shares are a bit more equal between the two with each holding around 50% of this market.
Apple and Google are, therefore, critical gateways between app developers and consumers, meaning the operation and policies of these app stores have huge implications for users on both sides of the services.
In particular, the report looked at concerns relating to:
- unfair and potentially anti-competitive terms, including restrictions on the ability of app developers to develop the necessary customer relationships with users of their apps
- a lack of transparency in the policies and processes governing Apple and Google’s app review and approval process, and
- inadequate avenues to resolve disputes.
Unfair and potentially anti-competitive terms include marketplaces withholding particular functionality of its devices from third-party developers, despite using this functionality in their own competing apps.
For example, Apple places some restrictions on its near-field communication chip which prevent app developers from offering features such ‘tap-and-go’ payments, despite this being used in Apple’s own Apple Pay app. This means, for iOS devices, the only digital wallet that offers tap-and-go technology is provided by Apple. This has the potential to harm innovation, competition and consumer choice.
And of course there are also terms relating to the use of Apple and Google’s in-app payment systems.
These terms relate to requirements to process certain in-app payments through Apple and Google’s payment systems; the imposition of a 15 or 30% commission on those payments; and extend to even preventing developers from informing consumers that other, possibly cheaper, payment options exist if they pay outside the app.
Another way in which Apple and Google exert control over their marketplaces is by deciding how easy it is for apps to be seen, and how much prominence they are given. Changes in the operation of algorithms or other policies that determine how and where apps are displayed can have a massive impact on an app’s ability to reach consumers, and hence whether it can compete effectively.
Apple and Google have expressed concerns that increased transparency of these algorithms could increase the risk of manipulation and ‘gaming’. However, the control that Apple and Google have over the display of apps on their marketplaces means that increasing transparency here would help address third-party app developers’ concerns that these processes may not be treating all apps the same.
Another aspect of this issue is that Apple and Google’s own apps benefit from being pre-installed and displayed on prominent locations of smartphones, and/or from being set as the default apps on some mobiles. The potential for favouring first-party apps is something examined previously in ACCC reports and something of continuing concern.
The report also looked at the collection and use of data by platforms.
Google and Apple are able to collect data from both app consumers and developers, to add to the data they collect in their other roles across the mobile ecosystem.
This raises potential competition concerns, particularly if marketplaces use it to give themselves an advantage over third-party developers.
And finally, we do not believe that Apple and Google are striking the right balance between providing streamlined, consistent processes for consumer complaints, and supporting developers to fulfil the complaints handling functions required of them by the marketplaces.
The need for robust dispute resolution processes is again something we have identified in previous reports, including in the original DPI.
Though the ACCC did not make any formal recommendations at this stage, we did identify potential measures to address some of our concerns. These are steps that Apple and Google could reasonably take to address both competition and consumer concerns arising from their gateway position in this market.
In no particular order these potential measures include:
- removing restrictions on developers from providing users with information about alternative payment options in apps
- providing greater transparency about key algorithms and processes determining discoverability of apps, including impending changes to algorithms
- allowing consumers to rate and review Apple and Google’s own apps to enable better comparison of apps, and better enable rival apps to compete on their merits
- increasing choice by letting consumers change any pre-installed default app on their mobile that is not a core phone feature
- ring-fencing data that Apple and Google collect in their capacity as app marketplace from their other business decisions, to reduce the risk of misuse.
It is likely, however, that up front rules and regulation may be needed to achieve these objectives. We are closely following overseas moves that aim to address the same competition and consumer concerns that we have identified.
Connection between our work and the work happening overseas
A number of overseas inquiries, enforcement investigations and litigation are also examining Google’s and Apple’s dominance in app marketplaces; and the dominance of digital platforms in other markets.
In terms of enforcement, there are now so many cases against the dominant platforms it is difficult to keep track of them all. To mention only cases involving app marketplaces, the European Commission has a number of investigations into Apple’s mobile ecosystem, notably into music streaming and Apple Pay.
And a number of state Attorneys-General in the United States have commenced litigation against Google for alleged monopolisation of app distribution on Android.
Here in Australia, as I have mentioned, the ACCC has a number of investigations and active litigation on foot. We currently have two cases in court, one against Google and the other against Facebook, which both relate to how the companies use users’ data.
Epic Games is, of course, bringing private proceedings against both Apple and Google. In response, Apple has sought to have their proceedings heard in the United States. The ACCC intervened in this case to also argue that important competition law cases that have a broader impact on Australian consumers and markets should be determined by the Australian court system.
We were pleased that the Full Federal Court agreed with this argument.
Like the ACCC, overseas jurisdictions are also conducting market studies into app marketplaces. Notably, in June this year, the CMA launched an inquiry into Apple’s and Google’s mobile ecosystems and concerns that their control of these ecosystems could lead to reduced innovation, higher prices for devices and apps, or higher prices for other goods and services due to the increased cost of advertising.
The key point, I think, from all of the above is that while these enforcement actions and market studies are necessary to tackle the problems arising from dominant digital platforms, they are not enough on their own.
This conclusion is of fundamental importance.
Australia was an early mover with our legislated News Media and Digital Platforms Mandatory Bargaining Code. However, other major jurisdictions are now considering, and implementing, much broader regulatory reforms to address the ‘gatekeeper’ or ‘strategic’ market power of major digital platforms.
The European Commission’s draft Digital Markets Act proposes to complement the EU’s existing competition rules with sector-specific regulation for platforms deemed to have a ‘gatekeeper’ position. This includes both affirmative obligations to promote competition, such as transparency and data sharing requirements, and prohibitions on problematic conduct such as self-preferencing.
Within Europe, Germany has already passed new competition legislation applying to digital firms designated as possessing ‘paramount significance across markets’, and the Bundeskartellamt has already launched investigations into whether to designate Facebook, Google, Amazon and Apple under this scheme.
In the UK, the Government is currently consulting on a proposal that would designate particular digital firms with ‘strategic market status.’ These firms would be subject to binding codes of conduct, more stringent merger control and potential pro-competitive interventions, including requiring operational separation of different arms of a business.
Strong action is even on the horizon in the home of the major digital platforms, the United States. A suite of five anti-trust bills has been introduced to the US House of Representatives targeting digital platforms that meet certain user number, revenue and market capitalisation thresholds. Just last week the Open App Markets Act was introduced in both the Senate and the House targeting Apple and Google’s app stores, and the requirement to use their respective in-app payment systems, among other things.
These bills would prevent acquisitions that would entrench a dominant position, prohibit self-preferencing, and mandate interoperability between competing services.
Our counterparts in the Asia Pacific region are also at the forefront of regulatory developments. In Japan, the Transparency and Fairness Act has been in effect since February this year. It aims to improve transparency and fairness for businesses trading on digital platforms, and applies to Google, Amazon, Apple, Yahoo and Japanese e-commerce platform Rakuten.
The Japanese government has recently released a report which recommends that this be expanded to cover digital advertising.
In South Korea, Google’s and Apple’s app marketplaces have been singled out as a critical issue. There is a piece of targeted legislation before parliament that would ban Apple and Google from requiring all digital content purchases be made through their proprietary in-app payment systems, which may open this segment of the market to competing payments companies.
South Korea is also considering legislation to regulate the relationship between digital platforms and online merchants. For example, certain digital platforms could be required to provide notice before changing their agreements with merchants and to provide clear information about fees and any self-preferencing practices.
All of the above could bring greater transparency, competition and fairness to digital markets.
It is an exciting and challenging time to be a competition enforcer and regulator. As I have outlined, there is much work underway in many jurisdictions to address the impact of the dominant digital platforms, whose global presences requires a global response. This is why international coherence and alignment on both regulatory and enforcement approaches is fundamental.
In Australia, our own work at the ACCC must be tailored to match our own issues and concerns. But although the finer details of our approaches may vary, competition authorities must align our approaches as much as possible.
This will include alignment around up front regulation and rules, as well as enforcement and merger control.
The competitiveness, and the level and type of innovation in our economy, requires this.