Check against delivery
Good morning and my thanks to the International Institute of Communications for inviting me to address you.
The Australian Competition and Consumer Commission, or ACCC, naturally has a lot to say on today’s topic. The ACCC is Australia’s national competition and consumer regulator. Our job is to promote competition and fair trading, and to regulate Australian national infrastructure to help to make our market economy work for everyone.
We also manage the economic regulation of the communications sector; we monitor and report on competition and market developments, and enforce compliance with a range of telecommunications-specific legislation. We seek to promote competitive market outcomes.
There is current consideration of the design for the 3.6Ghz spectrum auction scheduled for October. I don’t want to say too much about this because any competition limits are still subject to Ministerial consideration, but an explanation of the issues in play helps to illustrate our approach.
This is an important auction, because not only does the spectrum on offer represent a valuable new supply of spectrum that is perfect for mobile broadband, it is also the first Australian allocation of spectrum that will be harmonised for 5G, and the amount of spectrum available is quite limited.
The ACCC is very keen to promote competition in wireless communications markets. We don’t see particular generations of technology as being the focus of competition, as these continue to evolve, but rather we view competition more broadly.
We believe that the trade-offs between promoting an early roll out of 5G and competition must be carefully weighed to avoid any unintended consequences, particularly where a fourth mobile player is seeking to enter the market. If 5G does ultimately have the transformative effects that it proponents say it will, users of those services will need a competitive industry supplying it to them? It is competition, after all, which drives innovation and the use of technology.
Further, companies have an incentive to bid for spectrum, not just for their own use, but also to prevent its use by other players, so that with less competition they can raise prices to consumers.
Finally, we are now also deeply involved in the world of digital platforms. On 4 December 2017, the Australian Government directed the ACCC to conduct an inquiry into digital platforms to examine the effect that digital search engines, social media platforms and other digital content aggregation platforms have on competition in the media and advertising services markets.
The Digital Platforms Inquiry, or DPI, is looking at a number of issues, including:
- How technological change and digital platforms have changed the media and advertising services markets, including the ability to produce quality news and journalistic content for Australians
- How the use of algorithms affects the curation of news for digital platform users
- To what extent consumers understand what data is being collected about them by digital platforms, and how this information is used,
- Whether the digital platforms have an unfair competitive advantage as a result of unequal treatment of regulation and
- Whether digital platforms have substantial market power in their dealings with media content creators and advertisers and the implications of this for competition.
These are not merely issues for Australia; these are global issues. The way that data can be used can have profound consequences, as the Cambridge Analytica case has highlighted in the United States.
The growth of digital platforms and their immense data gathering represents something new that has not been previously encountered in the entire span of human history. It is little wonder that governments, businesses and individuals are grappling with this seismic shift. It is truly unprecedented, and it must be better understood.
As part of our economic regulation of the communications sector, the ACCC recently conducted a communications market study so that we could examine the market and its issues in depth, and really get ahead of the problems before they arise in an enforcement context.
We released our final report in 2018. The report details the ACCC’s recommendations, actions and findings in relation to a broad range of communications services including broadband and voice services, aggregation and transmission services, data centres and content delivery networks and the Internet of Things. As such, we have a pretty firm handle on the factors at play in the communications sector, and in the digital world more broadly.
Today, I will be discussing three issues:
- the changing world of media
- the international context, and finally
- our digital platforms inquiry.
1. The changing media landscape
The contemporary media landscape is a fascinating and, for those in it, a scary place. In some sense, it has undergone a massive and unprecedented shift, while in another sense, it remains similar to how it was in the past.
In 1970, the controversial author J.G Ballard had this to say:
The media landscape of the present day is a map in search of a territory. A huge volume of sensational and often toxic imagery inundates our minds, much of it fictional in content. How do we make sense of this ceaseless flow of advertising and publicity, news and entertainment, where presidential campaigns and moon voyages are presented in terms indistinguishable from the launch of a new candy bar or deodorant?
Remove the reference to the ‘moon voyages’ and this could have been uttered by any commentator today. So in some sense the broad sweep of the media hasn’t changed.
It is little exaggeration, however, to say that the proliferation of digital platforms has been as cataclysmic an event as Gutenberg’s introduction of the printing press. Like the printing press, the advent of data-driven analytics has fundamentally changed the world, and how we consume media.
In few places is this change as apparent as in the world of advertising. The printing press is close to useless now. Advertisers can now understand what people are consuming, and why, and for how long, and how they can use that data to sell more things, and predict or influence behaviour. You can’t do that with the one way communication of a printing press.
The media has always sold ads; this is what largely funded them. Newspapers, for example, had the main printing presses and were widely read and available, and so attracted massive advertising. Think classifieds, homes and jobs.
Previously they were selling “eyeballs” to advertisers. Things have now changed dramatically.
Nowadays, ad volume is driven by data, and a commercial race is underway to see who can get the most data, and whomever gets the most data wins. This is why we suddenly have AI assistants, such as Google Home and Alexa, showing up in the market, with many more ways to gather data.
Facebook and Google, trading as Alphabet Inc, have built hugely successful business empires based on a clever mixture of technology, user engagement and intense data gathering.
Their current share prices reflect a little of their current market position, but they also incorporate a huge margin for projected growth.
Our broad calculations indicate that approximately:
- 65-80 per cent of Facebook’s current share price can be attributed to future growth
- In Google’s case, 40-60 per cent of their current share price can be attributed to future growth.
That is, if their profits were simply expected to stay at current levels their share prices would plummet.
Businesses reliant on such anticipated growth cannot be satisfied with anything other than a continued increase in user engagement and ever growing data gathering and use.
The markets valuation of Facebook and Google shows that the market believes they will be even stronger in the years ahead. Their market position is not seen as transitory.
Whatever issues we have face today will only grow in importance.
2. The international context
The international context for these data-driven changes in the media landscape is interesting and we at the ACCC are following this closely. There are a growing number of competition or antitrust cases, consumer cases relating to privacy, and inquiries and reports into the influence digital platforms wield in the advertising and media markets.
I will highlight a selection, as follows.
- The European Commission’s decision in June 2017 in the Google Shopping investigation resulting in a €2.42 billion fine for abusing market dominance as a search engine by giving illegal advantage to its own comparison shopping service. The European Commission is also conducting investigations into Google AdSense and Google Android products, including the tying of Google products such as Chrome and Google search with the Android operating software.
- The German Federal Cartel Office released its preliminary views in December 2017, finding that Facebook had abused its dominant position in the market by making the use of its social network conditional on it being allowed to amass data gathered from third party apps and websites, and merge this with users’ profile data. This includes data generated by the use of Facebook owned services such as Instagram and WhatsApp as well as data generated by the consumer’s use of 3P websites. This case highlights the vast quantities of information Facebook collects from third-party apps and websites outside the Facebook platform itself, which it merges with users’Facebook profile data in order to better target advertising.
- The French competition authority released its findings in March 2018, following a year-long sector-specific investigation into online advertising. The authority concluded that both Google and Facebook hold strong market positions based on their processing of the ‘colossal’ volume of information they have gathered through the popularity of their sites. Certain practices such as discriminatory treatment and bundling were drawn to the attention of the French authority and follow up enforcement action is being considered.
- On February 6 this year the UK Government announced an expert panel review of the sustainability of the press in the UK. This review seeks to preserve the future of high quality national and local press. It will consider amongst other things, a review of the role of digital platforms and the digital advertising supply chain in the health of the news media, including whether advertising revenues are being unfairly diverted away from content producers.
If the accusations levelled at Cambridge Analytica are true, and the data of millions of users was used to affect the outcome of the United States election, then we have reached the stage where digital platforms can affect the course of nations.
That is not at all to say that the motives of digital platforms are malicious, or that any harm is intended by their policies including their data collection policy.
Their motives, of course, are purely commercial, as with all companies. They seek to maximise their profits
It is important, however, that governments examine the role these companies are playing in society, and, as with other companies, determine if polices are needed to curb their pursuit of profit given the problems such pursuit will cause.
3. The Digital Platforms Inquiry
In Australia, it was largely the policy debate on media pluralism that led to the ACCC commencing our digital platforms inquiry.
We are taking a broad approach, however, and will need to consider the disruptive effect that digital platforms have on our society.
It is clear that we need to look at the digital platforms through both a competition and consumer lens. Our experience as a competition and consumer regulator, and as a communication and general infrastructure regulator, and with the powers we have under this inquiry, means we have the right tools to complete this huge and fascinating task.
There are four sets of questions we are exploring.
- Do digital platforms have market power and how is that being exercised, particularly in relation to competition?
- Are digital platforms sufficiently transparent in the collection and use of consumer data? Are they complying with the Australian Consumer Law?
- Do digital platforms have an unfair competitive advantage due to the unequal treatment of regulation?
- Have digital platforms substantially changed media and advertising markets in Australia to the detriment of news, journalism and therefore Australia?
The first question requires us to examine whether platforms have substantial ‘market power’ and, if so, how is that market power being used?
The terms of reference for the inquiry do not specify particular platforms, however, the submissions received in response to our issues paper overwhelming focused on Google and Facebook. While it is these platforms we manly are focusing on in our inquiry, we are looking to the future and also are considering any potential disruptors in the market.
A market power assessment is clearly within the ACCC’s comfort zone but these markets are not straightforward. For example, in which markets do the platforms operate, and who are their competitors?
It is also clear from the terms of reference that in assessing whether market power is being exercised, our job is not just to identify any ‘misuse of market power’ but to identify how market power affects commercial dealings with advertisers and with media companies. This is a much broader issue.
At this core, however, antitrust policy and enforcement concerns itself with whether competition is being harmed, so this issue must have a large role in our inquiry. Can competition remain given the way the major platforms currently operate? Can new players emerge who may not, for example, rely as much on harvesting massive amounts of peoples’ data?
And closer to home, can Australia’s new consumer data right regime help promote competition by allowing people to divert their data that has been accumulated by the current platforms to potential competitors?
The second question addresses the ‘the impact on consumers’.
This is a really significant part of our assessment. We do not believe that consumers are generally well-informed about how digital platforms collect and use their data. The feedback to our consumer questionnaire shows that consumers do not understand how much data is being collected or how their news feed is being curated. We have commissioned much more detailed research to investigate how much consumers understand privacy policies, as well as other issues.
We need to understand fully the data being collected. Many consumers understand that data is being collected when they are using a platform, such as their Google search history, or Facebook profile, but do they understand what is collected when they are off the platform? Do they know the extent of geo-tracking, for example?
The European Union’s General Data Protection Regulation came into effect on 25 May 2018. This wide-ranging data protection law has a number of additional protections over current Australian law including a right to erasure and a right to portability.
We will be closely looking at the many impacts of its implementation in Europe.
We’re looking at what platforms are doing now and what they are doing in the future. Facebook recently announced the launch of a new dating app, taking advantage of both the data Facebook has on users to identify matches and users’ creation of events to identify dating opportunities. The privacy and data gathering implications for such an app are obvious.
We would also have some concerns about the ability of such a feature to be misused through our work in the area of Scamwatch; we know, for example, that dating and romance scams continue to be one of the top three ways scammers part victims from their money, and Facebook is already the main social media platform scammers are using to do so.
Now the third question: do digital platforms have an unfair competitive advantage?
It is important for us to examine the extent to which the major digital platforms are competing with publishers and broadcasters and whether they have a competitive advantage.
The digital platforms are clear competitors to media companies in the case of attracting advertising spend but the relationship on the content side is more complicated and there are a number of important questions:
Are the platforms subject to defamation law or journalism’s codes of conduct? Should they be, and how practical is this?
How does copyright law apply to the digital platforms? How should it apply and how practical is this?
Now the fourth question: what is the impact of the digital platforms on news and journalism in Australia.
Much has been written about Google and Facebook’s share of digital advertising revenue and, as our submissions tell us, traditional media have been significantly impacted by the reduction in advertising revenue.
The reported reduction in journalist numbers would suggest there is less journalism being undertaken, but we appreciate that the inquiries are not straight forward in this regard. New financial models are being trialled by the so-called ‘digital natives’ such as the Guardian Australia, Crikey and Buzzfeed and we are interested in examining the viability of these models.
What has been the impact of digital platforms on the choice or diversity of news provided to consumers? In many ways, the internet and digital platforms have increased the diversity of news and journalism available to Australians.
Is Facebook’s algorithmic selection of news in your newsfeed, however, creating an ‘echo chamber’? Likewise, are AppleNews or Google News’ or any other digital content aggregator creating a ‘filter bubble’? Do consumers think this is a problem, or conversely, is it something they value?
We are also looking at the impact of the digital platforms on the quality of news and journalism in this country. Quality is extremely hard to assess, but broadly speaking we will be investigating whether the reduction in advertising revenue prevents publishers and broadcasters from delivering quality journalism, by which we mean investigative, verified and diverse journalism.
Journalism is a highly valued profession, and crucial to our lives. Just like we are well advised not to rely on amateur doctors, perhaps we should not rely on amateur journalists.
I see professional journalists continually investigating stories to unearth the truth and provide analysis. I receive calls from journalists who have heard something exciting, but will not print it without confirmation.
News can be anything, contributed by journalists or the person next door. It exploded in breadth from the 1830s with the invention of the telegraph. News is exploding again with digital platforms.
Digital Platforms mean that journalists now struggle to make money from news. The question is can they still make money from journalism?
The question of the impact of digital platforms on society is a vital one, for both Australia and the world.
The question of how we approach the proliferation of digital platforms, and how they collect and manage our data, is one of the defining questions of our age.
Determining the answers to the questions I have posed will be both fun and very difficult. It will entail engaging with significant complexity, which is what we enjoy at the ACCC, and something that we are good at.
Technology changes things, and the way that we respond to technological change can dictate much of our future success. It is important that we take the time to get the answers right.
Thank you for your time today.