Regulatory priorities and challenges posed by the digital economy speech

Check against delivery.

Acknowledgement of country

I wish to acknowledge the Traditional Custodians of the land I am joining you from today, the Gadigal people of the Eora Nation.

I pay my respects to them and their cultures and to their Elders past, present and emerging. I acknowledge their continuing connection to the land, sea and community.

I would also like to acknowledge and pay my respects to Aboriginal and Torres Strait Islander people who are joining us today.

Introduction

Thank you for the invitation to speak at the Digital Future Summit. I’m pleased to be able to join my colleagues from eSafety and the OAIC to discuss the regulatory priorities and challenges posed by the digital economy.  

Digital platforms are some of the most valuable companies in the world. They are critically important to Australian consumers and businesses, and are major enablers of activity in our economy.

These services are ever-present in our lives. Australians spend almost 6 hours a day online, 92 per cent of Australians own a smartphone, which they use for around 5 hours a day; and 80 per cent of the nation are social media users. There are now generations who have grown up with access to online services in ways we could not have imagined 30 years ago.

Innovative use of data has provided important societal benefits in the form of new products, better delivery of services, and advances in medicine, communications, and responses to threats like natural disasters.

As you would all know, data is the key currency of many digital platforms. Consumers often pay in data to use these services and it’s collected, aggregated, and monetised by digital platform services.

However, in the six years that the ACCC has been looking at digital platform markets, it’s become clear to us that digital platforms’ data practices can raise significant competition and consumer issues.

Today, I would like to speak to you about some of the key data-related competition and consumer concerns the ACCC has identified during our digital platforms work, and the regulatory reforms we have recommended to Government to address these concerns. I’ll also speak about some of the emerging issues posed by generative AI, as well as challenges faced by the ACCC when assessing mergers involving data-rich companies.

Regulatory reform recommendations

The ACCC has been looking at digital platform markets since 2017.

First, we examined their impact on news and journalism content and advertising services markets in the Digital Platforms Inquiry. In 2020 and 2021, we considered the supply of digital advertising technology and agency services through the Ad Tech Inquiry.

More recently, as part of our ongoing five-year Digital Platform Services Inquiry (DPSI), we’ve looked at a range of services, including search, app stores, online private messaging services, electronic marketplaces and social media.

During each phase of our work, we’ve identified a range of concerning conduct, including in relation to platforms’ use of data. We’ve observed how this conduct can harm competition and consumers, and threatens innovation.

In September last year, at the halfway point of the DPSI, we recommended that the Australian Government implement significant regulatory reforms to promote competition and protect consumers in digital platform markets. I now want to take some time to explain why these reforms are necessary.

The case for change

First, digital platform markets feature a unique combination of characteristics that make them prone to competition issues.

One of these characteristics is the important role of data.

Access to vast amounts of high-quality user data has provided a considerable competitive advantage to established platforms, which can use this data to train algorithms and offer improved and personalised services.

As digital platforms expand into new markets – artificial intelligence, health services, information storage, and financial products, to name a few – they benefit significantly from the opportunity to combine user data collected across services.

These data-related factors, in combination with other factors like strong network effects and large economies of scale, contribute to high barriers to entry and expansion in digital platform markets and increase the potential for harm.

Second, some large digital platforms have significant market power and act as gatekeepers between consumers and businesses. This gives these large platforms the ability and incentive to engage in strategic conduct to entrench their market power and extend it into other related services.

The ACCC has observed a range of conduct by digital platforms that can entrench their market power and reduces competition. This conduct includes self-preferencing; bundling and tying; exclusivity agreements; impeding switching; denying interoperability; and withholding access to important hardware, software, and data inputs.

When gatekeeper platforms engage in this sort of anti-competitive behaviour, it exacerbates the already high barriers to entry and expansion faced by rivals that lack access to large data sets.

An example of this is when app store providers use non-public data collected in the provision of app store services that helps the development of their own apps in competition with rival developers. Or, when platforms make it unnecessarily difficult for users to transfer their own data to another platform’s equivalent service, thereby discouraging consumers from switching.

Third, throughout our digital platforms work, we have established a strong evidence-base of the competition and consumer harms related to digital platforms.

Consumers and businesses face less choice, diminished innovation and quality, and pay higher (monetary and non-monetary) prices.

We also know most Australian consumers are uncomfortable with how their personal information is handled by digital platforms, and expect to be able to participate in the digital economy without excessive tracking.

Other key concerns for consumers include scams, a lack of effective dispute resolution options, and an inability to make informed choices online.

While Australia, like many other countries, has robust competition and consumer laws, these laws are insufficient by themselves to address the harms we have identified.

Investigation and enforcement action can take considerable time. Even successful litigation and available remedies may have limited ability to address systemic and widespread harmful conduct after it has occurred.

Digital platform services markets are fast-moving and our regulation must be able to keep pace with the rate of technological change.

For these reasons, we consider new regulatory tools are necessary.

We’ve recommended new service-specific mandatory codes of conduct for particular ‘designated digital platforms,’ based on principles set out in legislation.

Each code would introduce targeted obligations to address the types of anti-competitive conduct most relevant to that service.

This framework would allow for dynamic and flexible measures that could be targeted and tailored to relevant digital platform services and apply only to particular platforms with the ability and incentive to harm competition by engaging in anti-competitive conduct.

To give a hypothetical example of how such codes could address data-related barriers to entry and expansion, an app marketplaces code could prohibit designated digital platforms from using non-public data collected from the app review process to develop their own apps (for example, through data separation requirements).

Economy-wide consumer reforms

We’ve also recommended a range of measures to address harms to small businesses and consumers on digital platforms.

We reiterated our support for two economy-wide changes to the Australian Consumer Law to better protect consumers both on- and offline.

The first of these recommendations was for strengthened unfair contract term laws, which will come into effect in November this year.

We also recommended updating the Australian Consumer Law to prohibit unfair trading practices, and welcome Treasury’s consultation on this reform.

The ACCC has identified numerous examples of harmful conduct in digital platform markets which could be addressed by this prohibition, including harmful and excessive tracking, collection, and use of data.

As I mentioned before, platforms’ data practices often do not align with consumer preferences. The OAIC’s 2023 Community Attitudes to Privacy Survey found that 84 per cent of Australians want more control and choice over the collection and use of their personal information, and that less than half of us trust that organisations will do the right thing when it comes to handling our personal information. The survey also found that 69 per cent of Australians do not consider it fair or reasonable for organisations to engage in online tracking, profiling and targeted advertising to adults based on personal information.³

Excessive data collection can also reduce privacy and security for consumers and result in increased profiling, which can be used to manipulate consumers, and increase the risk of discrimination and exclusion.

Digital platform specific consumer measures

In addition to the economy-wide consumer measures, we’ve proposed new mandatory obligations on all digital platforms to address scams, harmful apps, fake reviews, including notice and action requirements and stronger verification of business users and reviews.

We also recommended mandatory internal dispute resolution standards and the introduction of an external ombuds scheme to deal with disputes between platforms and users that can’t be resolved by the platform – this is a critical issue for small businesses in Australia.

The Government has conducted a public consultation on our recommendations, and we eagerly await its public response.

International observations

Governments and regulators around the world recognise that their current laws do not adequately deal with the competition challenges posed by digital platforms, and many are acting and implementing new reforms.

Last month the European Commission designated 6 digital platforms – Alphabet (Google), Meta (Facebook/Instagram), Amazon, Apple, Microsoft and TikTok owner ByteDance – as ‘gatekeepers’ under the Digital Markets Act. These entities have 6 months to change their business practices and comply with new gatekeeper obligations. Some of these obligations include, requirements on gatekeepers to provide their business users with access to the advertising data they generate when using the gatekeeper’s platform; and prohibitions on gatekeepers using data of business users to compete against them.

In June, Japan’s Headquarters for Digital Market Competition (HDMC) published its report on competition in mobile ecosystems. The report identifies a range of competition issues, and recommends new ex-ante or co-regulatory measures. These include, for example, requiring OS providers to allow users to change default settings and remove pre-installed apps; and banning app store providers from requiring developers to use the providers’ own payment and billing systems.

The US Department of Justice’s case alleging Google cemented its dominance in search by engaging in a range of anticompetitive and exclusionary conduct over a period of 15 years is taking place as we speak. The case has been described as ‘the biggest antitrust case in a generation’.

Artificial Intelligence

The ACCC is also closely following developments in generative AI, including considering possible competition and consumer harms that may arise in relation to these new services.

New technologies can drive innovation, and the popularisation of generative AI may provide an opportunity to challenge the market position of dominant platforms. However, the quick integration of generative AI into the services of digital platforms also has the potential to raise many of the same barriers to entry and expansion that make platform markets tend towards concentration.

Existing large digital platforms likely have a head-start in developing and deploying high-quality generative AI services due to their access to data and computing power.

We’re also already seeing firms that control valuable or unique data sets – such as Reddit – starting to actively restrict access to that data, which has the potential to impact the training of large language models.

The significant and entrenched market power of today’s leading platforms demonstrate what can happen when governments and competition regulators do not act early enough to respond to major new technological developments and disruptions. The rise of generative AI may be an opportunity to avoid repeating this pattern.

Generative AI may also be useful in the fight against scams, such as by helping to identify and disrupt them more quickly and effectively.

However, this technology may also introduce or exacerbate risks to consumers. We could see greater volumes of more sophisticated scams that are better targeted across digital platforms, phone and SMS.

Generative AI may also be used to increase the volume and sophistication of fake reviews online, frustrating consumer choice and distorting competition. Additionally, the increasing popularity and ‘hype’ surrounding large language models may incentivise spurious and misleading claims about the capabilities (or existence of) of AI technology in a wide range of products.

Mergers in relation to data, technology or other specific assets

I would like to finish by discussing the issues we’ve observed around mergers in relation to data and technology.

The rapid growth of the leading digital platforms such as Google, Meta, Apple, Microsoft, and Amazon, and the extension of their activities and services, has been driven by acquisitions as well as organic expansion. These platforms are serial acquirers, collectively making almost 500 acquisitions – approximately 4 acquisitions per month – between 2010 and 2020.⁴

While some of these acquisitions have been benign, the ACCC is concerned about acquisitions that protect or extend the market power of large digital platforms. In particular, acquisitions of data-driven businesses can enable a platform that already has access to a large volume and scope of data to extend its market power to other markets.

In concentrated markets such as many digital platform markets, the competitive constraint from small firms may be the most significant source of competition to an incumbent. Firms with large market share or strategic positions in these markets can undermine competition by acquiring nascent competitors before they have the opportunity to become a substantial threat.

Where acquisitions enable platforms to expand into related markets, they may also facilitate an expansion of platforms’ ecosystems and facilitate consumer lock-in, helping to further entrench their market power in the original market.

Under our current merger laws there can be challenges in preventing some acquisitions by large digital firms that remove an emerging competitive threat or extend the platform’s dominant position into previously competitive markets.

As many of you will know, the ACCC has proposed a new mandatory notification and clearance model which, in common with the current merger authorisation test, requires the merger parties to satisfy the ACCC or Tribunal that their transaction will not be likely to substantially lessen competition. An administrative regime with these features would shift from the current judicial, enforcement-based model, where the default outcome is skewed towards allowing the merger if there is any uncertainty as to whether the merger is likely to substantially lessen competition.

We have also proposed changes to the legal test for assessing mergers. A greater focus on the changes to the structural conditions for competition that result from the merger could be achieved by making it clear that a substantial lessening of competition includes “entrenching, materially increasing or materially extending a position of substantial market power”; and specific factors relevant to the consideration of whether the acquirer will have increased control of data, technology or other significant assets, and whether the acquirer has been engaging in a strategy of creeping acquisitions. These are changes that are particularly relevant to mergers in markets most at risk of the exercise of market power, including digital platform markets.

Our proposed reforms will bring Australia’s merger regime more into line with many OECD countries, and protect competition in Australia during a critical period of economic transition. We look forward to engaging with Treasury on these reforms as they progress their recently announced review of competition policy in Australia.

Conclusion

As digital transformation continues in many sectors of the economy and digital platform service providers become more deeply embedded in our lives, it’s critical we have fit-for-purpose regulatory tools that ensure effective and robust competition and consumer protection.

I mentioned earlier that there is significant progress internationally to address the competition concerns and consumer harms that are becoming increasingly apparent in digital platform markets. We must keep pace with this progress.

The regulatory reforms we’ve proposed will ensure Australia can embrace the opportunities offered by digital platform services and respond to current and future challenges as they arise.