Competition watchdog boss threatens action against Google and Facebook

The boss of Britain’s competition watchdog has threatened action against Google and Facebook to break their monopoly on online advertising if the Government does not set up a digital regulator to curb their powers within a year.

Andrea Coscelli, chief executive of the Competition and Markets Authority, said ministers needed to urgently set up a regulatory regime to counter big tech’s monopoly on the search and digital ad markets or it would act alone.

Google and Facebook took 80% of the UK’s £14bn digital advertising market last year, the CMA revealed, thanks to their ‘unassailable incumbency advantage’ and use of shadowy algorithms to drive internet traffic.

Dr Coscelli told the Financial Times: ‘Plan A is to have a regulatory framework. If [within a year] there is little action because of Covid-19 and Brexit then we would certainly do something ourselves directly — that is plan B.’

He said the CMA – which recently published a report into the online ad market – could launch multiple intensive investigations into big tech, and could also mount and antitrust legal case in parallel with the EU.

Former Culture, Media and Sport Committee chairman Damian Collins told MailOnline the CMA was ‘right’ to be pushing for action.

‘Their report was a major piece of work, internationally recognised, and poses lots of challenging questions about the domination of the tech companies in certain spaces that makes it hard for new businesses and start-up businesses to compete with them,’ the Tory MP said.

‘The idea of saying that in a market like that, you need to have effective regulation to ensure fair competition. And if you can’t achieve that the alternative is really individual antitrust investigations against companies.’

Mr Collins said the dominance of ‘silos’ by tech firms was damaging. ‘Their huge data stores make it very difficult for people to launch competing products, and if they do they face either acquisition or an attempt to bulldoze them off the playing field.’

He added: ‘It is a complicated area how you make progress. But you have had a number of reports now that suggest there are market failures, and it’s right we understand what approach the government wants to take.’

Mr Collins said the coronavirus crisis had ‘massively accelerated’ the move towards people’s lives being organised online, and online retail.

Christian Ahlborn, competition partner at Linklaters, said Government action to change the laws regulating online advertising would be more effective than the CMA acting independently.

It comes amid a wider campaign against big tech in the UK, Europe and America to reduce the damage they cause to other digital companies, including struggling local newspapers who are being starved of much-needed ad revenue.

Facebook and Google took 80% of the UK’s £14bn digital advertising market last year, the CMA revealed

Last week, Dr Coscelli revealed he was recruiting teams of high-powered mathematicians and psychologists to crack the mysterious algorithms Google and Facebook deploy to drive internet traffic.

Meanwhile, pressure is growing at Westminster for the companies to pay a fair rate to news outlets when they use their material – possibly through a new ‘tech levy’ – and in particular to struggling local media companies which have been hit hardest by Covid-19.

Plans for a code of conduct for tech companies to ensure content producers are properly rewarded were first suggested last year in a report for the Treasury by Jason Furman, President Obama’s former chief economist.

There is also an ongoing debate in Government over how to regulate the increasingly powerful internet giants.

Tory MP and former minister John Penrose, who is carrying out a review of post-Brexit competition and consumer rules for the government, told MailOnline that the government had an opportunity to be an international leader on digital regulation after leaving the EU.

‘Companies like Facebook and Google are brilliant essential parts of modern life,’ he said.

‘But we have got to make sure that they are not squashing potential competitors in Britain or anywhere else.

‘So we need to move fast, but we need to get it right.’

He added: ‘The rumours are that the EU is about to take action too. So this is an opportunity for a newly independent Britain to shape international thinking if we get it right first.’

Answering a written question on digital regulation this week, Business minister Paul Scully said: ‘The government is currently considering the recommendations of the Competition and Market Authority’s market study and will respond in due course.’

Google can tweak its search algorithms at will to reduce traffic to websites it doesn’t favour.

The Home Office is drafting new laws to punish social media companies over harmful material which it allows to be published such as suicide footage or jihadi videos.

However, it is facing growing criticism over its failure to devise an effective ‘publishers’ exemption’ to stop it leading to the backdoor censorship of mainstream news outlets.

Earlier this year, the CMA published the results of a year-long investigation into the tech giants’ dominance of digital advertising markets, recommending mandatory codes of conduct to ensure news publishers are adequately rewarded.

In 2019, Google and Facebook accounted for an estimated two-thirds of the £13 billion digital advertising market in the UK, with the business driven by opaque algorithms which are a mystery even to the advertisers.

Google, for instance, can tweak its search algorithms at will to reduce traffic to websites it doesn’t favour.

In a speech last week to New York’s Fordham University, Dr Coscelli said that the dominance of the online platforms was a serious threat to rival businesses and innovators.

He said that ‘large multinational online platforms such as Google and Facebook now have a central role in the digital advertising ecosystem and have developed such unassailable market positions that rivals can no longer compete on equal terms’.

And he added that their ‘large user base’ was a ‘source of market power, leading to weak competition in search and social media’.

Calling for a new regulatory regime, Dr Coscelli said that ‘the largest platforms are increasingly acting as a brake on innovation, setting the terms of competition in a way that tips the balance in their own favour, and undermining the business models of new entrants and potential challengers alike’.

He called for a special ‘Digital Markets Unit’ to be established, with the ability to enforce a code of conduct on the internet giants to ensure that they ‘do not engage in exploitative or exclusionary practices’.

Dr Coscelli also called on Google to reveal its search engine algorithms to rival search engines ‘so they can properly compete’.

As part of the CMA’s drive, Dr Coscelli is hiring staff with PhDs in applied mathematics or physics, as well as trained psychologists, effectively emulating Winston Churchill’s drive during the Second World War to recruit code-breaking experts to Bletchley Park.

He added that the new recruits were ‘scrutinising how digital businesses use algorithms and how this could negatively impact competition and consumers… we believe it is not acceptable for firms not to be able to explain the outputs of their algorithms’.