What Australia's competition boss has in store for Google and Facebook

Central to the Australian Competition and Consumer Commission's Digital Platforms inquiry were two questions:

• do Google and Facebook hold substantial power in crucial digital markets?

• does this power pose a risk to competitive processes?

In its Final Report released by the government on Friday, the ACCC correctly answered both with a resounding "yes".

The ACCC did not set out to determine whether either company has broken the competition rules. That can only be determined in an investigation of specific conduct based on specific facts and evidence.

The report itemises six such investigations already underway.

Having identified risks, the ACCC did set out to determine how they might be contained.

Its proposals are rightly cautious, reflecting the complexities of digital markets and the challenges in ensuring that any intervention protects the competitive process rather than individual competitors.

With market power comes dangers

The ACCC points out that substantial power won by serving consumers is not against the law.

It acknowledges that Google and Facebook provide services that are highly valued.

And it emphasises the distinctive features of digital markets that contribute to this power: extraordinary economies of scale, network effects, massive accumulations of data and the use of highly sophisticated data analytic techniques.

These features help Google dominate internet search and internet search advertising and help Facebook dominate social networks and display advertising.

While they also help deliver value for consumers, they can be used against new entrants that may offer a better deal and against other businesses (such as traditional media companies) that have come to rely on Google and Facebook to deliver services to customers.

The ACCC wants to reduce the risks…

There are no quick fixes. The ACCC rightly rejected the idea that platforms such as Google and Facebook be broken up.

Given the highly interconnected complex nature of the markets in which the major platforms participate, divestiture would not guarantee, and might in fact harm, consumer welfare.

The report recommends instead building up the ACCC's capacity to aggressively enforce the competition rules and to review acquisitions that would further entrench the dominant players' market power.

Many of the other recommendations are designed to ameliorate imbalances in information and bargaining power between the platforms and business users, and between the platforms and consumers in relation to the collection and use of their personal data.

Read more: Consumer watchdog calls for new measures to combat Facebook and Google's digital dominance

Implementing these recommendations presents challenges, not the least of which is to ensure they don't themselves damage competition.

…hunt out abuses…

The ACCC proposes the establishment of a new specialist branch within the ACCC to build and sustain the skills needed to continue studying digital platforms and enforcing their competition and consumer rules.

This is a welcome initiative. It replicates similar capacity-building initiatives in the United States and Europe.

The report is peppered with references to European cases in which Google has been subject to thundering fines for various abuses of dominance. It also invokes the European mantra that these powerful companies have "special responsibility".

But the Australian misuse of market power prohibition may not be flexible as the one in Europe. The ACCC has recommended broadening the unfair trading law in order to allow it more flexibility, and not only for use in dealing with digital platforms.

The recently amended section 46 of the Competition and Consumer Act will play a role, but it is yet to be taken for a proper run and, in the digital context, its application will be complicated by the rapid pace of innovation in digital markets.

…and scrutinise mergers…

In an acknowledgement that digital mergers are different, the ACCC wants to ensure the merger laws pay attention to mergers with potential as well as actual competitors, and to mergers with the owners of data assets.

It also wants Google and Facebook to voluntarily notify it of any future acquisitions. This is a polite request backed by a thinly veiled threat of repercussions.

But the report also implies that neither of these proposals may be enough.

Still more changes to the merger law might be needed to persuade judges of the need to stem unhealthy concentration in the Australian economy generally.

Australia almost certainly needs a compulsory notification regime, triggered by a combination of turnover and transaction value thresholds to ensure nascent competitors are not snuffed out.

Read more: ACCC wants to curb digital platform power – but enforcement is tricky

Both of these are bigger conversations that the Commission needs to engage government and business in.

…while not offering much for legacy media…

The Commission has stepped away from a proposal in its preliminary report that there be a special regulator to oversee the relationships between platforms and media organisations, significant business users and advertisers.

It might have listened to criticism that the proposal would benefit traditional players in disrupted industries more than it benefits consumers.

The advertising industry is highly fragmented, complex and constantly changing. The evidence that the new platforms are distorting competition in the industry is questionable at best. The ACCC has sensibly suggested it needs to thoroughly examine dynamics in the ad tech supply chain before firming up any recommendation.

For the media industry, the compromise is that each platform be required to negotiate a code of conduct to be overseen and enforced by the Australian Communications and Media Authority.

Whether this will address media concerns about the appropriation of their content and about short notice periods for algorithm changes that can make their products hard to find remains to be seen.

Read more: Digital platforms. Why the ACCC's proposals for Google and Facebook matter big time

But, recognising that the platforms are themselves knee-deep in the media business, the ACCC has called for a wholesale overhaul of media regulation to level the playing field and remove regulatory impediments to competition, an idea the government seems to have accepted.

…and upgrading protections for privacy

The call for broad ranging reform of our privacy laws to wrench them into the digital age is also likely to be accepted by government.

The platforms might grumble at additional privacy requirements imposed country by country without an international standard, but the proposal to work with them on the development of an enforceable code at least allows them a seat at the table, and a chance to ensure the regulations are workable.

The challenge will be to ensure that the regulatory burdens don't disproportionately hurt small businesses and prospective entrants, the ones the ACCC wants to help.

An imminent ACCC-led reform that will help both new entrants and consumers is the Consumer Data Right, which will give consumers more control of their data and enable them to move it between suppliers.

Read more: We can put a leash on Google and Facebook, but there's no saving the traditional news model

The ACCC's work on digital platforms has just begun and there is a long and bumpy road ahead. The government should give it the time and money it will need to get on with it.

Caron Beaton-Wells is host of the Competition Lore podcast, exploring competition policy and law in a digital age.

Caron Beaton-Wells, Professor, Melbourne Law School, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.