The Australian Proposed New Digital Competition Regulation: A Fast Follower-Ex-Ante Regime
Another kid could join the digital tech regulations block. The Australian Treasure proposed on 2 December a new digital competition framework addressing digital market strength. The Australian legislator and enforcer’s policy builds on the long-term digital strategies, which were launched in 2017. In its latest interim reports, the ACCC stated that such a regulatory tool was needed. These results are now starting to manifest. The Australian Government and the ACCC have not yet released a text, but the proposal outlines a clear regulatory landscape. No text has been released yet by the Australian Government or the ACCC, but the proposal sets out a clear regulatory landscape.
This post aims to outline the main features of the (proposed) Australian regulatory regime, as opposed to the EU’s DMA, the UK’s DMCC -to enter into force on 1 January 2025- and the Japanese Smartphone Act. The regulation’s goals, and the services it covers
In its latest Digital Platform Services Inquiry spanning 2020-2025, the ACCC found a lack in effective competition for a variety of digital platform services. The large digital platforms have a lot of market power, which gives them the ability to do things that will further cement their position on those markets. The Australian Competition and Consumer Act, which was enacted to address market power, does not promote and protect competition in the way that would be desirable. This is due to the complex nature and dynamic nature of digital platform markets. The Australian legislator proposed a separate and complementary ex-ante regulation to the CCA.
The Australian rules would designate digital platforms that are critical to the Australian economy. The overarching framework, similar to the DMCC would be established through a two-step procedure: the CCA will contain the key features (e.g. designation, enforcement, and compliance mechanisms), while those will be further specified by Australian Government, in consultation with ACCC, for each digital service. In this context, complementarity would rule between the ACCC’s ex-ante and ex-post powers but the competition authority’s capacity to intervene in those digital markets would derive directly from the CCA.
Following this line of thought, the Australian Government proposes the ex-ante regime to hold the same objective as the CCA, namely “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”. At this point in time, the new competition regime would not be particularly targeted to any other objective, but the Australian Government is open to hearing the stakeholders on this point to clarify additional goals to the framework.
The Australian Government acknowledges the need for international cooperation since other jurisdictions in the world have introduced similar rules applying to the same set of digital operators. The Australian Government does not hesitate to acknowledge that the current legislative revision of the CCA was influenced by these developments. The legislation tries to capture undertakings by the services they provide to the market – i.e. digital platform services. The Australian Government proposes that they be defined by listing the services covered by the definition in a similar manner to the DMA’s core platform services. The list of services, which includes thirteen digital platform services, is the largest ever proposed on the global stage. The list of digital platform services is not exhaustive. Other digital platform services could be included or excluded. A comparison of the captured services vis-a-vis the DMA’s CPSs can be found below:
Australian proposed competition regime
Digital Markets Act
App distribution services (app marketplace services).
Not a CPS (but defined as a type of online intermediation service).
Digital content aggregation platform services.
| Online intermediation services. | Social media services. |
| Online social networking services. | Search engine services (general and specialised). |
| Online search engines. | Electronic marketplace services. |
| Online intermediation services. | Video-sharing platform services. |
| Video-sharing platform services. | Only private messaging services (text, audio and visual). |
| Number-independent interpersonal communications services. | Operating systems. |
| Operating systems. | Web browsers. |
| Web browsers. | Virtual assistants. |
| Virtual assistants. | Cloud computing services. |
| Cloud computing services. | Online advertising services (including ad tech services). |
| Online advertising services. | Media referral services. |
| – | The designation of those digital platform services diverges from those captured under the DMCC and the Japanese Smartphone Act, in the sense that they are much wider in scope and targeted to particular markets where competition has not been properly protected from the outset. As opposed to those regulatory instruments, the Australian proposal already sets out the enforcement priorities that will apply in designation. |
| Building on the ACCC’s extensive work enquiring about the structural competition problems of some services, issues in the supply of app marketplaces, ad tech services and social media services are a priority for designation. This aspect of regulation introduces two interesting ideas for the competition authority to enforce. The authority will first identify and subject these services to the regulations’ obligations. The Australian Government is very clear about its enforcement priorities in order to make the application of the regulation as transparent as possible. Second, the designations won’t apply in a unified manner as they did with the DMA. The rules will apply to some services before others. The Minister could, for example, designate all services that are provided by digital platforms, such as advertising tech services. The designation process will be based on the DMCC rather than the DMA. Both quantitative thresholds as well as qualitative factors will be considered. These two analyses will not be alternative paths to designation but rather considerations that belong to the same analysis. The Government has stated that the undertaking must meet the quantitative Australian thresholds in order to be considered for designation. If they are not met, it is unlikely that the undertaking will be designated. The proposal’s few qualitative considerations are quantitative, such as the undertaking’s position in the market or the level of market power held on the digital platform. One of the factors that will be considered is the undertaking’s “critical intermediary position” between groups of users such as businesses and consumers. The wording is similar to the DMA’s requirement for a gatekeeper, given its role as an important gateway to end users for business users. The ACCC will then determine which services and undertakings are to be included in the new ex-ante regime. In an effort to make the process more flexible, the proposal provides for the publication of a nonconfidential version ACCC’s findings in order to get feedback from stakeholders about the services captured. The proposal states that the designation process is similar to the DMCC. Therefore, the ACCC will most likely conduct its investigation within 9 months of starting the process and notify the Minister of its decision. The Australian proposal is quite interesting in that it aims to introduce a hybrid approach to the obligations it will impose to designated undertakings. Some provisions will apply to them all (broad obligations), as they are already included in the CCA. However, these same mandates will then be tailored to each service through subordinate legislation that will be adopted by the government (service-specific obligation). The service-specific requirements would be a part of the broad obligations. The Australian Government envisages that each designation decision will be accompanied by specific service-specific obligations to make the new regime as flexible, targeted and nuanced as possible. The Australian Government envisages that each designation decision will be accompanied by service-specific obligations in order to make the new regime flexible, targeted, and nuanced. The service-specific obligations will only apply to one digital platform service in order to accommodate its unique characteristics into the broader obligation. To some extent, the service-specific obligations resemble the specification proceedings the DMA sets out under Article 8(2). | Stemming from the regime’s broad objective to benefit Australian consumers and businesses, it provides great scope for leeway for the regulatory targets to justify conduct based on the negative consequences such transformations may bear with regard to consumers or businesses. According to the initial proposal, the ACCC has the power to grant exceptions to allow prohibited conduct to be carried out to minimise unintended consequences. The threshold for granting an exemption would be higher than that of the current ‘net benefit’ test under Section 90(7)(b), i.e. that the conduct results in (or is likely) a benefit to public, and that benefit exceeds the detriment caused to public by the conduct. Although the proposal remains moot in this regard, the Australian Government is considering whether to approximate that threshold of intervention with the DMCC’s ‘countervailing benefits’ test, which requires a broader analysis of the conduct’s proportionality with respect to the realisation of those benefits and the necessity that the conduct does not eliminate or prevent effective competition. |
| Compliance with the broad and service-specific obligations will require proactive monitoring and compliance on the ACCC’s side. The Australian Government doesn’t seem to have a clear-cut design for the burden allocation in its enforcement of new digital rules. The proposal, while referencing the DMA’s institution framework to perhaps incorporate the obligation for designated undertakings to comply with all obligations is primarily focused on designing a regulatory framework that is reactive. In other words, all instruments preliminarily set forth by the Australian Government point to conducting monitoring by imposing record-keeping obligations and extending the ACCC’s information-gathering powers from the antitrust framework to the regulation. This attitude towards compliance could stifle the de facto transformations that are taking place in the short-term as a result of the regulation, since all significant transformations in markets (i.e. those that the regulatory target is unwilling to take) would be preceded in some form or another by the ACCC’s direct intervention. Compliance is not a stranger to this. The proposal actually paves the path for designated undertakings to enjoy cross-border compliance. The new regime will include a mechanism that allows platforms to share their compliance implementations, noting that they adopted them from other regimes and commit to roll them out to Australia. Any of the designated gatekeepers in the DMA could, for example, declare that they will implement their technical implementation of self-preferencing in Australia. The undertaking only needs to show how the solution is tailored to the Australian market in order to benefit consumers and businesses. The new ex ante regime proposed by Australia’s Government in response to the ACCC’s extensive work on digital regulations and dynamics is promising in terms the institutional framework that it will establish in the near future. It adopts asymmetrical regulation, but takes advantage of every opportunity to make the regulatory tool as flexible and nuanced and borrows tenets both from the DMA and DMCC. The primary legislation will be enshrined in the CCA. Therefore, the objectives of the regime are deliberately abstract in order to avoid diverging too much from the benefits that the Australian consumer and business sector will receive. The legislator should define other objectives to serve as inspiration for the design and introduction of new legal standards, and thresholds for intervention, exclusively for a select few targeted undertakings. We must be able to distinguish between regulation and antitrust. If we fail to do so, then | ex-ante |
regimes addressing digital market power simply turn to be speedy versions of antitrust sanctioning proceedings, which, in turn, undermine the antitrust enforcement system in general. This will be especially the case if the proposed rules simply introduce no procedural rules to enhance the ACCC’s capacity to monitor and enforce the provisions.
In my own view, ex-ante regimes should work on the premise that regulatory targets should bear the brunt of complying with the provisions set out in the law. Their incentives to comply should also be aligned with this same purpose. The proposal does not mention information asymmetries. The Big Tech companies are ecosystem holders and players on the digital market. The enforcer needs to have the tools necessary to disintegrate the information asymmetries that affect their decision-making. The regulatory regime will not be able to influence its targets in a positive way if there is no clear reversal in the burden of production. In fact, even in those cases where regulations have reversed those burdens, enforcers find it difficult to impose sufficiently coercive instruments to address information asymmetries.
At the moment, the Australian regime adopts more of a reactive approach as opposed to a pro-active one, which may pose problems in terms of effective enforcement since the regime assumes that compliance in other jurisdictions already has moved legal standards across the board. This is true for some mandates. In this regard, the Australian ex-ante rules should strive to gauge the underlying structural problems the ACCC already enshrined on its interim reports, instead of relying on the international coordination mechanisms ensuring uniformity and coherence. In this regard, Australian ex-ante regulations should strive to gauge underlying structural issues the ACCC has already enshrined in its interim reports instead of relying upon the international coordination mechanisms to ensure uniformity and consistency. Golden standards that are applied across borders and jurisdictions is sure to be one of the best ways to address structural distortions within the digital space. The proposal opens the door to generating synergies by making compliance easier for enterprises so that compliance costs don’t dramatically increase as a result of the regime being introduced. The proposal will encourage undertakings to adopt similar compliance solutions by allowing them to move them from one jurisdiction into another (despite the fact that some have already shown a reluctance). The ACCC and Australian Government, on the other hand, will still need to stand their ground in order to implement those technical implementations that are tailored to the Australian market.
