Clifford Chance

On 11 January 2024, the UK Competition and Markets Authority ("CMA") set out its provisional approach to implement the new Digital Markets competition regime, which is expected to come into force in Autumn 2024. This provides welcome clarification about how the Digital Markets, Competition and Consumers Bill (the "DMCC Bill"), which is currently progressing through Parliament, is likely to work in practice.

It has been almost 5 years since the Digital Competition Expert Panel chaired by Professor Jason Furman recommended a new competition regime for digital markets and 3 years since the CMA's Digital Markets Unit was established. And now the DMCC Bill finally puts those recommendations into practice to bolster the Digital Markets Unit's powers.

The DMCC Bill is currently progressing through Parliament and, provisionally, the CMA expects it to get Royal Assent in April 2024 and to come into force in October 2024. In preparation for that, the CMA has (at the government's request) published provisional guidance setting out how it plans to implement the new regime.

Designation of firms with Strategic Market Status

The Digital Markets competition regime will only apply to firms designated by the CMA as having Strategic Market Status ("SMS") in relation to one or more digital activities. The CMA can only designate firms as having SMS after conducting an investigation: it expects to launch the first of those investigations shortly after commencement of the new regime in October 2024, with the first SMS designations happening in July 2025.

The CMA has reassured companies that such SMS designations will be targeted at a small number of firms; it anticipates initiating 3-4 SMS designations in the first year. We expect that Google, Apple and Facebook will be included in that number given the findings of the CMA's market studies into mobile ecosystems, online platforms and digital advertising.

The CMA has also stated that SMS designations will only happen after a thorough investigation lasting up to 9 months, including a public consultation.

What does this mean for firms with SMS?

The new regime will give the CMA two new tools in relation to firms with SMS: Conduct Requirements and Pro-Competition Interventions ("PCI").

Conduct Requirements will allow the CMA to prescribe how a SMS firm must conduct itself in relation to the digital activity for which it has been designated. The CMA can only impose such Conduct Requirements if they meet at least one of the objectives and permitted purposes set out in the legislation and after conducting an investigation and public consultation. The CMA is aiming to impose the first Conduct Requirements alongside its first SMS designations in July 2025.

PCIs will enable the CMA to address factors relating to a digital activity which are preventing, restricting or distorting competition. They will therefore tackle the factors that are the source of a firm’s market power and aim to create longer-term changes than Conduct Requirements. Again, they can only be imposed following an investigation and public consultation. The CMA is aiming to start its first PCI investigations in parallel to its SMS designation investigations.

SMS firms will also have to report to the CMA, prior to completion, any acquisitions with a value of £25 million or more and a UK connection. This will give the CMA jurisdiction to review more transactions in the digital markets space and, where it chooses to do so, it can launch a merger investigation under its normal merger review powers.

The CMA's provisional approach

The provisional approach provides information on 11 "operating principles" that the CMA intends to apply when exercising its new powers. These include focusing action on areas that have most impact for people, businesses and the economy, intervening in a technology neutral way, operating with transparency, staying abreast of developments, dealing with harm quickly, and measuring the impact, outcomes and outputs of CMA interventions with a view to informing future decisions.

The document also makes it clear that while the CMA will seek to promote competition as the primary lever to deliver better outcomes for users, this may not always deliver the CMA's desired outcomes quickly enough, in which case the CMA will prevent abuses of market power more directly.

The CMA also gives a high level overview of the decision-making, accountability and reporting requirements that will apply to its activities in this area, as well as its anticipated engagement with stakeholders, including SMS firms, other businesses and other regulators.

Next steps

The CMA is already gearing up for the new regime coming into force; it plans to increase the 60 strong Digital Markets Unit to 200 members by October.

At the recent Concurrences Tech Antitrust Conference in Palo Alto, Sarah Cardell, CEO of the CMA, commented that the provisional approach document "not only provides clarity for UK parliamentarians, but also for tech firms and wider stakeholders about the approach the CMA intends to take. Once Parliament passes the Digital Markets, Competition and Consumers Bill, we will release more detailed draft guidance for consultation. This will mean that everyone is clear about how we intend to operate the regime and has the opportunity to provide their views."

The CMA plans to launch a public consultation on this draft guidance when the DMCC Bill gets Royal Assent in around April, so it is ready to publish its final guidance when the new regime comes into force in around October.

Once the new regime comes into force, the CMA plans to start its investigations into SMS designations, Conduct Requirements and PCIs as soon as possible. Although the CMA has not set out what it plans to investigate, it has already flagged that it expects its early work to build on work it has already done, such as looking at platforms funded by digital advertising. The themes are therefore likely to be much of the same as seen in recent years in the UK and elsewhere in Europe, but the CMA will be glad to finally have increased powers to back up its aims.