The Australian Treasury has released a proposal paper on A new digital competition regime.
The paper states
1. Why do we need a new competition regime for digital platforms? The digitisation of the economy through the services offered by digital platforms has provided significant benefits for Australian consumers and businesses. However, the rise and dominance of large international platforms, their market power and ability to restrict competition, and their central role in facilitating interactions between businesses and consumers, have also created important regulatory challenges.
Australian businesses rely heavily on a few global digital platforms and the services they provide to access and engage with consumers. The significant market power of these platforms provides them with the ability to impose ‘take it or leave it’ terms on businesses and make unilateral decisions that have significant consequences for Australian businesses and flow-on effects for broader commerce. These include direct financial impacts for Australians, where increased costs are passed on to consumers.
There are multiple other examples of common pain points for Australian consumers and businesses. These include search engines and app stores preferencing their own products and services above those of rival businesses in rankings and search results; difficulties for a consumer trying to switch to a new brand of phone without losing data; difficulties for a small business trying to understand how their digital advertising dollars are being spent and whether they are getting value for money; and restrictions on app users trying to access payment options other than those offered by app store providers, including options which may offer cheaper prices on in-app purchases.
The Australian Competition and Consumer Commission (ACCC) has examined competition and consumer issues regarding digital platforms in Australia since 2017. Throughout the ACCC’s current Digital Platform Services Inquiry (2020 – 2025) (DPSI), the ACCC has identified a lack of effective competition in a range of digital platform services. The ACCC has also observed that the positions of substantial market power held by large digital platforms give them the ability and incentive to engage in strategic conduct to entrench and extend that market power. These systemic issues can impact businesses and consumers through higher prices, reduced choice, and lower innovation and quality of products and services.
The characteristics and dynamic nature of digital platform markets mean that enforcement of existing economy-wide provisions of the Competition and Consumer Act 2010 (Cth) (CCA) may not on its own be sufficient to protect and promote competition, or well-suited to addressing the range and scale of competition harms identified in digital platform markets. Further, the fast-moving nature of digital platform markets may mean that significant, and sometimes irreversible, damage to Australian businesses or consumers can occur, even where a successful outcome is achieved through litigation. The ACCC recommended the government implement a new digital competition regime with ‘ex ante’ or upfront rules. Ex ante upfront rules aim to prevent anti-competitive conduct from occurring in the first place. Traditional ‘ex post’ competition frameworks intervene after anti-competitive conduct has occurred, when consumers may have already experienced losses and competition has been stifled. Multiple jurisdictions around the world have arrived at the same conclusion that traditional competition law is insufficient in addressing these issues. The European Union, the United Kingdom, Germany, Japan, India and Brazil have implemented or proposed new digital competition regimes with ex ante upfront rules. In the jurisdictions that have already implemented reforms, governments are expecting consumers to directly benefit from greater competition in digital platform services. For example, the European Commission has estimated a consumer benefit of EUR 13 billion (AUD 21.4 billion) per year, and the UK Government has estimated a consumer benefit of GBP 798 million (AUD 1.5 billion) per year.
Treasury consulted on the ACCC’s recommendations from 20 December 2022 to 15 February 2023. Following Treasury’s consultation, the government released its response to the ACCC’s recommendations on 8 December 2023.
The government accepted the ACCC’s findings that existing provisions by themselves are not sufficient to address current or potential future competition harms and supported-in-principle the development of a new digital competition regime. The government’s consideration of a new digital competition regime sits within the broader context of work underway in Australia to address issues and harms related to digital platforms. The proposed regime would complement the new Scams Prevention Framework being considered by Parliament, implementation of the government’s response to the Privacy Act Review, the passing of Digital ID laws, work regarding the News Media and Digital Platforms Mandatory Bargaining Code, and ongoing work related to artificial intelligence. These efforts seek to ensure Australia has the right regulatory settings for the digital economy.
Purpose of consultation
This proposal paper seeks stakeholder views on the proposed approach to implement the government’s response to recommendations for a new digital competition regime.
Your feedback will inform the government’s consideration of the design of a proposed new digital competition regime and more broadly, how to regulate digital platform harms while still positioning Australia as an attractive economy for digital innovation.
By ensuring Australia has the right regulations to be a leading digital economy, Australian consumers, businesses and the economy can continue to enjoy the benefits and opportunities afforded by technology.
A consolidated list of questions can be found at section 7.1.
2. The proposed framework and legislative approach
The proposed framework would introduce new, upfront requirements for certain ‘designated’ digital platforms with a critical position in the Australian economy.
Amendments to the CCA would establish overarching principles, the ability to designate identified digital platform entities in respect of a specific service, broad obligations, enforcement and compliance mechanisms, and a framework for making subordinate legislation with detailed obligations applying at the service-level. Once a digital platform entity has been designated in respect of a specific service, the ACCC would be responsible for enforcing the obligations. The legislation would set out the scope of digital platform services which would be subject to designation.
It is proposed that the first services to be investigated for designation under the regime would be app marketplace services and ad tech services. Comment is also sought on whether social media services should be similarly prioritised.
2.1. Overview of the government’s proposed approach
Treasury has worked closely with the ACCC to develop the proposed framework and key features of a new digital competition regime. The proposed framework would introduce new, upfront requirements for certain digital platforms with a critical position in the Australian economy. These requirements would complement enforcement of existing competition law.
As set out in Figure 1, the overarching framework would be established in primary legislation (likely the CCA) and supplemented by subordinate legislation (such as regulations): • Primary legislation would contain key features such as designation, broad obligations, enforcement and compliance mechanisms and a framework for making subordinate legislation, and • Subordinate legislation would impose further detailed obligations on specified digital platform services at the service level and would be developed by the government, in consultation with the ACCC.
The framework would provide the ability to designate digital platform entities in respect of specific services in primary law and impose upfront obligations to address identified competition harms. The objective of the CCA is “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”. We consider this proposed new framework sits appropriately within this objective. Further principles would be included as part of the regime’s provisions to clarify the goals of the framework.
The proposed new digital competition regime would be administered by the ACCC through pro-active monitoring and compliance arrangements, which would be supported by effective enforcement powers with international coordination.
The proposed regime is intended to be a model that is fit-for-purpose for the Australian context whilst being complementary and cohesive with international approaches. It has been informed by significant international developments in digital platform regulation in jurisdictions such as the European Union, the United Kingdom, Germany, Japan, and India (summaries of some of these regimes are set out at section 7.2).
As noted above, the proposed new digital competition regime sits within the context of other work underway in Australia by government to address policy issues and harms related to digital platforms, including scams, privacy reforms, the News Media and Digital Platforms Mandatory Bargaining Code, Digital ID and artificial intelligence. Treasury will engage with relevant agencies to ensure any new regulation is coherent with other policy work related to digital platforms. ... [schematic omitted]
2.2. Scope of the proposed framework
The proposed framework would address identified competition issues in specific digital platform services that are not adequately addressed within the current competition framework. The proposed regime would be targeted to certain digital platforms in respect of services that have a critical position in the Australian economy and where there is the greatest risk of competition harms. It is not intended to be applicable across the economy. To ensure the proposed regime is appropriately targeted, the legislation would specify what parts of the digital economy would be captured by the new regime. The term “digital platform services” is not currently defined in Australian legislation. The proposed regime would not adopt an all-encompassing general definition of “digital platform services”, as this is unlikely to provide adequate certainty for industry and may result in over-capture of services which are not the intended target of regulation. Instead, the proposed model draws on the current list-based approaches used in Australia and overseas. The Ministerial Direction for the ACCC to conduct the Digital Platform Services Inquiry 2020-2025 lists “digital platform services” including internet search engine services, social media services, online private messaging services, and electronic marketplace services. Internationally, the European Union’s Digital Markets Act features a broad list of ‘core platform services’ and India’s proposed Digital Competition Bill similarly specifies a list of ‘core digital services’. It is proposed that legislation would stipulate a list of digital platform services that would be regulated under the regime. The proposed list would include the digital platform services listed in the Ministerial Direction for the Digital Platform Services Inquiry and could substantially align with the types of ‘core platform services’ subject to potential regulation under the European Union’s Digital Markets Act. For example, the list could include:
• app distribution services (app marketplace services) • digital content aggregation platform services • social media services • search engine services (including general and specialised search services) • electronic marketplace services (e.g. general online marketplace services) • video-sharing platform services • online private messaging services (including text messaging, audio messaging and visual messaging) • operating systems • web browsers • virtual assistants • cloud computing services • online advertising services (including ad tech services) • media referral services.
At the same time, the digital competition regime should be capable of addressing new and emerging digital platform services resulting from changes to technology and market dynamics. To do so, the framework would include an ability to update the list of specified digital platform services. For example, following advice informed by the ACCC’s proposed compliance and monitoring functions and a consultation process, the relevant minister could specify additional types of digital platform services that would be subject to the new competition regime in subordinate legislation.
2.3. Priority services
The ACCC’s inquiries into digital platform markets including the DPSI have uncovered harms on a number of digital platform services. Building on the extensive work completed by the ACCC, Treasury sought further feedback on priority harms and priority services during its previous consultation. Treasury has also engaged extensively with international counterparts developing or implementing new regulation to inform the focus for the digital competition regime.
Throughout these processes, competition issues in the supply of app marketplaces and ad tech services were continually highlighted as priority concerns. In addition, ongoing and emerging concerns in the supply of social media services (including closed channel display advertising) might warrant action. The ACCC raised issues related to these services, including anti-competitive self-preferencing, anti-competitive tying, lack of transparency and the lack of interoperability between products and services. It is proposed that these would be the first services to be investigated for designation under the proposed framework.
App marketplace services
The Apple App Store and Google Play Store are the most significant app marketplaces in Australia. For developers to reach customers, they must comply with the relevant terms of service, including restrictions on the use of alternative in-app payment systems and strict terms of access. These app marketplaces are either mandatory to use or have entrenched use on the relevant mobile operating system (OS) in Australia. The ACCC found the importance of app marketplaces for developers, and Apple and Google’s dominance in mobile OS, gives these providers market power in mobile app distribution in Australia, and that it is likely that this market power is significant.
App marketplaces have been a focus of international regulation, with both Japan and South Korea implementing specific regulation, and the European Union designating relevant app marketplace providers as part of the Digital Markets Act. Anti-competitive conduct in the supply of app marketplaces has also been the subject of numerous investigations and court proceedings by regulators and the business users of platforms. During Treasury’s consultation in 2022, a number of concerns were raised by stakeholders, including a lack of options for in-app payments, and issues with the app review process.
Ad tech services
Advertisers and publishers use technology services called ‘ad tech services’ to facilitate the buying and selling of digital display advertising through open display channels. Google is a major supplier of ad tech services in Australia, with products including Google Ads and Google Ad Manager. The ACCC completed the Ad Tech Inquiry in 2021, making a number of findings and recommendations related to the supply of ad tech services.
Many Australian businesses, including small businesses, depend on the ad tech supply chain to sell advertising space online (publishers) and to purchase advertising space to target potential customers (advertisers). However, the ACCC found that there is a lack of transparency in the supply chain, and that Google’s vertical integration and strength in ad tech services has allowed it to engage in a range of conduct which has lessened competition over time and entrenched its dominant position. Multiple international jurisdictions have also initiated investigations or court proceedings against Google in respect of alleged anti-competitive conduct in its supply of ad tech services.
Social media services
Social media platforms provide important services for all Australians and are key intermediaries for businesses and advertisers to reach consumers. Significant concentration in this market can increase the risk of conduct that harms competition and consumers. Meta (through its Facebook and Instagram platforms) is the most significant and widely used supplier of social media services in Australia. The ACCC found that Meta has significant market power in social media, and relatedly, has a strong position among social media platforms for display advertising services on closed channels. Limited competition in the supply of social media services may result in consumers accepting terms and conditions that result in excessive data collection and use, which in turn provides dominant platforms with significant competitive advantages from its accumulation of data.
With respect to closed channel advertising, the ACCC’s DPSI March 2023 interim report found some social media platforms do not offer advertisers sufficiently transparent or verifiable information about the performance of their advertisements. This can increase advertisers’ costs, which are ultimately passed on to consumers. Various issues in closed channel display advertising, such as a lack of transparency, price increases and poor customer service, were raised in Treasury’s consultation. Multiple international competition authorities have issued fines, investigations, or initiated proceedings against Meta in respect of alleged anti-competitive conduct in the supply of social media services, including its data practices. Ex ante regulation in Germany and the European Union have also targeted competition concerns in the supply of social media services
