India’s Evolving Digital Regulation Can Draw Important Lessons From The Google Antitrust Verdict

Digital Sector: A New Beast

With the rise of digital services, there is now a growing concern about “big tech” regulation. The term “big tech” is often loosely used but usually refers to GAFAM (Google, Amazon, Facebook, Apple, Microsoft).

Another new term “Magnificent Seven” includes to this list two more biggies - Nvidia and Tesla. 

The concern of the tech community is based on two factors: (a) digital technology and its applications are changing the world; be it how we do business, how we do our daily chores, how we go about life and even how we think; and (b) “big tech” control most of it. 

Big tech control is not just limited to the present state of affairs but also seems to be extended to the foreseeable future, given it shapes much of all new technological innovations.

GAFAM controls the present-day digital services of social media, e-commerce, online search and browsing; they are heralding new technologies like AI, cloud computing, and many other ‘new age’ technologies shaping the digital sector of tomorrow. 

Counter-arguments point out that this sector is among the most fiercely competitive ones. Even in its short period of existence, digital tech has witnessed more David-slays-Goliath stories than any other sector.

For instance: Google beating Yahoo in search and e-mail, Facebook as a start-up beating Google’s Orkut in social media, WhatsApp beating Facebook in messaging app till Facebook bought it, Amazon beating E-bay and so on. 

The digital sector lives by the mantra of ‘disruptive innovation’. Thus, services like Uber and Lyft not only disrupt traditional cab-hailing services (and often render old-school services out of the market) but also actively compete among themselves to obliterate each other. 

How Can Digital Regulation Be Done?

While digital regulation has many new facets (like privacy, cybersecurity etc), one of the key areas has been competition regulation. With big tech having a global monopoly, the issue becomes more pressing. 

That involves numerous challenges that economists, lawyers and regulators have been grappling with in the last decade. Most agree that the digital sector is unique and incomparable to any traditional sector, and therefore requires a completely new approach to regulation. 

Some Key ‘Deviations’ Identified For The Digital Sector:

• Digital services can scale up very fast. By inherent nature, the digital sector is asset-light with a very low marginal cost of scaling. The efficiency of the algorithms (the building block of a digital service) improves with scale leading to further scaling up. It is also easy for these services to change/innovate/improve faster than any other sector. To make matters more complicated, they are borderless. So, regulators across different countries find it very difficult to regulate them given their restricted jurisdictions.
  
  
• Digital services are essentially the digitalisation of other services. E-commerce is the digitalisation of retail and wholesale trade, ride-hailing is the digitalisation of the travel sector, travel tech is the digitalisation of the hospitality and tourism sector, and so on. Thus, the digital sector is not a market by itself but actually takes over multiple other markets. So,  competition regulation in this sector is very difficult, and can only work if implemented on the principle of ‘relevant market’.   

New Regulations: Preventive Mechanisms Via Ex-Ante Regulations

All these factors have compelled the policymakers to formulate ex-ante regulations of the digital sector.

Ex-ante regulations, like India’s old MRTP Act, essentially restrict identified big companies from taking certain actions to ensure they do not abuse their dominance to create barriers for new businesses, overcharge customers, collude to hike prices or form cartels amongst themselves, among other monopoly behaviour. 

This is contrary to the norms of corrective measures, where businesses are first found to be guilty of anti-competitive practices before any actions are taken.

Simply put, preventive measures are required in ex-ante regulation to safeguard against possible anti-competitive steps by big tech.

The European Union has taken a global lead in preventive measures via the new Digital Markets Act (DMA).

Under the DMA, the EU identifies certain digital ‘gatekeepers’ (just another new term for Big Tech) and seeks to proactively restrict certain activities. 

Following the EU’s adoption of DMA countries like the UK and Germany are amending their competition regulations to include ex-ante provisions for digital services. However, they are not the only ones doing it.

For instance, Japan adopted such ex-ante provisions under its new Transparency and Fairness of Digital Platforms Act (TFDP), Australia introduced some ex-ante provisions in its news media bargaining code, and China is reportedly mulling similar provisions. 

Closer home, India now has a draft Digital Competition Bill that seeks to develop a separate competition regulatory framework for the digital sector based on ex-ante regulations. 

One country that has not explored such provisions is the USA. That is very important because all of these big tech companies are American. The USA was one of the pioneers of ‘antitrust’ or competition regulation via its Sherman Act in 1890. 

The US Department of Justice (DoJ) also takes competition regulation seriously. The DoJ, on different occasions, rapped the knuckles of Standard Oil, American Tobacco Company, Bell Atlantic Corp, American Medical Association, along with Microsoft and even Google in the past.

This recent landmark judgment that is expected to have global ramifications for the digital sector comes based on good old competition regulation laws. The USA did not go for a new kind of digital law, it simply implemented an over-100-year-old law effectively.

What Can India Do To Control The New Beast?

The recent US antitrust judgment raises an interesting question. Does any nation need new competition laws to deal with the digital sector? Or is it the competence and capacity of the regulator in implementing existing competition laws that matters?

Regulators always play ‘catch-up’ with new technologies and services. Every innovation gives rise to a new set of challenges and regulators have to decipher its nitty-gritty to prevent maleficence by any actor. 

Digital innovation is the biggest challenge ever, given how fast these innovations evolve. But it perhaps means that regulators have to adopt better and “up their game”, instead of trying to rewrite the rulebook to suit their limitations. 

Even as India mulls to create a ‘carve out’ ex-ante regulation explicitly for the digital sector (for 9 Core Digital Services as identified by the Committee on Digital Competition Law (CDCL) as part of the draft Digital Competition Bill), the Competition Commission of India (CCI) already announced setting up a specialised Digital Markets and Data Unit (DMDU) to increase its own capacity regarding digital service and how to deal with it.

While the former is still a nascent proposition inspired by the recent initiatives by the EU and some others, the latter is under the present ambit of the CCI and its existing mode of operations.

Capacity building of the CCI via a vibrant DMDU is perhaps a more effective means of empowering the CCI to regulate digital services than a new regulation.

One must remember that the CCI has taken action against Google recently and has recently received a complaint against Google’s alleged misdoings in the online advertising market in its present form.

While some ex-ante initiatives served as an inspiration to try something radically new the US indictment can perhaps restore faith in the present system and show the path to strengthen what we already have. 

(Amitayu Sengupta is a New Delhi-based economist with over a decade's experience in studying the digital sector. Views expressed are personal.)