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Upping the ante: The ACCC announces plans for more ex ante regulation of digital platforms

16 November 2021

#Technology, Media & Telecommunications

Published by:

Clare Giugni

Upping the ante: The ACCC announces plans for more ex ante regulation of digital platforms

The second half of 2021 has been a busy time for the ACCC in its ongoing investigations into digital services markets. With the final report for the Digital Advertising Services Inquiry (Adtech Inquiry) hot off the press, the regulator also published a separate report on web browsers and general search engine services in late October 2021 (Report). This is the ACCC’s third interim report released as part of its Digital Platform Services Inquiry 2020-2025 (5 Year Inquiry).

In the Report, the ACCC confirmed the findings from its Digital Platforms Inquiry, completed in 2019, that Google is the dominant search engine service provider in Australia, with a market share of 94%. The ACCC found that Google search, being the pre-set default on both Google Chrome and Apple Safari (as well as on other search access points on devices), has significantly contributed to Google obtaining this dominant position. Users’ behavioural bias toward default options makes them less likely to switch from the pre-installed Google search engine service.

Google’s dominance creates harms for businesses and consumers through reduced innovation, lower quality services/undesirable features and less diversity of business models. The ACCC concluded that regulatory action is required to address these harms.

The ACCC’s regulatory proposals are:

1. Choice screen: The ACCC’s primary recommendation is that it be granted the power to mandate a choice screen for search engine services, with the ACCC having regulatory oversight of its design and implementation. The Australian choice screen, as proposed by the ACCC, will:

    • apply to both new and existing Android mobile devices (and across all search points on these devices), though in future it may apply to other devices and operating systems;
    • be free for search engine service providers to participate in;
    • present an “optimal” number of search engine service choices, which would be determined by consumer testing;
    • be mindful of layout, recognising the importance of randomised ordering; and
    • be accessible to users and presented at an appropriate time.

2. Broader reforms: Given Google’s dominance in search, mandating a choice screen is not considered to be a sufficient regulatory response. The ACCC also recommends that it is given power to take other action to improve competition and consumer choice in the market for search engine services, including:

    • Limiting the ability of specified search engine service providers (which meet certain criteria, likely to capture only Google, at least initially) to tie or bundle the supply of search engine services with the supply of other goods or services.
    • Limiting the ability of specified search engine service providers to pay for default positions. The purpose of this recommendation is largely to target Google’s arrangements with Apple which provide for the Google search engine be the default on the Safari browser. This will be subject to consideration of the impact on the business models of device manufacturers and browser suppliers, which reflects ACCC’s acknowledgement that royalty payments for default search positions are key revenue sources for smaller browsers.
    • Mandating specified search engine service providers provide access to their click-and-query data and potentially other datasets. This is designed to give rival search engine service providers the opportunity to improve their algorithms and produce better search results. The implementation of this recommendation will be subject to the consideration of privacy impacts and other consequences for consumers.
    • Mandating that, where Google provides syndicated search results to downstream search engine service providers, it must do so on fair, reasonable and non-discriminatory (also known as “FRAND”) terms.

3. Addressing dark patterns: The ACCC is also considering the imposition of an obligation on platforms to design user interfaces in a way that facilitates consumer choice and respects individual autonomy. This could encompass, for example, an obligation not to use “dark patterns” (that is, functions that nudge users to take action that may not be in their best interests) or restrictions on designing user interfaces in a way that exploits consumers’ behavioural biases and vulnerabilities. The ACCC’s concern is that existing design actions have the potential to harm consumer choice and discourage consumers from switching to alternative service suppliers.

The ACCC’s recommendations in the Report focus on search engine services, not browser services, even though the scope of the inquiry also covered browsers. The ACCC stated that it is still considering whether a choice screen for browsers is required – and any decision this would need to take into account how that choice screen would interact with the search engine service choice screen as well as the potential impact on device manufacturers and other market participants.

The ACCC indicated a preference for the introduction of ex ante regulation of the type described above, rather than antitrust enforcement. Nonetheless, the Report states antitrust enforcement action against Google is still being considered by the ACCC, most likely in relation to arrangements with Android device manufacturers which require them to install Google search as the pre-set default.

Each of the proposed measures specified in the Report, including the design and implementation of the choice screen, will be developed in 2022, as part of the ACCC’s fifth interim report for the 5 Year Inquiry. That fifth interim report is likely to have particularly significant regulatory implications for Google, as the ACCC also intends that the report will specify rules for the advertising technology (adtech) services markets and digital platforms more broadly, as referred to in the final report from the Adtech Inquiry.

Given the ongoing ACCC scrutiny, 2022 will likely see the introduction of numerous regulatory changes impacting digital markets.

Authors: Angela Flannery & Clare Giugni

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Clare Giugni

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