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The key to the economic recovery: How the UK plans to use data to promote competition and economic growth

  • United Kingdom
  • Competition, EU and Trade
  • Privacy, data protection and cybersecurity

06-05-2021

In part three of our series, “The Interplay between Data and Competition Law”, we look into the steps the UK is taking to ensure that data is able to play a key role in driving the economic recovery from the Covid-19 pandemic. The UK government has made a number of recent proposals and set up various bodies to encourage its data and competition regulators (the Information Commissioner’s Office (ICO) and the Competition and Markets Authority (CMA), respectively) to take a coordinated and strategic approach on this issue.

But how effective can these strategies be given the complex and at times contradictory relationship between data rights and competition law? In this article we provide our view on the key issues relating to this burgeoning relationship, setting out the steps that are being taken, their likely outcomes, and how we believe the balance between data rights and pro-competitive policy can be maintained. 

Data access

In his foreword to the National Data Strategy (NDS), published in December 2020, Oliver Dowden (the Secretary of State for Digital, Culture, Media and Sport) wrote that the UK government is seeking to:

  “free up businesses and organisations to keep using data to innovate, experiment and drive a new era of growth. [The National Data Strategy] seeks to harness the power of data to boost productivity, [and] create new businesses and jobs…”

This central goal to ‘free up’ business to use data stems from the belief that data concentration (for example, the huge volume of data held exclusively in the hands of the tech giants) and lack of interoperability are critical factors that can limit competition and innovation. A CMA market study into online platforms and digital advertising (Online Advertising Market Study) concluded that online services may be incentivised to maximise the data they capture from users, which might cause data being linked to user profiles in ways which are not transparent or easy to understand. This data can then be used to influence consumer decision making and weaken competition from potential new market entrants. Although this Study focused on the digital sector, the damaging effects of data access disparities can be seen across multiple areas of the economy.

Data asymmetries

In the Penrose Report, a recent, independent review of UK competition policy led by John Penrose MP, ‘information asymmetries’ for consumers in the digital sector was discussed. Consumers of free online platforms, whose revenue comes from passing on their users’ personal data to advertisers, are unable to make informed decisions as they can not know the price they are really paying for the service, which is based on the value of the data they are signing away. As consumers can not make truly informed decisions, this inevitably distorts the market for such services, and can lead to a weakening of competition.

NB: for further analysis of the Penrose Report, please also see articles by our Competition, EU and Trade Team and our Consumer Team on the Report’s wide-ranging implications for UK competition law and the consumer sector.

Abuse of algorithms

A further issue is the use of algorithms by companies in the digital sphere, to, for example, use consumers’ personal data to categorise them, so that they can be more effectively marketed to. The use of such algorithms, while capable of benefitting consumers, can also cause them harm and have anti-competitive effects (for example, an algorithm that ‘self-preferences’ its creator’s products over those of its competitors). 

What solutions are the UK government proposing?

As part of its wide-ranging reassessment of both data and competition law, the UK government, through its regulators, has submitted a number of proposals to deal with the issues that arise as they intersect.

The government is particularly keen that its regulators – the ICO and CMA, but also Ofcom, the Financial Conduct Authority (FCA) and various others – are able to collaborate and share ideas, and therefore act in unison to create joined-up, clear and readily understandable regulation.

The Digital Regulation Cooperation Forum

In the digital sphere, the Digital Regulation Cooperation Forum (DRCF), a joint venture between the ICO, CMA, FCA and Ofcom, was launched in July 2020 to support cooperation and coordination between the agencies and “enable coherent, informed and responsive regulation of the UK digital economy”. Its Work Plan for 2021 to 2022 details its current priorities, which include:

Algorithmic processing

Building on the CMA’s  Algorithms and consumer harm paper, the ICO's AI and data protection guidance and other resources, the DRCF remarks that it recognises the vital importance of algorithms to digital business, and is seeking to develop a streamlined regulatory approach that promotes their benefits, while dealing with the risks.

Digital advertising technologies

The DRCF aims to build a more holistic view of how the sector interacts with people’s rights (for example their data rights), building on previous studies undertaken by the CMA and ICO. It will seek to develop a framework to assess “the interaction of data collection, data protection, online safety, media plurality and competition for market and services that are funded by digital advertising”. Although the Work Plan is silent on what form this framework may take, the CMA’s previously espoused critical view of digital advertising indicates that reforms are likely. Companies operating in the sector should be prepared for developments in due course.

End-to-end encryption

The DRCF considers that end-to-end encryption may prejudice the interoperability of services, reducing effective competition and innovation. As such, it will hold workshops to bring a range of stakeholder perspectives and publish a summary of this, detailing next steps. Clearly, this work programme is not yet fully developed. However, given its importance in light of the UK government’s concerns over the security risk of end-to-end encryption, it is likely that reforms will be suggested.

The Network & Data Monopolies Unit

The Penrose Report recommends, as one of its central proposals, the creation of a Network & Data Monopolies Unit (NDMU). The NDMU is suggested as an amendment to the recently announced Digital Markets Unit (DMU) which has been set up within the CMA to oversee a pro-competitive regime for digital platforms. Penrose suggests that the DMU should be renamed the NDMU and that its powers should:

  • be ring-fenced from the CMA’s existing powers;
  • only apply to individual firms that own and run new network and data monopolies;
  • only apply to issues which the CMA’s existing powers cannot solve already; and
  • only be extended with Parliament’s consent. 

The Report comments that the “NDMU’s mandate to deal with the competition and consumer effects of data monopolies will inevitably intersect with the Information Commissioners Office (ICO) whenever privacy issues are involved.” Clearly, this new unit, with its focus on tackling those technology companies that hold huge volumes of personal data, will provide scope for further collaboration between the CMA and ICO on data protection issues.

The Penrose Report makes proposals on dealing with information asymmetries

The Penrose Report goes on to suggest that the CMA should continue the work it has already undertaken (through its Online Advertising Market Study) that address the issue of information asymmetries for consumers of free online services that profit from their personal data.

It recommends that the CMA extend its initial market study into a “full-scale market investigation…to improve transparency of the price consumers are paying through their data for digital goods and services, so they can make informed choices about whether each one represents good value or not, and whether they wish to switch to others which might be better.”

It also highlights the value of digital comparison tools (DCTs) in helping consumers to make informed decisions. DCTs provide information on services that assist the consumer – for example, price comparison websites, and digital concierge and switching services. The Report recommends that the CMA monitor the capabilities of DCTs and promote their use and progress where necessary. This underpins and links to the concept of data portability under GDPR (whereby individuals should have the right to transfer data to other platforms to promote competition and transparency and unlock closed data loops); as yet, data portability remains impractical and has not in reality resulted in free flow of data sets.

The National Data Strategy makes proposals on data access

The NDS sets out five ‘missions’ the UK government has decided to pursue, the first of which is “to create an environment where data is appropriately usable, accessible and available across the economy – fuelling growth”. In other words, it wants to promote greater access to data. To achieve this it plans to develop a clear policy framework “to identify where greater data access and availability across and with the economy can and should support growth and innovation”.

The NDS is clear that the benefits of data availability extend far beyond the digital sector, as it includes a long list of sectors that could benefit (for example, manufacturing, real estate, and financial and insurance industries). However, it is also aware of the need to maintain the balance between promoting access and retaining the incentive for businesses to collect and store data in the first place. It is also mindful of the balance against individual rights in respect of personal data.

This policy framework, currently under development, will become clearer in the coming months. However, it can be expected to include a role for specific government interventions in the market, selected based on evidence of the potential efficiencies to be gained.

The wider picture

This closer regulatory focus on data and competition law in the UK arises in the context of a global effort to tackle these issues. In the EU, the European Commission’s Digital Single Market initiative continues with the Digital Services Act and Digital Markets Act proposals, building on initiatives such as the EU Platform to Business Regulation to regulate conduct with regard to online platform transparency and self-referencing activities.

In the US, new antitrust cases reflect a shift in approach to putting fair competition at the focus of their attempt to regulate digital companies. In Australia, the Australian Competition and Consumer Commission has sought to manage bargaining power imbalances between news media businesses and large internet platforms.

Separately, the EU has recently released a plethora of new Artificial Intelligence (AI) laws comprised in its ‘Europe fit for the Digital Age: Artificial Intelligence (europa.eu)’ package. Many of the tools in this legal arsenal are designed to measure and moderate the increased use of algorithms and profiling tools deployed or developed by large and small technology vendors.

Our comment

Business will surely welcome the UK government’s drive to create clear, joined-up and pro-competitive regulation on the use of data. In an economy that is increasingly shaped by the use of data, up-to-date legislation is clearly required to keep up with the new business models set up to exploit this. 

The government, in its new proposals, is clearly seeking to promote competition around data use, primarily by opening up access to data. However, it should be mindful that this may not necessarily have a positive impact on data privacy rights. It is commonly argued that increased competition leads to improved privacy, as companies try to win customers with better protections. Conversely, personal data concentrated under the control of a small number of monopolies is at risk of being exploited.

If access to data is improved, the UK government should ensure that it is not simply shifting the ability to exploit personal data from several companies to many. As such, any move to improve access to data should be accompanied by measures that clearly set out how risks to privacy rights should be managed.

In addition, the combined regulatory approach whilst offering many benefits, also presents challenges in terms of efficient collaboration and potential conflicting agendas. That said, increased data sharing across multiple regulators also presents a greater insight from deeper regulatory, pooled data sets. This, in turn, may assist in identifying potential breaches earlier, and possibly even before they occur, as well as shared learnings from enforcement and diversified cost bases.

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