On 2 December 2024, the Assistant Treasurer, the Hon Stephen Jones MP, announced its proposal for a new ex ante competition regime to enact service-specific regulation to regulate the supply of certain digital platform services by designated companies. According to the consultation paper, the proposed new regime will give the minister, acting on advice from the ACCC, new powers to designate entities and services that they consider have a critical position in the Australian economy and are significant for Australian consumers and businesses. Once designated, the entity will become subject to both general conduct prohibitions and specific conduct rules in relation to the designated digital platform service it provides.
This announcement follows the ACCC’s recommendation in its fifth Digital Platform Services Inquiry (DPSI) interim report released in November 2022 that additional competition measures for ‘designated’ digital platforms be implemented through mandatory service-specific codes of conduct based on legislated principles, as we reported here. Treasury also consulted on the ACCC’s recommendations for regulatory reforms in December 2022 to February 2023.
Consistent with the ACCC’s proposals, the government proposes a regime that enables the imposition of both broad and service-specific obligations for designated platforms. The government cites significant international developments in digital platform regulation in jurisdictions such as the European Union, the United Kingdom, Germany, Japan, and India and characterises Australia as being a ‘fast follower’ of international reforms. The ACCC has welcomed the consultation, noting that it worked closely with Treasury to develop the proposed framework.
What you need to know
The Labor Government proposes to introduce new, upfront requirements for certain ‘designated’ digital platforms “with a critical position in the Australian economy and where there is the greatest risk of competition harms”. The key elements of the proposed digital competition regime are:
Designation: If the minister and/or ACCC initiates a designation investigation, the ACCC will conduct the investigation into a category of services. Following the ACCC’s investigation, the minister can make a decision to designate certain digital platforms with respect to specific services. In the first instance, it is proposed that App market place services and Ad tech services would be the first services to be investigated for designation. The designation investigation is proposed to run for six months (with the potential for short extensions), with an ability to seek review of designation decisions. Section 155 (compulsory information gathering powers) will be broadened to allow the ACCC to compel information to determine if it would be appropriate to designate an entity.
Obligations: Primary legislation will introduce broad obligations to designated entities and a framework for making subordinate legislation (such as regulations). The government will then develop subordinate legislation, in consultation with the ACCC, to impose further detailed obligations on specified digital platforms at the service level. The proposals will include a potential exemption mechanism for obligations, and a mechanism to recognise that compliance with similar measures adopted overseas could constitute compliance in Australia.
Enforcement and penalties: The ACCC will be responsible for enforcing the obligations imposed on the designated digital platforms, and there will be strong penalties for breaches. Treasury has suggested that maximum penalties of $50 million, three times the value of the benefit obtained or 30% of adjusted turnover during the breach period should apply for non-compliance. Treasury is considering a mechanism for the ACCC to require that, where an entity has implemented a structural remedy overseas, it be rolled out in Australia (but has ruled out separate divestiture powers). The ACCC will receive additional funding to undertake proactive monitoring and compliance functions – and Treasury is considering an option for cost recovery from designated entities (for example a levy or fee for service).
Governance: Treasury is considering how to appropriately allocate roles for administering and overseeing the regime, as well as governance arrangements including right of review for ACCC decisions and periodic review of the legislation once in operation.
Consultation closes on 14 February 2025.
What digital platform services will be covered by the proposed regime?
Instead of adopting an all-encompassing general definition of ‘digital platform services’ (which is not currently defined in Australian legislation) the proposed regime will stipulate a list of digital platform services that will be regulated under the regime.
According to the consultation paper, this will include the digital platform services listed in the Ministerial Direction for the Digital Platform Services Inquiry and could align with the types of ‘core platform services’ subject to potential regulation under the European Union’s Digital Markets Act (DMA), such as:
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.
The proposed regime will include an ability to update the list of specified digital platform services to address new and emerging digital platform services technology and market dynamics change. The consultation paper suggests the minister could have the ability to specify additional types of digital platform services following ACCC advice and a consultation process.
App Stores and Ad Tech are first cabs off the rank
The consultation paper calls out the supply of app marketplaces and ad tech services as the priority services to be investigated for designation under the proposed regime. This is because they have been “continually highlighted as priority concerns” by the ACCC’s DPSI, including in relation to anti-competitive self-preferencing, anti-competitive tying, lack of transparency and the lack of interoperability between products and services. It seeks feedback on whether the supply of social media services (including closed channel display advertising) should also prioritised.
The proposed designation process
Designation will apply to a digital platform entity in respect of specific services it supplies and once designated, it will be required to comply with both general and specific obligations in the proposed regime. The regime is “intended to apply only to digital platforms with a critical position in the Australian economy and that are significant to Australian consumers and businesses.”
The designation process will be as follows:
The relevant minister directs the ACCC and/or the ACCC self-initiates a designation investigation.
The ACCC informs relevant entities about the designation investigation.
The ACCC conducts the designation investigation. This designation investigation will involve an evaluative assessment of whether it would be appropriate to designate any digital platforms that provide a specific category of services (such as app marketplaces) based on the quantitative thresholds and qualitative factors (see below). This mirrors similar requirements in the UK’s Digital Markets, Competition and Consumers Act (DMCCA) which requires the UK Competition and Markets Authority (CMA) to investigate whether a firm has ‘strategic market status’ before making a designation decision. The ACCC will be required to complete designation investigations within six months, with an option for a short extension where necessary.
The ACCC conducts stakeholder consultation during the designation investigation and on findings.
The ACCC completes the designation investigation.
The minister makes a designation decision. In doing so, the minister will consider whether the digital platform service meets any of the quantitative thresholds first:
a. If not, the digital platform entity is unlikely to be designated in respect of the specific service.
b. If so, the minister will undertake an evaluative assessment of quantitative thresholds and qualitative factors to consider whether designation will be appropriate.
If the minister so decides, the digital platform entity is then designated in respect of the specific service for the prescribed period.
Designation decision is reviewed at the end of the prescribed period. Treasury proposes that designation should apply for five years although decisions may be able to be reviewed before the expiry of the five-year timeframe in limited instances (for example where there is a material change in circumstances) and there may be scope to obtain an exemption for specific obligations or recognise international compliance as substantive compliance with obligations in Australia.
As outlined in Steps 3 and 6 above, the minister will make a designation decision, having regard to advice from the ACCC and information relevant to the qualitative and quantitative elements. The thresholds for designation, to be stipulated in legislation, are likely to include the following:
Quantitative thresholds as the primary criteria, including Australian and/or global service-specific revenue, Australian and/or firm-wide revenue, the number of Australian users or business users for the service and/or the relevant entity’s market capitalisation. The consultation paper notes the proposed quantitative thresholds could be aligned with metrics used by similar international regimes, such as in the EU and UK.
Qualitative factors, including the market position or degree of market power held by the digital platform in the relevant service, and whether it holds an important intermediary position for business users to reach end users. According to the consultation paper, a qualitative assessment will be particularly relevant in the rare circumstances where it is unclear whether the quantitative thresholds are met because the relevant information is not available, unsuitable or cannot be verified.
The proposed obligations
The consultation paper proposes a hybrid model (comprising broad obligations and service-specific obligations) to provide a ‘scalable and adaptable’ approach with ‘adequate parliamentary scrutiny and clarity for stakeholders’. Specifically, the proposed regime will comprise of the following:
Broad obligations on all designated entities in respect of their designated services in primary legislation (including through the Competition and Consumer Act 2010 (Cth) (CCA)), to target:
a. anti-competitive self-preferencing
b. anti-competitive tying
c. impediments to consumer switching
d. restrictions on interoperability that limit effective competition
e. unfair treatment of business users
f. lack of transparency.
Ability to establish service-specific obligations in subordinate legislation (such as regulations) – these will only apply to entities designated in respect of the relevant service and can be updated over time as needed to respond to market and technology changes. The main purpose of these service-specific obligations is to inform the content and application of the broad obligations, and each service-specific obligation will be linked to one of the broad obligations. They will generally be confined to the conduct within the supply of the specified services. However, there is scope for some obligations to extend to conduct occurring in the supply of other related services, where competition harms are occurring as a result of the digital platform’s market power or control of the related service.
ACCC power to grant exemptions permitting conduct that may otherwise breach obligations in order to minimise the risk of unintended consequences.
Designated digital platform entities will be required to comply with all relevant obligations while reviews or applications are underway, including where an entity has:
Applied for review of certain decisions (such as designation).
Offered a compliance proposal to the ACCC noting their compliance with similar overseas regimes would be rolled out in Australia and comprise compliance with Australian obligations
Applied for an exemption from a particular obligation.
The proposed process for exemptions
The proposed process for exemptions is as follows:
A designated digital platform can apply to the ACCC seeking an exemption from a particular obligation. Where a platform has applied for an exemption, the relevant obligation should continue to apply until an exemption is granted.
The ACCC will then have a specified timeframe (e.g. six months) to assess the application and it can use information gathering powers and consultation processes in doing so.
The ACCC will only be required to grant an exemption where a platform has demonstrated the relevant grounds to the ACCC’s satisfaction.
Where the ACCC grants an exemption, it can initiate a review of the exemption decision in certain circumstances (for example, where it grants an exemption subject to conditions and it considers the conditions have not been complied with, or where there has been a change of circumstances since the exemption was granted).
Treasury considers there should be a high threshold for granting an exemption, given the potential harms of conduct that would otherwise breach an obligation. It proposes that the threshold for a ‘countervailing benefits’ exemption should be higher than the current ‘net public benefit’ test for authorisations under s 90(7)(b) of the CCA or, alternatively, the regime could also include a more targeted model with grounds for exemptions tailored for individual obligations. The consultation paper notes that:
The EU’s DMA provides for the European Commission to fully or partially exempt a designated digital platform from a particular obligation on the grounds of public health or public security.
The UK’s DMCCA provides for a ‘countervailing benefits’ exemption, where the CMA can exempt a designated platform from complying with a particular obligation if it considers that:
a. the benefits to users from the non-compliant conduct outweigh any actual or likely detrimental impact on competition
b. those benefits could not be realised without the conduct
c. the conduct is proportionate to the realisation of those benefits
d. the conduct does not eliminate or prevent effective competition.
The proposed penalties for non-compliance
Treasury has suggested that maximum penalties of $50 million, three times the value of the benefit obtained or 30% of adjusted turnover during the breach period, are appropriate to promote compliance with and effectively deter harmful conduct under the digital competition regime.
Treasury is also considering whether the regime should allow the ACCC to issue an infringement notice for an alleged breach as an alternative to applying to the court for a pecuniary penalty order. The consultation paper indicates Treasury’s support for other orders available under the CCA, including injunctions, declarations, and disqualification orders under the digital competition regime. Importantly, the consultation paper does not propose the regime provide for structural remedies (namely, divestiture powers) but is considering powers that allow the ACCC to require structural remedies imposed overseas be rolled out in Australia.
Enforcement of the regime and expansion of ACCC information gathering powers
The ACCC will be responsible for monitoring compliance and enforcing breaches of obligations under the proposed regime. Expanding the scope of these powers will enable the ACCC to conduct designation investigations, assess exception applications, update obligations, and monitor compliance under the digital competition regime.
Treasury also proposes to make the ACCC’s information gathering powers under s 155 of the CCA available for the digital competition regime. The paper notes the proposed merger reforms will make changes to the CCA to “enable the ACCC to seek relevant information and evidence, including from individuals carrying on a business in Australia, but who are not present in Australia”, citing the Treasury’s consultation paper of 10 April 2024. However, this proposed amendment was not referenced in the government’s response to consultation dated 10 October 2024 or subsequently implemented in the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024, as passed through both Houses on 28 November 2024.
Mandatory reporting and record keeping
Treasury is considering whether to impose mandatory reporting requirements on designated platforms, similar to the DMA, which requires a gatekeeper to annually report on its compliance efforts.
Treasury is also considering record keeping rules to assist with designation investigations and compliance monitoring. This could relate to revenue information, user numbers and records of compliance measures.
International regimes and compliance proposals
A designated platform will be able to provide the ACCC with a ‘compliance proposal’, which sets out the mechanisms it has instituted to comply with other international regulatory regimes and its commitment to roll out the same measures in Australia. The government considers that this proposal will ensure consistency and coherence with international regulation.
The ACCC will then assess whether such measures are suitable for the Australian market. If the ACCC accepts the compliance proposal, this will deem the platform as meeting some or all of its obligations under the Australian regime in respect of the relevant service
Both the ACCC and the platform (with the ACCC’s consent) will retain the power to withdraw or vary the proposal.
Other factors to consider in implementing the regime
In implementing the proposed digital competition regime, Treasury is also considering:
Whether a merits review process will be the most appropriate regulatory decision review mechanism under the regime
The resourcing (including cost recovery) required to support the regime’s ongoing administration and enforcement and the role of funding arrangements, including cost recovery from industry
The capacity for ‘international alignment’ and ensuring Australia is well-positioned to learn from successful overseas reforms
Measures to ensure that the regime is flexible and fit for purpose, noting the dynamic nature of digital platform markets. The consultation paper notes that a review of the new digital competition regime will be conducted after it has been in operation after a sufficient period to assess its overall effectiveness and to assess the outcomes for consumers and the relevant markets.
What’s next
Public consultation on the proposed new regime closes on 14 February 2025.
This announcement comes ahead of the publication of the ACCC’s ninth DPSI report, which was provided to the Treasurer by 30 September 2024. We will report on this as developments occur.
The proposal sits within the context of the Labor Government’s increasing efforts to regulate online safety and harms in relation to digital platforms, including the digital duty of care regulatory model proposed by the Labor Government on 13 November 2024 (as we reported here) and the passage of the Online Safety Amendment (Social Media Minimum Age) Bill 2024 through both Houses on 29 November 2024.