European Union vs. Big Tech: let the war begin

European Commission vice-president Margrethe Vestager. Picture: AFP

Battle lines are now drawn between the European Union and Big Tech, as antitrust tsar Margrethe Vestager tests new powers with formal actions against Apple and Microsoft and the companies respond by withholding the release of new features.

The line in the US says America innovates, China replicates, Europe regulates – to which it can be added Australia consults.

While Vestager tests her new powers under the Digital Markets Act, Australia’s Treasurer, Jim Chalmers, for 12 months sat on an ACCC report calling for new regulatory powers against digital platforms, before last December saying he supported the recommendations. However they would now be subjected to another 12 months of consultation under the watchful eye of federal Assistant Treasurer Stephen Jones.

The ACCC wants the platforms regulated subject to their own specific codes of conduct designed to cover a broader range of actions.

As noted previously, handing a reform brief to Jones’ office is akin to a death sentence for new ideas. When contacted this week, a spokesman would not comment on any change to the schedule, except that an outcome would come soon.

Federal Assistant Treasurer Stephen Jones. Picture: Jacquelin Magnay

Treasury assistant secretary Tony McDonald told a Senate estimates hearing this month Australia’s existing static rules around digital platform competition “would be ineffective in the face of fast moving and legally sophisticated digital businesses”.

The government knows its laws are inadequate but does nothing.

Commonwealth Bank boss Matt Comyn has criticised the lack of action in the case of Apple, in March telling a conference that “one of the things that I find extraordinary is the lack of scrutiny across some of the tech companies”.

Next week, hearings in a test case by US electronic game maker Epic and Apple wraps up before Federal Court judge Jonathan Beach who will then consider his decision.

Epic lost a previous case in the US aimed at getting more control over sales of its games and against the 30 per cent Apple grabs from games run on its platform.

The latest EU case centres on alternative ways to pay for content and it has an earlier action against the rules imposed on music streaming platforms like Spotify.

Vestager is also targeting Google, Meta and Amazon on a range of allegations, from preferencing their own products to an abuse of market power.

Apple, led by chief executive Tim Cook, is in the EU’s cross hairs. Picture: AFP

The DMA, which formally came into effect in March, includes fines for breaches of up to 10 per cent of global revenues.

It’s not just the EU ganging up on the platforms; the US Justice Department has a case against Apple trying to open its ecosystem.

The EU action against Microsoft is against the bundling of its Teams video conference product with basic Word and Excel platforms.

The case alleges it is difficult for rival services to integrate with Microsoft products.

Apple’s decision to hold back the release of some AI options on its phones is welcomed in some quarters as part of the fight back against overzealous EU regulators.

The trade-off is between consumer protection and business profits which drive innovation.

McKinsey figures show the US invests 80 per cent more on research and development than Europe and that its companies grow faster with 30 per cent higher returns on capital.

Among mobile phones European prices are cheaper because there are hundreds of suppliers compared with just three in the US.

For her part Vestager said in a statement: “It is surprising that some of the most valuable big companies on the planet do not treat compliance as a badge of honour.”

If Australian consumers, start-ups and other suppliers worry they are being left behind then they need not: Minister Jones is consulting.

ACCC attention

The recent deal between big customers and Armaguard to pump another $50m into Linfox’s monopoly cash distribution is still subject to authorisation by the Australian Competition and Consumer Commission.

The mere fact Linfox had its hand out looking for more, after telling the ACCC it would limit increases, left the regulator red faced.

But the new deal, which must go through urgently, will receive a conditional tick of approval next week.

Meanwhile, Australia Post boss Paul Graham’s hunt for more compensation may get a glimmer of good news as ANZ is tipped to become the last of the big four banks to sign on to a partnership deal, so that AusPost handles its transactions.

Australia Post chief executive Paul Graham.

Talks with the other banks about increased compensation are ongoing but not great even though between 2017 and 2023 the banks shut 2106 branches (40 per cent) and Australia Post 108 (2 per cent) of its stores.

As noted last week, the planned sale of Lendlease Communities to Stockland will next week be delayed by a statement of issues, with most concern expressed about the Illawarra region in NSW.

Stockland told the ACCC its concerns were excessive as it wants to get rid of the land as soon as possible, but the ACCC is treading cautiously in the housing political hot bed.

Separately, ACCC chair Gina Cass-Gottlieb, fresh from a nine-day European jaunt, will watch with interest how quickly Craig Emerson’s recommended changes to the Grocery Code are legislated, given the aforementioned inaction on her own reform agenda.

Some in government say the food code changes will be through by the end of October with the most significant changes being the penalty power.

Climate action-linked incentives

While Canberra politicians throw stones at each other, BHP is planning to spend $4bn cutting its emissions by one third by 2030, including switching its truck fleet to electric.

Ten per cent of BHP chief Mike Henry’s about $6.6m in short-term incentives is specifically linked to performance on emission cuts.

The company is one of the 106 in the ASX 200 to actually link executive pay to climate credentials, which is a big jump from just 10 per cent in the 2020 financial year.

In a survey released this week, ACSI noted that while more companies were including climate initiatives in pay criteria, most fail to disclose how much.

Only 11 per cent of big companies linked long-term incentives to climate performance – including Cleanaway, Dexus and South 32 – and only 11 companies such as Rio, Aurizon and AGL, had it linked to both short and long-term bonuses.

Orica links 15 per cent of short-term incentives to scope one and two emissions, and 20 per cent of LTI to business sustainability.

While Opposition Leader Peter Dutton has managed to win some political points through his nuclear thought bubble, businesses are getting on with the job.

Movers and shakers

Exhibit 582 on the change in the power rankings in corporate Australia.

On Orica chief Sanjeev Gandhi’s table at last week’s 150th anniversary dinner were friends and business partners including Bluescope’s Mark Vassella, Newcastle hydrogen joint venture partner Origin’s Frank Calabria, big business banker ANZ’s Shayne Elliott and, in the middle, the local bourse’s most powerful equity investor, Australian Super’s Shaun Manuell.

Manuell manages about $70bn in the Australian equities portfolio for the $335bn fund, including 14 per cent of Orica and just under 17 per cent of Origin.

Gandhi, a graduate of Melbourne Business School chair Ken MacKenzie’s new CEO program, returned the honour by having the outgoing BHP chair address his top global staff at last week’s strategy session.

The CEO program is a MacKenzie-sponsored program based on his Harvard experience to use incumbents to help new bosses.