ACCC takes aim at big tech’s AI power as it steps up push for UK-style laws

Microsoft, Google, Meta and others are spending tens of billions in the artificial intelligence race, sparking a warning from the competition watchdog.

The competition regulator is stepping up its push for UK-style laws to rein in big tech, branding Google, Meta, Apple, Amazon and Microsoft “serial acquirers” while warning their early dominance in generative AI threatens to squeeze out smaller rivals.

The regulator is also looking at forcing Apple and Google to open up their app stores to more developers, highlighting the UK as a potential model, to promote more competition.

Freedom of information documents released by Treasury reveal the extent of the Australian Competition & Consumer Commission’s lobbying of the federal government, including sending letters to the Communications Minister and Attorney-General that call for action.

The push comes as the ACCC’s five-year inquiry into the local market power of the digital titans is drawing towards its close, with the need for reforms becoming more urgent as the biggest tech companies are spending tens of billions of dollars in the AI race.

Microsoft’s $US10bn ($15bn) investment in ChatGPT owner Open AI catapulted generative AI into the mainstream, with the platform attracting 100 million active users within two months of its launch – forcing governments to play catch-up with enforcing regulation.

The ACCC sent Treasury a briefing document from the UK Department of Business & Trade about its new “pro-competition regime for digital markets”, which forces Google and Apple to open up their app stores to mobile ­developers.

The British document calls for the companies to stop favouring their own business on app stores or “in some cases distorting competition between third parties” and allow users access to alternative app stores, subject to meeting “reasonable” and “sufficient” ­security conditions.

Apple began preparations late last year to allow applications to be downloaded onto iPhones and iPads outside its lucrative App Store in response to new EU laws.

The ACCC’s recommendations, which include service-specific codes of conduct announced late last year, are closer to UK than EU laws, applying to a select few digital platforms and services rather than the black letter law obligations approach taken by the EU.

Apple says it is ‘incentivised to create a robust ecosystem across Apple devices which includes as many quality apps, and third-party interoperability’.

The freedom of information documents, released late on Friday, feature a note from the ACCC to Attorney-General Mark Dreyfus, calling for the ­creation of a new digital platforms ombudsman to resolve consumer disputes with big tech.

The regulator also highlights concerns from advertisers about a “lack of independent verification of advertising on social media”, saying it is resulting in higher costs for consumers.

“Lack of transparency in advertising harms advertisers, publishers and, ultimately, con­sumers. It prevents advertisers and publishers from making informed decisions about how they buy and sell advertising,” the ACCC says.

“Without transparency, publishers are unable to maximise their advertising revenue, and advertisers are unable to maximise their advertising spend. This increases costs, which are ultimately passed on to consumers.”

ACCC chairwoman Gina Cass-­Gottlieb said while digital platforms – some of the most valuable companies in the world – were “major enablers of activity in our economy”, their data practices raised “significant competition and consumer issues”.

She singled out Google, Meta, Apple, Microsoft and Amazon, branding them “serial acquirers”, which have collectively made almost 500 acquisitions – about four a month – between 2010 and 2020.

“While some of these acquisitions have been benign, the ACCC is concerned about acquisitions that protect or extend the market power of large digital platforms. In particular, acquisitions of data-driven businesses can enable a platform that already has access to a large volume and scope of data to extend its market power to other markets,” Ms Cass-Gottlieb said at the KWM Digital Future Summit last week. “Where acquisitions enable platforms to expand into related markets, they may also facilitate an expansion of platforms’ ecosystems and facilitate consumer lock-in, helping to further entrench their market power in the original market.

“Under our current merger laws there can be challenges in preventing some acquisitions by large digital firms that remove an emerging competitive threat or extend the platform’s dominant position into previously competitive markets.”

ACCC chair Gina Cass-Gottlieb says new technologies can drive innovation but warns the rapid integration of generative AI into big tech platforms could stymie smaller firms. Picture: Sam Ruttyn

Ms Cass-Gottlieb said she was also concerned about the rapid adoption of AI, saying it had the potential to stymie smaller firms.

“New technologies can drive innovation, and the popularisation of generative AI may provide an opportunity to challenge the market position of dominant platforms,” she said. “However, the quick integration of generative AI into the services of digital platforms also has the potential to raise many of the same barriers to entry and expansion that make platform markets tend towards concentration.

“Existing large digital platforms likely have a head start in developing and deploying high-quality generative AI services due to their access to data and computing power.

“We’re also already seeing firms that control valuable or unique data sets – such as Reddit – starting to actively restrict access to that data, which has the potential to impact the training of large language models.”

The ACCC has been issuing reports every six months to update on the progress on its inquiry – which began in 2020 – as well as making recommendations such as mandatory codes of conduct and proposing reforms to limit the harm caused by scams and unfair trading practices on social media. It is set to release its report covering the half-year to September soon.

In a submission for the ACCC’s latest report, which looks at the digital platforms’ “ecosystems” and expansion into smart home devices, Amazon said it was primarily a retailer.

“Amazon manufactures and supplies a small range of smart home devices, a virtual assistant (Alexa) and it does not hold a strong or unique position with respect to any of the components identified for so-called ‘ecosystems’,” it said.

“When Amazon does collect and use data from Amazon smart home devices we are transparent about this, and customers’ data is only used and disclosed in accordance with Amazon’s or its subsidiaries’ privacy notices.”

Apple said its entry into smart home devices was “comparatively recent” and it was “incentivised to create a robust ecosystem across Apple devices which includes as many quality apps and third-party interoperability as possible”.

Meta – founded and led by Mark Zuckerberg – says the ACCC definition of an ecosystem was ‘extremely broad’.

“The health and diversity of this ecosystem is critical to Apple’s success because it, in turn, drives the sale of our hardware products. Apple therefore has a strong incentive to keep its ecosystem open and to deliver choice and quality to consumers,” Apple said.

Microsoft, which welcomes regulation, said in its submission that Amazon, Apple, Meta, Google and itself supplied a different range of products and services and was “competing for a different mix of customers”.

“As a widely diversified technology company, we have appreciated the ACCC’s focused examination of digital platform services to date. We urge the ACCC to continue to recognise the heterogeneity of different digital platform services and to continue to undertake market-specific analysis when considering firms’ expansion activities and conduct,” Microsoft said.

Meta, meanwhile, said the ACCC definition of an ecosystem was “extremely broad”.

“Ecosystems within the ACCC’s definition can be observed across the Australian economy, from telecommunications, to banking, to retail, and there is nothing inherent in digital ecosystem businesses that present greater risks of anticompetitive con­duct or consumer harm than in other sectors,” Meta said. “We caution against overreliance on the concept of an ‘ecosystem’ and any attempt to reach generalised conclusions about digital platform expansion strategies.”

Google said in its submission that there were consumer advantages from its products working well together.

“This consumer advantage is further enhanced by significant interoperability with third-party devices, services and apps,” it said.

“We believe our approach and business model can be distinguished from others in this regard.”