In recent years, India has emerged as a critical battleground for tech regulation. With a rapidly growing digital economy and a burgeoning user base, the country is looking to take a leaf out of the European regulatory handbook by proposing a new digital competition law. The draft law, called the Digital Competition Bill, 2024, aims to prevent tech giants like Google, Facebook, and Amazon from engaging in anti-competitive practices. The bill's stringent provisions, inspired by the European Union's Digital Markets Act (DMA), have sent shockwaves through the tech industry. Here, we delve into why Big Tech is apprehensive about this proposed legislation and what it could mean for the future of digital markets in India.

A Shift from Ex Post to Ex Ante Regulation

The Digital Competition Act targets the regulatory tool which shifts from an ex-post to an ex ante framework. The existing Competition Act, 2002 in India, uses an ex ante approach. Hence, the regulator takes action after a competition rule contravention has happened. Consequently, such responds become very responsive, which results in extensive delays and shifts in market patterns, thus larger competitors get the chance to deal with smaller ones. The new proposed bill has a preemptive methodology in its nature looking to establish doubtful norms early to check anti-competitive practices before they happen.

This is a major turn to several points. Initially is it shows the acknowledgment that digital markets are highly dynamic and intricate as they operate in interconnected area. Thus, these approaches have turned out to be the least efficient regulatory methodology. Besides, by the time when the regulators react to an infringement, the harm can already be done, and therefore the mostly dominant players can remain consolidated in the market. Ex ante framework aims at predicting unpleasant consequences and setting No-Go areas, to avoid market cheatings before its occurrences.

Designation of Systematically Significant Digital Enterprises (SSDEs)

A critical feature of the Digital Competition Bill is the designation of certain companies as Systematically Significant Digital Enterprises (SSDEs). The criteria for this designation include various quantitative and qualitative parameters such as turnover, user base, and market influence. Specifically, a company would be designated as an SSDE if, in the last three financial years, it has a turnover in India of at least Rs 4,000 crore or a global turnover of at least $30 billion. Other metrics include gross merchandise value in India of at least Rs 16,000 crore or global market capitalization of at least $75 billion. Additionally, the core digital service provided by these companies should have at least 1 crore end users or 10,000 business users.

This designation brings with it stringent obligations. SSDEs are prohibited from engaging in practices like self-preferencing, anti-steering, and restricting third-party applications. Violations could result in hefty fines, up to 10% of a company's global turnover, amounting to billions of dollars. This framework is designed to prevent dominant firms from leveraging their market position to stifle competition.

Implications for Big Tech

For the big tech companies, that the outcome of the Digital Competition Bill will determine is dramatically. These giants might be obliged to make some crucial amendments to their business tactics and services either of which can be disastrous. For instance, Apple can be compelled to permit downloading of apps on iPhones from other sources besides the ones already familiar to the company. Google would also find itself limited in regards to how it utilizes data coming in from the different services it provides to positively affect its ecosystem for example Google Maps users are directed to Google Search.

The required compliance load is already a major one, and it gets even more enormous. The first excuse that the tech giants suggest is that they cut back the money that can be used for innovation and research and dedicate to the regulatory requirements.

Concerns Over Broad Definitions and Discretionary Powers

Another major concern for tech companies is the broad and somewhat vague criteria for designating SSDEs. Unlike the EU’s DMA, which specifically names gatekeeper entities, India's draft law leaves the decision to the discretion of the Competition Commission of India (CCI). This could potentially lead to arbitrary decision-making and inconsistent enforcement. Companies worry that this lack of clarity could impact not only established players but also start-ups and smaller firms that may be deemed significant under these broad definitions.

The possibility of being classified as an SSDE based on qualitative assessments, such as market influence, adds to the uncertainty. This could lead to a scenario where companies are constantly under the threat of being regulated as SSDEs, impacting their strategic decisions and market behavior.

Impact on Innovation and Market Dynamics

The Digital Competition Bill also raises questions about its impact on innovation. Critics argue that the strict prescriptive norms could stifle innovation by creating a compliance-heavy environment. Big Tech companies have been at the forefront of technological advancements, often leveraging their scale and integration across services to deliver innovative products. By imposing stringent regulations, there is a fear that these companies might become overly cautious, prioritizing compliance over experimentation and innovation.

Moreover, the bill's provisions on data sharing and cross-platform integration could disrupt existing business models. For instance, Google’s ability to use data from its search engine to enhance recommendations on YouTube could be curtailed. This could impact the seamless user experience that these integrated services provide. Similarly, Amazon’s use of data from its marketplace to inform its logistics and delivery services could come under scrutiny.

Arguments for Strengthening Existing Laws

Given the significant changes proposed by the Digital Competition Bill, some industry stakeholders argue for strengthening the existing competition law rather than moving to an ex ante framework. They suggest that enhancing the enforcement capabilities of the current law and reducing the delays in regulatory action could address the concerns around anti-competitive practices without imposing the heavy compliance burden of a presumptive framework.

This perspective is supported by the argument that the digital market is inherently dynamic and self-correcting to some extent. Rapid technological changes and evolving user preferences often lead to market shifts that can mitigate the dominance of any single player. For instance, while Google and Facebook have been dominant in digital advertising, new entrants and evolving technologies continually challenge their supremacy.

Balancing Regulation and Market Freedom

While the concerns of Big Tech are valid, it is also important to recognize the motivations behind the Digital Competition Bill. The Indian government aims to create a more level playing field in the digital market, ensuring that smaller competitors have a fair chance to compete. The bill seeks to address the high market barriers that often prevent new entrants from gaining traction. By curbing practices like self-preferencing and anti-steering, the government hopes to foster a more competitive environment that could spur innovation across the board, not just within a few dominant players.

Additionally, the bill addresses the broader issue of digital market concentration. Over the past decade, a significant portion of innovation and economic activity in the digital space has been concentrated within a handful of large tech companies, predominantly from the US. This concentration not only stifles competition but also limits the diversity of innovation. By imposing regulations that prevent anti-competitive practices, the bill aims to open up the market, encouraging a wider range of companies to innovate and compete.

Global Implications

The implications of India’s Digital Competition Bill extend beyond its borders. As one of the largest digital markets in the world, India’s regulatory approach could set a precedent for other countries grappling with similar issues. If successful, the bill could inspire similar regulatory frameworks in other emerging markets, creating a ripple effect that could reshape the global digital economy.

Moreover, the bill’s alignment with the EU’s DMA reflects a growing consensus among major economies on the need for stricter regulation of Big Tech. This convergence could lead to a more coordinated global approach to digital market regulation, making it harder for tech giants to exploit regulatory arbitrage.

Conclusion

The Digital Competition Bill, 2024, represents a bold step by India to regulate its digital market more stringently. By moving to an ex ante framework and designating Systematically Significant Digital Enterprises, the bill aims to prevent anti-competitive practices before they occur, fostering a more competitive and innovative market. While Big Tech companies have raised concerns about the compliance burden and potential impact on innovation, the bill’s proponents argue that it is necessary to level the playing field and address the concentration of market power.

As the debate unfolds, it is clear that the Digital Competition Bill has the potential to reshape the digital landscape in India and beyond. Whether it strikes the right balance between regulation and market freedom will depend on its implementation and the willingness of stakeholders to adapt to a more regulated environment. What is certain, however, is that the bill marks a significant shift in the approach to digital market regulation, one that could have far-reaching implications for the future of the global digital economy.