Don’t imagine that the UK’s national debt can be eroded by whacking Facebook, Google et al with fines worth 10% of their worldwide revenues. The Digital Markets Unit (DMU), the soon-to-be-created watchdog for the tech sector, would still have to ensure penalties are “proportionate”; and it would have to set out its fining framework in advance. Multibillion-pound fines might be extremely rare.
But the regulatory power to whack miscreants with big fines for breaches of new behavioural codes is important. It’s about having a “credible deterrence”, as the Competition and Markets Authority (CMA) put it in its advice to government about how the DMU should be designed.
Nor is the 10% figure plucked out of thin air. It’s what the CMA can levy for breaches of competition law and it’s equivalent to the European commission’s powers. If ministers are serious about backing DMU as a strong tech regulator, 10% should not be controversial.
Indeed, Google and Facebook may be more bothered by the recommendation that the CMA should itself have “enhanced merger rules” for big tech firms. The enhancement would be the right to investigate proposed takeovers that fall below the standard test of £70m of revenues in the UK.
The extra freedom is vital when you see how big tech has played the takeover game to lock apps and services into digital “ecosystems” before startup firms have had a chance to grow. Last year’s Furman review, which paved the way for the creation of the DMU, included an extraordinary statistic that should embarrass anti-trust authorities everywhere: over the last 10 years the five largest digital firms have made more than 400 acquisitions globally and no deal has been blocked by competition authorities.
So, yes, a more imaginative merger regime – one adapted to the tech world – sounds entirely sensible. The CMA and DMU would merely be catching up (one hopes) with a sector that moves fast and constantly changes shape. Implementation will be everything, of course, but the outline script for this regulatory shake-up is promising. Don’t let big tech’s lobbyists dilute it.
Ofgem was probably right to give utilities a break
The CMA appeared in less heroic light in September when it sided with four water companies that thought their regulator, Ofwat, was being too mean on allowed returns. It was a baffling ruling (and is being challenged by Ofwat) and one that threatened a crisis in the world of utility regulation. If appealing to the CMA were to become the norm, what authority do independent regulators really have?
That backdrop provided spice to Ofgem’s review of returns for network companies. Sounding very much like the hissing water companies, some of electricity’s big players had warned the sky would fall in, more or less, if Ofgem stuck to its view in July that an annual rate of return of 3.95% for shareholders should apply for the next five years.
In the event, Ofgem moved to 4.3% in Tuesday’s final decision. That is still some way below the 5% to 6% that the companies had unrealistically sought, but the switch still counts as significant. In utility-land, each 10th of a percentage point counts.
Was Ofgem’s retreat a capitulation? Actually, no, one can’t say that. The regulator offered some credible-sounding technical reasons for adjusting its assessment of companies’ cost of equity, and so forth. Nor is it unusual for a regulator to revise between “preliminary” and “final” stages. This may be a case of regulation working as it’s supposed to – encouraging companies to invest in greener infrastructure while ensuring consumers aren’t ripped off.
But, before one can reach that conclusion definitively, let’s see how the companies respond. A few still muttered about reserving the right to appeal to the CMA. One hopes they don’t. Share prices are usually a useful guide and National Grid and SSE were both up – by 1.4% and 2.9%, respectively. That rather suggests the companies should just get on with their jobs.
It’s fourth time lucky for G4S shareholders
The fourth bid for G4S has produced a surrender in the boardroom. John Connolly, the chairman, emerged after the stock market had closed to give a thumbs-up to 245p a share, or £3.8bn, from Allied Universal of California.
GardaWorld, the rival bidder from Canada, is free to return for another bite, but G4S’s board was obliged to roll over at this stage and give a recommendation to accept. G4S’s share price, remember, was 146p before the fun started and, since both bidders are offering cash, there’s nothing complicated about the relative financial merits of the offers. The only mystery is why anyone wants to own G4S this badly.