There’s an unwritten rule in banking: don’t insult the regulator. Certainly not in public, and definitely not when they’re about to take on new powers over you.
Nobody told the tech giants.
Microsoft and game maker Activision Blizzard reacted furiously to the British competition authorities decision last month to block their $75 billion deal. Activision called it a “disservice to the citizens of the UK” and said the country was “closed for business” with “increasingly dire economic prospects”. Fascinating.
Microsoft Vice President Brad Smith said the move would “discourage innovation and investment” and, bizarrely, noted the US company’s “vital role”. . . defend the nation against cybersecurity threats.”
The vitriol seems counterproductive. It shouldn’t come as a big surprise that the Competition and Market Guarantor Authority opposed Microsoft’s acquisition of Activision.
Its core concerns, especially with the nascent cloud gaming market where the CMA said Microsoft already had a 60 to 70 percent market share, are shared by regulators globally, including the US and Europe. Even if, as speculated, the European Commission approves the deal next week, that will hinge on its greater comfort with behavioral remedies, where it is Europe that looks more like the outlier globally than the UK.
The fact that the CMA withdrew its objection to console games in March may have raised hopes of approval. More likely, pros say, the move reflected confidence in its cloud gaming case. Microsoft and Activision will submit the decision to judicial review.
The truth is that the outrage of the tech giants is not widely shared by the British industry. It’s not so much that the big five tech companies — Google, Apple, Facebook, Amazon and Microsoft, still known as GAFAM despite various corporate name changes — can’t buy anything: the CMA cleared Microsoft’s purchase agreement AI company Nuance last year. But their transactions will clearly get a glare. What is not known is how the deep control of the technology, a global phenomenon, will develop for the rest of the market.
“The question is what will create competition with the bigger companies,” says Dom Hallas of Coadec, an advocacy group for start-ups. “Who can buy affects UK start-ups in terms of exit options, but also the future shape of the market. That’s why every CMA decision takes on such perceived importance. In that sense, the verdict on Adobe’s $20 billion purchase of design software firm Figma, or Broadcom’s $69 billion deal to buy VMware, could prove more informative than the mega Microsoft agreement.
The technological wrath appears to have caused little distress, political or otherwise. If anything, the CMA has been increasingly strong in arguing that lively and vigorous competition is good for business, innovation, customers and the economy. There is, globally, a sense that a laissez-faire trend hasn’t worked, particularly in technology but also more generally. (Sarah Cardell, head of the CMArecently singled out private equity roll-up strategies as a particular area of concern.) The UK is likely to be at the forefront of efforts to expand regulatory tools to address such concerns.
Notably, the deal with Activision was stalled in the same week that the UK government released its proposed overhaul of the competition framework, including a new unit for digital marketplaces.
The latter will effectively put the CMA in the role of constant overseer of the biggest tech names, with significant new powers to more easily address market power issues or impose conduct requirements to manage potential harms. The latter could be thought of as retrospective behavioral remedies, an ex post mitigation for previous sub-applications. One way or another, GAFAM will see a lot of the UK regulator.
There are legitimate questions here. “I don’t think any other regulator has that level of unlimited discretion,” one expert said, referring to the freedom the CMA would have to act under the new bill and the appropriateness checks on its actions.
The outcome of that debate will have a bigger impact on the UK as a place to do tech business than it will on Microsoft-Activision.
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