Closed for business? Sizing up Big Tech’s UK temper tantrum

There is an unwritten rule in banking: don’t slag off the regulator. Certainly not in public, and definitely not when they are about to assume new powers over you.

No one told the tech giants.

Microsoft and games maker Activision Blizzard reacted furiously to the UK competition authority’s decision last month to block their $75bn deal. Activision called it a “disservice to UK citizens” and said the country was “closed for business” with “increasingly dire economic prospects”. Charming.

Microsoft vice-chair Brad Smith argued the decision would “discourage innovation and investment” and, slightly oddly, noted the US company’s “vital role . . . defending the nation from cyber security threats”.

The vitriol feels counterproductive. It should not have come as a great surprise that the Competition and Markets Authority objected to Microsoft taking over Activision.

Its key concerns, notably about the nascent market for cloud gaming where the CMA said Microsoft already had a 60 to 70 per cent market share, are shared by regulators globally, including in the US and Europe. Even if, as speculated, the European Commission clears the deal next week, that will be down to its greater comfort with behavioural remedies, where it is Europe that looks more like the outlier globally than the UK.

That the CMA dropped its objection around console gaming in March may have raised hopes of approval. More likely, say practitioners, the move reflected confidence in its case in cloud gaming. Microsoft and Activision will take the decision to judicial review.

The truth is that the tech giants’ outrage is not widely shared by the UK sector. It is not so much that the big five tech companies — Google, Apple, Facebook, Amazon and Microsoft, still known as GAFAM despite various corporate name changes — cannot buy anything: the CMA cleared Microsoft’s deal to buy artificial intelligence company Nuance last year. But their transactions will clearly get a hard look. What is unknown is how heightened scrutiny of tech — a global phenomenon — will play out for the rest of the market.

“The question is what will create competition with the biggest companies,” says Dom Hallas of Coadec, a lobby group for start-ups. “Who can buy affects UK start-ups in terms of their options to exit but also the future shape of the market. That’s why every CMA decision takes on such perceived importance.” In that vein, the verdict on Adobe’s $20bn purchase of design software company Figma, or on Broadcom’s $69bn deal to buy VMware, could prove more informative than Microsoft’s mega-deal.

The tech tantrum appears to have provoked little angst — politically or otherwise. If anything, the CMA has been increasingly robust in making its case that vibrant, vigorous competition is good for businesses, innovation, customers and the economy. There is, globally, a sense that a tendency towards laissez-faire didn’t work, in tech particularly but also more broadly. (Sarah Cardell, head of the CMA, recently flagged private equity roll-up strategies as a particular area of interest.) The UK is probably at the forefront of efforts to expand the regulatory toolbox to address those concerns.

It is notable that the Activision deal was blocked in the same week the UK government published its proposed overhaul of the competition framework, including a new digital markets unit.

The latter will in effect put the CMA into the role of ongoing supervisor to the biggest tech names, with significant new powers to intervene more easily on market power concerns or impose conduct requirements to manage potential harm. The latter could be thought of as retrospective behavioural remedies, an after-the-fact mitigation for previous under-enforcement. One way or another, GAFAM are going to be seeing a lot of the UK regulator.

There are legitimate questions here. “I don’t think any other regulator has that level of unfettered discretion,” said one expert, referring to the freedom the CMA would have to act under the new bill and the checks around the appropriateness of its actions.

The outcome of that debate will have a greater impact on the UK as a place to do tech business than the one over Microsoft-Activision.

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