Regulation of markets mediated by digital platforms in Brazil

An open discussion

Tulio Chiarini[1], Diandra Carolina de Oliveira V. da Rocha[2], Luiz Carlos T. Delorme Prado[3]

In markets shaped by digital platforms, understanding the challenges stemming from their dynamics is an intricate task. These environments consist of a collection of components, built upon systems for storing, processing, and analyzing vast amounts of data. These systems integrate information and communication technologies, alongside AI and cloud computing, to form interfaces. These interfaces, functioning as intermediaries within the digital landscape, play a pivotal role in enabling exchanges, transactions, and relationships. This process generates value among economic agents.

Referred to as digital platforms, these interfaces are ubiquitous across various sectors, yielding diverse effects in each domain. They exhibit distinct scopes, leading to a range of impacts, both within the economic realm and across various facets of social life.

To assess the scale of the Brazilian platform economy, apart from the major tech players (Amazon, Alphabet, Alibaba, Microsoft, Apple, among others), a recent study has pinpointed over 500 domestic companies overseeing these digital interfaces. Remarkably, 82% of these entities were established after 2011, with a concentration in São Paulo and Rio de Janeiro. Nonetheless, the study underscores the reliance of these platforms on major tech corporations.

The regulation of platforms

Economic regulation serves as a tool of public policy, and its foundation lies in establishing the goals envisioned by the state. Each intervention assumes the necessity of modifying market outcomes to avert imbalances or attain specific objectives. A regulatory process commences with an assessment of prevailing issues and anticipated outcomes.

Some behaviors of a set of platforms raise concerns related to competition. Among those with negative impact, the "gatekeeper" and "self-preferencing" powers stand out. The former implies that these platforms have control over how agents utilize them, and the latter pertains to how certain platforms grant more advantages to the products they themselves offer compared to those from other companies using the platform for commerce. This results in their own products being more prominently featured.

In response to these behaviors, various jurisdictions are deliberating upon and implementing regulatory frameworks, each at different stages of legislative progress. The European Union (Digital Markets Act), the United States (Platform Competition and Opportunity Act and Ending Platform Monopolies Act), and Japan (Act on Improving Transparency and Fairness of Digital Platforms) have already enacted laws, while the United Kingdom (Digital Markets, Competition and Consumer Bill) has a proposal currently under review.

While the enacted laws in these nations display notable variations, they establish a series of obligations intended to ensure equitable commerce, facilitate market entry and exit for businesses, and foster competition. These regulations are specifically targeted at a limited group of companies possessing significant market influence, determined by factors such as their scale (user base and revenue) and capacity to shape the markets.

Latin American and Caribbean nations are trailing in these deliberations, although certain countries have demonstrated advancements. In Colombia, for instance, a decree (Decree No. 1,836/2021) has been issued to oversee platforms operating within the tourism sector, mandating the provision of transactional data to the government when necessary for investigating and penalizing unfair competition. Additionally, Colombia is deliberating a proposed bill (Bill n. 302/2023) in the Senate. This bill seeks to regulate the employment of individuals, encompassing aspects like social security contributions, within digital platforms and address their role as gatekeepers.

Within the Brazilian context, four notable measures come to the forefront. The Civil Rights Framework for the Internet (Law No. 12,967/2014) laid down principles, guarantees, rights, and responsibilities for Internet usage. The General Personal Data Protection Law (Law No. 13,709/2018, later amended by Law No. 13,853/2019), marked the second phase of these efforts. Furthermore, the "Fake News Bill" is currently under deliberation in the National Senate, aiming to establish regulations concerning online transparency (Bill n. 2,630/2020). As per this proposed bill, social media platforms and messaging services (whether domestically-based or international) are required to disclose the count of registered accounts, active users, and data pertaining to sponsored content linked with social and political matters.

Although these measures constitute progress in terms of the platform economy and society, they do not deal with competitive practices. Currently, in the Chamber of Deputies, Bill 2,768/2022 is under discussion, seeking to establish rules for the organization, functioning and operation of these markets.

Bill 2,768/2022

The bill was introduced to the Chamber of Deputies on October 11, 2022, and it is currently undergoing deliberation within the Economic Development Committee (Comissão de Desenvolvimento Econômico – CDE). The Committee is tasked with examining several critical aspects, including:

  1. Evaluating international experiences pertaining to the development and regulation of digital markets;
  2. Scrutinizing the regulatory jurisdiction as it relates to digital markets;
  3. Analyzing competitiveness and competition within the digital market landscape;
  4. Exploring entrepreneurship opportunities within digital markets.

The underlying premise of this bill is rooted in the assertion that major technology corporations wield significant market influence and are increasingly encroaching upon related or adjacent sectors. They are alleged to engage in practices such as self-preferencing and gatekeeping.

In light of this pressing issue and its alignment with global concerns regarding platform-mediated markets, it is imperative to pause and consider the following points:

1.     In regard to the clarity of Bill 2,768's scope

While the bill purports to address "the organization, functioning, and operation of digital platforms that offer services to the Brazilian public and makes other provisions," its actual content predominantly centers around matters concerning anti-competitive behavior.

It is essential to recognize that the regulation of digital platforms is a multifaceted undertaking that should encompass a broad spectrum of concerns, including but not limited to competition, data privacy, cybersecurity, freedom of expression, the spread of disinformation, labor market implications, and tax evasion, among others. In this context, amendments to the bill should adopt a more precise focus. This is because the current bill does not delve into critical issues such as data privacy, freedom of expression, and the dissemination of disinformation, which are addressed separately in legislation like the General Personal Data Protection Law and the Fake News Bill.

2.     Refining the Definition of Digital Platforms

Article 6 of the Bill distinguishes between "digital platform operators" and "digital platforms." However, it inaccurately defines a "digital platform operator" as an "internet application provider." This definition falls short of precision. As per the Civil Rights Framework for the Internet (Law No. 12,967/2014), providers are companies that furnish a set of functionalities accessible via computers or other internet-connected devices. Consequently, it remains unclear whether the term "provider" pertains to the entity behind an application available within virtual stores, such as the AppStore. This ambiguity raises questions about whether the provider refers to the proprietor of the virtual store (e.g., Apple) or the entities governing the applications offered within the virtual store (e.g., Uber, which makes its application accessible via the AppStore).

Furthermore, the Bill defines the "digital platform itself," including its technological infrastructure, as "internet applications" deployed in various forms. These forms encompass:

  1. Online intermediation services;
  2. Online search tools;
  3. Online social networks;
  4. Video sharing platforms;
  5. Interpersonal communications services;
  6. Operating systems;
  7. Cloud computing services;
  8. Online advertising services provided by digital platform operators.

Although the bill acknowledges that this list can be subject to modification, it inadvertently conflates the various services and revenue models of platforms. For instance, "online advertising services" represents a revenue strategy, and therefore, it should not be classified as a distinct type of digital platform. Similarly, "cloud computing services" should not be categorized as a separate type of digital platform.

3.     Essential control

Article 2 of the bill underscores the imperative of regulating and supervising platforms with access control. Within this context, Article 9 of the proposal establishes a criterion, stating that entities generating an annual operating revenue equal to or exceeding R$70 million from providing services to the Brazilian populace will be designated as possessors of essential access control authority.

Nonetheless, two pertinent issues demand attention. Firstly, the bill omits a specified methodology for ascertaining this financial threshold. This omission prompts the question of how to compute the revenue of foreign companies operating platforms within Brazil but lacking a physical presence in the country.

Moreover, the notion of access control authority is presently rooted solely in gross operating revenue. There exists potential for alternative metrics, such as the number of end-users or the degree of dependence of companies on these platforms, to be incorporated into this assessment.

4.     The Responsibilities of Digital Platforms

Article 10 offers a comprehensive overview of the obligations placed upon digital platforms. These obligations encompass several critical aspects, including: transparently furnishing information to the National Telecommunications Agency (Agência Nacional de Telecomunicações – Anatel); ensuring equal and non-discriminatory treatment of users; responsible utilization of collected data; and refraining from withholding access to professional users.

While Article 4 briefly references the necessity of adhering to the foundations, principles, and objectives outlined in the General Personal Data Protection Law, it is worth noting that the legislator only lightly touches upon the topic of data management—a pivotal concern within the realm of the platform economy.

5.     Anatel's Role in the Regulation of Digital Platforms

The justification presented in the bill positions Anatel as the sole regulatory authority for digital platforms in Brazil. This stance, however, reflects a limited understanding of the diverse sectors within which these platforms operate.

A more nuanced approach involves classifying platforms based on the services they provide, which reveals the intricate nature of regulation. These platforms encompass a broad spectrum of activities, including e-commerce marketplaces (e.g., Amazon and Mercado Libre), social networks (e.g., Facebook and Instagram), search engines (e.g., Google), ride-hailing services (e.g., Uber and 99), delivery services (e.g., iFood, Rappi, and Loggi), accommodation (e.g., Airbnb), and streaming video distribution (e.g., Netflix and Filme Filme).

For instance, the audiovisual video market has undergone a transformative "platformization" with the emergence of streaming services. Notably, the National Film Agency (Agência Nacional do Cinema – Ancine) recently published a report on the Brazilian video streaming market, highlighting Brazil's leadership in Latin America in terms of the number of such platforms in operation. Yet, the content landscape reveals complexities— Amazon Prime Video, for example, offers over 7,000 films in Brazil, but less than 8% are locally produced. Similarly, Netflix offers more than 5,000 films, with less than 6% originating from Brazil. Ancine, in accordance with Provisional Measure No. 2,228-1/2001, is tasked with regulating the presence of national cinematographic and videophonographic works across diverse market segments.

Given these nuances, it begs the question: should the regulation of the audiovisual video market mediated by digital platforms fall under the purview of Anatel?

Final considerations

Bill 2,768/2022 sheds light on the legislative body's concerns regarding the competitive landscape of digital platforms, but it falls short of addressing the intricate intricacies of the platform economy.

The discourse proposed here serves to enrich the ongoing debate about economic regulation within digitally mediated markets, casting a critical eye on the bill. The following key points emerge from this discussion:

  1. Unclear Scope: While the Bill pertains to "digital platforms providing services to the Brazilian public," it lacks precision in delineating this scope, leaving room for interpretation;
  2. Definition Ambiguity: The Bill introduces ambiguity by conflating various aspects, including technological architectures, the array of services offered, and remuneration models;
  3. Essential Control Criteria: The Bill's primary criterion for assessing control power hinges on annual operating revenue, overlooking crucial factors like user base size;
  4. Broad-Stroked Obligations: The obligations placed on digital platforms in the Bill are somewhat generalized, warranting more specificity;
  5. Regulatory Authority Concerns: The exclusive designation of Anatel as the regulatory authority underscores a limited understanding of platform diversity.

To ensure effective and equitable regulation, these facets need comprehensive and thorough treatment. This approach would pave the way for rules that are not only equitable and enforceable but also capable of navigating the intricacies of digitally mediated markets, fostering a robust and competitive environment. Ultimately, it is crucial that legislators and academics engage in an in-depth discourse on this issue, as the current proposals on the table do not offer a wholly satisfactory solution.

[1] Researcher at CTS/Ipea

[2] PhD candidate at Universidade Federal do Rio de Janeiro

[3] Professor at Universidade Federal do Rio de Janeiro