As the government is re-drafting the Digital Competition Bill (DCB) with a view to making it more in tune with the market realities, it may explicitly extend the proposed special antitrust regime for the digital economy to the emerging area of artificial intelligence (AI).
In the original form, the draft DCB outlined nine pre-identified core digital services (CDS), such as operating systems, online search engines, social networking services, web browsers, cloud services etc., as potential areas for regulation. As per the initial draft, Big Tech firms, which meet specified financial and user base thresholds, and offer one or more of these services, will be subjected to “ex-ante regulations.”
The government is now discussing internally and with various stakeholders whether such a proactive approach to regulations, as opposed to the conventional one for the real economy and the financial sector where contraventions are dealt with only after they occur, will need to be put in place for the digital sector.
The DCB, modelled on the UK Digital Markets Act, is being comprehensively redrafted in this context. A new version of the Bill may add AI as another CDS to be regulated, the sources said.
Why AI may be included under DCB
The government has the flexibility to add a new CDS to the list of markets to be regulated if the need arises, a senior official told FE. He indicated that regulations to prevent anti-competitive tendencies and market dominance in the AI space may also be the need of the hour.
“The government is free to stimulate AI-specific obligations under DCB. In the current construct of the draft DCB, the obligations are outlined but the government can pick and choose core digital services,” the official said.
Ex ante regulations require businesses to follow specific obligations and guidelines to ensure fair competition, while mostly competition regulations are ex post in nature.
Last year, the Competition Commission of India (CCI) engaged Management Development Institute Society (MDIS) to examine AI’s impact on markets and its implications on the competition landscape. In June this year, MDIS gave a presentation to CCI on its interim report. Based on the suggestions made during the presentation, the MDIS will submit its final report by September 30.
Global lessons and expert views
Experts said that AI is an evolving tech that’s prone to algorithmic collusion, data monopolisation and other forms of anti-competitive conduct. Globally, major economies are still trying to figure out ways to control anti-competitive practices within the AI space.
For instance, the European Union has stated that despite AI not being listed as a core platform service under its Digital Markets Act, the law is still empowered to regulate it. Additionally, the EU’s AI Act, which came into force last year, can indirectly extend the powers of national competition authorities to enforce EU competition law. The regulators of the US, EU and the UK have noted the possibility of Big Tech exercising control over the AI space as well, given that only these firms will be equipped with the enormously large computer systems required for AI to thrive.
The US Federal Trade Commission (FTC), department of justice (DOJ), the European Commission, and the UK Competition and Markets Authority (CMA) last year released a joint statement where they resolved to protect competition across the AI ecosystem. They flagged concerns over AI-related competition risks, even as they outlined the principles to protect and foster innovation using AI technologies.
According to the statement, specialised companies that control key inputs may exploit bottlenecks, allowing them to exercise major influence over the development of AI tools, which may stifle innovation and undermine competition. The regulators identified data at scale, specialized chips, compute, and technical expertise as key inputs to AI-related markets. A key risk area is excessive control likely to be exercised by a few firms on key inputs, such as data at scale, specialized chips, compute, and technical expertise. They noted that incumbent platforms may already have significant market power at multiple levels of AI-related markets, and may seek to entrench it.
Arun Khatri, managing partner at K&R Legal said that ex-ante regulations for AI platforms are crucial due to the rapidly evolving nature of the market. He said that ChatGPT became a dominant force in just two months while other networking sites or search engines took time to establish themselves.
“The domination and monopoly in the AI industry is likely to grow further in the future, which is why a proactive approach is required. Due to the concentrated market power in specific layers, dominant tech firms may use their financial resources, extensive data pools, and technical know-how to sustain competitive advantages despite the diversity of players,” he said.
The government is planning a market study on the draft DCB for a possible revamp of the Bill after it faced widespread criticism during inter-ministerial consultations and feedback from industry. Many experts found the current draft vague, subjective and overly broad in scope.
Officials said that one of the key concerns was the Bill’s reliance on turnover thresholds to determine which companies would be classified as systematically significant digital enterprises (SSDE), rather than focusing solely on market power.
According to analysts, high turnover figures do not necessarily reflect dominance. For example, Apple’s strong revenues in India are largely due to the high average selling price of its products, yet it commands only around 6% of the smartphone market.
