May 13, 2016 By FTI Consulting
One year ago the European Commission came out with its plans for finalising the Digital Single Market by 2019 – and then went back to the drawing board to figure out the details. As the rhythm of concrete proposals is finally picking up, now is a good time to review what it all means for business.
In the European Union, a host of different rules still have to be navigated by anyone who wants to buy or sell goods or services online across borders. So most Europeans don’t bother even if it means losing out on more choice and better prices. There just is no fully fledged digital single market.
To begin with, it is important to understand that the Digital Single Market (‘DSM’) is not a monolithic initiative. It packages very disparate subjects and hard-core legislation, spending programmes and ‘soft’ recommendations are all part of the mix. So it is no surprise that creators and distributors of content, every holder of intellectual property rights, every company working with digital data (who isn’t nowadays?), every provider of online services or e-commerce operator and certainly any IT company in a wider sense should be very concerned.
The European Commission mentioned that it would aim to publish on 25 May a number of proposals and communications on the following areas: online platforms, a review of the audio-visual media services directive, as well as an e-commerce communication to be accompanied by a legislative proposal on geo-blocking, another on parcel delivery, a guidance document on unfair commercial practices and a review of the consumer protection cooperation regulation.
This snapshot aims to analyse the core proposals which were recently published or are soon to be published and will have a high impact on the future of telecoms and technologies.
The Commission proposed in December 2015 to force providers of online content to provide access to their customers across the whole EU. The idea is to simply define such access as taking place in each customer’s home country. Leaving aside the obvious impact on the business models of content licensors, this would also mean additional costs for the necessary technical measures.
“The Commission’s political approach for online platforms in Europe will be problem-driven”
– Andrus Ansip, European Commission Vice-President
Spurred on by a few countries, such as France and Germany in the first place, the European Commission has made a lot of a new public enemy over the last few months: online platforms. Never mind that nobody could even clearly circumscribe the concept and say who’s a platform and who isn’t, something was to be done. And that stance very much remains. The European Commission, also on 25 May 2016, is going to publish another issues document rather than concrete proposals, basically giving itself at least another six months to come to grips with the issue. Anybody suspected of running an online platform, and as things stand not many can be safe at this stage, may breathe a sigh of relief but shouldn’t relax too quickly. Some in the European Commission have quite far-reaching ideas on the transparency website users should benefit from: e.g. this might cover the reasons for a particular search ranking or an explanation of what the user has not been shown due to some algorithm’s work. So black-box algorithms or neural network artificial intelligences beware!
After half a decade doing not very much on this topic, last December the European Commission also put out some ideas for copyright reform. Based on that legislative proposal the film industry might be excused for starting to fear for their very existence – but the European Commission appears to have already backtracked on the issue of cross-border licensing and access, offering assurances that the territoriality principle would remain, and even throwing in further concessions to protect and promote European cultural output. In the same vein, copyright enforcement online might be strengthened – or not: for now the Commission is consulting the public once again. Researchers continue to hope for a legal exception for text and data mining whereas rights holders work the corridors in order to restrict any change to the corner of vaguely defined “non-commercial” use. But surprises are still possible even in the copyright area. Without having previously covered the issue, the European Commission launched another public consultation in March 2016 to determine what effect a new neighbouring right for publishers would have on any other market participant. Judging from the experience in Germany, where such a right was enacted recently, not a very good one. But will the European Commission pay heed?
This brief overview already shows that pretty much everybody should look forward to October (the latest target date for the legislative proposal on copyright) with apprehension.
Later this month, on 25 May, the European Commission will propose to outlaw unjustified geo-blocking. So what’s unjustified? Online traders would not be able to differentiate between customers stemming from or residing in different Member States. If they want to offer a payment option to people in their own city they would have to offer it to every comer. Hitherto legal agreements between suppliers and traders regarding passive sales (where a trader is not targeting a territory but gets contacted by prospective customers from that territory) are to be declared void insofar as they interfere with these anti-geo-blocking provisions which will create problems for selective distribution systems. The Commission does not appear to want to force traders (which explicitly include SMEs and even microenterprises) to send goods to another Member State unless they have already done so and thus incurred any extra costs for adapting to the local legal environment, a different language, etc. However, the envisaged rules are certainly complex and could easily give rise to innovative arbitration-based business models and seriously threaten any business model that today operates on the basis of charging differently across different EU Member States.
Regarding the Commission-identified “new oil” of the digital economy, data, proposals for a free flow of data initiative are expected in November 2016. Following from its 2012 cloud computing and its 2014 big data strategies (but not from the cloud initiative launched in April 2016 which is about scientific data and research infrastructures such as high-speed networks and data processing capacity for researchers), the idea is to ensure free movement of data within the EU by removing legacy requirements for local data storage etc. Other questions to be tackled concern the ownership of and access to (non-personal) data, e.g. data from business-to-business relationships or machine-to-machine communication and internet of things devices. Despite this being announced as a legislative initiative, it is difficult to see how these different aspects could all be part of a general legal text. We can expect the main fight to be between the European Commission and national and regional authorities where the latter will fear a loss of control, not least in the law-enforcement contexts. Companies active in this space should watch out for any impact on their businesses, especially those that have recently taken to advertising, very much not in keeping with the spirit of the DSM project, their local storage offerings in an attempt to differentiate themselves from their competition even in other EU Member States.
There are quite a number of additional topics and ideas that are being advertised as “part of the DSM”. After all, a European Commission department’s importance is also measured in terms of its initiatives being part of the EU’s political priorities. And, to be sure, there is space for heated discussions between businesses, research funders, scientists, government IT services and many more over every detail in these proposals.
After its experience with the Telecom Single Market proposal, pushed as “last chance” legislation but not resulting in much more than still embattled net neutrality provisions, the European Commission will be keen to avoid a similar disaster when updating the regulatory framework for electronic communications, in place since 2009. The big issue is investment in networks. Many telecom companies claim they don’t have the funds – and won’t get them if regulation continues as before. They want to just get rid of ex-ante regulation. Smaller telecom companies, on the other hand, fear for their existence while consumers worry about higher prices. Public authorities don’t want to see companies exit or higher prices, but they know investment is overdue while the public coffers are empty. Some also see a clear need for European champions or believe the telecom framework will strongly impact on competition between incumbent telcos and modern over-the-top internet companies. Whose arguments are more convincing? Only time will tell – the legislative proposals are due in September 2016.
Convergence is upon us. The internet is on the television and television is on the smartphone and advertising is everywhere. What does that mean when it comes to content regulation? On 25 May, the European Commission is aiming to table proposals changing the audio-visual media services directive. Level playing field issues are bound to arise unless the European Commission envisages just dropping a large part of the current rules governing the length and topics of advertisements as well as of local content. If it doesn’t do so, expect a big debate about such rules being brought in for the likes of YouTube and Dailymotion and about how they can possibly be enforced against global over-the-top players. There might also be more restrictions on advertising for certain products such as alcoholic beverages.
The battle about one set of data protection rules for the whole EU has taken four years and only just ended with the new General Data Protection Regulation enacted. Now everybody is facing a re-run as the European Commission will propose changes to the e-privacy directive by December 2016. That’s a piece of legislation dealing specifically with the confidentiality of communications and special rules for communications providers. It is not at all clear whether it is even still needed, but the smart money is on the European Commission trying to keep and adapt it. In that case every interested party will want to use the new debate to obtain improvements compared to the new general regime. But obviously perceptions as to what such improvements might differ widely. At the most basic level, almost every online service provider should relish the prospect of being able to stop pestering users with “cookie consent” banners. Beyond that, telecom companies will want to see a “level playing field” between themselves and online communications companies such as WhatsApp or Skype, whereas those services will try to argue that telecoms are still special and thus merit a special regime.
But whatever the exact outcome of these discussions will be, there will be a handsome opportunity for those who are prepared to navigate the intricacies of public procurement procedures: after all, in its April 2016 proposals on digitising European industry alone, the European Commission has indicated a price tag of 50bn EUR, especially for hardware and software…
So what can we say on the DSM overall, one year in? A few additional delays aside, so far the Commission has managed to stick to its timelines and ambitions. On the legislative side, most of the meat is still to be served, though, and it is unlikely to be easier to chew for most businesses than what we have seen already. So stay tuned.