A leaked version of the Commission’s new digital strategy has been published today on Euractiv. It is worth noting that there has been some pressure on Commissioner Vestager to come forward not only with a timeframe for the reform of the competition framework in the EU but also its digital laws. The present draft should be seen in light of the EU’s efforts to be more competitive on the global stage.
For all practical purposes, this document is meant as a replacement of the 2015 Digital Single Market Strategy and is, as such, very important. This post is not meant as an analysis of all of its main points, but wants instead to thrwo light on three potentially questionable ideas.
The first is that “principles that apply to our traditional industry […] also have to apply to digital industries”. Further to that “existing laws that govern the behavior of traditional industries need to be adapted to the specific circumstances under which new digital business models operate.” I have argued in a recent article that functional equivalence – the desire to apply legacy regulatory models to new problems – lies at the core of EU regulatory effort. But, the “like should be regulated alike” adage is wrong in principle and can be dangerous in practice. Functional equivalence causes innovative and disruptive services to be subject to small and incremental regulatory changes rather than the necessary complete remodeling. In its crudest form, functional equivalence has meant literal copying of solutions from legacy technologies. Disruption is the motor vehicle of the modern economy. It is in its nature to create new realities that demand new solutions. Three questions must be answered before functional equivalence can be applied:
- is the disruptive service innovative?
- does the traditional framework make it impossible or significantly hamper it?
- are there any other reasons (e.g. public policy) for subjecting it to traditional framework?
If the answer to all three questions is positive, the lawmaker should refrain from using functional equivalence. In its present form, the demand to apply traditional solutions is out of place.
Possibly the most significant change (and, ironically, the one that is as far away from functional equivalence as possible) is the “assessment of options for an ex ante regulatory framework for gate-keeping platforms with significant network effects as part of Digital Services Act Package”. This seemingly innocuous remark hides a potentially revolutionary idea. The ex ante sector specific regulation is the current regulatory model applied to telecommunications (and telecommunications only). Traditional competition law applies ex post – it identifies a problem that has already occurred and applies a remedy to it. Telecommunications regulation, gradually liberalized in 80s and regulated from the 90s onwards, required a significantly different regime. It was no longer enough to wait for the failure to occur to then address it. It was necessary to identify potential market failures in advance and then apply appropriate remedies in order to prevent future occurrences. A hybrid regime was thus developed. While the guiding principles and market definition came from traditional telecoms laws, the enforcement mechanism was based on ex ante application of remedies. The ultimate aim – as yet unachieved – was for only the competition laws to apply.
The current proposal essentially would presumably introduce something very similar for gate-keeping platforms. A preliminary assessment of market power of relevant platforms would be conducted. Based on that assessment, a set of remedies would be applied to those markets or individual platforms identified as having a significant market power (SMP).
The approach outlined above has effectively been in use since early 90s in EU telecoms law. It is, in principle, possible to apply it to platforms. In some aspects, these platforms resemble telecoms operators. A number of them are dominant globally or regionally, a fair number compete only with a small number of alternative providers and a significant number are can either not be replaced or are perceived as irreplaceable by their users. The remedies applied to the problems are very specific: access to facilities, regulated pricing, etc. Remedies that would be applied to platforms would have to be agreed on separately and would almost certainly be very different from those existing in telecoms world. No indication is given in the strategy document of what they might look like. On the other hand, the opinion on whether ex ante sector-specific regulation has really been effective is divided. While there is some basis for claiming that access to existing facilities has been improved, it also seems that the framework has not been equally good in spurring innovation. Applying the model to platforms would be something hitherto untested with most of the knoweldge from the telecoms world being inapplicable.
The third point of interest is the diversity of the instruments, approaches and enforcement mechanisms offered. The paper contains four focus areas: technology that works for people, a fair and competitive digital economy, a digital and sustainable society and an international dimension. In each, a set of diverse key actions is proposed (not all are listed in this post).
The first, technology that works for people, contains the Digital Services Act, announced in Commissioner von der Leyen’s program. Unsurprisingly, the act, which is meant to replace the central E-Commerce Directive, is supposed to increase responsibility of online platforms – a task which will undoubtedly create as much political tension as the DSM Copyright Directive. At the same time, though, artificial intelligence, which features prominently in the Commission’s program, with the promise of “legislation for a coordinated European approach on the human and ethical implications of Artificial Intelligence” has only been addressed through a promised White Paper. Furthermore, media and democracy action plans are promised as are digital education plan and “initiatives” on platform workers.
In the efforts to achieve fair and competitive digital economy, the Commission promises a Communication on an EU data strategy, data framework for data governance and a Data Act on B2G data sharing. Furthermore, initiatives on digital capacities, Gigabit connectivity and taxation are offered. The most prominent part of this section is the “possible adaptation” of EU competition law mentioned above.
The sustainability part, practically non-existent in the previous initiatives, contains a number of interesting initiatives including carbon-neutral data centers, a Circular device initiative, improved EU health records and 5G corridors for automated mobility and railways.
The overwhelming conclusion is that this is a document which is less focused on rigid legal solutions and more exploratory in seeking innovative approaches to governance. While its predecessor targeted the three EU regulatory siloes (telecoms, e-commerce and AVMS), suggesting changes in each, the leaked draft is problem-centered and horizontal in its approach. Its insistence on “transparency, accountability, empowerment and inclusion” are also to be welcome. Two of the many measures at least, if achieved, would have a significant impact. The first is the Digital Services Act. The second is the ex ante regulatory model for platforms.
At the same time, the Commission seems to underestimate the degree to which it is falling behind in 5G and next-generation technologies. Only two measures, 5G corridors and 5G cost reduction, have some substance to them. Little is said about deployment and take-up challenges or the many and diverse regulatory obstacles. Even less is said about regional differences.
Is the paper visionary? It does not appear to be. Is the paper significantly different than the 2015 DSM Strategy? Possibly. It is more global in focus, its aims are less clichéd, its goals are stated more clearly. Are the measures proposed potentially achievable? This is difficult to say. Two of its most important contributions, the Digital Services Act and the possible new competition regime, are highly politically charged and technically difficult. The rest dissipates into a see of white papers, action plans and initiatives. It is unlikely that even the majority would have effect but some might. This is where the problems arise. While it is true that E-Commerce Directive dates to 2001 and that a rethinking of the approach might be needed, an achievement here would possibly be significantly less important in the long term than improving 5G deployment, creating a good basis for an AI-based economy or understanding the link between technology and sustainability (that goes beyond recycling and carbon-neutral data centers). The paper is a good outline for rethinking the present challenges but presents a hazy and confused vision of Europe in 10, 15 or 20 years.