• Digital Single Market

    Why competition policy can’t fix most digital market problems

    Dozens of players keep running to EU competition authorities amid current wars around tech and telecoms policy. Anxious decision-makers are also weighing in by calling for more antitrust action. Yet the idea that competition law is a panacea for every mar [read more]
    byRyan Heath | 16/Dec/20145 min read
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    Dozens of players keep running to EU competition authorities amid current wars around tech and telecoms policy. Anxious decision-makers are also weighing in by calling for more antitrust action. Yet the idea that competition law is a panacea for every market problem is misplaced. In fact, it could delay Europe’s innovation dividend.

    The fundamental rule in any market economy is that market forces, rather than public interventions, should be the predominate factor. If you have an idea or a problem – you try to address it first on market terms.

    If you think the market has changed so much that there is no real level playing field, then you lobby to have the rules changed. Only in the case that all these efforts fail, or in the case that the rules were appropriate but broken in ways that significantly harm consumers and competitors, do you then think about getting competition law involved.

    There are few instances in the current wars around tech and telecoms policy handling where these tests are met. Yet dozens of players keep running to the European Commission competition regulators to fix their problems.

    Why?

    Competitors who are failing in the market find it financially rational to roll the dice with regulators in the hope they catch a break.

    “Five millions euros on a fake grassroots campaign and a bunch of mega-bucks lawyers – no worries! We could win a billion!” On the other side of the coin, companies under investigation or threat of investigation find it handy to string the process out.  “Why settle now?  Sure that would be simpler but if we string it out we could squeeze another billion out of our business model!” Ker-ching! [Tweet “EU and national regulators risk being turned into service-providers to warring market players”]

    In this world-view if only the EU was fairer, tougher, softer, saner, quicker, more inclusive, less obsessed with consumers … pick your adjective, then all their problems would go away.

    Let telcos merge!  Take on Google! Show the Americans we are not pushovers! Save consumers! All these actors want the EU to be either digital-surgeon-for-hire or digital-death-squad-for-hire. They are wrong to want it, and deluded to think the EU can deliver it, even in the few cases where the current treaty makes it legally possible.

    Those problems on their own might be containable. But another factor risks pushing this growing snowball out of control: the market players often misunderstand their own long-term interest.

    Let me give you some examples.

    1. Telecoms companies that insist on in-country mergers. These mergers are seen as a solution to their failing business models (shrinking margins on non-data services, and cross-subsidising rip-offs like roaming). Such companies run to the EU because their national regulators do not give the answers they want.

    In trying to squeeze the Commission before there is a real EU telecoms single market they risk throwing away the last shreds of trust they have with their customers (they are already the most complained-about sector). Recent in-country mergers haven’t improved networks (because you need external finance not medium-term merger efficiencies for that) but they have increased consumer prices.

    More broken promises like this will lead to things like the most restrictive type of net neutrality laws and willingness by authorities to let these telcos go bankrupt.

    Remember that the privately-owned companies can go bust and their cables and towers will simply be sold onto to someone less greedy. The government-owned companies are the biggest danger. They want mergers because they are too afraid to do what they really need to do: restructure, including making tens of thousands of unnecessary staff redundant.

    That is politically difficult today – so it’s much easier to blame EU regulation and run to EU competition enforcers to get them out of the real business choice they face. These former government monopolies risk bringing the whole house down, and it’s really got nothing to do with competition law.

    2. Companies that lined up to stall a Google search settlement (including Google). There’s a whole question of whether this investigation was ideal, what’s less ideal is the unseemly harangue around it. I’ve lost count of the number of fake organisations lobbying for certain outcomes. Here’s a tip: any group with an adjective in the title is probably fake. Interests should lobby as themselves or via a neutrally-titled industry association, not via some imaginary group a citizen can’t themselves join.

    This endless jockeying over Google is virtually identical to the games around the Commission’s 2012 data protection proposals. And all that won the antagonists was a half-cooked court ruling that posed more new questions than it gave answers.

    The other analogy that comes to mind is the copyright policy gridlock in Europe. 14 years without a revision of the law, and Europeans are forced to pirate content to make up for the parallel trench-warfare regulators and stakeholders have built for themselves.

    The main companies in all these games think their choice is short-term rational. Maybe. But it isn’t long-term rational because it’s one big distraction from the task of innovation. And it’s downright crazy for European society, because it delays Europe’s innovation dividend: jobs, and keeps European competitors in the thrall of the stupid meta-narrative that everything revolves around DG Competition.

    A line needs to be drawn under this nonsense. Is that giving into new digital monopolies? No.

    Google is not the monopoly when it comes to the internet – the US government is. Which is why the European Union has long wished to reform internet governance so that the monopoly is broken, and a fair level playing field can exist. Now that the US Government itself agrees to that, the task is to ensure it happens. That is the first big picture. Lining regulatory guns up against one successful player in a sub-market, a player which by definition is not a monopoly, is a fool’s errand.

    The second big picture is that of big data. It’s not about the competitive tactics of Google or Amazon or Facebook. The big picture is about how data in a new means of production and how the manipulation of it is going to alter what it means to be human.

    Dealing with that question is way above DG Competition’s pay grade, but it is the question that should be consuming all of us – the companies included.

    And here’s the ultimate proof of why competition law isn’t going to hit the nail on the head: the only thing the data companies would be scared of is if they were forced to register and publish their algorithms.

    That may be a bad idea for lots of reasons, but it is the only thing that would truly allow competition authorities to know what is going on and to fix it. DG Competition can’t force that and the EU is never going to be legally allowed to propose it.

    So it’s time to worry less about sideshows dressed up as the main game.

    It’s time to realize that competition law is just one instrument of one minority factor in the wider digital revolution.

    If we don’t, we’re all shooting ourselves in the foot.

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