• 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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  • Telecoms

    Searching for a connected continent

    Europe’s broadband system is highly fragmented and in need of improvement. That helps explain why the European Commission is working toward a digital single market. Reduced regulation and tax rules harmonization play a key role in achieving this goal. [read more]
    byAlicia Richart | 12/Dec/20145 min read
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    Europe’s broadband system is highly fragmented and in need of improvement. That helps explain why the European Commission is working toward a digital single market. Reduced regulation and tax rules harmonization play a key role in achieving this goal.

    The EU’s struggle with broadband connectivity is largely due to inadequate investment in infrastructure from broadband providers. As the European Commission explained in its memo about the connected continent, there are hundreds of telecom operators in Europe, but none active in all member states.

    Many European leaders are increasingly abandoning their regulatory approach and looking to the US broadband model.

    The American market-led approach of facilities-based competition has resulted in greater investment in next-generation broadband technologies. American operators have invested almost twice as much per capita as their European counterparts in recent years.

    While broadband investment can be cyclical, with periods of high spending for network upgrades followed by periods of lower spending and maintenance, the US has been the world pacesetter, investing some $1.2 trillion since 1996. Since then, an average of at least $60 billion annually has been invested to build and upgrade wired and wireless networks, to lay millions of miles of fiber-optic cable (more than in the whole EU combined), and to erect cell towers.

    The EU is composed of some 28 nations, 24 official languages, and 11 currencies.

    America’s de facto single market allows companies of all sizes to achieve scale, and this holds true for both large broadband providers that deploy infrastructure and for entrepreneurs and emerging companies that want access to a large domestic market.

    Indeed, Europe is the top location for America’s digital exports, and some concern exists that the lack of broadband investment in the EU could inhibit the growth for some digital exports to Europe in the future. So both previously mentioned points are really the clue.

    That helps explain why the European Commission is working toward a digital single market across the EU, with initiatives aiming to bring American-style investment, innovation, and entrepreneurship to the European broadband market and Internet-based industries.

    Which are those recipes that could bring us potential success?

    Generally speaking, the European Union should simplify and reduce regulation of broadband providers, remove barriers to consolidation, and embrace a market-led with technology-neutral approach.

    1) Market-led broadband development. The government should not decide which technology citizens should have and shouldn’t give subsidies for broadband deployment where providers are investing. Given the right regulatory circumstances, the marketplace is willing and able to make efficient decisions about broadband.

    A smart vision for broadband realizes that no one network can do it all and embraces a variety of network solutions and innovations that depend on the market. [Tweet “The broadband market, if allowed to operate freely, can meet the demands of today and the future”]

    2) Creating a single market. The creation of a digital single market would permit the consolidation of broadband providers across borders, reduce costs through economies of scale, and create a better business case for operators to invest in broadband infrastructure.

    It would also permit a more effective and continent-wide spectrum policy, the removal of inefficient national divisions, and the introduction of more comprehensive secondary markets to allow more efficient usage of the limited resource.

    Harmonizing tax regimes across the continent would also reduce the burden on consumers and businesses.

    3) Simplifying and reducing regulation. Regulatory reform is another necessary step in resolving Europe’s broadband challenge.

    Removing the open-access mandate would encourage investment by market incumbents in next-generation infrastructure without fear of being undercut by non-investing new entrants.

    Reducing the current regulation may encourage more independent investment in upgrading existing infrastructure.

    And the most important is to remove national restrictions on consolidation across countries. This would allow operators to find the cost savings across borders and build a business case for infrastructure deployment.

    Recently, the European Commission’s vice president for the digital single market, Andrus Ansip, said he is “worried” about the direction that negotiations over the Telecoms Single Market package have taken in the European Council, where member states appear divided on the issue.

    We need to continue trying to convince them and focus on the overall keys to success that I have outlined above.

    More help is required on this.

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