Digital Single Market’s Trap for Competition

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On May 6, 2015, the European Commission announced the Digital Single Market Strategy. It is a set of policies aimed at encouraging the development of innovation, digital technologies and cyberspace. The strategy is estimated to contribute to the growth of the European economy by €250 billion and create thousands of new jobs in the next decade.

The strategy consists of three fundamental pillars. The first one is accessibility, aimed at achieving easier access to digital goods and services across Europe. The second one refers to legislative environment, and its objective is establishing a more favorable regulatory framework for innovation. The third pillar entails maximizing the use of economic development. – the goal is to reach as wide of a population as possible. The intentions are good, but will implementation be successful?

Jean-Claude Juncker, President of the European Commission, suggests that competition is one of the major requirements for a successful implementation of the Digital Single Market. This seems to be the right idea in principle, but a closer examination of certain instruments of the proposal raises concerns about ensuring competition. Let us discuss two problem areas in greater detail.

The strategy proposes a uniform regulatory framework for telecom regulation in order to increase competition in the market of telecom services. This proposal, however, appears to be a wolf in sheep’s clothing. Firstly, the network neutrality implied in the proposal prohibits data transfer prioritization. This means that important services such as internet banking that require high-speed connection may become equal to, for example, watching kitten videos on Youtube. And though a bank would like to pay for safer and faster data transfer services, this will be prohibited. In addition, this restriction would be especially detrimental to the internet traffic of e-health. In the near future most of us will be able to have a pulse sensor that automatically calls an ambulance in case any abnormalities are detected. However, the network neutrality policy would not allow prioritizing such data transfer. Thus, whenever anyone downloading a high-quality movie jams a large part of data traffic, the data of vital importance may not reach doctors in time.

Moreover, data prioritization allows businesses to provide safer, faster and more stable connection services to those who are willing to pay more. Therefore, if forced to fix the price of any quality services, internet service providers will lose every incentive to provide higher quality for particular clients. The result is a far cry from the Digital Single Market’s stated objective of increasing competition. Consider the implications of a brand new Aston Martin and an old Volkswagen being priced equally. Though seemingly desirable, this price parity would not create any incentives for manufacturers to develop luxury and quality cars.

In addition to the prohibition on prioritization, the strategy bans roaming charges. This idea seems appealing at first glance; it is rather expensive to use mobile communications when travelling abroad. But what are the unintended consequences of this policy shift? Prohibitions on roaming charges will not diminish the costs of providing roaming services, which are much higher than those of national calls. Therefore, mobile network operators would be forced to transfer these costs to other customers through increased prices. This will eventually result in a situation where some of the users will have to pay for roaming services used by others.

Additionally, it is hard to fathom this prohibition given the ease of using VoIP software to avoid roaming charges. Travelers to Spain desiring to prattle on the phone need only open Skype or Viber and speak until the phone or computer’s battery runs out.

However, uniform regulation is also proposed in this area since telecom service providers have to compete with newly emerged VoIP services. Regulation of traditional telecom enterprises is indeed more stringent and therefore, competition is harder. But what are the implications for equally strict regulation of online VoIP service providers? No regulation could be justified whenever consumers are provided with cheap and high quality services. Equal regulation is not the aim in itself. If the current framework is to be reinforced by introducing mandatory licenses for VoIP operators, a considerable number of service providers would simply cease activity. Therefore, some innovations would perish in the early stages of development.

The Commission’s increasingly rigorous approach towards major online platforms, especially Google, is the second problem area of the digital sector. The Googlephobia that lingers in the corridors of Brussels is also reflected in the Digital Single Market Strategy. There are concerns that this giant search engine became so big that its search results lack transparency. This particular issue was the basis of the Commission’s charges against Google in April.

An opaque, yet clearly stringent, approach towards one enterprise is concerning. Our common understanding of competition suggests that companies with large market shares may be dangerous for consumers, but are dominant companies necessarily violating consumer rights? In other words, are the accusations against Google justified?

The search engine giant is accused of prioritizing its products and services in its own domain. Although this seems like a normal business practice, the accusations prevail due to a failure to recognize the wider context. Firstly, there are numerous other online search engines such as Bing, Yahoo, Yandex, DuckDuckGo, etc. Though they may not be as popular as Google, they are equally accessible. Moreover, search engines integrated into mobile phones such as Apple Siri and Microsoft Cortana are very successful competitors for Google. Since googlephobia is connected with the search results of online shopping platforms, the number of online stores should also be considered. Amazon, Idealo, Le Guide, Expedia and eBay are undeniable leaders in online shopping search engines. However, different engines are dominant in different countries. For example, the most popular engines in Germany are Amazon, eBay and Axel Springer’s, rather than Google. Finally, the growing importance of peer reviews when it comes to online shopping should not be underestimated. Netizens are frequently hunting for advice and reviews on social networks such as Facebook, Pinterest, and Yelp.

To conclude, the goal to establish a single market is not detrimental in itself. The objectives of the strategy are substantial and rather ambitious. However, the question is whether the Commission’s way of addressing this issue allows the attainment of these objectives. If onerous policy instruments are allowed to get in the way of competition, the European versions of Facebook and Google will remain mere dreams.

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Dominykas Sumskis