No closer to a Digital Single Market

The Digital Single Market (DSM) has been hailed as one of the great tasks of the Juncker commission. As usual with the commission, the goals as expressed are lofty:

  • Give consumers better access to digital goods across Europe;
  • Create the conditions for digital innovation to flourish;
  • Maximise the growth potential of the digital economy.

Based on what the commission announced yesterday as part of its gigabit society plan, it looks like none of these goals will be achieved. In fact, some of the expected changes might go entirely against some of these objectives. It’s a sad state of affairs, but perhaps not entirely unexpected: the incumbent telecom operators have fearsome lobbying power in Brussels, much more so than the online service providers who have been the principal vector for service innovation and job creation in Europe in the last decade. Sadly though, the largest of these OSPs (that the commission keeps insisting on calling OTTs) are American, which not only diminishes their own lobbying effectiveness but also makes them an easy target for protectionist regulation.

On the infrastructure side, despite the stated goal of better access to digital goods (which includes both infrastructure issues and transnational content right issues) there isn’t much that’s new. In fact, considering the more than lackluster impact of the previous commission’s plans, the lack of ambition here is astounding.

The starting point of the gigabit society draft document is basically that because of the emergence of new online players, a “level playing field” is no longer in place. This is pure telco lobbyist speak, and the commission doesn’t even attempt to balance this view, either by recognising that the emergence of incumbent fiber networks has eliminated the level playing field between incumbents and competitive operators that copper unbundling had enabled, or by stressing that the online service providers offer very different services to those offered by the telcos…

As a consequence, the tools for better infrastructure deployment are… essentially the same as those that exist already, those that have proven not to be very effective. There are new goals, more ambitious than the existing 2020 goals, but when it comes to how the framework might help achieving these goals though, the ambition falls flat.

The commission recognises the massive investment needs, but offers no new solutions (co-investment and duct sharing). More importantly it fails to admit that these same solutions delivered little progress in many EU countries, and particularly that rural deployment has only happened (partially) with public funding. Infrastructure competition through a (hypothetical) lowering of deployment costs seems to be the only model the commission can envisage to get fiber deployed. There are no considerations on the impact of the vertically integrated market structure on investment conditions.

Reading the announcement you get the distinct impression that large European incumbents must be protected, even if that means letting them reward their shareholders rather than invest in much needed network infrastructure.

Certainly, when looking at Online Service Providers and the proposals to adjust how the regulatory framework impacts them, there seems to be no such benevolence. Two areas in particular are striking: first, the commission proposes to reclassify communication services delivered by online service providers as Electronic Communication Services (or whatever the new terminology will be). This is again a request of the incumbent lobbyists which I have analysed in the past. The main thrust of this argument is anti-terrorism (enforcing legal intercepts on all communications) with a secondary “market fairness” argument.

This mass reclassification is misguided for a number of reasons:

  • In the absence of a clear and narrow definition of what constitutes a communication service, this applies to virtually the whole internet;
  • As a consequence it is as ineffective as it is inapplicable. In an age when anyone can install a PHP forum in minutes and use the private messaging tools thereof to communicate, it’s clear that criminals have easy and untraceable ways to interact online despite such measures. The only ones to benefit from this will be sellers of red tape;
  • Finally, this creates an additional regulatory burden on OSPs and dilutes the regulators’ attention by extending their scope of scrutiny. Incumbents must indeed be jubilant.

The second area that the framework intends to change is copyright and content linking. In a nutshell, the commission changes existing regulation in two areas: it wants to create the structures for remuneration of content owners when links to their content is used. This is very dangerous for the structure of an open internet as the ability to link without an afterthought is the very fabric of content flow. How exactly the commission intends to make that possible isn’t very clear, analogies with music rights clearing houses notwithstanding.

Furthermore, the commission wants to eliminate (or at least seriously curb) the (relative) immunity for content hosters that existed until now provided said hosters were unaware of hosting illegal content. The impacts of such measures could be devastating for content creation and free speech, not to mention for hosting businesses themselves: the only way for them to respond will be to build expensive automated tools to eliminate suspicious content and hand these tools over to content rights owners to use as they want. This will not only stifle the sharing of legitimate content but threaten smaller hosting businesses who won’t be able to afford such tools (or the inevitable litigation if the tools don’t work as intended). Instead of reconsidering what it means to own and share content in the digital age, the commission sticks to an antiquated definition of copyright.

The most shocking aspect perhaps is that there is nothing in what we have seen so far about the Digital Single Market. There is nothing about eliminating national boundaries in content rights, which would be a positive step to give Europeans access to digital services everywhere in Europe (instead the commission mentions vague measures to facilitate Europe-wide TV rights, squarely aimed at the BBC). Furthermore, there is nothing in the way of a pan-European approach. I am not necessary a big fan of the Digital Single Market seen as a vast unified geographical space with a few massive players reaping most of its rewards, but if that is what the commission set out to do, this new framework will certainly not be the way to do it. It’s particularly shocking when looking at the reclassification: each National Regulatory Authority (NRA) will actually be able to do what they want! As a prescient illustration, just a few months ago the German NRA decided to classify the online email service Gmail as a communication service and regulate it in the same way it regulates telephony. Each NRA having the freedom to decide what should be regulated and how is the exact opposite of a Single Market.

So what we have really is a new framework that looks suspiciously as ineffective as the old one when it comes to the important stuff: investment in infrastructure to sustain the growth of not just the digital market but all of Europe’s markets. Instead, it targets American online players with needless regulation that achieves nothing but red tape in a thinly veiled attempt at protectionism.

This new framework certainly makes a big change when it comes to the ability of new European businesses to innovate in the Digital realm: it makes it virtually impossible by overburdening innovation with useless regulation. If the commission wanted to ensure that the next Internet giants continue to not be European, it’s doing a bang up job.