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Sanctioning the giants – will the internet be better with the Digital Markets Act?

Many would agree that the issues plaguing the online ecosystem are too many to fix for one act of law. So the European Commission drafted two legislative proposals: the long expected Digital Services Act (DSA) and the Digital Markets Act (DMA). Will the DMA prove to be an adequate instrument in the efforts to improve competition in the digital market? Or is it a missed chance to fix structural problems in access to information and knowledge?

The rogues are rogue because we let them

It was not a secret that a regulatory push in the realm of competition was considered by the European Commission. First, because of the multiple probes into practices by big tech, which have been launched by the EC in recent years. Second, because Margrethe Vestager, the Commissioner for Competition and EU’s Executive Vice-President responsible for A Europe Fit for the Digital Age had said so. Third and finally, because it is enough to look at a handful of internet companies which, rather than competing on the market, create global markets of their own, to see that some sort of intervention could benefit users and businesses alike.

The European Union offers a unique environment, where regulating a market influences all 27 Member States and almost 448 million people. Therefore, even globally operating companies will accept a legislative “offer” imposed across the federated part of the continent, even if it is tough on them.

UPDATE: we submitted feedback to the EC consultations on DMA

Many of the problems stem from the power that the platforms have amassed with their “walled gardens”. On the most popular social media platforms or online marketplaces, switching costs are high and the information asymmetry between the users and the platform keeps us in the dark about why we see what we see on the platform we use. Strong network effects exacerbate these issues. As a result the market became highly concentrated and has been increasingly operating in a “winner takes all” model. All this leads to a practice known as tacit collusion where companies adopt similar practices rather than compete among themselves not because they agreed so, but because it is more profitable to behave that way.

It is not enough to make platforms chase illegal content; something more fundamental in the way they operate needs to change.

What could have been vs. what we have

In the first half of 2020, the EC launched consultations on the issue. It seemed that the EC considered a structural approach regulating the digital market and potential spillovers to other markets. There was also a consultation on a new competition tool (NCT) including all the aforementioned problems as a basis for an intervention, and the parallel DSA consultation contained a large ex-ante section that mirrored the NCT issues.  All that looked as if the European Commission was brewing something big.

To our surprise – or naïveté – the Digital Market Act released in parallel with its sister proposal, DSA, looks like a bare minimum compared not only to the suggested scope but even the vocabulary of the consultations. Notably, a creation of the new competition tool was dropped. 

“The European Commission considered a structural approach regulating the digital market and potential spillovers to other markets. All that looked as if the EC was brewing something big.”

One may only venture a guess why that happened. One of the possibilities is that one of the strengths of the DSA/DMA package: their parallel proceeding and complementary character, is at the same time its tactical weakness. Namely, we can speculate that as the two are proceeded at the same time and by that synergised, a groundbreaking competition overhaul would create a lot of controversy in the legislative process. Pushback and quarrels would prolong the legislative path, which could in turn backfire derailing the adoption of DSA. 

From the tactical perspective, it makes sense to table a text that does not overturn the existing practices entirely and is palatable to a wide range of stakeholders. Another explanation could be that in the end, the EC officials are in essence at peace with how the online ecosystem is structured and do not see the need to intervene on a deeper level.

The crux of the EC proposal is that it sanctions the existing setup of a highly concentrated market by naming and framing it. To be fair, the framing is needed, and also, long overdue. But how far can the tactics of herding in the big players take us?

Fantastic gatekeepers and where to find them

The proposal is targeting a group of so-called gatekeepers that offer core platform services. These services can be generally described as a number of intermediated features we all know and use for finding information and communication with others, ranging from search, through social networking and video-sharing, to operating systems and cloud computing.

The mere fact of offering these services, however, does not make one a gatekeeper. To be recognised as such, a provider of core platform services needs to have a significant impact on the market reflected in a turnover of at least 6,5 billion euros in the last 3 financial years. The market value of the company also needs to be as high as 65 billion in the last financial year. It also needs to be an important gateway for businesses to reach their clients – serving at least 10 thousands of the former (yearly) and 45 million of the latter (monthly). And all of them established in the EU, of course. Also the company needs to have an entrenched and durable position, which can be demonstrated by the numbers evoked above.

The European Commission came to terms with the fact that only a handful of intermediaries stand between the European citizens and the rest of what the internet has to offer.”

What does all that mean? First, that there aren’t many companies that meet the given thresholds, as blurry as they may seem – because how to define an active user, for example? As the legislator cannot simply name the companies in the law, there must be a set of criteria for scooping out the wealthy and powerful, even though the officials themselves admit that the proposed regulation would only concern a handful of platforms.

Second, we now have a new category of services, that are “core platform services” and it means that this definition may have its own life in any future EU legislation, as legal acts tend to relate to one another to establish a coherent framework. The same goes for the term gatekeeper, of course. 

With the creation of the gatekeeper category we see one obvious benefit. Unlike in the copyright reform or during the debate on terrorist content regulation, this new category allows for targeting with an intervention those who have a specific business model. As of now, the model creating such a high market value is based on network effects and vertical integration of services which in turn allows bundling user data to enable behavioural profiling. Therefore we may hope that the regulator will not target intermediaries operating on a different, less profitable (or not-for-profit) basis when they only really mean the wealthy ones.

Finally, it proves that the European Commission came to terms with the fact that only a handful of intermediaries stand between the European citizens and the rest of what the internet has to offer. However, breaking them up, radically transforming them, or devising a plan to help EU-based companies to grow enough and create their own market share – none of that is on the agenda. The plan is to move on with the status quo and reign the gatekeepers in, by making them open up a little, creating instruments of control, and imposing fines amounting up to 10% of total turnover, if necessary. 

All that, despite the new obligations that we will explain in more detail in the future, is what makes the DMA proposal disappointing. The internet might become a slightly better place, but it will pretty much stay the same.

GOOD TO KNOW:

DMA in the European Commission

The EC is gathering feedback on the proposal until May 5th, 2021. Anyone can respond either publicly or anonymously with a freeform feedback of 4000 characters (there is also a possibility to attach a longer document, research, or any findings supporting presented ideas).

DMA in the European Parliament

There is already a plan to vote on the report in IMCO on November 8, 2021. If this deadline can be kept depends on whether the MEPs can easily reach an agreement and – to a degree – on a societal pushback or support for the measures. 

In February 2021, Article19 and 30 civil society organisations and coalitions (including FKAGEU) sent an open letter to the Members of the European Parliament flagging the narrow focus of the proposed regulation. We will be looking into more details about what the DMA does for users and what it could include.

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