Overview

The new European Commission appointed in November 2014 has made the completion of the Digital Single Market (DSM) one of its top political priorities for the next five years with not one but two dedicated Commissioners: Vice-President for the Digital Single Market Andrus Ansip and Commissioner for the Digital Economy and Society Günther Oettinger. In its DSM Strategy, presented to the public on 6 May 2015, the Commission has outlined its work programme, consisting of a large number of individual proposals. In this briefing, we do not cover these measures exhaustively but instead focus on some of the most important proposals contained in each of Strategy’s three central pillars.

1. Facilitating cross-border e-commerce

The Commission envisages a range of initiatives intended to remove perceived barriers to the provision of cross-border online sales and services, including changes to the contractual rules applicable to cross-border online sales, increased transparency of pricing for parcel deliveries, measures to tackle geo-blocking, copyright reform and reduced administrative VAT burdens on SMEs.

Amongst these measures, Vice-President Ansip has made the goal of abolishing geo-blocking (restricting user access to goods, services or content or applying different prices based on location) his personal cause célèbre. Two aspects of this proposal are particularly noteworthy:

  • Applying differentiated pricing depending on the location of the customer is currently an integral part of the business model of many online providers. Such practices are in principle compatible with competition laws, with possible exceptions for dominant players. The Strategy now suggests that the Commission may be considering a ban on differentiated pricing where this is not justified by objective considerations. According to the Strategy, such rules could be inserted in the E-Commerce Directive or in the Services Directive. There are a number of open questions, for example on enforcement (public or private?) and the burden of proof for showing the absence of an objective justification.
  • Providers often block cross-border access to content such as apps, video, games or music. Vice-President Ansip had originally sent strong messages that such practices would no longer be tolerated. However, territorial restrictions are inherent in the current copyright regime. The European Court of Justice has previously made it clear that the territorial exploitation of copyrights is, as a matter of principle, compatible with antitrust laws. Creating a real pan-European market for content would require a substantial overhaul of the European copyright regime. It is uncertain whether sufficient backing will be available for such reform amid strong opposition from creative industries and others, but it remains on the table in today’s plan with a target date of 2016 for copyright reform. The Strategy also (perhaps cautiously) refers to the aim of ensuring cross-border access to legally purchased online content “while safeguarding the value of rights in the audiovisual sector”, suggesting that, at least at this stage, there may be no majority in the Commission for very radical proposals.

In parallel with these legislative and regulatory initiatives, the Commission’s DG Competition is investigating the e-commerce industry as part of its recently announced sector inquiry, which has now been formally launched. The inquiry will focus on potentially anti-competitive arrangements between companies or practices of dominant providers resulting in barriers to cross-border trade, such as restrictive clauses in distribution agreements. The sectors which will be closely investigated will include those where e-commerce is most widespread, such as digital content, electronics, and clothing. As a first step, manufacturers and wholesalers as well as online platforms active in ecommerce will over the coming weeks receive information requests. Depending on the outcome of this fact-gathering exercise, the Commission could at a later stage open formal antitrust proceedings against individual companies, as it has done following earlier sector inquiries.

2. Enhancing telecoms infrastructure and promoting innovative digital services

The DSM Strategy includes proposals for reform of the telecoms sector with a view to creating incentives to invest in pan-European high-speed telecoms infrastructure. The Strategy suggests that the Commission is determined to go beyond the current scope of the Connected Continent/Single Telecoms Market package, and in particular to put the issue of pan-European radio spectrum harmonisation back on the table. The strategy endorses some of the telecoms operators' long advocated positions, not least that economies of scale are necessary in order to finance investments. In this context, the Strategy also refers to the debate on increasing constraints exercised by “Over-The-Top” (OTT) competitors on telecoms firms and endorses the proposal to create a level regulatory playing field for all operators. Interestingly, in a passage that has been newly inserted shortly before its publication, the Strategy now also refers to proposals to create more of a level playing field between traditional and new media players, potentially by broadening the scope of the Audiovisual Media Services Directive to capture new players.

Certain Member States, in particular Germany and France, but also parts of the Commission, were pushing for the inclusion of proposals on increased regulation of “essential” or “systemic” online platforms, possibly even to be enforced by a dedicated regulator. The Strategy takes a more cautious approach. Recognising first the benefits brought by online platforms to the economy, it also refers to potential concerns around perceived market power of certain platforms which may be exercised in a way that is detrimental to smaller digital competitors or other players who require access to those platforms. The Strategy states that this “potentially raises new regulatory questions” but stops short of detailing any more concrete measures. Instead, it proposes an in-depth investigation of the role of platforms as a basis for a decision on further initiatives. It is understood that the bolder wording contained in earlier versions of the Strategy was removed amid concerns about the creation of new “red tape” without first having conducted an in-depth analysis and impact assessment.

3. Big data and the Internet of Things

The Strategy’s third pillar aims at creating conditions which enable European companies to embrace the possibilities offered by the digital revolution and to defend their position, if not become leading players in the data economy.

The Strategy highlights the importance of big data as a catalyst for economic growth in the form of cloud services, the Internet of Things or research/data mining. It proposes a free flow of data initiative to tackle existing restrictions on the cross-border movement of data, such as Member State legislation forcing providers to build local data centres in each country of operation, or fragmented and unclear rules on copyright and data ownership. It highlights interoperability as being key in ensuring that all economic actors can harness the opportunities arising from the Internet of Things and announces the launch of an integrated standardisation plan. Underlying Commission documents refer to the establishment of the 2G GSM standard in the 1990s as a positive precedent which shows that European standards, created at an early stage in the process, may be adopted globally.

Conclusion

The Commission’s DSM Strategy is ambitious in aim and scope. However the Strategy remains vague on the concrete measures that may be envisaged in the more controversial areas such as copyright and online platforms. It is understood that more detailed actions had been initially proposed but were not included in the Strategy at this stage due to significant opposition within and outside the Commission.

An adviser to Commissioner Ansip has recently stated that the Strategy should be seen as a living document similar to an “empty vessel”, suggesting that the Commission is committed to listening to stakeholders in the coming months before refining the scope of the Strategy. Thus, while it has become clear that the Commission sees an urgent need for action and is prepared to move relatively quickly, the Strategy’s concrete initiatives are not yet set in stone, leaving stakeholders ample opportunity to engage with the Commission.