The growing use of interconnected devices which collect and exchange data over the internet (the Internet of Things or IoT) is transforming our consumer landscape. As these devices increasingly become part of consumers’ everyday lives, competition authorities are looking to understand how this technology works and what the key aspects of competition are within the consumer IoT space.

On 9 June 2021, the European Commission published its preliminary report on the sector inquiry into consumer IoT launched in July 2020 (the Preliminary Report), presenting initial findings on the parameters of competition in the IoT sector (e.g. quality and brand reputation, cyber security, privacy policy, price and access to technology) as well as broader themes like interoperability, standardisation and data.

The sector inquiry fits within the broader context of the Commission’s Digital Strategy and ongoing policy initiatives in the IoT sector. Building on the success of the GDPR in establishing global standards and encouraging international convergence around data privacy, the EU has sought to position itself at the heart of digital policy making globally, including in the IoT sector. The Commission’s 2017 Communication on ‘Building a European Data Economy’ further aimed inter alia at “contributing to the creation of a European single market for IoT.”

Background to the IoT sector inquiry

When Margrethe Vestager was appointed as both Competition Commissioner and Executive Vice-President in charge of ensuring ‘A Europe fit for the Digital Age’, she was tasked with using her “general market knowledge […] in the digital sector”, picked up as Competition Commissioner, to inform digital policy-making and encouraged to make use of “the tool of sector inquiries into new and emerging markets that are shaping our economy and society.” As a result, when the Commission’s latest Digital Strategy was announced in February 2019, the launch of a sector inquiry was considered as one of the key actions to ensure a “fair and competitive economy.”

After speculation as to which sector Commissioner Vestager would investigate (rumours included data-sharing practices in the automotive sector and the payments industry), the Commission announced the launch of a sector inquiry into consumer IoT in July 2020 with the Preliminary Report published last week.

Scope of the sector inquiry

The Preliminary Report is based on information provided by over 200 stakeholders (including large corporations, SMEs, start-ups and specialised service providers) located across Europe, the US and Asia, and which are active in one or more of the four consumer IoT segments identified by the Commission:

  • Manufacture of smart home devices: including smart home entertainment products such as smart TVs and speakers, smart comfort and lighting systems for living spaces and smart security devices.
  • Provision of voice assistants: which enable users to access a broad range of functionalities such as playing music, listening to the radio, news or podcasts.
  • Provision of consumer IoT services: such as creative content services, information and search services, health and fitness services, intermediation services (e.g. marketplaces, car-sharing services) and shopping service.
  • Manufacture of wearable devices: such as smart watches and fitness trackers and wearable cameras.

In addition to these stakeholders, the Commission has consulted relevant industry organisations, including international standardisation organisations, private not-for-profit organisations and alliances between companies operating in the consumer IoT sector.

Key parameters of competition in the IoT sector

The stakeholders were asked to identify the key parameters of competition in the consumer IoT sector and the initial findings of the Preliminary Report are as follows:

  • Quality and brand reputation: listed amongst the most important parameters across all consumer IoT segments, with some variation between segments. The Commission’s initial view was also that quality is the key parameter of competition in the IoT sector.
  • Cybersecurity: the safety and security of IoT products is considered as an important factor across all consumer IoT segments, and as the key parameter of competition by smart home device manufacturers in particular.
  • Privacy policy: is relevant for data (flow) management in the consumer IoT sector and regarded as a key parameter given the importance of privacy and protection of personal data generated by IoT devices or systems.
  • Price: whilst relevant, this was regarded as a less important parameter of competition by stakeholders for most of the consumer IoT segments.
  • Access to technology was identified by several respondents, across all consumer IoT segments, as a requirement for entry and/or expansion into the IoT sector. Many of the respondents indicated that they have plans to enter and/or expand to other consumer IoT segments in the next three years.

Broader themes identified in the Preliminary Report

Respondents to the IoT sector inquiry have identified several broader themes with respect to ensuring effective competition in the IoT sector. These include the following:

  • Interoperability. The consumer IoT sector covers a significant number of different services, devices and technologies that need to connect and communicate seamlessly in real time. Respondents have therefore identified access and integration of their products with IoT technology platforms and access to functionalities on such technology platforms as a key element to be able to compete. According to the respondents, differences in integration requirements between technology platforms may lead to added complexity for IoT providers and divergent user experiences.
  • Standardisation. IoT providers often rely on third-party technology for the development and operation of IoT services and devices. Commonly used technology can be labelled (e.g. by Standards Developing Organisations (SDOs) or private partnerships/industry organisations) as the “standard technology” for a specific technical task to ensure interoperability or a certain technology can become a “de facto” standard due to a large user base utilising the same technology. Such standard technology can be open-source or proprietary (and thus protected by intellectual property rights (IPRs)). Access to IPRs is generally subject to the payment of royalty/licensing payments and certain patents such as Standard Essential Patents (SEPs) are governed by Fair Reasonable and Non-Discriminatory (FRAND) licensing terms (which are however often subject to diverging interpretations). As a result of the fragmented, complex and non-transparent framework to access (standard) technology, the respondents reported difficulties in identifying the precise licensing obligations and licensing costs their devices and applications may generate.
  • Data. A large amount of data is generated through the use of smart devices. For example, fitness trackers collect information on the health of consumers and smart watches collect information relating to location, calls, calendar, etc. Respondents reported that in the IoT sector, access to data is important to guarantee an optimal/personalised user experience, facilitate the connected nature of smart devices, and maintain and develop IoT services. Respondents have identified challenges in relation to access to data created by e.g. differences in format in which data is collected, and the portability of user data (including the due to the limited direct or automatic transfer of data between applications of third-party service providers).

Next steps

The Preliminary Report is now subject to further consultation and a final report is expected in the first half of 2022. The Commission has said that the final results of the sector inquiry will provide “guidance to the Commission’s future enforcement activity”, as well as “feed into [its] regulatory work”.