New markets, new rules: What direction for Europe’s digital regulation

The Single Market is seen as a major European Union success. Twenty percent of the world’s trade flows among EU member states, taking advantage of the free movement of goods under the single market.

This success was achieved by tearing down regulatory walls, standardising rules, and creating a transparent business environment for both supply and demand. Now, the European Commission has announced its plans for a Digital Single Market.

Under the slogan “bringing down barriers to unlock business opportunities”, Digital Economy Commissioner Günther Oettinger has identified the sector’s fragmentation and obstacles to online trade as among the factors most holding back growth.

Oettinger says an integrated digital market could contribute an extra €415bn to the European economy – roughly the size of Poland’s entire GDP.

Europe is lagging behind the United States where companies enjoy a level playing field free from the array of legal frameworks that are a nightmare especially for start-ups in Europe.

The multiplicity of European systems might be one of the reasons why leading digitised and innovative research hubs are found in Palo Alto, New York or around the Massachusetts Institute of Technology, rather than on this side of the Atlantic.

Standardising and simplifying the framework sounds sensible, but it’s easier said than done. The Commission is currently trying to bundle together insights from various consultations covering areas as diverse as audio-visual media and the reform of telecoms rules.

One important aspect not yet covered is competition policy. Europe needs to assess whether the current competition policy framework is adequately equipped to deal with the increasing occurrence of platform markets and their growing market power.

It is debatable whether current rules dealing with the abuse of dominant market positions is defined widely enough. Another aspect that warrants adjustment is merger control. Mergers and acquisitions in the offline world are covered precisely. Digitised businesses, however, often fall through the cracks. The most prominent example is Facebook’s purchase of WhatsApp.

Digital business models work differently. Data is at the centre of most of these online companies. They often offer services that are free of charge, at least initially, while generating, analysing and using the massive amounts of data that accompany the service provision.

Consequently, even if such companies generate little or no revenue, the data they possess makes them valuable. Competition authorities, including at EU level, should take this into account when examining prospective mergers. To do this, they need to look beyond turnover, to consider indicators that better show the worth of digital businesses. Alternatives could include user numbers or the market capitalisation of acquired companies.

The Commission’s consultations on the digital single market strategy are already taking into account some of the market changes stemming from this focus on data.

However, the European legislative process is not keeping up with the pace of digitisation. European data protection legislation is needed urgently to provide consumers and businesses with a sense of legal certainty. Delay causes disruption for thousands of businesses and millions of consumers.

The suspension of the EU’s “Safe Harbour” regulation on transatlantic data transfers, following a ruling from the European Court of Justice in October, is bad enough for business. EU institutions now need to at least get the legislation for Europe done quickly.

Establishing the European Digital Single Market by levelling the playing field is an excellent idea to trigger cross-border supply and demand for digital services.

Aligning European legislation and regulative frameworks is, however, just part of what’s needed. Digitisation is moving forward quickly, becoming more complex each day. Finding the balance between protecting consumers while stimulating business and opening up the seemingly endless opportunities of the internet is a pressing challenge for the EU institutions.

Speed is essential because, in the words of Cisco Systems’ former CEO John Chambers: change will never again be as slow as today.