25 September 2015

European Director-General for Competition on the digital sector and the drive for an EU-wide Digital Single Market

On 22 September 2015, in his first speech since being appointed the Director-General for Competition at the European Commission (the Commission), Johannes Laitenberger signalled the intent of the Commission to create “a genuine EU-wide Digital Single Market” (DSM) and that competition policy is at the cornerstone of this agenda. He explained that, by bringing down regulatory and company-erected barriers, the DSM could add over €400 billion to the EU’s GDP, create valuable jobs and allow consumers to “enjoy lower prices, a broader choice, and more innovative products.”

The Director-General underlined that the e-commerce inquiry instigated in May 2015 by Margrethe Vestager, the Commissioner for Competition, will play an integral part in the establishment of a true DSM. The aim of this inquiry is to reach over 2,000 companies in each country of the EU and develop a detailed picture of the online sales of “goods such as clothes and consumer electronics and digital content such as films and sports events.” This will allow the Commission to identify and bring down barriers to trade, which risk “fragmenting the DSM” and currently mean that only 15% of online transactions are cross-border and less than half of these attempted transactions are successful.

Mr Laitenberger drew on two specific practices that create such barriers. The first of these is geo-blocking, whereby manufacturers or copyright holders can “request their distributors to block or reroute cross-border online orders” through specific geographies to maintain prices and thereby lead to territorial protection. The second is where online platforms, such as search engines, social media sites and app stores, use their dominance to leverage “market position into adjacent markets”. Both of these anti-competitive habits will be addressed in the inquiry's initial findings which will be released in 2016.

To demonstrate that the Commission’s DSM inquiry overlaps with current competition enforcement in digital industries, the Director-General referred to three ongoing Commission investigations: the use of absolute territorial protection restrictions by film studios in the Pay TV sector; Google favouring its own comparison shopping product in its general search result pages; and Google incentivising smartphone and tablet manufacturers to exclusively pre-install its own applications and services to prevent the development of competitors to Android. He noted that, like geo-blocking and online platform manipulation, such behaviours have the potential to distort digital markets.

Mr Laitenberger explained that the Commission is also paying particular attention to how people access the internet via mobile devices and mentioned the two ongoing investigations against Qualcomm, a large producer of chipsets that give smartphones and tablets 3G and 4G connectivity. In the first investigation, the Commission is examining whether Qualcomm has granted payments, rebates and other financial incentives to its customers on the understanding that all chipset technology is purchased from Qualcomm. In the second investigation, the Commission is assessing whether Qualcomm has used predatory pricing to undermine competitors in the chipset market.

The Director-General’s speech shows the holistic approach of the Commission towards digital technologies and platforms and recognises that this sector is a constantly shifting landscape for which the Commission and national regulators must continue to adapt their policies. The DSM inquiry will be welcomed by many as one such step towards forging a digital environment with “legal certainty, predictability, and a uniform application of the law” for European businesses and consumers.

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