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Apples and Pears Are Not The Same: How to Approach Internet Regulation in Europe

· November 5, 2014

The Internet has brought change to our society, just like previous technological advances such as the printing press, canals, cars, or mobile phones. Every advance engenders a debate about the appropriate policy and regulatory response. Sometimes actors affected by the changes around them call for a regulatory response to preserve that status quo or slow change.

In recent months, we’ve heard two arguments in European circles about Internet companies: the first is that Internet companies are not regulated; the second is a concept called “platform neutrality.”

Let me explain why both of these concepts are wrong.

The general law of the land regulates society, including services delivered over the Internet. Examples of relevant law include consumer law, e-commerce law, media law, data protection law and competition law. Quite appropriately, those laws are also actively enforced. To take a few recent examples, the French data protection authority, the CNIL, enforced rules against Google, and the European Commission has taken action against Apple to safeguard consumers and against Microsoft on competition grounds. This is not Internet companies “escaping” regulation.

Additionally, some have begun to argue that ‘platform neutrality’ rules should be developed to preserve competition and benefit users. They draw a parallel with discussions about ‘net neutrality’.

This parallel makes little sense. In industries such as telecommunications, railways and power grids there are structural limits to competition: building a competing train network is not economically or environmentally reasonable; in mobile communications there are limits to radio spectrum and in all such industries the cost of entering the market is vast.

These competitive constraints explain why there is specific regulation. The same constraints are not present online. Whether connecting with friends, shopping online, searching for information or applications there are not the same structural problems meaning that companies are subject to the forces of competition and choice — even the big ones.

Let’s draw a parallel with the physical world by considering a familiar situation: a fictitious Marcel Dupont takes a train to travel to the centre of Paris to go shopping.

The train company operates under a specific legal regime, partly because there is neither space nor money to build several competing train tracks. However, upon arriving in Paris, Marcel has an enormous choice of shops to choose from.

In addition to such shops there are marketplaces where people buy and sell (e.g., antiques). The owner of the marketplace (Paris city council) does not approve each product, but sends in the police if informed of illegality.

Given a competitive market and relatively easy market entry, governments have never sought to make all shops and marketplaces operate in a ‘neutral’ manner. Rather, if there are enough shops competing with each other consumers will be well served as shops compete on price and on what they offer. The fact that they distinguish themselves from each other is a good thing.  This gives new shops a chance to find their niche, thrive by bringing something new to the market and consumers a chance to find different ranges, experiences and prices.

Not only does the parallel of trains and shops mirror the situation with telecommunications networks and online shops and platforms (think: Allegro, Amazon, eBay, Facebook, Google, Spotify, Net-a-Porter), it is increasingly the case that the offline shops and platforms are becoming online ones.

Retailers like Carrefour, Marks & Spencer and REWE are moving online. In the future car companies will be digital platforms. Companies like Volkswagen, BMW, Fiat and Renault will integrate digital services that consumers want. Provided the market remains competitive we need them to distinguish themselves from one another. ‘Platform neutrality’ obligations could conceivably force Volkswagen to offer Renault apps and services.

If our hero Marcel is unable to buy a product from Carrefour or Allegro, he can seek it out in a competing shop by walking next door or clicking through to a competing online service. If the train company refuses to take Marcel to the centre of Paris he may not be able to shop at all. Choice and avoiding consumer lock-in are good things and should be objectives of public policy. The question is whether new regulation is required to achieve this goal or whether a competitive market will deliver. For most online services the answer is clear: the market will be the best safeguard of choice.

James Waterworth is Vice-President, Europe for the Computer & Communications Industry Association (CCIA).

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.