With the entry into force of the famous European regulation 2016/679, the so-called GDPR (which stands for “General Data Protection Regulation) it will become difficult for socials and online platforms to force users to deliver their personal data in exchange of “free” services. While this new principle was somehow already enshrined in the regulation, yesterday the Article 29 Working Group, that is to say the committee grouping together the European data protection authorities, has made clear the rule, without possibility of different interpretation or nuances.
The statement is contained, amongst other things, in the “Guidelines on consent” adopted yesterday April 16, 2018. European regulators have reiterated that the consent, to be valid, must be released by individuals freely, that is to say individuala are offered a genuine choice with regard to accepting or declining the terms offered or declining them without detriment. A bit the opposite of what happens today. Fact is, until now people have been used to consent to the processing of their personal data without considering all implications, and sometimes without even realizing that a consent was given. This is the case with most apps, surveys and Facebook games, but things will have now to change.
Will such habits change with the GDPR and the new consent Guidelines? Probably yes, because operators will do their best to demonstrate that users have effectively given a proper consent. Fact is, should a national authority, on the basis of an ex-post judgment on a specific case, consider that – with certain modalities – the consent has been released in an invalid way, they may impose very heavy penalties, up to 4% of the turnover of the concerned company. Therefore, it is likely that the terms of consent will become, with the GDPR, a technological choice inherent to the business model of the operator, rather than a piece of paper elaborated by the legal department, as had happened since now. This is what we call “privacy by design”.
But what will happen in practice? The Guidelines of 16 April contain numerous examples which show how the practical application of the GDPR will change the concept of consent. Indeed, the most important example is that concerning the “do ut des” between services and privacy, that is to say the practice – very frequent – by which users exchange (more or less consciously) data with platforms and apps in order to benefit from “free” service. It has been rightly said that “if the service is free, then you are the product” and this is, frankly, the way big online platforms work, from Facebook to Google, as well as many start-ups.
Here a clear example:
a mobile app for photo editing (could be whatever in this category: creating flags, writing “Je Suis Charlie” on your fourfold picture or showing which animal of the savannah looks more like me) asks its users to have their GPS localization activated for the use of its services. The app also tells its users it will use the collected data for behavioral advertising purposes. Neither geo-localization or online behavioral advertising are necessary for the provision of the photo editing service and go beyond the delivery of the core service provided. Since users cannot use the app without consenting to these purposes, the consent cannot be considered as being freely given.
Therefore, if users do not have a way out, i.e. the ability to use the app/service even without giving consent to the use of their data, the consent will be considered invalid and will trigger penalties.
As mentioned above, such interpretation of “free” consent was already present in the principles laid down by GDPR, however some operators were hoping the Art. 29 Working Group to provide a more relaxed interpretation. This has not happen and now most online platforms and app developers will now have to think about new business models.
For sure, it will be necessary to aim at new trusting relationship between platforms and users. The latter have accumulated, in recent months, hate and paranoia against certain platforms and applications in a way that goes far beyond concrete responsibilities of online operators. To tell the truth, everyone is pleased to have free social platforms for entertainment, marketing and contacts opportunities, but to continue to do so we have to recover the the trust which went lost in many scandals, starting with Cambridge Analytica. Users could still agree to supply the digital economy with his own data, but now they will want to do it under different conditions. This is the challenge for online platforms, big and small. The proven ability to protect value of personal data will likely mark the difference between winners and losers.
The GDPR regulation constitutes, given its global applicability a huge novelty, destined to shape the global economy, before the European one. Its global reach is comparable to the American laws on banking and finance, the Bretton Woods agreements, and the practices developed by Florentine bankers in the Renaissance. This is an impressive affirmation of European sovereignty at the international level which which perhaps not everyone has yet realized.
Facebook Inc is going to pay a price from the Cambridge Analityca’s affair that it much higher and different from potential reprimands or sanctions. The real issue is whether users will continue to share their data and accept monetization by Facebook itself and its customers, as it was so far.
It is difficult to foresee whether legal and political investigations about Cambridge Analytica misuse of data will ever reveal an infringement of law by Facebook. Remarkably, it seems that the way of CA’s accessing data of Facebook users was in line with common business, at least pursuant the conditions imposed by Facebook at that time. This means that many other companies have been monetizing personal data of users in the same way, and Facebook made a gain from it. This is not a scandal , this is the way Facebook and, in general, social networks function.
Facebook’s liability may eventually arise if one could prove that executives of the social network were aware about the misuse of data by CA and could stop it in time, but it was not done. This is something, however, which cannot be assessed for the time being. As far as we understand, only CA and its affiliates – and non others – misused and manipulated data against laws and contractual terms, therefore only CA will eventually pay the price for it, if any. However, recent news that Facebook may have infringed a privacy settlement signed in 2011 with the FTC may complicate the scenario.
Retaliation against Facebook may happen also by way of regularity intervention over its business, for instance in the area of algorithm transparency, data protection enforcement, increased platform liability requirements (for instance in the area of fake news). All such consequences are possible but would and should be attentively scrutinized, because regulating the Internet just to condemn Facebook will bring huge collateral damages.
This said, the real question for Facebook is not about compliance, but general responsibility. The company’s initial reactions to the scandal were clumsy and not at the standard you would expect from a company of that value (500 billion bucks). Facebook simply intervened to make clear that there was no breach of data, that their contractual terms protected rights of users and that violations, if any, were committed by somebody else. That’s it.
This was clearly a poor reaction, underestimating the shock that the CA’s affair created within people and politicians, in US and elsewhere. It would have been much more appropriate for Facebook’s founder to intervene personally* and state that the protection of data users, within and beyond the limits of applicable data protection laws, lies at the heart of the social networks business. Mr. Zuckerberg owns the rare skill to be able to speak directly to half of the mankind and to their friends of family, then it would have been a good occasion to use his superpowers. This was not done and probably now it is too late, even if the invitations to speak in London and Brussels will be finally accepted.
Facebook’s users may be also disappointed about the care showed by Facebook in the present case: while it is true that Facebook’s terms and conditions prohibited its customers to deliver users’ data to third parties, it is evident that without an active scrutiny by Facebook such guarantee may be useless (as it happened in the present case). Facebook should clarify if they are able to put in place a more effective supervision of their customers using personal data of people.
This, it is likely that, following the present affair, an important part of Facebook’s users will become more suspicious. They may leave the network or radically decrease their activity on it. This is an horrible news for Facebook which is already facing a stable decline of users’ traffic for other reasons.
Users’ disaffection: this is the bomb which is going to affect the main world social network and that investors have already perceived, since Facebook’s shares are going down. Unlike Apple, Amazon and Google, one could argue whether Facebook business has a bright future or, instead, it is risking the same unhappy end of MySpace.
* Nicely to see, but too late (as I mentioned), Facebook’s founder Zuckerberg finally intervened some hours after my post:
The Mobile World Congress in Barcelona offered new occasions for European institutions and stakeholders to compete in 5G declarations and intents. There is, however, the impression that the agendas of institutions and industry are disconnected. While European institutions are eager and ambitious to create the right environment for a rapid and successful 5G roll-out, mobile industry reveals a more realistic, short-term approach.
European institutions believe that 5G should be roll-out quickly (within a decade) in order not to be left behind other continental powers (such as US and China). Industrial and regulatory policies are mostly focussed on the need to harmonise national legislations, allocating new spectrum and setting-up a sound, investment-friendly regulatory framework. All such things are commendable and needed but, unfortunately, they are far from being decisive to allow Europe to win, or at least to honorably take part to, the 5G race.
The problem is that the amount of cash necessary to roll-out 5G networks in Europe is enormous and the European industry does not seem able – or even really willing – to afford it. Studies have shown different figures but, at the end, the bill is always beyond the capability of European telcos. The most mentioned paper, the Boston Consulting report of November 2016, found that the required investment to fund the Gigabit Society was €660 billion (including €360bn to enable FTTH broadband for all European households, €200bn in 5G radio access networks as well as €100bn for cloud). These figures did not include the cost of spectrum and do not consider the fact the national fragmentation will make costs to rise. Whatever the final bill will be, since European telcos are spending for their networks on average 40-45 billion per year (including maintenance), it is clear that close deadlines are “mission impossibile”. The same Boston Consulting paper indicates 20/25 year to achieve the objectives, unless the European institutions deliver some concessions: what was the final, ultimate goal of the paper 🙂 .
Thus, should these amounts be credible or at least not so wrong, we can say that Europe has already lost the 5G race. A rapid coverage will eventually achieve some metropolitan areas, in which even multiple 5G networks would compete; but, for the large part of European territory and citizens, 5G will remain longtime a chimera.
In addition, it is doubtful whether the European industry is really committed to run the race and bear such enormous efforts. As regards ultra-broadband, most of traditional European telcos continue to rely on mixed solutions exploiting legacy infrastructures (copper), while the progression towards FTTH goes ahead without hurry. Mobile is experiencing a similar scenario: although the 5G rhetoric pervades every stages, one should consider that 5G may be seen, especially at beginning, as an evolution of LTE and therefore established operators may have less interest in engaging in a new investment cycle while they can still monetize 4G investments.
In other words, the ambitions of the European industry are probably more modest that the ones of European institutions. Nevertheless, 5G is a good occasion for European telcos to submit a series of requests (a kind of list of dreams) to regulators and governments that, otherwise, would be inadmissible: less competition (too many operators around!); delivering spectrum for-ever (25 years at least); reducing net neutrality (W the Trump-net!); and so on.
European institutions are resisting to most of such requests (although one should wait and see how the current Trilogue negotiations will end up), bearing the risks that they be will finally blamed by the industry for not delivering what telcos consider necessary to speed-up 5G. However, whatever the European Union will deliver – more harmonization; more spectrum; more deregulatory cherries – it is doubtful whether such results will be useful to achieve the most ambitious objectives. The reality remains that the European telcos cannot afford the financial burden necessary for a rapid roll-out 5G network. It is just a matter of math. In addition, some traditional, well-established telcos may not have that big interest.
Under such circumstances, one should consider whether 5G roll-out require a new, revolutionary copernican thinking, rather than an adjustment of the current system. New network business models are needed, rather than some occasional deregulation. Few weeks ago a leaked paper from the US administration was largely echoed because it proposed the idea of a national 5G network in order to maintain US leadership in technology and trade, in particular vis-à-vis China. The document was utterly criticized and rapidly shelved, because of too many assumptions without robust evidences. However, one of the ideas of the paper – that is to say the convenience of a unique 5G national network – was not so stupid: a seen above, 5G networks are costly and the procedure for granting spectrum long and complex, therefore in order to rapidly install the new 5G networks (by 3 years in US, according to the leaked paper) new options should be considered, including a single national mobile network, delivering connectivity to everyone on equal terms. That reasoning was even not so stupid that the Economist itself dedicated a specific analysis, rebutting the idea that the US administration was willing to nationalize the sector: what really matters is the consideration that new business models are needed, in such a case a single, national 5G network (likely owned by operators and infrastructure funds, rather then by the State) which would allow to better collect financial resources (infrastructure funds are eager to fund utility-like networks rather than risky telecom businesses) and facilitate the award of spectrum (the querelle about the length of licenses would be overcome).
While one could understand the reasons why the European mobile industry may prefer to neglect the above as a sci-fi scenario, since a slow path towards 5G would probably be more convenient (guaranteeing stable cash flow, deregulatory dividends and current market positions), it is quite curious that the European institutions have not taken the occasion offered by the US administration to reflect about other ways 5G should develop in the EU. The various European 5G documents focus on spectrum allocation and harmonization, but they do not spend words about new network business models, giving for granted that the industrial environment which roll-out the first mobile generations will automatically fit 5G. And this happens despite the fact that the debated European Code for electronic communication addresses new investments models, such as the wholesale-only model (art. 77 of the new Code) aiming at attracting long-term, infrastructure investments.
If the European institutions really wanted to secure a rapid, successful 5G roll-out for its citizens, should therefore be more ambitious, rethink the 5G industrial path and better exploit its regulatory tools, rather than leaving the industry leading this process, the same industry that, otherwise, will feel satisfied with just some regulatory carrots.
According to the the court of Justice of the European Union, UberPop, i.e. the local taxi service supplied by Uber through unlicensed drivers, is not a simple digital app used by customers looking for a ride, rather an innovative transportation service subject to general transportation legislations, in particular local taxi rules. Uber therefore fails in claiming that its UberPop service could be classified as a mere Information Society service falling within the ambit of application of freedom of services and European electronic commerce directives. The key reasoning of the court is contained in §§ 37-39 of the judgement: Uber could be in theory a pure intermediation service and, as such, a pure Information Society service. However, Uber also organises the service, sets rules for drivers, checks prices and fixes cars’ quality standards. This is why Uber did not win the case.
Uber was probably expecting this judgment, since previous opinions of the European court had anticipated this position. Therefore, the Uberpop application is likely out-of-law because it will hardly resist against the lobbies of local taxi drivers, while the traditional Uber business model, based on the intermediation between professional drivers and clients will go on, although negotiations with national authorities competent for local transportation may become more complex. Therefore, Uber is expected to continue to concentrate upon value-added taxi services such as UberX, Uber Black, Uber Limo ecc (where service providers are regular taxi drivers, not private citizens) and will keep UberPop only when possible in few countries. It is however doubtful whether Uber will be able to extend its activities upon new services (such as delivery of foods and goods in general) through non licensed workers (mainly students or young people) as far as local policies and authorisation may become a barrier.
Fact is, the impact of today’s judgement may be more relevant in sharing economy sectors where the activity of non licensed workers/private citizens is prevailing (such as Airbnb, for instance, or many start-ups). The principles stated by the court may become far restrictive for innovative digital services rendered by such non professional workers, since it requires them the be subject to the general legislation of the sector (if any). In the case of Uber, as previously stated, this means the likely end of UberPop, not of other transportation services provided by licensed taxi drivers via the same platform (Uber X, Uber Limo, ecc). The situation is more complex for other popular app such as, for instance, AirBnb: one could question whether this is a nice app helping custumers to find accomodations or a true hotelling service, subject to all kind of legislation for hotels.
The same may happen for any new application intermediating innovative entrepreneurs and nonlicensed/private citizens. In the end, it is likely that the European Commission will soon intervene ad hoc with new legislation, since the ruling by the European Court does not prevent it from legislating on the matter so as to adapt the European directives applied until now. It would not be a question of liberalizing the taxi service, but of adapting existing regulations (transport, labour, etc.) to the new challenges of the sharing economy, for example by paying special attention to start-ups and SMEs. The problem is not so much Uber and the public taxi service, rather the preparation of a regulatory framework certain and adequate for new innovative companies and the digital economy.
The European court itself seems to invite the European institutions to intervene where, in §§ 46-47 of the judgement), recognizes that non-public urban transport services and services that are inherently linked to those services, such as the intermediation service provided by Uber, has not given rise to the adoption of measures based on transportation policies:
On December 14th, the Federal Communications Commission (FCC) will vote to replace current rules enforcing net neutrality in US (i.e. the Open Internet Order introduced by FFC under the Obama’s mandate). While the consequences of this change may be more or less dramatic for the US market, the intriguing question is whether this development may have an impact into net neutrality in the European Union.
Prima facie, that political impact will be quite minimal in the EU, at least at beginning. The European framework for net neutrality, namely Regulation 2120/2015 (i.e. the same set of rules dealing with the elimination of roaming surcharges), is quite recent and it would be politically inconvenient to ask for a repeal. Its foundations are solid since it was adopted after a long debate amongst institutions which finally agreed on a fair balance. No-one, at least until the end of this EU five-year mandate, will be keen to reopen the dossier.
Even stakeholders opposing net neutrality in general, such as European incumbents like Deutsche Telekom or Orange, may be hesitant in flagging and supporting a reform which is so much Trump-branded and equally adversed by civil society. Such operators will likely wait for developments in the US market and hope, with elections in 2019, that the new European institutions will be more inclined vis-à-vis this kind of net-deregulation. However, reopen the net-neutrality basket may be a risk for everyone, because with new European institutions no-one can predict whether new rules would be more or less stringent than the current ones. The story of Regulation 2120/2015 should not be forgotten: the proposal started in 2013 with the proposal of the Commission to be very flexible and let to big telcos a kind of “laissez faire”, but when the dossier arrived to Parliament and Council things changed dramatically and the final result was much more consumer-oriented.
An impact of the Trump reform may however occur in specific European countries, where the provisions of Regulation 2120/2015 are going to be enforced by national regulators and courts dealing with practical cases.
This may happen because European net neutrality rules (in particular article 3 the Regulation) consist in general principles which may be may interpreted with some discretion. Berec, the European electronic communications agency, issued guidelines recommending to regulators and courts the criteria to be applied. The resulting approach is similar to a competition assessment, whereby the decision shall take into account, as indicated by recital 7 of the Regulation, the market positions of the providers involved as well as of the weight of concerned content, applications and services. This means that similar practices may be treated somehow differently in different countries, depending on the supposed impact on the market. Such potential divergences may be more evident with regard to zero-rating practices, as the Regulation is more generic on this point and grants more discretion to enforcing authorities. Conversely, rules on network management and specialized services are much more clear in the Regulation and therefore less divergence is expected.
The possibility that net neutrality enforcement may slightly vary between member States is inherent to the system and should not be a scandal. Is is a political choice aiming at making sure that the European framework is adapted to different market conditions, from Lisbon to Warsaw.
This is why net neutrality adversaries will probably start to flag the Trump reform more in a national context, in front of concrete cases with the regulator, rather than lobbying now in Brussels to reopen the European framework. Depending on the discretion and margin of maneuver left to national regulator, the influences coming from US may have more or less chances of success. This new scenario will be soon tested in the Netherlands and Germany, where zero-rating practices are debated in front of regulators and courts with different outcomes, as well as in Portugal, where mobile operator Meo is fragmenting Internet mobile offers into various packages dedicated to specific services and apps.
The Netherlands case is particularly meaningful, because it is about the validity of the national legislation prohibiting zero-rating practices in absolute since 2011. The national courts have to decide whether this strict obligation may pass the test of the European regulation. Whatever the result will be, zero-rating practices will continue to be scrutinized, eventually under EU rules.
The German case is about a way to construe a zero-rating business by offering to any service provider the chance to be “zero rated”, without apparent discrimination. A deep examination of the commercial conditions offered by T-Mobile to “zero-rated” candidates will be essential to verify whether the offer is fair or it is just a way to circumvent the zero-rating prohibition.
The Portuguese case is about mobile operator Meo offering, in addition to a basic Internet mobile offer, different connectivity packages dedicated to specific services (social, messaging, mail or video), kind of “specialized services“. Meo likely believes to comply with art. 3.5 allowing to offer connectivity “other than internet access services which are optimized for specific content, application or services”, but it may be wrong, because such offer should not be marketed as “Internet access”, while the diversification into different packages should be justified by the need to “meet requirements of the content, applications or services for a specific level of quality”. All such conditions appear to be absent in Meo’s offer and therefore the scrutiny by the Portuguese regulator, currently pending, may become critical.
Remarkably, all the commercial practices listed about are about new tariffs scheme and ways to access to services which are already existing. There is nothing regarding new services to be offered to consumers. This is something to keep in mind: when net neutrality rules are relaxed, tariffs and packages change, but services remain the same.
Despite hopes of many, the creation of a Single Digital Market for online content is going to remain unachieved, forever or for many years at least. European citizens have seen many borders recently disappearing (for roaming, electronic commerce, travels, studying abroad for instance), but getting access to movie or online content offered abroad will continue to be a problem. Let’s see why.
At beginning of its mandate in 2014, the European Commission planned to end geoblocking as well as other practices and mechanisms preventing European citizens to get access to any digital content offered outside their European country of residence (but still in the EU), despite the persisting practices of movies studios and content providers to distribute videos and movies on a strict territorial basis. The Commission’s aim was to sustain the creation of a truly integrated single market for digital content, the development of a paneuropean content industry, as well as the elimination of consumer frustration and grey markets which are the main causes for piracy behaviors.
Accordingly, the European Commission proposed to overcome such territorial restrictions in various areas of action within the Digital Single Market strategy, particularly in the matter of geoblocking, content portability and rights clearance for instance. While content portability ended up with a solution satisfactory for users, the most sensitive matter, that is to say geoblocking for online content, was a debacle, since the final regulation was watered down with the exclusion of content online from areas for which geoblocking is forbidden (technically: “unjustified”). A similar accident is now going to happen in the matter of rights clearance, since a proposal to facilitate the clearance of rights in the online sector (by making them cross-border), laid down with the reform of the SatCab Directive, has been dramatically weakened by the competent committee of the European Parliament. As a consequence, online copyright should continue to be cleared country by country, thus reinforcing the power of rights-holders to segment the market geographically. Soon the plenary session of the Parliament will be called to decide whether to approve or reverse such a decision.
Any time and anywhere territorial restrictions are challenged, the content industry is fiercely opposing this process basing on the argument that such territorial restrictions are inherent to the production model for movies and premium content in the EU. Fact is, European movies are financed via contracts remunerated via territorial exclusivities country by country. Therefore, changing this system would shake the production model for movies and content in the EU, triggering a spectacular process with some uncertainties. Therefore, the resistance of the concerned stakeholders is understandable.
One should consider, however, whether such concerns are overestimated and whether the defense of the status quo may be serving also interests other than welfare of the European culture and movie industry.
Firstly, it is not clear why, on the basis of the above arguments, territorial restrictions should be granted for US content that is NOT generated and produced in the EU. If territorial restrictions are aimed to protect investment in EU content, than geoblocking and other measures should not be justified for non-EU works, such as – for instance – movies from US studios. Remarkably, despite the foregoing US content production is currently distributed in the EU on a strict territorial basis, thus enjoying profits which would no be imaginable in US where geoblocking is not tolerated.
Secondly, many European movies are financed via European funds (the Media Program for instance). Such funds are aimed are supporting the European creative industry and, as a matter of principle, should be designed in a way to spread European content everywhere in the EU. By contrast, even such EU-financed works may be (and are) currently geo-blocked country by country, which is absurd. It is curious that no-one in the European Commission has never thought that EU funding should be used more coherently with the scopes of the Digital Single Market.
Third, one should investigate whether the current territorial-based system is really helping the European content industry to really grow and become stronger. European content stakeholders normally claim that the European industry is weak, needs for subsidies and any change in the territoriality principle should just open the doors to US supremacy. However, US supremacy seems already to exist despite the pro-european geographical segmentation system. This is the evidence that this model does not work and it allows the European industry just to survive, not to grow and become stronger. While the current territoriality-based system is granting formidable profits to the US industry, the EU content industry can only arrange to live some way. No one in the EU should be happy to continue like this.
Fourth, it is clear that a great effort is necessary to shake a status quo which is familiar to everyone, while fews are ready for the uncertainties of a change. However, this is a déjà vu in the EU: any time markets have been liberalized and opened to import and exports (goods, services ecc), stakeholders interested with the status quo have been always claiming that changes will destroy the market. This never happened, however: by contrast, markets have been adapting and growing, while resources have been allocated more efficiently, with consumers satisfaction. The current commitments (i.e.: overcoming territorial exclusivity) undertaken by Paramount with DG COMP, in the pay TV case, shows that changes are possible without catastrophes. If Paramount can, why others can’t?
Finally, “cui prodest” this debate? The Single Market is not a mantra per se, what really matters is the interest of the European citizens, who can be both artists and consumers. They should be at the centre of this reform.
Content stakeholders say that they protect the interest of artists, however the matter is more complex. Artists belong to a a system which is historically shaped with a top-down approach by big studios and, therefore, even if artists are part of such organizations, one could doubt whether they really have the possibility to have their say. The Weinstein case show how difficult could be the career for first mover artists. The problem is particularly serious for young, new and innovative artists, deprived of negotiating power, while the most famous do not have interest in big changes. A clear example is shown by the collective copyright management system, which is normally organized via monopolies (de facto or de iure) depriving artists of a concrete right of choice: thus, young artists are keen to escape as soon as they found a suitable alternative. One should therefore be skeptical when big studios or traditional organizations claim to represent the interests of all artists. Artists have different interests depending on the stage of their career, but collective organizations and studios only take care of the profitable ones. The undersigned is a non-professional pianist and I know something about that.
As regards consumers, content stakeholders normally say that the content liberalization would just favor few, privileged expats citizens living in Brussels and in big international cities, or wealthy travelers. This is not correct and, by the way, the same argument could be used to challenge the European reform deleting roaming surcharges. It is true that any time borders within the UE have been opened and liberalized, the initial beneficiaries where selected categories of people: in the case of cars importation, for instance, just people interested in buying a cheaper car abroad; in the case of roaming, the people traveling more or living in borderline regions; in case of diplomas, just students studying abroad for personal reasons profited of the new system; and so on. However, in the long term liberalizations have been providing beneficial effect to everyone, not just to the initial occasional beneficiaries. In other words, the short-term practical effects of a liberalization reform may be, at beginning, not so decisive for all European people, however the resources which can be liberated in the long term may be huge. This is the way the Single Market developed until now and there is no reason to believe that things should go differently for digital.
The days following the deliberation of the ITRE committee on the Commission proposal for the a new Electronic Communications Code, media coverage reiterates the story that the approach taken by the MEPs would have affected investments plans of telcos (all? or which ones?). Unfortunately, this is just an artificial simplification creating intriguing titles for the readers, while not genuinely reflecting the overall and actual outcome of the ITRE decision. The misunderstanding is partially due to the fact the the European Commission presented the entire telecom package as pro-investment reform, therefore any rebuttal may be interpreted now as a position against investments; in addition, stakeholders focalized their attention just on few provisions, while the new European Code is much more complex then single provisions; and then journalists followed this story telling.
The main provision of the Telecom Package inspiring this pro/against investment story is art. 74 about co-investment. In a few words, the Commission proposed that in case of joint investments in new very-high capacity networks (thus networks consisting entirely of fibers such as FTTH/FTTB), local regulators would be prevented from looking into the business and therefore coinvestors would escape regulation. Obviously, the provision would be relevant for incumbents which are normally regulated, while it would not matter others. This is the first firm point of this story: only potential incumbents’ plans may be potentially affected by the regulatory intervention, while for other operators life goes ahead as normal.
Are incumbents’ plans really affected by potential regulation on co-investment? This question brings us back to the circular story about regulation vs investment and vice-versa. In the reality, the impact of regulation upon investments’ decisions of incumbents is normally overestimated. People refer of US deregulation in 2004 which would have boosted telcos to invest in fibers, but they forgot that at that time Verizon and AT&T had no other choice but investing in fibers, since broadband connection offered by competing cable operators was replacing the copper network business. The drama for US telcos was investing in fiber or die, while the regulatory regime has limited impact on their investment decisions. Fiber footprint in Europe confirms this business dynamic: in geographic areas where cable operators have been starting to provide broadband connectivity, incumbents had to react quickly with fiber investment. Conversely, in areas where cable operators were not present (mainly outside metropolitan areas), incumbents fibers’ investment have been much more prudent. Thus, competition drives investment decisions, rather than regulation.
The co-investment text approved by the Parliament, and reforming the Commission’s draft, does not prevent incumbents from gaining a regulatory dividend through co-investments, however it preserves the competences of regulators to look into the matter and to address potential anticompetitive issues. Remarkably, the original proposal of the Commission prevented regulators from doing so, then the Parliament has reinstated the latter’ powers. This happened because European MPs understood that there might be serious risks that incumbents may play with this model and arrange investments vehicles which are not genuinely opened to other coinvestors, with the sole scope to gain deregulation. Such scenarios are difficult to foresee and regulate ex-ante, therefore keeping competences of national regulators has been a sensitive decision, while incentives for investing in new fiber networks, in the form of regulatory divided, still remain. This is why the story telling whereby the Parliament would have affected future investment decisions is fundamentally wrong.
Interestingly, the European Parliament kept untouched another “pro-investment” model proposed by the European Commission, that is to say the wholesale-only operators caught by art. 77 and subject to a light regulatory regime. This is the case of operators concentrating their investments and resources into network business and then just providing high-speed connectivity to other telecom operators for their clients. Wholesale-only operators have no residential business indeed, such as Stokab in Sweden, Open Fiber in Italy, Siro in Ireland and various small operators in UK, France and Austria. Currently, no one of them is dominant in Europe.
The wholesale-only model has been frequently confused with coinvestment, however it is something really different. While the coinvestment model makes sense, in terms of actual regulatory dividend, only for incumbents which are dominant, currently regulated and therefore seeking deregulation, wholesale-only operators are in Europe still at infancy of their development and therefore possible light regulation is just a bet on the future. Such light regulatory regime is not an actual regulatory holiday (as it could have been for incumbents with the Commission’s text of the co-investment), it is rather a signal addressed to long-term investors to put their resources in new infrastructures starting from scratch, wait patiently and trust their development like for any public utility sector, with no room for playing in order to get a regulatory dividend today.
Interestingly, Berec has been conspiring against such operators, despite the fact there no jurisprudence in Europe about anticompetitive behaviors by wholesale-only operators (unlike incumbents) which should alarm national regulators. Authorities have basically complained about losing part of their competencies, although the solution proposed by the Commission (and approved by the Parliament) allow them to recover the entire set of regulatory remedies if a dominant wholesale- only operator start to behave badly. At the end, it seems that this negative approach of Berec was mainly driven by its French constituency, that is to say French regulator Arcep, which is worried about small municipalities which invested in fibers and could escape their oversight. Just a French problem indeed.
To sum up, the approach taken by the European Parliament appears balanced and reflecting the business reality, that is to say lifting regulation only in case anticompetitive behaviors should not reasonably occur, and keeping the powers of national regulators for the rest.
The roaming reform finally entering into force on June 15, 2017 is right and due, because European citizens deserve, although within the limits of simple traveling, the end of roaming surcharges which, beyond the economic burden, have been an unbearable discontinuity in the European integration process.
However, the reform is also incomplete because it eliminates roaming surcharges for users (Roaming Like At Home: RLAH) while keeping such surcharges amongst operators under the form of high wholesale roaming caps (the cost that a mobile operator must pay to a foreign network to use it and provide roaming service sto its customers). Such wholesale caps have been fixed by way of regulation at a level which is totally inconsistent with the market practice. To make an example, the starting wholesale cap for data will be 7.7 Euro for Gigabyte (6.0 euro from January 2018 up to 2.5 euro in 2022) awhile current retail tariffs are already much below and cheaper (between 1 and 2 Euro per Giga).
As a result, many mobile operators, especially small innovative and MVNOs, will have to provide RLAH services below costs. In order to recover such costs, various options may be available (which may come as unexpected surprises for consumers):
– limiting the RLAH data with the so-called fair usage clauses (for unlimited or low cost data bundles)
– asking national regulators for a derogation and continue to apply roaming surcharges;
– increasing domestic tariffs, in order to be able to replicate them abroad as RLAH;
– issuing “domestic” SIM cards without roaming ;
– quitting the market.
The above will not happen tomorrow, it will depend on market conditions and on the evolution of usage patterns. Until now European citizens were not consuming data abroad because were scared about high or uncertain roaming tariffs. This situation will change, also due to new features available in the market, like the portability of content abroad.
However, some signals are already in the market. Finnish operators Elisa and DNA are already asking for derogation, as well as all the operators in Lithuania and Estonia, O2 Slovakia and Voo in Belgium. Up to now, it seem that almost 40 derogation requests have been filed in the EU and 24 of these have been granted by national regulators. In addition, domestic tariffs increases are happening in Denmark and Sweden. Moreover, operators are increasing a variety of other charges to try and offset the end to roaming surcharges: in Italy, for instance, mobile network operators have been rescheduling the monthly subscription from 30 days to 4 weeks.
The next months will tell us whether this is just a normal market adjustment or the beginning of a general trend that may frustrate the consumers’ expectation for the end of roaming.
Of course, the above problems may be mitigated should the European institutions decide to lower roaming wholesale caps to level more aligned with the market practice.
The redde rationem between taxi drivers and Uber is getting closer and closer, with the Uberpop application likely to be definitively out-of-law. This may not be a serious prejudice for Uber, which is more concentrated on other value-added modalities such as UberX, Uber Limo ecc where service providers are regular taxi drivers, not private citizens. However, the impact of today’s opinion of the Attorney General of the European Court, Maciej Szpunar, may be more relevant in other sharing economy sectors where the activity of private citizens is prevailing (such as Airbnb, for instance).
The legal opinion rendered in the case C-434/15 Asociación Profesional Elite Taxi vs Uber is not binding for the Court, which will adopt the final, binding decision in 8/10 months. However, statistics say that in 80% of the cases the court substantially confirms the legal solution suggested by the Attorney General.
As we all know, Uber is a US-based company which has developed a successful computer program that can be used on smartphones. The program has created an online platform connecting users and car owners for urban journeys, competing de facto with traditional taxi transportation. The success of Uber and the replication of the same model in other services sectors (doctors, baby-sitting, take-away ecc) has even created the term “uberization”, meaning the process whereby traditional economic activities are replaced by an online platform connecting directly users and providers.
In this preliminary reference, the Court of Justice was asked to determine the type of service provided by Uber, whether transport services, information society services or a combination of both. The question was fundamental to determine whether Uber, and its drivers, may be required to have authorizations and licenses, normally required by national transport legislation. In Barcelona, like in many European cities, the operations by Uber has been challenged by local taxi organizations claiming that Uber and its drivers should hold a normal taxi licenses and be subject to the taxi legislation. This would be, however, the end of the UberPop application as we have learned it sofar. In the specific Spanish case, an absence of such authorizations and licenses amounts to a breach of the provisions governing competition in Spain.
Obviously, Uber always denied to provide transport services, instead claiming that its computer program should be seen as an information society service falling within the scope EU Directive 98/34/EC. This Directive prohibits restrictions on the freedom of establishments and would mean that national taxi legislations could not make such services subject to administrative authorizations. In addition, in the specific case Uber claimed that an authorization scheme applicable to its program and services should be justified by general interest and not be discriminatory, in line with art. 9 Directive 2006/123 which governs authorization schemes and the freedom of establishment.
The opinion of the Attorney General is restrictive vis-à-vis services rendered by private citizens, since it requires them the be subject to the general legislation of the sector. In the case of Uber, this means the end of UberPop, not of other transportation services provided by licensed taxi drivers via the same platform (Uber X, Uber Limo, ecc).
However, the worst impact of this principle will be upon other sharing economy platforms which are based on private citizens rather than on licensed workers. This is the case, for instance, of AirBnb, which is constantly under attack by the hoteling industry. In that case, imposing the full application of hotelling rules upon Airbnb’s clients would be the end of the business model. The same may happen for innovative applications intermediating private citizens. Thus, the final decision to be rendered by the European court would be more fundamental for future European start-ups rather than for Uber.
The single telecom market which had to be
In the last few years many people, including me, believed that the phasing-out of roaming surcharges would have shaken the European telecom market, transforming the current puzzle of distinct domestic markets into a unified, single and big European telecom market. This was apparently the scope of the legislative initiative encompassing the roaming reform proposed by Commissioner Kroes in 2013, the Single Telecom Act also known as the Connected Continent (which ended up with Regulation 2120/2015). Indeed, we expected that once roaming surcharges would disappear, users would be able to subscribe mobile services from any operator in the EU, thanks to the fact that any domestic mobile tariff would be valid elsewhere in Europe. To make an example, a French citizen would purchase a Finnish mobile SIM from a Finnish operator if he/she believes that retail tariffs in Finland are more convenient than in France. In such circumstances, competition would fiercely emerge at cross-border level, with European citizens looking at better mobile tariffs available abroad, while mobile operators would be targeting clients everywhere in the UE, not only in their domestic market. Thus, the mobile European market would have rapidly becoming a unique competitive space leading to rapid consolidation amongst telecom operators, with the main groups (Telefonica, Orange, Deutsche Telecom and Vodafone) shopping abroad in order to be able to achieve continental scale.
The European institutions would have welcomed such development. In particular, since 2015 the offices of DG Competition have resisted plans for domestic consolidation by telecom operator, while letting open a window for cross-border mergers. The head of Competition directorate, Margaret Vestager, rejected mobile mergers in UK and Denmark, while imposing remedies in Italy, with this making clear that the time for domestic consolidation had ended. According to Vestager, mobile operators could continue to merge only at cross-border level while the phasing-out of roaming surcharges would provide the right incentive for that. The fixed market would have followed, since the biggest mobile operators in Europe are integrated with fixed networks.
What’s gonna happen instead
Despite the above, the expected consolidation in the mobile market is unlikely to happen. This is due to the final mechanism, introduced with regulation 2120/2015, setting the end of roaming surcharges. The retail and wholesale regime should be examine separately.
The Roaming-Like-At-Home regime introduced by Regulation 2120/2015 does not mean the European citizens may actually use a SIM card everywhere in the EU without paying roaming surcharges. In fact, the regulation prohibits permanent roaming, that is to say roaming services to be used in competition with domestic ones. In other words, European citizens may enjoy a free-roaming regime only when temporarily traveling abroad, not in order to get more favorable retail tariffs from foreign operators. The latter behavior is considered abusive or even fraudulent by the regulation.
While imposing the end of roaming surcharges by June 15, 2017, regulation 2120/2015 sets wholesale roaming access tariffs which are completely misaligned with domestic retail tariffs. Fact is, beginning from June 2017 the operator’s cost to provide roaming abroad will be 7,7 Euro per Gigabyte, with a decreasing glide path ending up with Euro 2,5 per Gigabyte in 2022. Such wholesale tariffs are fully inconsistent with domestic practice, since today mobile operators normally sell one Gigabyte for 1 or 2 Euro on average. It follows that many mobile operators, mainly MVNOs and small mobiles, will face losses when providing roaming services at domestic tariffs. The situation may be different for big mobile operators which normally exchange roaming traffic on the basis of bilateral agreements, based on the fact that inbound and outbound traffic are quite balanced. For such operators, wholesale rates have only a nominal value, no losses are incurred.
Because of the above, the phasing-out of roaming surcharges will put small and competitive operators at risk, while big mobile operators will be reinforced. No pan-european competition may emerge from this scenario, as big mobile operators will continue to defend domestic markets (where they can extract oligopolistic profits), while more competitive operators will be unable to be commercially aggressive. Under such circumstances, there will be no incentive for big mobile operators to merger at continental basis. The telecom market will remain fragmented as it is.
Why it ended up like this
Basically, while the traditional telecom industry had to accept the end of roaming surcharges because of political pressure, it succeeded in convincing the European institutions that domestic markets must be preserved because they are still important to make profit and sustain investments. The misalignment between wholesale tariffs and domestic practice has this scope: preventing foreign operators to attack domestic markets by way of convenient foreign/roaming tariffs. In addition, consumers cannot use foreign SIM to escape less convenient domestic tariffs.
As a result of the above, the scope of a single telecom market will be completely missed. On one side, there is no incentive for operators to provide cross-border services and consequently to merge. On the other side, bigger mobile operators are getting reinforced and will have the possibility to increase domestic tariffs, thus strengthening the isolation amongst domestic mobile markets.
The Italian antitrust authority has opened an investigation over SIAE, the old-fashioned incumbent holding a legal monopoly position in the Italian market for copyright management. The authority believes that SIAE may have committed some abuses even beyond its monopoly rights with the scope to “exclude all competition in the (investigated) markets, hindering the activities of new entrants and so reducing the freedom of the authors and editors to choose which collecting society to be member of or request services to”.
Whatever will be the outcome of this competition proceeding, the Italian market of copyright management remains something unique in Europe. Unlike other EU countries, where liberalization has been inflated at various levels, in Italy SIAE still enjoys a legal monopoly granted on the basis of a law of 1941 (that is to say during the fascism and even before the attack of Pearl Harbour). The various attempts to open this market has been vain so-far : in 2016 the competition authority signaled to the government that this monopoly should be drastically revised, while competitors have filed complaints with the European Commission. Everything has been ineffective so far: on one side, the Italian government ignored the advice of the competition authority and recently even reinforced the legal monopoly, despite the fact that an option for liberalization was offered while transposing EC Directive 26/2014 on the harmonization of collecting societies in the online music market; on the other side, the European Commission remained officially silent and di not act so-far, despite the fact that SIAE’s competitors have been advocating an intervention on the basis of EU rules and complaints are pending.
The Italian legal monopoly of copyright management is a blatant violation of freedom of services rules and of the Bolkestein directive, since it prevents operators lawfully authorized and operating in the EU to enter into the Italian copyright management market. In other words, when music in Italy is played, streamed or broadcasted, only SIAE is entitled to collect the copyright fee from the users and pay it to the authors. Because of this monopoly status, SIAE has no real incentive to be efficient, cheap and rapid, because authors have no clear legal right to access to competing services. Despite to that, in the last years some operators have entered the market in the hope that the government would have liberalized this business (and thus almost 8000 authors have left SIAE for competitors). SIAE is reacting suing them in front of courts and, because of the recent confirmation of the legal monopoly regime by the Italian government, it may have the real chance to bring the clock back to 1941. So, the legal situation is grey and only a clear intervention by a deus ex machina, that is to say the European Commission, could clarify the scenario.
The position of the Italian government is confused and difficult to understand: the competent ministry, Dario Franceschini of the Partito Democratico of the former premier Matteo Renzi, has shown mixed feeling regarding monopoly and liberalization. Various voices in the party have been advocating a drastic reform of SIAE, also considering the vocation of Renzi to close down (rottamare) the most embarrassing legacies in Italy. Despite of that and nothwitstanding the conflict with EU basic rules, and disregarding the European benchmark showing that the liberalization is the norm, the Ministry Franceschini backed an antistorical, reactionary view of the copyright management market: only one guy, SIAE, can legally make business there, others must stay out.
The start of an antitrust proceedings today is the first consequence of this position, further news may come from Brussels soon.
The cost of a call to an after-sales telephone number must not exceed the cost of a standard call. This is what decided the European Court of the European Union in decision rendered today in a case of a German consumers association (Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main) against a retailer (Comtech GmbH) which was to charge expensive tariffs open customers calling the after-sale service telephone number.
The practice of charging unfair and expensive telephone tariffs to people requiring after- sale assistance is quite common and particularly detested by consumers. Traditional and online retailers, airlines, insurance and financial companies, utilities, may be particularly nasty in this respect. The paradox is that the expensive tariffs did not encourage companies to be efficient and customer-friendly. The intervention of the European court has therefore stopped an unfair practice that national authorities were not able to control, apparently.
Under the relevant rules (Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights) Member States must ensure that where a trader operates a telephone line for the purpose of being contacted in relation to contracts concluded with consumers, consumers are not to be bound to pay more than the basic rate for calls to that line. However, the concept of a ‘basic rate’ is not defined by the directive.
To solve this issue, the European court stated that the concept of ‘basic rate’ must be interpreted as meaning that call charges relating to a contract concluded with a trader to a telephone helpline operated by the trader may not exceed the cost of a call to a standard geographic landline or mobile telephone line. According to the Court, in everyday language ‘the basic rate’ refers to the standard cost of a call. Both the context in which that concept occurs in the directive and the purpose of that directive, namely to ensure a high level of consumer protection, confirm that the concept must be understood in that ordinary sense of the term.
While the case concern an internal dispute, it will interesting to see whether further cases may arise when after-sales services are rendered to customers resident in another Member State. The matter needs to be followed up.