I have the pleasure to report here the English translation of the article that Stefano Quintarelli, a pioneer of the Italian Internet, wrote for Il Foglio some days ago. I have been astonished by the capability of this article to easily explain and summarise in few chapters how the digital revolution is changing the world and what should be done to keep a fair balance between innovation, market economy and human welfare.
Intermediated of the world, unite!
Intermediati di tutto il mondo, unitevi!
Intermediados del mundo, unìos!
Intermediados do mundo, uni-vos!
Intermédiés de tous les pays, unissez-vous !
The industrial revolution led to a profound social reorganization with respect to the previous predominantly agricultural economy. Economic power, very concentrated, conditioned the political power. In the USA the so called robber barons, thanks to their control over steel and oil, strengthened their economic power by controlling the economy and society to a great extent. The working class of salaried workers was born, and, with it, the conflict with the capitalists who owned the means of production. The market pressure was discharged on the workers who often lived at the limits of subsistence, and the social conflicts, that sometimes resulted in violent movements, were intensified. The rich oligarchs conditioned information, political power and the judiciary.
Thanks to the power they had, not mitigated by institutions and protecting regulation, added value was accumulated by capital, to the detriment of workers.
From the mid-nineteenth century and for most of the twentieth century the world divided on the basis of alternative solutions to the conflict in the distribution of the value between capital and labor.
The paradigm of this conflict was summarized in the final words of the Communist Manifesto of Marx and Engels which ended with the famous phrase “Workers of the world, unite!”.
An answer from the socialist states were state companies, disconnected from the market in order to isolate the pressure on wages, together with a strict regulation of labor relations mediated by the Party. In the West there prevailed a more articulated model of regulation that saw the emergence of institutions such as the unions with their right to strike; legislative interventions that defined minimum and incompressible rights for workers in matters of work, retirement and health; the progressive possibility of worker participation in the widespread ownership of companies; the birth of the Antitrust Authority to mitigate economic power and with it the influence of economic powers on politics. The Western model that emerged victorious after the end of the Soviet utopia is however put on the ropes by the Digital Revolution and needs a rethinking or, at least, some significant interventions.
Basic research leads to developments in physics which in turn are incorporated into the electronic devices we use every day. The famous Moore Law foresees an exponential growth of processing, archiving and communication capacity, thanks to a periodic doubling of the performance / price ratio of electronic devices, motivated in a capacity to create increasingly miniaturized base components. The marginal cost of processing, archiving and communication is therefore (or rapidly) substantially nil and the possibilities enormously greater. Artificial intelligence is the terminology coined to identify the product of the exponential growth of processing possibilities; Big Data to identify the possibilities of large storage; Internet of Things for the possibility of interconnection. All this in a synergistic game so that, at ever increasing speed, increasingly cheaper devices spread and interconnect more and more; the related data are recorded and archived, analyzed and processed. Some visionaries believe that it will come to a time when machines will have superior capabilities to those of a human and that human beings will widely include electronic parts to restore or increase their habilities. This moment of human-electronic convergence is called singularity. That this exponential growth may continue for a long time to reach singularity is nevertheless an act of faith. The ITRS roadmap (International Technology Roadmap for Semiconductors) is the development plan defined by the electronics manufacturers and sets in 2021 the year in which the physical limit of miniaturization will be reached. The miniaturization of electronic components can not go further due to quantum interference on atomic dimensions. Singularitarians answer that this wall will be overcome and the exponential development will continue thanks to the invention of something still unimagined. This is the act of faith.
Nevertheless, even if singularity is not achieved, the effects on society will be very significant. Once the physical limit of development has been reached, competition that can no longer be expressed in performance increases will be expressed in price reductions and electronic devices will permeate the world at a scale hard to imagine. Our ability to access our computing systems, the storage of our data and their communication will no longer be physically confined to our devices but widespread. Our “computer” will be defined by our ability to access such widespread processing and data, by recognizing our identity (the ultimate competitive asset), wherever we are.
From the computer on our table, from the computer to our pockets, we will arrive – literally – to live in a computer. Thanks to the zero marginal cost, everything that can be calculated will be; everything that can be sensed and archived will be. Everything that can be interconnected will be.
All these phenomena has accelerated over the last twelve years, with the development of cellular wireless networks, in a virtuous circle of increase in possibilities fueled by the synergy of increase in server processing capacity, the transmission capacity of networks, the processing capacity of pocket computers (smartphones). All this accompanied by an unprecedented speed of diffusion of technical means, by a democratization of access to technologies. In every system where information is introduced, entropy decreases and the system is optimized. Our ability to solve problems, to optimize the use of resources, has increased enormously in recent years. Just think about the availability of information and the possibility of collaboration of researchers in the medical, energy or food fields; optimization of transport and logistics thanks to navigation systems with full coordination and knowledge; to fine grained production control and inventory reduction; to the dematerialization of many activities, reducing the material impact on the planet.
For over ten thousand years the world has experienced drastic changes but much slower, which required generations to unfold, allowing society to understand and adapt (even if sometimes such adaptations were violent).
In this case, this development of the intangible economy was sudden. It would seem that Divine Providence intervened on a world that consumes material resources at a level well above the possibilities of sustainability, offering an incomparable optimization tool.
Every human sector is impacted and so many complexities we face today are rooted in these reasons.
I refer to material dimension and immaterial dimension and not to real and virtual worlds. They are not worlds but dimensions because every human activity previously based on material instruments and relations is to some extent touched by immateriality. Except for some cases of full replacement of a previous material activity with a new intangible modality, in general the immaterial does not exclude the material but integrates it, it supplements it in the same way in which the length is not an alternative to the width but supplements it. And it’s all very real, not virtual. The term “virtual”, from the medieval Latin virtualis, brings with it a connotation of unexpressed potentiality. But this immaterial dimension, in which social, economic and political relations take place, is very real, not potential or unexpressed.
The basic rules of the immaterial dimension are very different from those of the material dimension. In the traditional material dimension, producing, reproducing, storing, transferring and manipulating have significant (economic and environmental impact) costs. In this recent immaterial dimension these costs are marginal or zero. Materiality is intrinsically disconnected as it is composed of objects that do not communicate with each other; its frictions require time to be overcome, cause wear and returns tend to decrease. The immaterial, which is intrinsically connected, is characterized by real-time feedback (and therefore the possibility of data collection, analysis, customization and adaptation), a lack of wear and the possibility of increasing returns.
Except for cases of great standardization and repetitiveness, assisted by specific machines, work in the material dimension is carried out by people who need production tools, input to work on, cycles of rest and leisure. With the industrial revolution, this led to the definition of work shifts and commuting to carry out the activity, with consequent impacts on the structure of cities, trade, etc.
A work that can be done in the immaterial dimension, if repetitive can be done by machines that do not know shifts; if with components of creativity and relationality it can be done by people from any place in the world, also benefiting from the effect of time zones to cover the day.
The digital umbilical cord that binds the parties in an immaterial relationship is exploited to update provided product / service with frequent releases and is customized thanks to the acquisition and knowledge of the data. This personalization goes as far as the individual, placing new questions on the availability of data as a competitive asset.
Up to now, the information available in common to a community has always been an important factor in maintaining harmony and cohesion, and has even favored the definition of social rites. With the individual personalization of the information flow, the role of the media to act as a social metronome erodes. The personalization of the information received by users, with the current incentives for those who manage the algorithms, determines the exclusion of unwelcome information and increases the frequency of messages confirming their convictions and bias, favoring with the so-called “filter bubbles” ( filtered information bubbles) the acquisition of informations you like, regardless of their degree of truth and correctness. The nil marginal costs in the production and distribution of information, eliminated the cost barriers that constituted a friction to their creation and circulation; a reduction in the potential barriers that constituted a limitation to the dissemination of information, has multiplied by orders of magnitude the spread of fake news that feed filter bubbles. The accessibility to information on each subject, even on specialized topics, previously limited to insiders, is now ubiquitous at no cost, fueling the perception of an extreme reduction of distance between experts, enthusiasts and casual readers. This leads to a perception of flattening of hierarchies that pushes the trivialization of experience, an effect multiplied by the algorithms of the information intermediaries whose objective function is not the correctness of information but the maximization of the time spent by users on their online services. The fact that this produces effects on politics is well-known: from the resurgence of interactions driven by emphasis (also determined by impulsivity favored by real time and a wrong perception of anonymity favored by isolation and instrumental mediation of communication). The effects on the electoral outcome are less known, even though Facebook has conducted social experiments that have shown that they can influence the rate of participation in the vote and recently Zuckerberg in a written letter to the European Parliament said he can’t rule out that the social network is used in such a way as to produce manipulative effects on the votes.
Private property, the foundation of the Western model of response to the challenges of industrialization, is rooted in the intrinsic properties of materiality in which goods are rival and excludable. Consequently, the assets are carriers of rights, immunities, faculties and privileges defined and codified in laws that are based on rivality and excludability. The whole legal system is also based on these two characteristics.
The control of the assets in the immaterial dimension does not take place on the basis of rivality and excludability. An information, once communicated to a third party, does not diminish the possibility of enjoying it on the part of the communicator. The aphorism of President Thomas Jefferson is famous: “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me”. In order to maintain control and replicate rivality and excludability, an intangible asset / service is not placed in the recipient’s full availability as it happens with a tangible asset but often, if the business model and market allows for it, it is provided connected to a centralized control and invariably accompanied by a contract that regulates in detail the rights, immunities, faculties and privileges, which, in a largely asymmetrical arm-wrestling, invariably favors those who provide the good / service with respect to those who use it. In the immaterial dimension, private property, for users, does not exist.
Starting from the 90s of the last century, while the exponential path of digital technologies (calculation, archiving, communication) began to become perceptible, policy makers decided to favor their development. There was talk of an information society with the – correct – idea that it would have had a lower impact on the planet’s resources than a development model based on a material economy. Asymmetric rules have been made to promote competition and with it the birth and growth of alternative telecommunications operators and service providers. The modalities of monetization were not clear, and neither were the business models, and neither were the times when a critical mass capable of sustaining an immaterial economy would be reached. A little at a time these clouds have thinned out. The critical mass has been reached years ago and with it the business models and the possibilities of monetization have become very clear.
Entrepreneurs have learned to exploit this regulation to their advantage by using intellectual property laws to impose restrictive contractual conditions for their users, exploiting network effects to benefit from increasing returns (winning over the first user, which needs to be convinced, costs a lot of more than not winning the billionth user who prays to be admitted to the interaction with others and hopes never to be expelled) and to introduce lock-in factors (de facto constraints in services) to limit the mobility of users.
While in other industries we impose phone number portability, credit, bank loan, electricity meter or gas portability, to promote competition, this is not the case online.
Consequently, those who conquer world dominance in a sector can hardly be undermined. Try telling your children to leave Whatsapp and start using Indoona. They will never do it. On Whatsapp they can interact with all their friends; sending them to Indoona would be like condemning them to a nearly desert island. The same applies to sellers with respect to Amazon, hoteliers with respect to Booking, restaurateurs with respect to Thefork, renters with respect to AirBnb, drivers with respect to Uber, and so on. When an operator is about to win in an industry, investors will pour huge amounts of capital in such a way as to make it the de facto choice for that sector. Competition ceases to be IN the market but FOR the market. You do not compete in the brokerage market for holiday homes, but to conquer an absolute, unshakeable leadership position in a market niche.
The marketing costs for adopting a service are today the most important investment in an intangible operator, orders of magnitude larger than technological ones. They are not technological operators, they are market intermediaries that intercept a share of the added value that flows between producers and consumers. This creates monopolistic or oligopolistic double-sided markets, with intermediaries who dictate their own laws and, on the one hand, consumers who have little or no other choice and, on the other, producers who must comply with these rules in order to gain access to the market. How many persons know that if someone downloads a software and installs it on a Macintosh, the payment goes to the software manufacturer while if it is done on an iPad or an iPhone, 30% goes to Apple? The same applies to a newspaper, a song, a book on Apple, Android, Amazon. Or that 25% of the room price (including VAT) goes to Booking? – nearly 100% of the hotelier’s margin, which must however pay the living costs, the maintenance and – not a tiny detail – the staff? Who is aware of the working conditions of a Uber driver or Foodora rider ? I do not mean these are not opportunities for occasional jobs that can constitute a supplementary income for someone in a moment of a person’s life. If they cease to be occasional and become continuous, subjected to an algorithmic control much stronger than it was previously possible in a traditional work relationship, an issue arises re. regulatory asymmetries that favor a type of activity compared to another, by inclining the competitive plan towards immaterial monopolist / oligopolistic intermediaries.
Let’s stand on the immaterial monopolists / oligopolists side.
They were good. They had an idea, a vision, determination, delivery hability far superior to their competitors. They conquered a dominant position in a niche of a new immaterial intermediation thanks to hard work, great skills and big capitals (at the beginning, until it was clear to the venture capitalists that the winners would be, tightening their belt).
Now they are monopolists (or maybe oligopolists); they
and I surely forget some other aspects …
We are entering into the merits of a question that is quintessentially political. Defining politics as the tool to achieve future, socially desirable goals.
We can no longer limit the analysis to capital and labor, we must also include information in the equation and the digital revolution that expresses it.
Can we think of a future in which, for every economic activity carried out by producers – capital and labor – those who control the third variable – information – are few monopolist / oligopolistic intermediaries (monopsonists / oligopsonists) who extract value from the control of intermediation, squeezing the value from capital and, in cascade, from work?
Capitalism has found ways of balancing the conflict between labor and capital that have surpassed the socialist / communist model of collectivization of the means of production.
In just a few years, the traditional capital-labor conflict has been wrapped and dominated by another conflict, a conflict with information that, through the control of intermediation, presses on both.
In just a few years, the 5 largest companies in the world are operators that rely on their dominance on the intermediation of some vertical market. Three entrepreneurs control an economic empire superior to that of many OECD states.
We are observing a monopolization in the domination of the relevance of the immaterial dimension over the material dimension, in the creation and distribution of wealth, with a rising conflict between intermediaries and intermediated, with the compression of rights and guarantees for large social bodies and with a significant political influence.
A dominance that we could define as “info-plutocracy”.
The info-plutocracy of the intermediators is based on a centralized control of information, both in terms of data (privacy implications are an epiphenomenon) and of processes with which such data are collected, processed, communicated and used.
It is a model opposite to the one with which the Internet was born and developed.
For many decades, the Internet was built on protocols, public rules that everyone could incorporate into their software, which established the ways in which computers (servers and clients) communicated, and anyone could build clients and servers and compete. Telephony has also been based on similar mechanisms, from the devices (telephones, switchboards, exchanges, etc.) to the network devices used by the operators and the services developed on them. Two widekly known examples are text messages and e-mail. A decentralization based on a wide variety of servers and clients that interoperate so that anyone can send an SMS or an email to anyone without worrying about the operator or service used by their receiver. An opposite example are Whatsapp, Facebook, Instagram, Snapchat. centralized services which can be used only by joining the same, single service, managed by a single operator.
This closed approach, once the planetary domination has been established, reduces competition and reduces the biodiversity of the infosphere, with the effects I described above. The opposite of the spirit of openness and maximum contendability of users who gave birth and grew the Internet so quickly.
The effects of the digital revolution extend to all markets intermediated by monopoly / oligopolist operators and monopsonists / oligopsonists.
Summing up, the conflict between capitalists and workers induced by the industrial revolution of the eighteenth and nineteenth centuries has developed in the relationship between capital and labor with opposing ideologies that, after many decades, have seen the prevalence over the socialist / communist model, of a model of mass capitalism tempered with rules of protection and guarantee for consumers. The debate between right and left political sides has developed on the point of equilibrium between them.
The conflict between intermediators and intermediaries induced by the digital revolution of the twenty-first century develops in the relationship between information and production (understood as the product of capital and labor) and is starting a social confrontation between a model of management of centralized information that has developed in recent years (and supported by large technological multinationals) and a decentralized model promoted by some avant-gardes (philosophical, technological, political, etc.), a debate with profound differences between those who advocate closed systems and environments and those who fight for decentralization, to foster greater competition and the possibility for users contestability.
|Relationship Capital – Labor|
|Mass capitalism||Socialism / Communism|
Categories of 18th and 19th century
|Relationship Information vs. Production (Capital & Labor)|
|Intermediators||Intermediated (Capital & Labor)|
Categories of the 21st century
or, representing the conflicts in another way:
Former conflict: Capital vs. Labor
New conflict: Information vs. ( Capital & Labor)
For how long will it be possible not to detect this “info-plutocracy” and this new conflict between intermediators and intermediaries? Will we be able to allow it for a long time to expand, vertical by vertical, to other sectors of the economy, hoping that a new invisible hand will solve the problems? Does anyone think that it is possible to un-invent digital technologies and the Internet that is their expression ? Or can we think of socially desirable goals that require political intervention? And what kind of interventions?
The reduction of tax revenues, the conditioning of political opinion, the pressures on traditional operators are, as a matter of fact, just representations of different points of view of the same phenomenon: the prevalence of monopolistic / monopsonistic information on capital and labor.
I think there is not a simple answer to these problems, like increasing taxes, as some would like to do. These extra costs, save some cases, would be transferred to consumers or producers.
In some cases it has been proposed to build “state champions” (such as a public search engine, or a social network or a public platform for professional bidding). In other cases it was also proposed to consider social networking as a non-duplicable social infrastructure and someone even proposed nationalization. These are hypotheses that bring to my mind the Soviet response to the pressures of industrialization through state-owned companies.
I do not believe that such measures with a totalitarian fragrance can work; I believe they could generate bigger problems to adjacent areas (from social control to privacy vulnerabilities and other fundamental rights) than those they try to solve.
I believe we need to respond as Western society has responded to the industrial revolution, that is, with more market market oriented interventions, favouring less concentration of information and regulation of negative externalities. I believe we should not give in to the logic of the inevitability of closed systems and we must stand firmly on the side of openness.
To tackle the digital revolution we need a comprehensive package of measures that are based on the principles of what we have already done in the period of the industrial revolution: new forms of taxation, innovations in welfare, workers’ and rights, public controls on guarantee for consumers and, fundamentally, increased competition, procompetitive rules, user contendibility, interoperability of services, etc.
But this can hardly happen without an awareness of this new conflict of intermediation between information on the one hand and production (that is, the combination of capital and labor) on the other and without this awareness becoming translated into political action.
In order for this political action to take place, it is necessary for the intermediaries to demand it by coalescing into awareness:
Intermediated of the world, unite!
It may become impossible to share memes, parodies, artistic or political videos because the filtering obligation voted today by the European Parliament would require online platforms to make a prior check on all the creations shared by users that may contain protected content. And likewise, it could become impossible to find news on the major search engines, because the latter, in order not to pay a tax on snippets, i.e. the phrases showing the descriptions of the pages that user is looking for, could suspend the service (as it is already happened in Spain and Germany because of similar national laws). Today’s decision of the European Parliament’s Legal Committee is for now only a legislative step, but this scenario could actually materialize if the European Commission’s proposal on copyright reform were to be definitively approved in the coming months by the European legislators, namely the European Parliament in plenary session and the Council of Ministers. In any case, the narrow majority that today approved the text submitted by the rapporteur Voss suggests that the struggle is still long.
NB: Please note that the Juri Committee asked to apply art. 69c of the Rules of procedure, whereby the committee can directly deal with the Trilogue negotiations without a mandate. The plenary session of the EP can however oppose this request with 10% of the votes against.
But how did we get to this point? There was no doubt that a reform of the copyright discipline, to adapt it to the evolution of the Internet, was needed: one should consider the new models of distribution and usage, the existence of new operators and intermediaries (unknown until a few years ago), as well as the need to protect and promote content effectively in a new technological and market environment. Beside these issues, however, jumped a new idea, that of the c.d. “Value gap“: the traditional content industry (especially commercial TV, audiovisual producers and major publishers) claims that a good part of their value is now “scrapped”, with the advent of the Internet, but above all of the social online platforms (primarily Youtube, but also GitHub, Instagram and eBay) that host the content uploaded by users and earn in various ways, also thanks to online advertising.
The theme is important because safeguarding a quality industry for content and journalism is fundamental in European society. However, the proposal that is being discussed in Brussels seems to cause so much collateral damage that it should be heavily rethought. It is no coincidence that the great fathers of the Internet (including Vincent Cerf, Tim Berners-Lee and Tim Wu) and the UN expert for freedom of expression, David Kaye, have recently intervened by asking to stop and restart from scratch.
In fact, despite the reform defended by large television companies has been explained to European politicians as a crusade against Google & Co, in the end mostly users, SMEs and start-up will be affected: for them the would not be anymore a free space to exchange ideas, to experiment creativity and new business models. The obligation for preventive filtering could have very serious restrictive effects, including consolidating the market around the large existing players (mostly American) that have the resources to get by, but leaving out the smallest (especially European). And one could not be sure that the European content industry would really gain: and indeed many European publishers, especially the smaller ones and who operate mainly online, have firmly opposed the reform.
The ongoing debate is showing more and more strengths and weaknesses, but above all contradictions, of the European content industry: on the one hand, this sector appears very strong in dictating its agenda to national and European legislators, because few MEPs, ministers or commissioners feel able to oppose against organizations that manage to appear as the only representatives of culture and creativity (while reality is a bit more complex); on the other hand, the same sector appears subordinate, divided and fragmented with respect to the American giants, be they Internet or producers of contents, and appears condemned to an ineluctable economic and cultural dwarfism with respect to the great global trends.
These contradictions emerged in the other fiery debate dedicated to copyright, the one on geo-blocking. Here the European content industry has won, succeeding in defending a legal framework that basically allows geo-blocking of online content, so that an Italian user can be prevented from enjoying online content delivered virtually in another country. A situation that facilitate proliferation of piracy and alternative technological solutions. This system is defended by the European industry with the argument that such territorial restrictions would be necessary to finance the production of films, as producers and distributors normally agree with exclusive territorial licenses. The market actually works like this, and European lawmakers have confirmed the status quo fearing that otherwise they would have endangered European content producers. But then, no one has realized that the right to geo-block is in fact exploited by the great American majors, who produce in US and export their cultural model, while in Europe they can obtain very high profits thanks to the power to geo-block the continent and divide it artificially into 28 (early 27) markets, an absurdity that at their home (since they have 50 states) would not be allowed. This system strengthens the cultural and creative leadership of Americans in Europe, while at home we are discussing why it is right to prevent an Estonian user from downloading an unknown film from a Hungarian site. It would be time for Europe to think again in European terms rather than in defense of national interests.
NB: this is not the place to criticize the EU, since this disconcerting picture is created above all by national vetoes and diktats, rather than by the European bureaucracy. On the contrary, where the offices of Brussels can move with greater freedom, there you can see more result: and in fact many eyes are directed towards Commissioner Vestager and its directorate of competition, who have been investigating the pay-TV market for some time. Thanks to their enforcement powers, Brussels officials could soon declare invalid the territorial agreements that gave rise to the practice of geo-blocking . If this were to happen, any new restrictive copyright reform would have to deal with a completely new scenario.
Whether the new Electronic Code for electronic communications will encourage or frustrate network investments (you will soon read different opinions about), there is something fundamentally new in the telecom reform politically agreed today by the European Trilogue: for the first time in the history of European telecom regulation, investments in very high capacity networks will become a binding target for national regulators (together with competition, single market and consumer benefits):
“promote access to, and take-up of, very high capacity data connectivity, both fixed and mobile, by all Union citizens and businesses”.
The new Code, proposed by the European Commission in September 2016, marks a radical change compared to the previous regulatory framework in that it radically addresses the urgent need for enhanced infrastructure investments. It could appear something obvious considering the public ambition for more sophisticated connectivity but, in reality, you should remind that few years ago the European Commission took a different approach: in July 2012 the former Commissioner Neelie Kroes, in order to protect financial viability of traditional European telcos, intervened publicly to protect the access price of copper networks (i.e. the traditional telephony networks used for ADSL) causing the sector to continue to stay on these obsolete networks rather than massively investing into fibres. Kroes’ scope was to keep constant the cash flow of incumbents in times of financial crises and eventually encourage altnets to roll-out their own new network, but the consequence of such choice was dramatic in terms of industrial policy: European incumbents felt encouraged to continue to exploit old-fashioned copper networks as cash machines, while being less incentivised to roll-out new full fiber networks. It follows that various FTTH industrial plan were abandoned or downsized to FTTC (where fibers are extend only to the cabinets, and not up to the premises of users as in the case of FTTH). This trend was particularly evident in some countries where the local incumbent wanted to keep alive, as long as possible, the old copper networks (see Germany and Italy for instance). Kroes’ move was maybe understandable in terms of financial stability, also considering the fear that extra-UE telcos could take over European incumbent, but caused a delay in the roll-out of European fibers which is still reflected in the different figures of fiber deployment between EU and other regional areas (US, Japan and Korea).
To make more remarkable this policy change, today’s Code’s parameters defining very-high capacity networks are defined taking into account the characteristics of optical fibers:
‘very high capacity network’ means either an electronic communications network which either consists wholly of optical fibre elements at least up to the distribution point at the serving location or any type of an electronic communications network which is capable of delivering under usual peak-time conditions similar network performance in terms of available down- and uplink bandwidth, resilience, error-related parameters, and latency and its variation. Network performance can be considered similar regardless of whether the end-user experience varies due to the inherently different characteristics of the medium by which the network ultimately connects with the network termination point”.
The aim is to favor investments in networks entirely in fiber optics up to buildings (FTTH and FTTB), thus accelerating the replacement of old and obsolete copper networks. Needless to say, the drafting of such definition has been the target of furious counter-lobbying by that telco industry that preferred more vague terms in order to include back copper upgraded networks (FTTC and vectoring).
When will this fiber devolution take place? Despite today’s agreement in the Trilogue, further formal steps are still required: some parts of the Code are still agreed in principles, while details and recitals need to be defined. The formal approval by Council and Parliament may take place only after summer and then Member States will have 24 months to implement the directive’s provisions into national law. This means that the new rule will become effective only at the end of 2020. However, since we are talking of long-term investments, it is clear that investors have already got the right signal and therefore they will immediately favor full fiber investments right now.
Mr. Zuckerberg may have been surprised about how much complex the European political system is. Invited by the Chairman Antonio Tajani to meet the European Parliament in Brussels, he ended up confronting a very large number of MEPs of various parties and nationalities (many Germans, however) and an avalanche of questions, with many overlaps and repetitions. By participating to this collective interview, he had the opportunity to understand complexity, greatness and weakness of Europe, since the fragmentation of the questions submitted to him showed how much Europe is attentively looking at such issues, but at the same time it made impossibile a proper reply to every MEP of the panel. This situation allowed Zuckerberg to aggregate all questions into clusters so as to reply in generic way and to “cherry picking” the subject for which he was more prepared. At the end of the hearing some MEPs complaining for this result, but it was difficult to put the shame on the Facebook’s CEO – he had to escape and catch a flight, apparently, like an ordinary traveller. At the end of the meeting, it was decided that all questions submitted by the MEPs will be answered in writing – not an issue for Zuckerberg, legions of lawyers exist for this purpose.
Zuckerberg repeatedly apologized for the Cambridge Analytics scandal but he was very clear in affirming that Facebook’s policies have changed and that such leaks and unlawful data treatments will not happen again. He further dedicated quite much time to fake-news and political elections, an area where the European Union does not know what exactly to do and desperately needs Zuckerberg’s’ help. The questions submitted by the MEPs confirmed this fragmented scenario: while some MEPs were asking Facebook to take more responsibility on the subject, another (ECR) was rejecting the idea that the company should take decisions on that and it should instead be regulated! Zuckerberg made clear that the mistakes of the past (US elections and Russian influences) will not happen again and that a team of people is working on that, while making some important comments: Facebook can work on spam and fake accounts, but it cannot decide what is politically true or wrong: for this purpose, a network of external facts-checkers is needed.
Time was also dedicated to inappropriate content on Facebook (hate speech, racism content, bullying ecc). Zuckerberg rivendicate the improvements made in detecting and removing such content firstly by professional teams and more recently by AI technologies. “We’ll never be perfect but we can improve”. This means that legions of robots will be soon checking and evaluating what we post on Facebook, not sure if this is a good news.
Zuckerberg was evasive, also thanks to the little time left, about competition, taxation, platform regulation and compliance with GDPR. Too many complex questions requiring different conditions and context for an appropriate answer. At the end, the overall impression is that the European Parliament made its show, while Zuckerberg escaped the trap. Nothing really impressive happened, in Italy we would say: “La montagna ha partorito un topolino” that si to say “so much promise, so little delivery”.
The antitrust decision about the acquisition of several assets of Liberty Global by Vodafone will be a real dilemma for the competent offices of the European Commission, aka the Competition Directorate (“DG COMP”) lead by the Danish commissioner Margaret Vestager. During the current mandate, DG COMP offices have been religiously clear in setting the principles of their merger policy for the telecom sector: while consolidation is more than welcomed amongst business operating in different European countries, so has they may create pan-European players, by contrast sole-domestic mergers are attentively scrutinized and in several cases even prohibited or subject to heavy remedies.
The Vodafone-Liberty Global transaction is a dilemma because both features, domestic and cross-border consolidation, are present in the same transaction and you may look at it from different point of view: Vodafone will acquire Liberty Global’s assets in Germany and various Eastern countries (Czech Republic, Hungary and Romania), however it is in Germany that the transaction really matters and will need the highest antitrust scrutiny. This is the reason why Deutsche Telekom, the main opposer to the transaction, will fiercely sustain the view that this transaction is a domestic merger disguised by pan-European consolidation.
Where is the true and what could be the final result of the antitrust procedure?
Firstly, let’s consider how much Germany count for the biggest contenders, Vodafone and Deutsche Telekom: it is the biggest telecom market for both operators with respect to their global turnover, namely 32% for Deutsche Telekom and 24% for Vodafone (sources: FT). Beyond such figures, Germany will be a central market for anyone wanting to launch in the future connected cars and IoT business: no-one is likely to be able to launch such business at European level without having a strong feet in Germany and with its industry (not only cars). This is why the 2 companies are fighting for the domestic German supremacy.
This scenario is complicated by the incoming reform of the European Electronic Communications Framework, due to be finalized in June 2018 (with entry into force in 2020) which is expected to play in favor of Deutsche Telekom: the German incumbent will get the possibility to ask for deregulation of new fibers network (so-called coinvestment rules) while getting the possibility to regulate, and get access to, competitors networks thanks to the new rules on symmetric regulation. It is a nightmare scenario for Vodafone (as well as for other German new entrants) and therefore the merger with Liberty Global is the last chance to be able to compete with Deutsche Telekom at almost equal feet.
Thus, it seems to me that, beside the international footprint of the entire transaction, what really matters for Vodafone is the German market and not the other countries where Liberty Global assets will be acquired.
Considering the above, it is not strange that Deutsche Telekom will use its immense fire power to block the deal in Brussels – being very unlikely to get the German authorities to have jurisdiction on the case: see the competence rules of Regulation 2004/139. Truly speaking, Deutsche Telekom will not be alone: other German players, from fixed altnets to MVNO and IoT players will probably try to intervene to have a say, although they may have an interest in regulating some aspects of the transaction rather than blocking it.
The offices of DG COMP will likely welcome the transaction because the strengthening of a paneuropea fixed-mobile network fall well within their vision of the European telecom market. However, the impact of the merger onto the German market may be important and this is why the arguments of the opposers, Deutsche Telekom in primis, will be attentively taken into consideration and may bring to corrective measures which may even make the deal to derail.
Deutsche Telekom’s gold argument will be the impact of the transaction on various content markets, such as licensing/acquisition of broadcasting rights for TV content; wholesale/ acquisition of TV channels and wholesale TV signal transmission; retail supply of signal transmission and TV services. Because of the transaction, the aggregate market power of Vodafone/Liberty Global will be considerably increased and, in some of the above mentioned content markets, may be regarded as dominant. Deutsche Telekom will have various arguments to play: firstly, a previous acquisition by Vodafone in the same cable market (Kabel Deutschland, in 2013) was cleared on the assumption that Vodafone was entering the content markets for the first time and there was a strong competition, especially by Liberty Global; now, with the acquisition of Liberty Global itself by Vodafone all such previous arguments may be play against; secondly, the content markets are much more sensitive than connectivity because pluralism of media can be invoked and one can presume that Deutsche Telekom will be advocating political arguments against the transaction.
Considering the above, it is quite likely that DG COMP may decide to impose some interesting remedies upon the merged Vodafone entity with regard the content market, although it is unclear at the present stages whether such remedies may be so strong to make the deal to derail. It is unlikely, however, that Dg COMP may act unreasonably because both the reinforcement of a strong competitor in Germany and the enlargement of a pan-european player are honey for their eyes.
However, there are other areas which may create troubles to the good completion of the transaction.
The creation of a cable national champion may provoke in Germany a debate which already occurred in other countries, such as Belgium and the Netherlands: should a cable operator be regulated such as a telco in order to allow others telecom operators to get connectivity access to? Traditionally, cable operators have not been regulated because their footprint (nationally fragmented and mainly focussing on consumers) is not adapt for a national retail offers, while the switching costs were too high (since altnets are normally interconnected with telcos and not with coaxial networks). However, in Belgium and the Netherlands the national regulators took a different view due to the fact that the consolidation of cable operators have created in these countries a nationwide cable player forming a national duopoly with the local telco incumbent. BIPT, the Belgian regulator, has recently notified this decision with regard to Telenet (i.e. Liberty Global in Belgium) and the Connect directorate of the European Commission is examining the case. But DG COMP could impose access remedies on the German cable which would override regulatory decisions in the sector and Vodafone has good reasons to be worried about.
In addition, DG COMP may take the present transaction as an opportunity to revise the implementation of the 2014 decision which authorized the merger between E-Plus and Telefonica, bringing down the German mobile network operators from 4 to 3. This authorization was given in the Almunia’s age and there are reasons to believe that the offices of DG COMP would have treated the case differently, if the could at that time. Now that they have Vestager as a commissioner, it is likely that they may find the political support to investigate whether the German mobile market is functioning well, especially with regard to competition for MVNOs and IoT providers. Since the Vodafone-Liberty Global marge is eliminating an important MVNO from the market, a review of the mobile market may be possible.