/Europe looks beyond fining Big Tech — to changing its business model

Europe looks beyond fining Big Tech — to changing its business model

The Facebook logo is displayed at the Facebook Innovation Hub in Berlin | Sean Gallup/Getty Images

Forget about hitting Big Tech with fines.

Europe’s new thinking is that it may be more effective to force Silicon Valley companies to change their behavior than to keep fining them, according to top privacy and antitrust officials gathered in Brussels this week.

The shift, which coincides with a changing of the guard at the European Commission, would bring together competition and data protection enforcement powers at the EU level to force large firms to share more of their data and allow new competitors into markets where they are increasingly dominant.

“Many policymakers out there, in the U.S., [Senator] Elizabeth Warren and others, they call for divestiture [breaking up] of these huge companies… [It] will not be the easiest task, especially for a small agency in Bonn, to break up the tech giants in China or in the U.S.,” said Andreas Mundt, who heads Germany’s competition authority, the Bundeskartellamt.

“The most important thing to make data protection work is to equip independent data protection authorities [with more resources],” Martin Selmayr, European Commission’s secretary-general

“But we can do something about how these companies work in Europe and in Germany,” he added during a conference of key European privacy and competition regulators in Brussels Tuesday evening.

Mundt made his argument amid a broader discussion about data and competition attended by the European Commission’s secretary-general, Martin Selmayr; Britain’s Information Commissioner Elizabeth Denham; and the European Data Protection Supervisor Giovanni Buttarelli.

In coming months, Buttarelli said that regulatory authorities should focus on “changing the business model” of companies, while Denham — whose office has this week announced hundreds of millions of euros in fines over data protection breaches — said: “We need to change the business model, and fines are not going to do it.”

What remains to be seen is how such cases would be led. Enforcement of data protection rules is handled at the national level, and the Commission’s competition enforcers have yet to make access to data the central argument in a major investigation.

Selmayr pushed back against the idea of a single digital regulator, advocated by the likes of former Obama advisor Jason Furman. But the secretary-general called for much tighter coordination. “We don’t need a single regulator, but we need all these regulators to horizontally and vertically behave like one,” he said.

Germany’s Facebook case

The call for tougher structural remedies comes after a period of intense activity by Europe’s antitrust czar, Margrethe Vestager, whose office imposed more than €8 billion in fines against Google alone.

Margrethe Vestager, European commissioner for competition | Saul Loeb/AFP via Getty Images

While the fines have a major political impact, their effect on the market in terms of helping smaller competitors remain to be seen. Google and Apple have both gained market share in the wake of their run-ins with the Commission, and all the cases are still snarled up in court proceedings. EU-based alternatives to Google and other services, like search engine Qwant and private messaging app Wire, have struggled to make even the slightest dent in tech giants’ control on the market.

What’s more, complainants in many tech competition cases say the remedies imposed on the firms are falling short. And so far, EU authorities have shown little appetite for demanding the breakup of a U.S.-based company — a step that might trigger a furious diplomatic or commercial response.

A credible alternative, argued Mundt, was to impose more effective remedies.

“I believe that if we find an anticompetitive business model, we have to change the business model, so we would have to impose structural remedies that make sure that this kind of behavior is not the future,” he said, referring to “internal divestiture” — or imposing Chinese walls between subsidiaries — as a viable option.

Mundt in February ordered that Facebook stop combining users’ data in a first major strike at the heart of the company’s business model. Users will now need to give their consent to allow the social network to combine data from their WhatsApp and Instagram accounts with their Facebook data.

Mundt called on “other agencies [to] carefully look at” this model of Chinese walls that prevent data being shared between different parts of a tech firm’s business.

Martin Selmayr, the European Commission’s secretary-general | Olivier Hoslet/EPA

Selmayr welcomed the increasing convergence between competition and data protection rules as exemplified by Mundt’s Facebook decision. “This convergence … will be the running theme for the next five years, I’m very sure about that,” he said.

At the same time, more than a year after the EU imposed a sweeping new privacy law, the General Data Protection Regulation, Google and Facebook have only increased their respective shares of the online advertising market. And the Irish Data Protection Commission, in charge of regulating both firms in Europe, has said its first major decision in a GDPR case is not likely to be announced until October or November.

One solution would be to give more resources to the data protection authorities, which are typically dwarfed by the companies they are tasked with policing.

“The most important thing to make data protection work is to equip independent data protection authorities [with more resources],” said Selmayr, who is preparing a review of the GDPR. “Otherwise they are toothless.”

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