Rationale

Today’s Digital Market in the European Union is characterised by the dynamic delivery of a broad variety of innovative services. In many ways, consumers clearly benefit from this development and continuously demand new services, which increasingly digitalise nearly all areas of life. However, there is an obstacle which prevents Europe from leveraging the full potential of the Digital Market.

EU’s digitalisation goes hand-in-hand with an increasing imbalance which negatively impacts the public benefit. First, consumers cannot rely on a coherent set of digital rules since consumer protection standards are fragmented. Second, commercial undertakings have to compete in a digital market that does not provide consistent rules, and puts certain players at a disadvantage due to outdated regulatory burdens.

The challenge of leveraging the Digital Market’s full potential

Reasons for this imbalance lie in the outdated EU legal framework, which no longer reflects the rapidly changing Digital Market. The issue relates to several horizontal regulatory measures on the one hand and to sector-specific regulation of the telecom sector on the other.

Ex-ante regulation, designed about twenty years ago, assumed a key role in promoting competition and protecting end-users when telecommunication networks were privatised and the provision of services was liberalised. Regulation was designed for national incumbents which were both network operators and telephone service providers.

Today’s digital market has considerably changed. Competition at both the network and service layer has increased dramatically with the entry of new infrastructure providers, and especially with the entry of OTTs. The latter directly compete with highly regulated telecom operators, e.g. in the area of communication services. The technological link between providing infrastructure and communication services is today outdated in a market increasingly populated by OTT services. Although markets have converged into one Digital Market, sector specific regulation remains focused on traditional telecom operators and the presumed market power of telecom incumbents. This does not reflect the reality of the post telecoms market liberalisation era, where some OTTs have significant market positions, leveraging the network combined effects of their digital platforms and services.

The European Commission’s envisaged review of the regulatory framework provides a window of opportunity to update the EU legal basis, removing outdated rules, and ensuring consistent consumer protection standards and competition in the Digital Market. This is an essential measure to reach the European Commission targets of the Digital Agenda.

Objectives

Consumers need to trust the digital world and rely on a coherent set of up-to-date and effective protection rules which are consistently applied to similar services throughout the EU DSM, irrespective of the provider’s category  or geographic location. This is a crucial prerequisite to stimulate demand for services and increase customer satisfaction.  The proportionate costs for industry flowing from a coherent set of consumer protection rules need to relate to the proven increase of consumer’ benefits.

Keeping consumer benefits in mind, a coherent regulatory framework for the whole DSM should enable fair competition. This would increase the range of choices for consumers in the Digital Market. Applying the same principles to all services is a prerequisite for an innovative and continuously dynamic Digital Market.  Besides this, an updated regulatory framework would contribute to the creation of jobs and growth within Europe.

All established providers need to compete in a coherent legal framework, to ensure optimal market output through effective competition.  New market entrants need to be able to rely on a framework, which allows them to compete with established players. A coherent set of rules is needed to facilitate partnering models between different players in the Digital Market value chain, based on a common legal basis (e.g. the same consumer protection obligations, when jointly providing a service to a consumer).

Identified asymmetries

Digital Market players provide different groups of services. As a general rule, these groups can be clustered as infrastructure, devices and digital services. Each of these includes further subgroups. Since required actions vary along the whole value chain, the assessment of asymmetries needs to consider these different groups in the Internet value chain..

At the digital services level, regulatory asymmetries are particularly obvious. Sector specific regulation imposes strict rules[1] on telecoms communication services (voice, messaging, fax). These rules supplement the horizontal regulation that applies to all Digital Market players.[2] From the consumer perspective, due to the convergence of traditional and new online markets in the sector, many communication services substitute each other, regardless of whether these services are provided by telecom operators or OTTs. Meanwhile, a broad range of consumer protection rules are applied exclusively to telcom operators. Some important and non-exhaustive examples of asymmetric service regulation can be seen in the obligations for data protection and data retention, in the information requirements before, during and after contract conclusion and in security obligations.

On an infrastructure level, extensive sector specific regulation, created to facilitate competition and consumer protection[3], covers telecom operators’ communication networks and Internet access services.

Besides sector specific regulation, several horizontal regulatory measures do not appropriately address the rapidly changing Digital Market. Market convergence and new business models are often not sufficiently reflected in the regulation, leading to asymmetric regulation of similar services and products. This not only leads to unfair market conditions for telecom operators, but also for other players of the Digital Market. Just one example of such asymmetry in horizontal regulation applies to media and content regulation. [4]

Solutions

To achieve a coherent framework, regulation needs to be harmonised. Generally, this should be done by replacing outdated and unfit sector specific regulation with appropriate horizontal regulation covering all parts of the Internet value chain. A new horizontal regulation may be based on present-sector specific or horizontal obligations, depending on the topic. In addition to harmonisation of the legal basis, better law enforcement is required in some areas, e.g. in cases where a product or service is provided from a destination outside the EU, often avoiding legal obligations.

One means to achieve a symmetric legal basis, is to simply update underlying definitions. This includes adjusting the scope of “remuneration” as described in the Consumer Rights Directive (to cover all commercial contracts and not discriminate business models based on monetary payments) or updating of the current understanding of “communication services” in a technology-neutral way.

Considering the wide range of different products and services along the digital value chain, a one-size-fits all approach for all services and products does not appear reasonable. Any means to ensure a coherent regulatory framework needs to ensure effective consumer protection, at proportionate costs for all market players. This includes allowing innovation to thrive in a level playing field. Although a differentiated approach is required, some general requirements are needed, to ensure coherent consumer protection standards and fair competition.

For directly competing products and services, which are substitutable from the consumers’ viewpoint, the same rules need to be applied to the same services. This particularly applies to communication services, including voice, messaging and social media that facilitate forms of communication.

In more general terms, the application of a common set of general principles is required for the whole Digital Market value chain, including various products and services. Such future regulatory principles may include current rules applied to telecom operators.

[1] E.g.: Universal Services Directive (2002/22/EC)

Directive on privacy and electronic communications (2002/58/EC)

[2] E.g.: Consumer Rights Directive (Directive 2011/83/EU);

Directive on unfair terms in consumer contracts (93/13/EEC);

Directive on certain aspects of the sale of consumer goods and associated guarantees (1999/44/EC);

Directive concerning unfair business-to-consumer commercial practices in the internal market (2005/29/EC)

E.g.: Access Directive (2002/19/EC);

Authorisation Directive (2002/20/EC);

Framework Directive (2002/21/EC)

[4] E.g.: Universal Services Directive (2002/22/EC)

E-Commerce Directive (2000/31/EC);

Audio Visual Media Services Directive (2010/13/EU);

Copyright Directive (2001/29/EC)