Focus on the DMA: Will the DMA Really Help Europe Grow?

February 24, 2022

Paul MacDonnell, Executive Director, Global Digital Foundation
 

Europe’s Digital Markets Act (DMA) is based on the idea that if we regulate digital platforms in the right way then smaller European platforms, content and service providers, will have a fighting chance to digitally resurrect Europe’s economic growth. On closer inspection the DMA looks like a reprise of an economic vision last seen during the 1980s and 1990s when, starting with the 1982 breakup of Bell Systems in the U.S., policymakers began the long process of dismantling the oligarchic, state-dominated structure of telecommunications markets on both sides of the Atlantic. In 1980 just 2 percent of telecom providers in 167 countries were privately owned. By 1998 this had increased to 42 percent. What were the effects? Privatisation combined with pro-competition policies saw a massive increase in capital-intensive investment. The result was an explosion of new technology, new services, and exponential growth in broadband capacity. As the quality and availability of services, particularly mobile services, grew the price of transmitting voice and data plummeted.

But this wasn’t just a story of cheaper communications and better technology. It was a revolution in economic freedom that attacked the institutionalised practices of state-owned monopoly phone companies. In country after country politicians responsible for national public telephone operators (PTO) had long been captured by the vested interests that ran them for their own benefit. The result was that in some countries you could wait months, or even years, for a telephone. When you finally got one, the PTO’s politically-protected practices ensured that you paid extortionate rates to use it, especially if you were phoning long distance—which in those days could mean calling someone ten miles away. The reforms and the consequent investment in infrastructure and in innovation, when they came, were parents to the internet and, eventually, grandparents to the digital economy.

In 2022 we are twenty years into this legacy—a period of innovation that doesn’t look like stopping anytime soon. As it stands, billions of consumers and citizens live and work within global low-friction supply chains for information, goods, and services. The global online business-to-consumer market was $3.67 trillion in 2020 and is expected to grow by almost 10% per annum until 2028. In Europe, internet retail is forecast to reach $469.2bn by 2025. Sixty-two percent of employees say they work remotely at least occasionally. Furthermore remote work is more common in higher income, higher density urban areas. And an ever increasing part of the human population is moving to better-paying jobs, in high-density, urban centres.

The assumption behind the DMA is that the structure of the internet economy is analogous to the structure of the telecoms industry in the 1970s. Its largest participants are platform ‘gatekeepers’, or in 1970s parlance, ‘carriers’, who regulate and calibrate access to online retailers and services that depend upon them for their existence. Of course the EU is right to treat the giant platforms as justified objects for regulatory scrutiny. But there are telling differences between today’s internet giants and yesterday’s telecoms monopolies. No one complains that they cannot get hold of the necessary equipment to get online. No one complains that the services delivered by the large platform businesses are poor or that they dismiss customer complaints as a nuisance. Politicians do not, as a rule, force platforms to invest in schemes aimed at getting them reelected. Neither do they, as a rule, kowtow to platform employees who fund their political campaigns.

Instead the DMA, which treats platform businesses as carriers, is concerned with ensuring a ‘level playing field’ for European businesses who wish to use them as infrastructure for sales and distribution. There are reasons to accept some of the targeted measures within the DMA, such as the use of businesses’ contributed data to compete against them, but there are also reasons to question the legislation’s broader scope, such as:

  1. Can EU policymakers predict the economic consequences of the DMA? Could it fragment users' experience of platforms, thus diminishing online trust, and imposing more costs on consumers?

  2. What is the evidence that the rules will make a real difference to European businesses that rely on ‘gatekeepers’ to communicate and transact with customers?

  3. In regulating the relationships between powerful online businesses in such a detailed way could the DMA end up privileging a few token European champions at the expense of the potential for future innovation?

Perhaps the Digital Markets Act (DMA), is, along with the Digital Services Act, an EU attempt to suppress an underlying anxiety about the impact of technology on both its economy (economic disruption caused by platform disintermediation of traditional patterns of commerce) and its politics (political disruption caused by platform disintermediation of normal channels of political discourse). The DMA appears to tweak the rules so that, in some circumstances, European businesses will get better terms from the gatekeeper platforms. But no one can claim that it is tackling a situation analogous to the grip telephone monopolies had in the 1970s and 1980s. And no one can claim that it will unleash a wave of investment that will transform the European economy. Whatever happens, policymakers who opened up telecoms monopolies in the 1980s and 1990s helped to liberate consumers and businesses from the clutches of vested interests. The DMA's implementation must not undo this achievement.

The views expressed in this article are those of the author and not those of Global Digital Foundation which does not hold corporate views.