Tuesday 27 April 2021 7:00 am

European tech regulation will hold back free competition and hand power to digital giants

Kir Nuthi is a Young Voices contributor and public affairs associate with a US-based trade organisation fighting for a safe, free internet.

Last month, the world’s eyes were on America as the CEOs of its most successful businesses came before Congress to testify about their companies’ content moderation practices. But while America debates if and how to regulate digital markets, the EU has been moving forward with similar proposals—proposals that would needlessly burden technology companies for decades to come. 

Far from levelling the playing field, the new regulations would edge out small digital start-ups and give the tech giants, who have the resources to grapple with the rules, an even firmer foothold. 

Executive Vice President of the European Commission, Margrethe Vestager, has made it her  mission to wrap international digital markets in red tape. Previously, this took the form of antitrust charges and fines against American tech businesses like Google, Facebook and Apple. Vestager’s latest proposals – the Digital Services Act and the Digital Markets Act – would create a new regulatory framework for tech companies in an attempt to reel back control over the internet. 

These two Acts are allegedly intended to work together to foster innovation, competition and safety. But both pieces of legislation would regulate internet businesses into listening to Brussels’ will without regard to the potential negative impact on consumers and small businesses.

Read more: Google steps up fight against fake news with $29m contribution to new EU fund

At the heart of these legislative proposals is the desire to punish “online intermediary services”, an all-encompassing term for internet access providers, domain name registrars, cloud and web hosting services and online platforms—for their content moderation practices and role as “gatekeepers.” In reality, the proposals would make it harder for smaller companies to grow, and enable more competition in the tech sphere. 

By placing crushing regulations on European digital markets, these acts will change tech practices on a global scale. The EU accounts for almost 16 per cent of the world’s imports and exports; it’s a market tech companies can’t simply ignore. So when Brussels finalises its demands for an overhaul of current industry-standards, tech companies will have little choice but to comply. 

And that could lead to very different search experiences and social media timelines than we’re used to.

Companies will have to navigate an entirely new realm of government oversight, regulation and compliance costs to even operate in the European market. Government bureaucracy and mandated complaint systems will bog down companies’ moderation efforts, increasing the price of their services and lowering the quality of the user experience. It’s likely only the largest of tech companies would be able to survive this—entrenching the market position of businesses that Europe’s bureaucrats aim to break up.

Meanwhile, smaller companies would struggle to grow and innovators trying to get their foot in the door would be met with heavy costs. The next Spotify will face more regulatory barriers to entry and fewer investor prospects than ever before. To comply with data regulations, “trusted flaggers” and more, start-ups will find it harder to do business in Europe without significant sums of capital upfront. Unfortunately, those same start-ups will have fewer options for venture capital investment thanks to these proposed regulations’ negative impact on investment and innovation.

Read more: Draper Esprit’s tech bets pay off as portfolio value jumps 35 per cent

These legislative proposals fall under the EU and Vestager’s protectionist approach to digital markets and competitions. Europe has long preferred that entrepreneurs ask permission to innovate, rather than simply giving them the freedom to do so. These proposals are in the same vein. They’ll arm unelected bureaucrats with more power to control internet services and how they change over time.

When we look at the tech of today, Europe’s heavy-handed approach to regulation has ensured it protects established European competitors and not European consumers. So, European consumers will see higher prices, fewer tech businesses and slower rates of digital innovation. The direct result is a dearth of tech businesses, leaving Spotify as the only European company in the top 30 internet tech companies by market cap.

Legislative proposals like the Digital Services Act and the Digital Markets Act enable Brussels’ bureaucrats to push this protectionist approach on an international populace that spans past EU borders. In Vestager’s hands, these proposals to strong-arm Europe’s digital markets risk further hurting Europeans online, and because of spillover effects, internet users everywhere.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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