US Companies Likely Won't Sit Out EU's 'Digital Rethink'

"I think it's inevitable that American Internet companies will be very active in the EU digital rethink,” said Paul Gallant, analyst at Guggenheim Partners. “They need to protect their European revenue and also prevent the creation of harmful new tech policies that could spread to other countries."

The EU is a massive market producing more than $17 trillion worth of goods and services at last count, said former FCC Commissioner Robert McDowell, now at Wiley Rein. “It is neck-and-neck with the U.S. and China in terms of economic prowess,” he said. “All other countries and regions aren't even close. Any tech oriented company with an international footprint, or aspiring to have one, should be watching the evolution of the DSM strategy closely -- and many are. Several are acting to shape the final product so the EU can be as business friendly for tech, media and telecom as possible."

“The EU keeps talking about establishing a ‘level playing field’ for European businesses, but that seems to be code for a European playing field, where consumers worldwide buy into European values on privacy, security, labor and industrial policy, and so on,” said Larry Downes, project director at the Georgetown Center for Business and Public Policy, who's in Europe this week at the European Business Summit.

Regulation isn't the answer, Downes said. “If Europe wants to achieve its true potential in the digital economy as it says it now does, its regulators must learn to trust that consumers increasingly have the tools to make their own decisions and enforce their own values on digital businesses, in whole or in segments,” he said. “They need to learn, as the FTC’s Maureen Ohlhausen puts it, to exercise ‘regulatory humility.’” Downes said he saw little evidence of that at the summit. “The DSM seems doomed to become another good idea that either fails implementation, or generates significant unintended negative consequences for Europe’s consumers and technology-based businesses, which is to say all of them.”

“What U.S. companies should be trying to achieve, together, is to espouse the need for an EU framework that is open to all, deregulatory in orientation, and strongly protective of intellectually property rights,” said Randolph May, president of the Free State Foundation. “This is the path to economic growth and social well-being that benefits not only the U.S. and EU companies but the citizens of both areas.” Just as likely is that U.S. companies engaged in the EU digital framework process will try to use regulation “in a way that disadvantages their rivals while advantaging themselves,” May said. “This is just the type of ‘beggar thy neighbor’ conduct that the FCC’s new net neutrality rules will encourage and the EU will be urged to follow suit by many. It’s too bad the U.S. has forfeited its ability to be a strong advocate of free market policies.”

The DSM was a logical step for the EU, said Earl Comstock, attorney at Eckert Seamans. “It would be nice to think that it will open up more opportunities for U.S. companies, but that will depend on how the EU addresses the same reality that the U.S. faces -- namely that it is not economic to build duplicative wireline infrastructures or too many wireless networks, so if you really want competition you have to be willing to prohibit discrimination by network operators and require resale and interconnection,” Comstock said. The transmission market and application market must also be treated as “separate and distinct,” Comstock said. “By making transmission markets competitive you need less regulation of the application market. By conflating the two markets you end up with regulatory policies that won’t work.”

CEA supported the move to more liberalized markets in Europe. “The European Commission should create a nurturing climate for tech growth and innovation,” CEA said in a written statement Thursday. “Breaking down barriers to create a single rulebook for Europe's 28 member states is an important goal, as is ensuring that Europe's 500 million consumers and 20 million small-to-medium businesses have access to an economy that is open to the rest of the world.”

Andrus Ansip, European Commission vice president in charge of the DSM Strategy, told the European Business Summit Thursday that making the strategy work won’t be easy. “Getting rid of years of national legal differences around the European Union to create an open physical environment with no restrictions or discrimination, that will not happen overnight,” Ansip said. “Our plan is designed in the same way that you would build a house. It starts with a solid foundation as the basis for everything else.” The EU “needs to hurry up,” Ansip said. “This is about our European competitiveness.”

Exploiting a 'Vast Market'

E-commerce is a potentially “vast market” that's “surprisingly underdeveloped” in Europe, Ansip said. Almost 50 percent of Europeans buy products online, but in retail only 5 percent of companies sell across EU borders, he said. “The major reason for this is a lack of trust and confidence in online services,” he said. Only 1.7 percent of EU companies make “full use” of advanced digital technologies, while 41 percent don't use them at all, he said. “This needs to speed up.”

For the IoT to work, products will have to use common technical standards, Ansip said. Smaller tech companies, especially startups “could urgently do with some help, fewer obstacles and more freedom to innovate in Europe,” he said. “I strongly believe in promoting startups and entrepreneurs.” Small high-tech companies can easily launch, but in the current environment struggle to get the scale they need to succeed, he said. “We need to make it easier for venture capitalists to invest in startups. We need to make it easier to begin again after failure.”

Speakers at the summit made clear they see the DMS as a tool for helping European companies fight back against a growing trend of U.S. dominance of the high-tech sector.

The EU has to make sure it gets its policies right, said Ulf Pehrsson, global head-government and industry relations for Ericsson, at the summit. “At Ericsson we talk about the network society where everything that benefits from being connected will be connected,” he said. Europe invented GSM and led the world into 3G, he said. “Europe needs to ensure that we are leading the world into 5G as well,” he said. The IoT will inevitably be based on the deployment of 5G networks, Pehrsson said. He said Europe has to move quickly to complete the initiative.

Jean-Pierre Lartigue, head-corporate strategy at Alcatel-Lucent, said U.S. companies have led the way in high tech and Europe is behind. “I think we have a clear opportunity to change that,” he said. “We have a clear opportunity today because we are in a new scale of connectivity, a new scale of digital use.” Europe can not only come back but take the lead, he said. The digital economy evolves rapidly and the EU must move quickly as well, Lartigue said. “We cannot have [a process] that will take years.”

“To keep ahead Europe business needs to accelerate their digital transformation,” said Christian Morales, general manager of Intel Europe. “Everything is digitalizing, every part of the economic activity in the world.” Ten of the 20 most competitive countries in the world are still in Europe, according to the World Economic Forum, he noted.