The current coronavirus pandemic has brought about a very swift change in consumer behaviour. Instead of going out, people prefer to make themselves comfortable at home, use streaming services and order their evening meal or their Christmas presents online or by app. These developments have caused the digital structural change to speed up considerably once again.
We are also seeing this trend in the network sectors, which provide the basis for many of the business models in the digital economy. As an example, the data transfer rate at the largest German internet exchange point in Frankfurt am Main surpassed 10 terabits per second for the first time ever at peak times in November of this year, which is the equivalent of transmitting more than 2.2 million videos in HD quality simultaneously. At the internet exchange point in Vienna, too, December 1, 2020 data transfer crossed the terabit per second line for the first time. In an annual comparison, the peak data transfer rate has risen by about 40%.
A similar development can be seen in the postal sector, where logistics companies are likewise expecting an increase in parcel volumes of 15% to 20% over the whole of 2020 due to the flourishing online trade. Developments in Austria and Germany are practically running along parallel lines.
Previous regulatory framework for the digital ecosystem
At the same time, these developments are also making it clear just how important it is to have a fair and dependable regulatory framework for digital business models. Thus, at the level of the telecommunication networks, the regulations on net neutrality, which have been implemented by the Bundesnetzagentur – the German regulatory office for electricity, gas, telecommunications, post and railway markets – and by RTR-GmbH (the communications authority in Austria) ensures non-discriminatory treatment of data traffic on the internet. Consequently, all providers of digital services, irrespective of whether they are a global corporation or a start-up, have an equal opportunity to reach their customers. These regulations thus make a decisive contribution to ensuring that the internet ecosystem retains its functionality as a driver of innovation.
For more than two years, as regulatory authorities, we have also been supporting consumers in cross-border digital purchasing within the EU and businesses in the design of their offers. Certain geo-blocking practices, such as unjustified discrimination in the cross-border purchase of goods or services within the EU, for example on grounds of citizenship or the place of residence of the purchaser, have been forbidden since 2018. In Austria, part of the law enforcement is currently being transferred to the telecommunications regulatory authorities within the framework of the European Consumer Protection Cooperation Network. In this way, an account is already being taken of the increasing shift of consumer issues into the virtual space.
The platform economy brings new challenges
Digital platforms such as search engines, e-commerce platforms and app stores are taking on a preeminent position for many digital business models today. They are the key intermediaries between consumers and providers of products and services. In a recent survey of business users by the Bundesnetzagentur, more than two-thirds refer to the importance of digital platforms for their sales. For around half of them, this also applies to their marketing. Nearly three-quarters admit that they could barely exist without the use of platforms.
Although it is possible for platforms to cause an increase in competition, we are also observing that competition in a digital platform economy does not develop completely advantageously and, to the detriment of small and medium-sized businesses, it is often restricted.
The reason for this is what is known as the network effect, which encourages market concentration because platform users often favour the largest platform. This is coupled with the risk of tipping markets in favour of a dominant platform, which ultimately handles the majority of all transactions. As recently determined by the German Monopolies Commission, platform companies in such tipped markets hold a similarly unassailable position as, for example, the owners of a natural monopoly in a regulated network industry (eg network operators in the electricity or rail sector). They are no longer subject to essential competitive pressure that forces them to refrain from giving themselves preferential treatment or to improve the possibility for users to change to another provider eg via interfaces.
As soon as users are dependent, platforms can set the ground rules in their favour for entire markets and for the most part autonomously. This is further exacerbated by the fact that such platforms are very often embedded in digital ecosystems (a group of different services and offers on different value chains and in different product markets) that benefit from reciprocal data exchange and the economies of scope associated with this.
In the Bundesnetzagentur’s ongoing consultation on business users’ experience with digital platforms, medium-sized enterprises, in particular, reported having difficulties in the area of complaints management, in dealing with customer and product ratings, and with the ranking and visibility of their offers. Similar problems were also raised for Austria during surveys by the national competition authority. The dual role of the platform operator as both the operator of a marketplace and a provider on the same marketplace also leads to difficulties.
In our view, the previous economic and competition law concepts are not able to rise to the particular challenges of the digital platform economy sufficiently fast or comprehensively enough. They often only take effect when it is too late for those affected.
Prevention not punishment
These structural problems, alongside the (potential) abusive practices of certain platforms, should therefore be countered with a new regulatory approach. Abuse should be prevented rather than being punished when the damage has already occurred. For this reason, we welcome the considerations initiated by the European Commission. Setting up a European regulatory framework would appear to be urgently needed.
In doing so, the criteria should be defined by which platforms at a high risk of abusive practices can be identified in advance. In addition to the absolute limiting threshold, such as user figures, it should be made possible to identify risk-weighted platforms on a case-by-case basis. A combination of rules of conduct, which should work both ways, would make sense as a regulatory instrument. This would be made up of a list of dos (eg transparency, non-discrimination, …) and don’ts (bans – eg on self-preference) and, where necessary, more far-reaching individual remedial measures (eg ordering access to certain data). This should be accompanied by continuous monitoring and regulatory enforcement. The relevant powers should be determined depending on the geographical area of activity of the platform.
The proposed regulatory approach as a supplementary component of the digital regulatory framework could secure positive effects on the platform economy long-term to the benefit of consumers, business customers and competitors. Through their legal-economic and technical orientation, telecommunications regulatory authorities, such as the Bundesnetzagentur and RTR-GmbH, have already gained extensive experience in the regulation of digital, network-based business models, which can well be channelled into future platform regulation. Specifically of note here are their responsibility for ex-ante measures and the tailored adjustment of regulations (for instance the access obligation) to a specific market, continuous monitoring, technical expertise, etc.
