Online Platforms and the DSM - Scott Marcus

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j. scott marcus
FSR Comms & Media, Annual Conference, 27 May 2016
Online Platforms
and the Digital Single Market (DSM):
The announcements of 25 May 2016
J. Scott Marcus
Member, Scientific Committee, FSR Comms & Media Programme
The opinions expressed are solely my own.

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j. scott marcus
Online Platforms
and the Digital Single Market (DSM)
• The DSM and the Commission proposals of 25 May 2016
- Boosting e-commerce
- Audiovisual policy and online platforms
• What is an online platform?
• European strengths and weaknesses
• The Commission‘s proposed approach to online platforms
• Concluding observations

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j. scott marcus
The Commission‘s
Digital Single Market (DSM) strategy
• An omnibus strategy put forward in May 2015.
• Far more promising than the Telecommunications Single
Market (TSM) strategy of 2013.
• Numerous elements:
- Reform of copyright
- Elimination of unjustified geo-blocking
- VAT reform
- Reform of cross-border basic parcel delivery prices
- Assessment of online platform issues
- Review of the RFEC
- Review of the ePrivacy Directive in light of the GDPR
- Review of the AVMSD

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The announcements of 25 May
• Reform of EU audiovisual rules
• An approach to online platforms
• Measures to boost e-commerce
• Measures to drive down cross-border parcel delivery prices

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Questions to ponder
• How do online platforms differ from other online services?
• How do Over-the-Top (OTT) services differ from other online
services?
• How do Over-the-Top (OTT) services differ from Electronic
Communication Services (ECS)?
• How should regulatory obligations differ between non-ECS
OTT services versus other online services?
• How should regulatory obligations differ between online
platforms versus other online services?

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More questions to ponder
• Are there inappropriate asymmetries today between OTT
services and other ECS services?
• If so, could asymmetries be reduced by:
- Selective deregulation?
- A shift away from sector-specific regulation to horizontal
regulation?
- Would horizontal regulation need revision?
(For example, current sector-specific end-users rules
protect not only consumers, but also other end-users
such as SMEs.)

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j. scott marcus
DEFINITIONS / TAXONOMIES
OF ONLINE SERVICES

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What is an online platform per the Commission?
• Online platforms typically:
- have the ability to create and shape new markets, to
challenge traditional ones, and to organise new forms of
participation or conducting business based on collecting,
processing, and editing large amounts of data;
- operate in multisided markets but with varying degrees of
control over direct interactions among groups of users;
- benefit from ‘network effects’, where the value of the service
increases with the number of users;
- rely on information and communications technologies to
reach their users, instantly and effortlessly; and
- play a key role in digital value creation, notably by capturing
significant value, facilitating new business ventures, and
creating new strategic dependencies.
Source: European Commission (2016), Online Platforms and the Digital Single Market:
Opportunities and Challenges for Europe

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j. scott marcus
A taxonomy of online services
• There are many different kinds of online services.
Source:Baldry, Steingröver, and Hessler (2013), “The rise of OTT players –
what is the appropriate regulatory response?” (see also TRAI India)

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There are many different kinds of online services
Source: http://ottsource.com/ott-blog/

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One set of possible definitions
• Managed services: the
network operator controls the
QoE delivered.
• Online (unmanaged) services:
the network operator has little
influence over the QoE
delivered.
• OTT services: online services
that compete to some degree
with traditional
telecommunications or
broadcasting services.
OTT
Services
Managed
Services
Online
(unmanaged)
Services
Source: Godlovitch, Marcus, Kotterink, Nooren et al (2015), Over-the-top (OTT) players ...

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j. scott marcus
Another set of definitions
• BEREC’s October 2015 document “Report on OTT services”,
BoR (15) 142, provides a “taxonomy of OTT services that
consists of
- (a) OTT-0 services, which are OTT services that qualify
as ECS,
- (b) OTT-1 services, which are OTT services that do not
qualify as ECS but do potentially compete with ECSs
and
- (c) OTT-2 services, which are the remaining category
consisting of OTT services that are not an ECS and do
not potentially compete with ECSs.”
• Under this set of defintions, all online services are OTT
services. This seems unhelpful.

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Substitutes
• Substitution is often imperfect.
• In principle, the degree to which one service can function as
an economic substitute for another can be measured using
econometric techniques. If a service is a substitute in
another, then an increase in price of one service will tend to
increase use of the other.
• In practice, data quality may pose challenges, and it is often
difficult to establish a clear causal relationship.
“In theory, there is no difference between theory and practice.
In practice, there is.”
- Niels Bohr? Yogi Berra?

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j. scott marcus
THE COMMISSION’S
APPROACH

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The Commission’s approach
• The Commission did not propose a new general law on
online platforms.
• The aim is to make sure that platforms can be created, scale
up and grow in the European Union.
• To reach this goal, we need a functioning Digital Single
Market where online platforms (both startups and
established market operators) are not hampered by heavy
regulation.

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j. scott marcus
The Commission’s overall principles
• Differing national or even local rules for online platforms
create uncertainty for economic operators, limit the
availability of digital services, and generate confusion for
users and businesses. Harmonised rules such as the GDPR
and the NIS Directive are important to facilitate growth.
• Online platforms are already subject to existing EU rules in
areas such as competition, consumer protection, protection
of personal data, and single market freedoms.
• Future regulatory measures proposed at EU level must
address only clearly identified problems relating to a specific
type or activity of online platforms.
• Principles-based self-regulatory/co-regulatory measures can
play a role.

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j. scott marcus
Competitive neutrality (the level playing field)
• There are few who would disagree with the general proposition that
similar services that are similarly situated, and that compete with
one another, should be subject to obligations that are similar (to the
extent that doing so is practical).
• This seemingly straightforward principle is difficult to apply in
practice.
- Are the new services really effective substitutes, are they
imperfect substitutes, are they economic complements, or are
they something else?
- Is the original rationale for the original regulatory obligation
really relevant to the online service that competes with it?
- How practical and proportionate is it to impose the traditional
obligation on a new service – does it impose unreasonably
high costs?
Source: J. Scott Marcus (2016), Economic impact of
Over-the-Top (OTT) services

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j. scott marcus
The level playing field
• Comparable digital services should as a rule be subject to
the same or similar rules, duly considering opportunities for
reducing the scope and extent of existing regulation.
• As part of the ongoing review of the RFEC, the Commission
will also consider applying a more limited set of
communications-specific rules to all relevant and comparable
services including when provided by OTT players.
• Analogously, the Commission will consider simplification and
adjustment of its scope and potential application of some of
its rules when reviewing the ePrivacy Directive in 2016.

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Ensuring that online platforms act responsibly
• The Commission will maintain the existing intermediary
liability regime.
• As part of the forthcoming copyright reform, the Commission
will aim to achieve a fairer allocation of value generated by
the online distribution of copyright-protected content by
online platforms.
• Fighting illegal or harmful content online is a priority.
• The Commission will further encourage coordinated EU-wide
self-regulatory efforts by online platforms.

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j. scott marcus
Consumer protection
• The Commission seeks to revise a range of Regulations and
Directives so as to facilitate more efficient enforcement of EU
consumer law in cross-border situations.
• In parallel, the Commission seeks to strengthen mutual
recognition of eID schemes.
• They would like industry to deal with deceptive practices such
as fake or misleading online reviews by means of self-
regulatory measures.

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j. scott marcus
Other areas of focus
• There are ongoing concerns as regards B2B services, but
actions for now are limited to a targeted fact-finding exercise.
• Respondents to the consultation saw the need for reduced
switching costs among online platforms.
- They argued for the development of common standards
for data transfers, and argued in favour of general
portability or transferability of raw personal and non-
personal data.
- Observation: The best known instance where this was
attempted (for AOL Messenger as a result of the AOL /
Time Warner merger) is not particularly encouraging.
Source for portions: European Commission (2016), Online Platforms and the Digital Single Market:

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The new strategy is part of a complex mesh
with many moving parts
• The Capital Markets Initiative (CMI) includes measures that
could promote start-ups and especially scale-ups.
- Improved access to venture capital.
- Less onerous, more uniform bankruptcy provisions.
• Startup Europe and the Entrepreneurship 2020 Action Plan
• There are other linkages to promotion of European industry,
and much more ...

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EUROPEAN STRENGTHS AND
WEAKNESSES

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Online services in Europe
• It is widely observed that the great majority of large online
service providers are US-based.
• Europe is not an inherently weak player, but we are failing to
play the game as well as we should.
• There are signs of recovery, but results are mixed overall.
- In terms of start-ups, including online services start-ups,
Europe has been doing much better in recent years,
nearly closing the gap with the United States.
- In terms of scale-ups – successful start-ups seeking to
grow their business to the next level – we are not doing
nearly so well.
• Long-standing and well known problems get in the way,
including lack of access to venture capital.

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j. scott marcus
When it comes to online services, Europe faces
challenges but is not inherently weak.
Helpful Harmful
Inputs
Strengths
 Size of the EU economy.
 A large and highly educated,
adaptable workforce.
 A relatively strong and
technologically innovative
manufacturing sector.
 Increasing speed and capability of
devices and services, enhanced
price performance (Moore’s Law).
 Economic and cultural diversity of
the EU.
Weaknesses
 Lack of an entrepreneurial culture.
 A society that places a high social and
economic price on failure.
 Inertia, resistance to process change.
 Fragmentation of Europe into Member
States with different linguistic,
administrative, legal, regulatory, and
cultural processes and traditions.
 Continuing challenges in access to venture
capital.
 Lack of leadership at EU level.
 Complex and inconsistent taxation.
 Gaps in fixed and mobile deployment and
adoption of ultra-fast broadband.
Outputs
Opportunities
 Gains in GDP and overall gains in
(skilled) employment.
 Economies of scale and scope.
 Lower unit costs.
 Lower transaction costs.
 Overall acceleration of business.
 Enhanced innovation.
Threats
 Risks of losing further ground to global
competitors.
 Negative impact on revenues, profit, and
employment for impacted sectors and
firms.
 Privacy and security risks and breaches.
 Risks of lock-in.
 Risk of access and service monopolisation.
Source: Godlovitch, Marcus, Kotterink, Nooren et al (2015), Over-the-top (OTT) players ...

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j. scott marcus
CONCLUDING OBSERVATIONS

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j. scott marcus
Concluding observations
• Reduction of regulatory asymmetries is appropriate.
• In practice, however, definitional issues will be challenging,
as will be any selecctive shift to horizontal regulation.
• In the current climate, with the bulk of online platform
revenue going to the US and Asia, there is a tendency
toward protectionist measures ... which, however, might well
backfire, to the detriment of European online services.

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j. scott marcus
References
• European Commission (2016), Online Platforms and the Digital Single
Market:Opportunities and Challenges for Europe.
• Ilsa Godlovitch, Bas Kotterink, J. Scott Marcus et al. (2016), “Over-the-Top (OTT)
players: Market dynamics and policy challenges”, study for the IMCO Committee of the
European Parliament, at
http://www.europarl.europa.eu/RegData/etudes/STUD/2015/569979/IPOL_STU(2015)569979_EN.pdf
• J. Scott Marcus (2016), Economic impact of Over-the-Top (OTT) services, forthcoming.
• Rochet, Jean-Charles/ Tirole, Jean (2004): Two Sided Markets : An Overview, March
2004, available at: http://faculty.haas.berkeley.edu/hermalin/rochet_tirole.pdf
• J. Scott Marcus and Georgios Petropoulos (2016), e-Commerce in Europe: Parcel
Delivery Prices in a Digital Single Market.

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