The global digital economy has experienced huge growth over the last decade built on telecom network investment, increasing smartphone adoption and service innovation across virtually all sectors, from media to retail.
However, recent years have also witnessed a groundswell of anti-tech sentiment driven by mounting concerns around privacy, data security and the spread of misinformation, which have been compounded by high-profile scandals (for example Cambridge Analytica). Moreover, the rising power of a handful of big companies has brought their operations and business models to the attention of policymakers and competition bodies around the world. Many authorities are now investigating these companies’ activities, as well as exploring the economic, political and social effects of their preeminent positions in the digital landscape.
The challenge for governments and regulators is how to attend to the growing discomfort. In the European Union (EU), the law at the centre of the debate is the e-Commerce Directive, which was adopted in 2000, a time which preceded the arrival of Facebook, the iPhone and 4G. Under its rules, internet companies are not liable for illegal content hosted on their platforms. They must remove flagged illegal content, but do not have to actively monitor users’ posts. Tech giants consider these provisions a cornerstone of the online space which, like a similar exemption under Section 230 of the US Communications Decency Act (1996), absolve them from prosecution as publishers of third-party content.
Following months of work, the European Commission (EC) is set to publish a draft version of its flagship Digital Services Act (DSA) on 9 December. Its proposals will represent an overhaul of the 20 year-old e-Commerce Directive, intensifying the responsibilities of platforms.
Holding platforms to account: what could the Commission propose?
With the EC emboldened by the GDPR, various organisations are in its crosshairs, including online marketplaces, search engines and cloud computing providers. EVP Margrethe Vestager has stated the forthcoming draft legislation would require web-scale players to “be open about the way they shape the digital world that we see”. The DSA proposals are likely to cover multiple issues:
- Scope: Clarifying the extent of digital service providers’ liability for user-generated content hosted on their platforms.
- Content moderation: Greater accountability of providers to better control said content, reporting on the actions taken to remove illegal material.
- Good Samaritan principle: Immunity for providers that take proactive measures to remove illegal content.
- Transparency: Requirements on providers to disclose how algorithms decide on the information and products to recommend and which ones to hide, and how search rankings are compiled.
- Sanctions: Introducing penalties, including fines, for repeated violations of obligations around managing illegal content online.
The Commission’s review of the e-Commerce Directive is timely, particularly as some member states have already pressed ahead with national-level strategies to regulate practices on content and user safety. While the current liability exemption for intermediaries is expected to be maintained, platforms will face greater scrutiny over how they deal with illegal content, with a real prospect of heavy fines. Adherence to more stringent obligations could present a challenge to some companies, such as encrypted messaging services.
Proposals for the DSA have the potential to spearhead improvements in online content moderation in the EU, providing a comprehensive framework for tackling illegal (rather than harmful) material. The Commission will be keen to avoid censorship and the erosion of free speech, while the application of clear-cut distinctions between different types of content would give providers welcomed legal clarity. Further, information on the identity of companies which pay for targeted adverts and on the use of personal data should benefit consumers, upholding their rights and enabling them to have more choice over the content they view online.
Regulating digital players: what else is in the offing this year?
The Digital Markets Act (DMA)
A separate piece of legislation to the DSA, this act aims to tackle excessive power in the digital economy through: ex-ante rules for platforms acting as gatekeepers; and a possible New Competition Tool (NCT). With the scope to impact millions of citizens and businesses, the DMA is poised to be one of the tech policy initiatives which defines this European political cycle, possibly even a generation.
The purpose of the draft ex-ante measures will be to promote competition in digital markets and resolve problems arising from established gatekeeper positions. Through a targeted legal framework, the Commission will be able to better curb the power of identified gatekeepers and safeguard against unfair commercial behaviour. Meanwhile, the role of the NCT would be to address challenges brought about by the digital economy (exempli gratia, tipping of markets) by tackling specific competition law enforcement gaps in markets characterised by, for example, strong network effects or the importance of access to data. Checks and balances would have to govern the NCT’s use, and it would likely not be triggered unless other policy levers were found to be ineffective.
Updating tax rules
Against a backdrop of increasingly digitised and global economic activity, OECD member countries and the G20 are working to update fundamental tax principles, and have committed to reaching a harmonised solution by the end of 2020. The revisions aim to close loopholes and hold large tech companies responsible for their tax obligations. Nevertheless, with reforms criticised for not progressing fast enough, plans by the EU and several national governments to introduce new levies on digital service revenues have threatened to raise diplomatic tensions.
Policymakers are increasingly conscious that their approach to digital players, and the tools to regulate them, must be fit for purpose in order to safeguard the effective working of markets, and to defend the interests of consumers and small businesses. Applying rules designed for a physical rather than a digital economy has resulted in disparities in regulatory obligations between tech and other internet-based players. As the online economy has continued to grow, so too have the imbalances.
The latest developments in EU may herald the start of some levelling of the playing field. Compounded by ongoing competition investigations and public distrust around the world, as well as draft anti-monopoly guidelines for platforms in China, there is clear appetite for sterner oversight. Though increased remote working and living during Covid-19 (coronavirus) have bolstered tech giants’ top lines, a new paradigm is on the horizon for digital markets, which will support fair competition and protect users from the spread of illegal content.
– James Robinson – lead analyst, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.
Subscribe to our daily newsletter