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Let’s get digital physical
TheCommission’sDigitalSingleMarketstrategyisaboutmuchmorethantheInternet
May 2015
2 | 2015 | BRUNSWICK ©
Executive Summary
With the digitization of every
industry on the rise, the implications
of completi...
© BRUNSWICK | 2015 | 3
RETAIL
The Commission wants to make it
easier for traditional retailers to
compete online. Allowing...
4 | 2015 | BRUNSWICK ©
Old issues
tackled anew
The Commission’s proposals also aim
to tackle old issues in new ways.
SHARI...
© BRUNSWICK | 2015 | 5
Telcos have been lobbying for EU
legislation to rebalance the relationship
with OTT service provide...
6 | 2015 | BRUNSWICK ©
Next steps
Credit the Commission for
delivering such an ambitious vision.
Months ago it seemed that...
© BRUNSWICK | 2015 | 7
For more information
Philippe Blanchard
Managing Partner
+32 (0) 2 235 6513
pblanchard@brunswickgro...
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Brunswick report - EU digital single market strategy

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On 6 May, the European Commission published a far-reaching digital single market (DSM) strategy intended to boost European jobs and growth, open up digital services to all European citizens and enable European companies to better compete in the global digital economy. The proposals are designed to remove regulatory obstacles and foster trust in the online environment, but they will have implications far beyond the digital ecosystem.

The potential economic benefits awaiting Europe make action in these areas a no-brainer: an estimated €415 billion in additional annual European GDP, of which €250 billion could be delivered within the Commission’s current mandate ending in 2019.

For more information contact our office in Brussels:
www.brunswickgroup.com/contact-us/brussels/

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Brunswick report - EU digital single market strategy

  1. 1. Let’s get digital physical TheCommission’sDigitalSingleMarketstrategyisaboutmuchmorethantheInternet May 2015
  2. 2. 2 | 2015 | BRUNSWICK © Executive Summary With the digitization of every industry on the rise, the implications of completing the DSM extend deep into the traditional, often physical and still offline world. Industries as diverse as transport, health, retail, shipping, energy, financial services and agriculture are affected by the digital revolution. We’re already seeing some of the economic impact with the rise of new sub-sectors such as FinTech and MedTech. The reaction to the plan so far has focused on the impact on Internet platforms like Google and Facebook, the equipment and infrastructure supporting them, the content flowing through their networks and the many creators, distributors and users with an obvious stake online. A popular refrain is that Europe is taking aim at the US tech industry. This response is not surprising. The strategy appears squarely aimed at the digital ecosystem. It seeks to harmonize disparatelawsacrossEuropeinareassuch as copyright, data protection and cyber securityandtosupportbetterfunctioning telecoms markets and other digital infrastructure. It also rightly starts to move the debate on data beyond personal privacy to innovation and research, in recognition of the many benefits its collectionandanalysiscanbring. Yet upon closer inspection, large portions of the strategy aren’t directed at boosting Europe’s digital economy at all, but instead at helping traditional industriessurvivethedigitalrevolution - and forcing purely digital players to abide by the same rules. With stakes so high, the focus on the struggle between the EU and large US Internet players presents a real distraction. It’s critical to move beyond this oft-repeated narrative so that the wider industrial impact – both the risks and opportunities – are appreciated by policymakers, politicians and industry itself. Here we outline the possible implications. On 6 May, the European Commission published a far-reaching digital single market (DSM) strategy intended to boost European jobs and growth, open up digital services to all European citizens and enable European companies to better compete in the global digital economy. The proposals are designed to remove regulatory obstacles and foster trust in the online environment, but they will have implications far beyond the digital ecosystem. The potential economic benefits awaiting Europe make action in these areas a no-brainer: an estimated €415 billion in additional annual European GDP, of which €250 billion could be delivered within the Commission’s current mandate ending in 2019.
  3. 3. © BRUNSWICK | 2015 | 3 RETAIL The Commission wants to make it easier for traditional retailers to compete online. Allowing European retailers to sell cross-border is beneficial for some but will have consequences for those market players who benefit from territorial restrictions. The inquiry into the e-commerce sector is also bound to reignite the discussion on contractual arrangements between suppliers and distributors, such as selective distribution agreements. HEALTHCARE The healthcare sector has much to gain from a comprehensive DSM. Improved ICT standardization combined with the free flow of data and the applications of big data would benefit consumers, doctorsandpharmaceuticalandmedical device companies alike. Accessible and interoperable data could allow hospitals to share patient data more easily and allow companies to track the effectiveness and use of their drugs in real time. Given that big pharma usually works with many research centres at the clinical stage, more ICT standardizationwouldsimplifytheirjob and promote better outcomes. TRANSPORT Transport profitability relies heavily on the optimization of space, time and assets. A true DSM encompassing fully interoperable and connected traffic management systems and improvement of administrative processes across the EU would support the transport industry by allowing it to further optimize and reduce administrative overhead. LOGISTICS For logistics players, the benefits of new technologies are clear: they range from intelligent stock management systems to real-time shipment tracking and simplified administrative processes. However, the EU delivery market is still fragmented along national borders, partly due to legacy IT and electronic communication systems developed separately across European countries. ICT standardization combined with enhanced regulatory oversight and price transparency for cross-border parcel delivery will have a definite impact on logistics players and could create a true and open single market for delivery operators. FINANCIAL SERVICES In finance, the DSM’s potential impact cannot be understated. The Commission has renewed its interest in improving cybersecurity by announcing a Public-Private Partnership. Additionally, the new and more positive approach of the Commission to data as a source of growth, away from a pure focus on data protection, could benefit the sector by allowing it to make use of the enormous amount of data it produces. ENERGY AND ENVIRONMENT Theenergyindustryisrollingoutsmart grid and smart metering systems, enabling an optimized European energy network and a reduction in cost and waste, ultimately benefiting the environment. But these smart systems will also create vast amounts of data. Ensuring interoperability and availability to other sectors could provide invaluable information to other sectors. Imagine what household consumption patterns can tell the advertising industry, for instance.
  4. 4. 4 | 2015 | BRUNSWICK © Old issues tackled anew The Commission’s proposals also aim to tackle old issues in new ways. SHARING IS CARING In this strategy the Commission proposes solutions to what it sees as the biggest challenges to the creation of a digital single market. Here we comment on those we believe to be the most game changing. The rise of the sharing economy has spurred the creation of many new players. In some cases, these companies have escaped rules formulated for their traditional competitors. The Commission is determined to put an end to that situation and its effort goes beyond attacking the infamous GAFA (Google, Apple, Facebook and Amazon) – smaller players will be brought into play as well. The EU wants to ensure that all participants in the economy contribute to the value chain and take on responsibility when things go wrong. European manufacturers and traditional distributors can rejoice at seeing intermediaries being asked to apply a ‘duty of care’ when it comes to their products and content. COPYRIGHT: CAN A COMPROMISE FINALLY BE FOUND BETWEEN CREATORS AND DISTRIBUTORS? After years of debate, a review of copyright law this autumn will be one of the first proposals to be published. The Commission intends to harmonize incentives to create and invest while allowing transmission and consumption of content across borders. We expect the proposal to allow the full portability of content, facilitate cross-border access, clarify rules for copyrighted material and modernize enforcement. This should create an easier-to-navigate regulatory framework for cross- border digital content providers, but it will be resisted by publishers and the film and TV industry. Finding agreement on copyright rules adapted to the digital economy rests on achieving compromise between creators and distributors, and may require revision of existing business models, but it is essential to fully realizing the Commission’s vision. WILL A NEW, MORE POSITIVE APPROACH TO DATA EMERGE? Europe has built a reputation for being tough – and sometimes restrictive – on the use of personal data. The strategy acknowledges the importance of modernized data protection regulation to support trust online, but also argues for the EU to pay more attention to data as a resource, looking at data flows, data ownership and data portability. It is a positive sign that parts of the EU are moving away from the negative narrative fostered by the surveillance revelations and towards data as a source of opportunity. To that effect, the Commission will propose initiatives promoting interoperability and common standards for cloud computing and big data and a European free flow of data initiative. TELECOMS: TOWARDS A LEVEL PLAYING FIELD Yet another overhaul of the European Telecoms regulatory framework will be presented in 2016. This will be the second such package in just three years, as the previous proposal was opposed by EU member states and pared back to deal only with roaming and net neutrality. The new proposal contains elements that were rejected in the previous package, such as a common spectrum management policy. It also emphasizes the need for investment in high-speed broadband and a level- playing field for legacy telecom players and new digital service providers. Three Pillars of the Strategy 1. Better access for consumers and businesses to online goods and services across Europe. A key focus is tackling obstacles to cross-border online activities, in order to create a seamless market for businesses and consumers alike. 2. Creating the right conditions and a level playing field for advanced digital networks and innovative services to flourish. The aim is to ensure that citizens, businesses and public administrations have access to reliable trustworthy, high-speed, and affordable networks and services. 3. Maximizing the growth potential of the digital economy. Measures aim to boost the overall digital economy and maximize the benefit of digital for all sectors and the broader European economy.
  5. 5. © BRUNSWICK | 2015 | 5 Telcos have been lobbying for EU legislation to rebalance the relationship with OTT service providers and it appears they may be seeing some success. Many of the measures reflect this perspective, as they attempt to force innovative digital services to ‘pay their fair share’ instead of free-riding on existing structures and according to different rules. MORE REGULATION FOR PLATFORMS? The Commission’s focus on online platforms stems from concerns that some may be too dominant. It will therefore conduct an in-depth assessment of their role, following inquiries at both European and national levels. Issues to be considered includealackoftransparencyinsearch results, the use of personal data, interoperability and remuneration of rights holders. The Commission will investigate how to include rights holders in the online value chain and facilitate the swift removal of illegal content, which could mean a review of intermediary liability rules, or even new rules regulating platforms. Top- down legislation will be unwelcome for platform operators, but the Commission’s first task here will be to define platforms and establish the remit of the inquiry. THE END OF GEO BLOCKING? Several Commissioners have criticized unjustified geo-blocking, the practice of discrimination of EU consumers based on national location. The strategy calls for a legislative proposal to end this practice in 2016. Companies would be prevented from segmenting national markets, forcing sectors as diverse as videogame publishers, streaming content sites and online auto dealers to change their practices. E-COMMERCE UNDER SCRUTINY The Commission’s competition arm has launched a review of the e-commerce sector to better understand how online markets work and identify obstacles to cross-border trade and competition. The focus will be on the barriers, such as geo- blocking or forced re-routing, created by private companies. In coming weeks, stakeholders in every member state will be contacted for comment and input, including rights holders, broadcasters, online merchants, manufacturers and price-comparison and marketplace websites. Should the review reveal restrictions or distortions to competition, further action, and legislation, could follow. Clash of Mentalities The strategy reflects both the new structure of the Commission, with Vice Presidents giving the general orientation and Commissioners implementing, and different approaches to the digital economy. On one side, Vice President Andrus Ansip comes from ultra- connected Estonia, which is known for its ‘everything digital’ attitude. He is a strong proponent of a true online DSM. In contrast, Digital Commissioner Günther Oettinger is more traditionalist. He appears to see the DSM more as a means to support Europe’s ‘real world’ industries. The German has not changed approach since his last job as Commissioner for energy, when his focus was on physical infrastructure development, and sees supporting European telcos and content owners as his primary role. The strategy is therefore a chance for Ansip, whose team wrote the DSM strategy, to give a framework for Oettinger to work within and to ensure that a more progressive vision of digital reform gets implemented. All of Oettinger’s proposals will need Ansip’s approval to be formally adopted, and the relationship between the two will undoubtedly come under strain over the coming years.
  6. 6. 6 | 2015 | BRUNSWICK © Next steps Credit the Commission for delivering such an ambitious vision. Months ago it seemed that Europe’s executive branch would side-step a comprehensive legislative overhaul in order to focus on a few achievable changes, such as the end of geo- blocking. Ultimately the Commission swung farther than expected, with 16 different initiatives, ranging from concrete legislation and standardization measures to antitrust inquiries and wide-ranging consultations and reviews. Still, it isn’t clear that this grand plan is achievable - or what the concrete outcomes might be. The Commission can set a direction and propose changes, but it will be up to the European Parliament and member state governments to decide the extent to which the digital single market will become a reality. National governments, influenced by local industry – both traditional and online – may be influenced to safeguard the status quo. The fate of consumers and businesses, largely SMEs, hangs in the balance. Realistically, the digital single market can only function as far as the offline single market does today, and that is not without its own issues. As Vice President Ansip said when presentingthestrategy,thisisjustthe beginning. The DSM strategy can be seen as an umbrella for much of the Commission’s legislative agenda for its five-year term, and is likely to be the defining theme for Commission President Juncker’s time in office. Companies that will be affected – and most will be in some way – will need to engage constructively with the EU before and after individual legislative proposals are published. A properly functioning DSM is an opportunity for all businesses, but there are risks. Clear input from the industry, consumers and other relevantgroupsisrequiredsothatthe EU takes a balanced and competitive approach, in a way that is future- proof and innovation-friendly. The data work stream in itself will affect all sectors and it will be particularly important for the financial services, transport and healthcare sectors to fully participate and demonstrate the positive impact data flows or big data have in their fields. Document links: • Commission Communication: A Digital Single Market Strategy for Europe • Press release of the European Commission: Antitrust: Commission launches e-commerce sector inquiry • Roadmap for completing the Digital Single Market Strategy • Commission Staff Working Document a Digital Single Market Strategy For Europe - Analysis and Evidence • Brunswick Review: The Data Issue US Tech Under Attack? It’s true that a number of the measures proposed are perceived as supporting European operators at the expense of US internet giants. This is not surprising, given Europe’s tax investigations of digital companies at both the EU and national level. Certain aspects of the strategy, such as the e-commerce sector inquiry and the investigation into platforms, may create more risk for large multinational players. While the Commission has dismissed the idea that its plan targets US industry, it is clear that the EU supports the rise of European digital champions as part of its aim to bring Europe to the forefront of the global economy.
  7. 7. © BRUNSWICK | 2015 | 7 For more information Philippe Blanchard Managing Partner +32 (0) 2 235 6513 pblanchard@brunswickgroup.com Brunswick is the global leader in financial and corporate communications, providing senior counsel to clients around the globe on critical issues that affect reputation,valuation,and business success. Brunswick Group Contact Brunswick Brussels 27Avenue DesArts, 1040 Brussels, Belgium Tel: +32 (0) 2 235 6510 brusselsoffice@brunswickgroup.com www.BrunswickGroup.com KateTellier Director +32 (0) 2 235 6537 ktellier@brunswickgroup.com LinusTurner Partner +32 (0) 2 235 6516 lturner@brunswickgroup.com Annalisa Barbagallo Director +32 (0) 2 235 6517 abarbagallo@brunswickgroup.com

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