Apr 4, 2022 - Technology

Europe's new digital rules are giving tech leaders nightmares

Illustration of the EU flag with downward facing cursor arrows in place of stars

Illustration: Annelise Capossela/Axios

Europe's new competition rules for Big Tech giants could make their services less secure and more fragmented, tech executives fear. And as a six-month deadline for compliance looms, the new laws aren't yet fully baked.

Driving the news: European regulators came to an agreement last month on a near-final version of the Digital Markets Act, which could force Google, Apple, Meta and Amazon to reshape their businesses after being designated “gatekeepers.”

State of play: As platforms stare down strict new rules and a short timetable, they worry that compliance might mess with what made their products popular in the first place.

How it works: The DMA requires "gatekeeper" companies to obtain consent to target ads based on personal data.

  • Instant messaging platforms like Apple's iMessage must enable the exchange of messages with smaller services.
  • And large platforms must give users freedom to select browsers, search engines and voice assistants.

Here's what's keeping tech executives up at night:

Time frame: European officials have said gatekeepers will have a clear understanding of rules and their application, but tech officials tell Axios details on that are scant so far.

  • The European Parliament will pass the DMA this summer and be formally adopted by the fall. Companies believe they'll have six months from being deemed a "gatekeeper" to comply, though there's not yet an exact timeline of enactment and enforcement.
  • "Whether companies are going to receive enough guidance from regulators that they can implement in a way that minimizes disruption to their users, is an open question," Matt Schruers, president of the Computer & Communications Industry Association, which represents major tech companies, told Axios.

Different experiences in different countries: Platforms may decide to pull a product or service entirely if there's no way to tweak it without breaking the rules. "Will [tech products] look different for European consumers and U.S. consumers? Probably, yes," a tech industry insider at a "gatekeeper" U.S. firm told Axios.

  • "I suspect that rather than hamstring products in the U.S., companies designated as a gatekeeper will either exit the EU marketplace or offer different products in different regions," CCIA's Schruers said.

Security concerns: The DMA's messaging interoperability requirement has raised alarms.

  • “Interoperability can have benefits, but if it's not done carefully, this could cause a tragic weakening of security and privacy in Europe,” Will Cathcart, chief of Meta-owned messaging system Whatsapp, tweeted.
  • FBI Cyber Division assistant director Bryan Vorndran said on Capitol Hill last week he is worried aspects of the DMA could create security vulnerabilities and weaken encryption.

What they're saying: "What the commission has written sounds like a good idea on paper, and it's hard to disagree with on a principle level," the tech industry insider said. "But how do you make it real? It's anybody's game to guess."

  • Former Google CEO Eric Schmidt told Axios, in an interview last week, that implementation and consequences matter. "What I worry about with European regulation, rather than saying what they're trying to do — increase competition and keep prices under control — they're micro-regulating."

Flashback: Before the last major European tech proposal, the General Data Protection Regulation, was implemented, there was a lot of confusion about how it would work in practice.

  • Five years later, companies are still getting massive fines for breaching GDPR.
  • But tech has also made user privacy a selling principle, which was mostly not the case before. DMA may prove to have the same effect on company marketing strategy long-term.

The big picture: Momentum and public sentiment is not on Big Tech's side. The EU's moves come at a time when there are kindred spirits at the U.S. Justice Department, Federal Trade Commission and in Congress seeking to rein in big tech companies.

  • FTC chair Lina Khan said in Brussels last week the DMA was a "landmark proposal to promote fair access to markets controlled by digital gatekeepers," per Bloomberg.
  • Those pushing for antitrust action in the U.S., including some smaller tech companies and pro-competition groups, are cheering Europe on.

Yes, but: Various U.S. officials, including Commerce Secretary Gina Raimondo, have called the rules discriminatory against American companies.

What's next: "The DMA aims to bring seismic change to digital markets. But it’s going to take years, maybe decades, for courts and businesses to figure out, one case at a time, what that change will look like," Daniel Francis, former deputy director of the FTC competition bureau, told Axios.

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