Europe’s Answer To Silicon Valley

After decades of tech dominance in California’s Silicon Valley – particularly by firms like Google and Facebook – it seems Europe is ready to make its move.

On May 6, the European Commission plans to release its proposal to gather all 28 EU member states into what it is calling a “single digital market.” Housed in the forthcoming marketplace will be Europe’s digital goods, capital, content and services.

The strategy is reportedly driven by American tech firms’ encroachment into areas that Europe has long considered its wheel houses: networking infrastructure, automotive and manufacturing. The industries together represent millions of European businesses and tens of millions of jobs.

However, while these business lines are central to Europe’s economic health, data released by the commission indicates that 41 percent of EU firms do not leverage digital technology at all. Commissioners feel that now – as the IoT is moving more objects onto the Web and allowing them to perform essentially autonomously – is the time to encourage innovation in European firms, push them toward the digital age and hope that said action is able to add speed and strength to what has been a sluggish recovery in much of Europe since 2008.

“Barriers that do not exist in the physical single market are holding the European market back,” the commission’s strategy paper says, a draft copy of which was seen by The Wall Street Journal.  The report further finds that a single digital market could add as much as $365 billion to the European GDP, create 3.8 million jobs and potentially bring the cost of public administration down as much as 20 percent.

“[The aim is to] restore Europe as a world leader in information and communications technology.”

The plan is itself multi-phased. Phase 1 is to lower the barriers to cross-border activity online. Those barriers presently include differing contract law, taxes, consumer protection and copyright laws among member states; interoperable and uncompetitive package delivery schemes; and complicated VAT rules and dispute resolution procedures. The solution offered by the commission is a single audit for companies that sell across EU borders. The goal is to make it straightforward enough for most businesses to become pan-European within one month, and to be able to do all of this online through electronic signatures.

“The message Europe is sending its entrepreneurs now is: stay at home,” said Andrus Ansip, the European Commission’s vice president for the digital single market, according to WSJ. “Europe has a potential customer base of 500 million people, whereas the U.S. has 350 million, but with 28 different laws, technology firms can’t grow in Europe.”

The next phase of the strategy regulates a level playing field for companies and services in the same market. While the report did not call out any firms by name, it did note that search engines, app stores and social media have “rapidly and profoundly challenged the status quo” and have grown exponentially. The paper then outlines a review process for firms playing in these areas that will seek to find and eliminate potentially unfair terms of conditions, unfair practices, non-transparent pricing policies and search results, as well as their use of personal data for profiling and targeted advertising.

Despite this regulatory focus, Ansip told The Wall Street Journal that the digital single market strategy “in no way” aims to limit the progress of U.S. tech firms in Europe.

The digital market strategy also calls for big changes to the European telecoms market. Specific changes include an update to radio spectrum allocation auctions. Those auctions make it possible for telco operators to roll out mobile Internet like fourth generation wireless networks, or 4G. The commission will recommend that while revenues from spectrum sales stay with member states, the licensing conditions, like time limits on auctions and coverage requirements, should be harmonized across the EU in an attempt to stop over-inflated pricing in some countries (which is in turn hampering development and leaving southern and eastern member states with 3G and in some cases 2G connections).

Telco reform will also potentially expand into increased regulation of over-the-top communications services like Facebook’s WhatsApp. Various European operators have pushed for this as revenues from SMS and voice calls decline and consumers move by the millions to these services. Facebook has noted that over-the-top messaging brings significant revenue to telcos as it pushes users to increasingly larger data plans to support their messaging needs.

The commission’s goal is to see this strategy put into place over the next two years. The goal at the end is to have a single European marketspace to counterbalance and compete with Silicon Valley based firms.