Europe’s Big Tech trust buster

This is an audio transcript of the Behind the Money podcast episode: ‘Europe’s Big Tech trust buster’

Michela Tindera
When it comes to regulating Big Tech firms like Google, Meta or Apple, the FT’s Javier Espinoza says there’s typically one place that people look to.

Javier Espinoza
So generally, when we talk about Big Tech regulation, or for that matter, other key sectors that have been regulated in recent years like the financial sector, we see Brussels as leading the way.

Michela Tindera
That’s because Brussels is also the de facto capital of the European Union, and it’s home to the EU’s main regulatory bodies.

Javier Espinoza
Typically, we’d talk about the so-called Brussels effect. That means that whatever reforms they do here and whatever reaction companies have to legislation, they tend to broadly apply that not just in the European Union but elsewhere, including the US and Asia and other jurisdictions.

Michela Tindera
But lately, when it comes to Big Tech regulation, Brussels appears to be taking a back seat to another place in Europe: Germany.

Javier Espinoza
In Germany, there is already a law that is like the vanguard of Europe’s attempt to clamp down on the power of Big Tech. So it’s almost like if you want to look at the future of what it looks like, Big Tech being regulated in Europe, you need to head to Berlin instead of Brussels, at least for now.

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Michela Tindera
I’m Michela Tindera from the Financial Times. Today on Behind the Money, we’re going to dive into how Germany became Europe’s leader in Big Tech regulation and how the EU is planning to catch up.

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Hi, Javier. Welcome to the show.

Javier Espinoza
Thank you so much for having me.

Michela Tindera
So where exactly did this conversation of Big Tech regulation in Europe come from? I mean, why now?

Javier Espinoza
There is this global narrative among regulators that in the past they were a bit too relaxed when it came to tackling Big Tech. They cleared mergers of Facebook buying WhatsApp, Facebook buying Instagram, Google buying Fitbit. And you know, they now realise that they should have scrutinised these deals for a lot longer.

Michela Tindera
And how come?

Javier Espinoza
Regulators and officials and politicians that I speak to on a regular basis here come from the point of view that Europe has been falling behind the digital revolution. We do not have an equivalent of Apple or Amazon or these titans of the digital industry in the same way that the US have. So the reason why people here in Europe want to regulate Big Tech is because they feel that they have become too large. And they see laws, regulation, as a way to opening up markets so that we could see a Polish Amazon or a Hungarian Facebook emerging.

Michela Tindera
So right now, Germany seems to be leading the way with tech regulation. And that’s thanks to this piece of legislation that was passed in 2021. Now, it’s officially called Section 19a of the German Competition Act. But that’s all a little hard to say, so we’re going to just refer to it going forward as the German digital law. So, Javier, what’s this law all about?

Javier Espinoza
It comes from the fact that regulators started seeing that Big Tech companies were behaving in a way that was not competitive. They were behaving in a way as a gatekeeper. So one thing that this new law prohibits outright is that companies like Meta are not allowed, it’s illegal, it’s anti-competitive, that they rank their services above the rest. Let’s say if you’re shopping on Amazon and Amazon has its own line of products and you’re looking to buy a pair of shoes, it is illegal for Amazon to rank its own pair of shoes ahead of other pairs of shoes that might be sold by other smaller competitors on Amazon’s platform, but that they might be of better quality and lower price.

Michela Tindera
OK, got it. And that’s something this law prohibits outright. But since it was implemented, German regulators have also been able to launch some investigations into major tech companies, too. Have those resulted in anything?

Javier Espinoza
Yes. So for example, Facebook has these virtual reality glasses. And before if you wanted to use these glasses, you had to have a Facebook or an Instagram account as a result of, you know, the Federal Cartel Office, which is the competition watchdog in Germany, opening an investigation. Now you can get a VR, a set of VR glasses without having to have a pre-existing account, which obviously is good for you as a consumer because you have more choice. And it’s also good for competitors because it means that Facebook or Instagram do not own the whole space of your virtual reality. You know, you’re not forced to just have those accounts.

Michela Tindera
Mm-hmm. Mm-hmm. And I mean, why does Germany in particular care about Big Tech companies being too big? Is there a particular reason that Germany would have a stake in this compared to another country or the EU on the whole?

Javier Espinoza
I mean, Germany is one of the largest economies in the European Union. It also spotted illegal behaviour earlier than its peers in the continent. But it’s in a way facing similar issues, right, of these large tech companies sort of undermining the rest. Germany in particular has been very keen to go after these companies in a way that is not just about fines, because in the end these companies have such large revenues that a fine is considered or seen just as the cost of doing business. What they have been keen on doing is to actually change the conduct and the behaviour so that they create more competitive markets.

Michela Tindera
Yeah. How unique is it that rather than levying fines against these companies, they’re forcing companies to just take action? Is that more unique in the antitrust sector or what have you seen in your reporting?

Javier Espinoza
This is quite a good point and a distinguishing factor of the way that Germans are going after big companies, because if you look at the track record in Brussels, there is a tendency to go and issue multibillion fines at Google in the last decade, for instance, has accumulated about €8bn in terms of fines, which they are still to this day, more than a decade later, contesting. But at the end of the day, it doesn’t really move the needle and that doesn’t really have any effect for you and me in the way that we access or have more options on the table when it comes to, you know, digital services. We’re stuck really with just a handful of options. Even when you say that you’re going to cancel your Facebook account and you’re going to join Instagram, you’re just, you know, changing from one service to another that’s owned by the same company.

Michela Tindera
Mm-hmm. So what’s the jurisdiction for this? Does it only impact people in Germany?

Javier Espinoza
Yes and no. Yes, if you read the law by the way that is being created is for like companies operating in Germany who are engaged in illegal, anti-competitive behaviour. But the fact is that, you know, we can talk about this Brussels effect now. We can also talk about a Berlin effect in that it is very costly for a company of the size of Google or Meta to just make changes in a very narrow way in just one jurisdiction. It becomes easier just to make a standards of change.

Michela Tindera
Yeah. And are there any criticisms about how this is going in Germany so far?

Javier Espinoza
Typically is critics that represent the smaller companies, the European challengers to Big Tech. And they basically say that, yes, it’s good, but they are just frustrated by the speed of things. You know, if you talk to entrepreneurs as I do, they are the sorts of people that want to see change immediately. And sometimes this change takes many, many years to actually have any meaningful impact in markets. There have been cases of complainants against Google that have gone bankrupt because they didn’t have enough resources to fight these tech giants.

Michela Tindera
OK. So Brussels is close behind Germany with its own antitrust law, the Digital Markets Act, or DMA. Can you tell me more about what that law is supposed to do?

Javier Espinoza
So to give you a very concrete example: Apple has for years generated its revenues by charging a fee to apps each time they sell a subscription. Apple has so far argued that they cannot allow competing apps on its system and they cannot allow these apps to take payments outside its ecosystem for security reasons. Rivals of Apple say that this is not the case, that they just simply do not want to allow competing apps to charge outside the App store because they want to be the beneficiaries of these fees and they do not want to include competition. One new rule set in the Digital Markets Act will ban essentially Apple from doing this. This, in my conversations with, you know, Apple executives and EU officials, it’s potentially quite worrying for the company. The CEO of Apple, Tim Cook, has been on the record extremely vocal and totally, you know, aggressive against the DMA. And you can imagine why.

Michela Tindera
Mm-hmm. Yeah, and what’s the difference here? It sounds like the DMA will do the same thing as the German digital law, except it’s going to apply to all of Europe instead of just one country?

Javier Espinoza
In essence, both Berlin and Brussels are trying to do the same. Open up markets. Allow for contestability. The difference between Germany and the DMA is that whereas in the DMA, the set of things that are banned are pre-determined and not changeable. This is it, it’s a fixed list. In Germany, the law allows for future potential bad behaviour that we don’t even know about yet to be included. It also in Germany — and this is quite a powerful thing — it even prevents large companies like Amazon to engage in similar illegal behaviour in some markets where they are dominant, even in emerging markets when they are not yet dominant. So like almost anticipated that they might become big.

Michela Tindera
That’s interesting. Why is the Digital Markets Act behind Germany? In this case, what’s happened with the timing?

Javier Espinoza
Well, you can say behind or ahead, depending on we just talk about timing. I guess you could say that is behind because simply it just started in the timeline of things, couple of years later than the Germans. But you could also say that it’s ahead because, you know, once it’s implemented, it’s not going to just affect one European country, but it will be across the entire single market, 27 member states, 450mn users.

Michela Tindera
Got it. Yeah, that’s a lot of people. So you said Apple and the company’s CEO, Tim Cook, have already been pretty vocal against the DMA. How have other Big Tech firms responded to these new regulations?

Javier Espinoza
They, in the lead up to these laws being enacted, were quite active and aggressive in their lobbying efforts, mainly arguing that if you go after a company of the size of Google, for example, that you what you are doing, really it’s undermining the small European start-ups that rely on the wonderful services of these companies and that if you regulate too much, what you are going to do in the end is stifle innovation.

Michela Tindera
Are they pushing back in any other ways?

Javier Espinoza
We have seen it in the case of Germany. Companies appealing the decision by the German regulator that they are particularly big and that they should have a higher bar, a higher threshold of responsibilities because of their size. And Amazon appealed against this decision, arguing that Amazon is not really the only competitor, but there are many established, successful German and international companies and disagreeing with what the Germans were saying that Amazon should be placed in these special categories. And this gives us a window into the future of what is very likely to happen with the DMA. Once Brussels starts designating, which is the next step, they have to say these are the five, six, seven, however many companies that are going to be affected by this law. So expect a lot of litigation from companies like Apple or Meta arguing that they’re not that big after all.

Michela Tindera
Right. So you’ve told us a lot about what’s happening in Europe. But is there anything going on in any other countries like the US?

Javier Espinoza
I think it’s fair to say that what we have in Germany and the EU is cutting edge. And I mean, we need to sort of caveat to what we mean by cutting edge, because some people argue that regulators have moved too slowly, that they have been focusing on fines and that they have been ineffective and opening markets. Having said that, there are other economies, namely the US, where all these companies are based, where they are moving even slower. Some argue that even though there’s bipartisan willingness to go after these companies, it would be political suicide for some to then start going after these American companies. But there is some willingness, some actors in the US, in the Biden administration, who are not afraid to go after Big Tech.

Michela Tindera
Yeah, OK. And the EU’s Digital Markets Act is still going to take some time to be put into effect. Where do you see the story going before then?

Javier Espinoza
I see Germany continuing to open more cases against Big Tech. For example, about two weeks ago, we saw that they opened an investigation into PayPal and the terms that they offer merchants, you know, whether they have engaged in some sort of cartel-like behaviour. You could expect them venturing into new areas like data privacy, which has been an area that competition watchdogs have not looked in the past, and just signalling that if you’re a large tech company coming into Europe, maybe for years you were able to take all the market share unchallenged, but that these days are over.

Michela Tindera
Javier, thanks so much for being on the show.

Javier Espinoza
Thank you so much for having me.

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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

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