The three main UK political parties – the Conservatives, the Liberal Democrats and Labour – have set out their policy priorities for the media & telecoms sectors in their party manifestos. A recent report from Enders Analysis highlights areas of convergence and divergence between them in different areas of TMT policy. Although there will be considerable policy continuity from one government to the next in some areas there are many important areas of disagreement between the parties. The most important, according to Enders, is easily the parties’ different stances towards the EU. Here is an extract from the report, looking at the issue of EU membership and the Juncker Commission’s proposals for a Digital Single Market (DSM).
The single biggest area of divergence among the parties concerns continued UK membership in the EU, of great significance to UK law and regulation on telecoms, e-commerce, data protection and copyright. If an ‘in-out’ referendum on the EU were to be held and lead to a majority vote for ‘out’, the Conservatives would then negotiate a new deal for the UK with the EU. UK policies would cease to be constrained to the same degree as today by EU policies.
Otherwise, UK law will continue to be framed by EU law, with provisions on net neutrality, roaming and data protection already in the legislative pipeline. The Commission also plans to announce on 6 May 2015 its policy on the Digital Single Market (DSM), pledging to modernise copyright.
As the EU’s largest digital economy by far, the UK’s experience is of unique value to Brussels in forming an evidence-based policy agenda. The scale of the UK’s creative industries is also larger than that of other Member States, backed by a longstanding (and recently expanded) regime of tax incentives for audio-visual production and respect for copyright. Few continental European Member States today match the power of this synergistic eco-system.
As the dominant partners in the Coalition, the Conservatives’ more open hostility to the EU since the ‘in-out’ referendum pledge was first announced in January 2013 has probably limited the engagement and leverage of the UK Government with Brussels. This has been aggravated by the emergence of the viscerally anti-EU UKIP as the single largest UK party in the last European Parliament (EP) elections in 2014, with 24 MEPs of a total of 73 elected to the EP.
The Juncker Commission has made the completion of the DSM the top priority for its five-year term to 2019, claiming €340 billion in potential economic gains (a figure that is not backed by quantitative research). The focus on economic growth is understandable: aside from the UK, which is chugging along at an annual growth pace of 2.5-3% in real terms, most of the other 27 Member States have been stuck in low growth trajectories since the financial crisis struck in 2008-09. This weakens the fabric of the Eurozone since government debt levels are high (apart from Germany).
The focus on the DSM is also understandable: online provides a channel for businesses to reach consumers more widely than conventional media, both in their own markets and abroad, and for consumers to expand the variety of choice and bargain-hunt more effectively. There are opportunities to scale up that are not present in the much smaller national markets. These could be of particular benefit to UK businesses since the UK is the single largest European digital economy today and digital has provided a rich seam for business innovation and creation (but not the only one).
At the same time, the DSM will hardly address the structural causes of low continental European growth. In addition, the DSM appears to be motivated by what one might term ‘US envy’: the Commission complains that US-based online services account for 57% of the EU’s digital economy, while national ones make up 39% and cross-border only 4%. This is due to the substantial market positions of the US companies that supply the UK’s consumers and businesses, such as Amazon, Google, Facebook, Netflix and iTunes. This underscores the Commission’s taste for industrial policy, wishing that European ‘champions’ would instead dominate e-commerce and online advertising. The UK fortunately long ago set aside its tradition of industrial policy to allow the market and not bureaucrats to pick winners.
In its March 2015 update on the DSM, the Commission set out three main areas to be addressed:
- Better access to digital goods and services, saying that delivery costs for physical goods (which are often material, as opposed to nil for digital goods) impede e-commerce, fingering parcel delivery companies; that many sellers use unjustified geo-blocking to avoid serving customers outside their home market; that copyright needs to be modernised; and that VAT compliance for SMEs should be simplified
- Shaping the environment for digital networks and services, by encouraging investment in infrastructure; replacing national-level management of spectrum with EU-level; looking at online platforms, including with respect to consumer trust and the swift removal of illegal content; and personal data management
- Creating a European digital economy and society with growth potential, by encouraging manufacturing to become smarter; fostering standards for interoperability; making the most of big data, said to be a ‘goldmine’; and also cloud computing; and foster e-services, including for public services, and the acquisition of the digital skills by consumers to use them
While demand for cross-border goods and services is generally low in the EU due to the advantages of local merchants (e.g. Amazon offers the Prime service to UK customers that provides for free and expeditious delivery of goods), there are a number of impediments to businesses that seek to serve markets outside their own. For example, the EU’s distance selling regulations require an online seller wishing to contest another market to communicate with consumers located there in their own language and in accordance with that market’s regulations1, placing a significant compliance burden on online sellers.
Two pieces of legislation are connected to the DSM and are in the pipeline2:
- The General Data Protection Regulation (GDPR), to replace the 1998 Directive that spawned the data protection regimes of the UK and the other 27 Member States, with a single regime, was proposed by the Commission in 2012, has undergone amendments by both the EP and the Council of Ministers, and could be adopted in 2015 or 2016 following completion of the ‘trilogue’ between all three institutions
- The Telecoms Regulation, revising the 2002 Telecoms Regulation to cover ‘net neutrality’ and roaming fees, was proposed by the Commission in 2012, was amended by the EP and is currently with the Council, which has scaled back the EP’s amendments
The UK government, in its non-paper sent to the Commission in January 2015 on the “UK vision for the EU’s digital economy”, identified four priorities for the DSM:
- Consumers are disadvantaged because they are unable to access the streaming services “they have paid for” when travelling in the EU
- Start-ups don’t have easy access to a large market due to the compliance burdens of paying VAT in every country they sell to
- Innovation is being stifled in many parts of Europe because certain Member States are introducing regulations on peer-to-peer services and ‘sharing economy’ businesses
- Public services across Europe are not yet digital by default
The UK Government isn’t quite correct in its assessment of streaming services. Music service Spotify is available to UK subscribers wherever it operates. UK subscribers to over-the-top streaming service Netflix can access the service on the continent in Netflix markets, although the catalogue is often (and justifiably) tailored to local market conditions in terms of language and content served. It’s true that Netflix is unavailable when travelling outside those markets, since Netflix (a private company after all) has chosen to contest only a handful of EU markets.
The UK Government is correct that the EU’s recent reform of VAT, cementing the destination principle for the application of rates, did not take into account the resulting challenges to SMEs trading online outside the UK. The sale of goods and services requires VAT compliance in the customer’s market when sales meet the threshold (e.g. £70,000 in the UK), and some UK SMEs qualify for HMRC’s Mini One Stop Shop service. The UK Government calls for the Commission to consult business on the burdens imposed on SMEs by the VAT regime.
While the UK’s Government Digital Service is seeking to make public services digital by default, other Member States are not yet ready to do so because their levels of adoption of broadband and digital by consumers are as yet too low. Much more action needs to be taken to meet the minimum conditions for digital public services and ensure that such a strategy does not exclude citizens.
1 The UK’s Consumer Contracts Regulations 2013 apply to sales of goods and services online.
2Under the EU’s ‘co-decision’ legislative process, the Commission proposes legislation, and the EP and the Council of Ministers each have co-equal status in its adoption. A Directive is a legislative instrument that leaves implementation by law to Member States, while a Regulation is fully constraining on Member States. For example, the Telecoms Regulation 2002 was given legislative form in the UK by the Communications Act 2003.
This extract from Enders Analysis’ report on Party positions on media & telecoms for GE2015 is reproduced here with permission and thanks. This post gives the views of the authors and does not represent the position of the LSE Media Policy Project blog, nor of the London School of Economics and Political Science.