From Google to Amazon: EU goes to war against power of US digital giants
From Google to Amazon: EU goes to war against power of US
digital giants
In Europe there is a growing fear of becoming a 'digital
colony' ruled by Silicon Valley, whose giant firms wield huge power over
privacy – and like to avoid tax. Now regulators are striking back
By Juliette Garside, telecoms correspondent
The Observer, Saturday 5 July 2014
Within the salons of the Elysée Palace, along the
corridors of the European parliament and under the glass dome of the Reichstag,
Old Europe is preparing for a new war. This is not a battle over religion or
politics, over land or natural resources. The raw material that Paris, Brussels
and Berlin are mobilising to defend is the digital environment of Europe's
inhabitants; their enemies are the Silicon Valley corporations that seek to
dominate it.
Coal, gas and oil powered the industrial revolution, but
in the digital era, data is replacing fossil fuels as the most valuable
resource on Earth, and the ability to collect and interrogate it has created
organisations with a power that can at times seem beyond the control of nation
states. Amazon, Apple, Facebook and Google represent, in the words of Germany's
economy minister Sigmar Gabriel, "brutal information capitalism", and
Europe must act now to protect itself.
"Either we defend our freedom and change our
policies, or we become digitally hypnotised subjects of a digital
rulership," Gabriel warned in a passionate call to action published by the
Frankfurter Allgemeine. "It is the future of democracy in the digital age,
and nothing less, that is at stake here, and with it, the freedom,
emancipation, participation and self-determination of 500 million people in
Europe."
In France, economy minister Arnaud Montebourg believes
Europe risks becoming a "digital colony of the global internet
giants", and ministers have called for Google to contribute to the cost of
upgrading the country's broadband infrastructure. Gabriel says Germany's cartel
office is currently examining whether Google should be regulated as a utility,
like a telecoms supplier – the group has 91.2% market share of search in
Germany.
He believes that, as a last resort, there may be a case
for "unbundling" Google, separating its search arm from mobile, or
YouTube, or services such as email.
As a first step, he is in favour of regulation that
allows competitors to use the Google platform fairly. The pushback against
Amazon has also begun: as of last year, the online retailer can no longer stop
independent sellers on its German website from offering their own goods cheaper
elsewhere, including on their own websites.
European regulators have also begun to take action. In
May, the European court upheld a plea by a Spaniard, Mario Costeja González,
who wanted pages hidden from any Google search for his name in the EU. Judges
decided the past transgressions of private individuals have a right to be
"forgotten". The threats that ruling poses to freedom of the press
are now being debated, but it was a watershed moment, representing Europe's
first major regulatory strike against the search and software colossus.
On 11 June, the European commission's competition
regulator, Joaquín Almunia, wrote to colleagues to warn that his investigation
into Google's search rankings could be reopened, after new complainants had
stepped forward. On the same day, he announced a potentially wide-ranging
inquiry into tax avoidance, starting with a focus on three companies: Apple and
its international headquarters in Ireland, and Starbucks and its head office in
the Netherlands (the third company being carmaker Fiat). On Thursday, a leak
from Brussels suggested Amazon, which operates through a European HQ in
Luxembourg, was also being dragged into the net.
"In the current context of tight public budgets, it
is particularly important that large multinationals pay their fair share of
taxes," Almunia said. His intervention was widely interpreted as a
politically motivated act. It almost certainly was.
There are those who believe that Jean-Claude Juncker, the
former Luxembourg prime minister who has just been elected as the next
president of the European commission – despite vocal opposition from David
Cameron – is out to get Google.
Its corporate motto is still "don't be evil",
but Google seems to have replaced Microsoft – which was embroiled for years
with regulators over monopolistic practices – as the bête noire of Brussels.
The comparison is perhaps unfair. Google has taken a less confrontational
stance than Microsoft, by accepting the commission's right to regulate its business
in Europe and readily engaging in a negotiated settlement on search.
Nevertheless, says Ian Maude, new media specialist at
research firm Enders Analysis, "Google, as far as regulators are
concerned, is the new Microsoft. It is the big bad wolf. Privacy has become a
much more important issue.
"Media markets historically have been national, but
Google straddles borders and stands head and shoulders above any other online
players. The European regulators have more power than any bar those in the US,
and Google is now such a giant that it is going to face increased regulatory
scrutiny. Regulation, rather than competition, is probably its main challenge
right now."
Google has a friendly face, but its creeping power is
causing alarm. The company controls two of the world's biggest search engines:
Google itself and its video site YouTube, which ranks alongside Microsoft's
Bing! and China's Baidu. The company's own web browser, Chrome, has overtaken
Firefox and Microsoft's Explorer as the most popular browser, its Gmail is the
largest email service, and its Android software controls more mobile phones
than any other operating system.
Now Google is moving into the home, buying
cloud-connected thermostat maker Nest and home security camera operator
Dropcam. It wants to drive our smart cars and build humanoid robots, and it is
funding a network of satellites to beam internet connections from space.
In an extraordinary metaphor, the boss of German media
group Axel Springer has compared Google to the dragon Fáfnir, from the Norse
myth that inspired Tolkien to write The Hobbit and Wagner to compose the Ring
Cycle. Fáfnir was the son of a dwarf king, who became so jealous of the
family's vast store of gold and gems that he killed his father to take sole
possession of the treasure. Greed turned Fáfnir into a dragon, who guarded his
hoard with fire and poison.
"Google is sitting on the entire current data trove
of humanity like the giant Fáfner in The Ring of the Nibelung," Axel
Springer boss Mathias Döpfner wrote in an open letter to the firm's chairman,
Eric Schmidt, in April. More recently, he has condemned Almunia's settlement
with Google over search. Google is under fire for allegedly downgrading results
from companies that offer similar services to its own, prioritising its price
comparison sites, stock price information or maps even when those services
receive less traffic than rivals. Almunia has agreed that companies appearing
too low in the rankings to draw traffic can pay to appear in a box at the top
of the page. Döpfner told Radio 4's Today programme last week: "I would
call that protection money. It is basically the business principle of the
mafia."
Google's earnings from search have drained advertising
spending from European newspapers, magazines and radio stations. Piracy,
facilitated by search engines and broadband, has hit revenues for record labels
hard. Bookshops and electronics stores have disappeared from high streets as
sales migrate to Amazon and even Apple's bricks and mortar retail outlets. Europe's
mobile phone networks, once considered global technology pioneers, have handed
fortunes to Apple and South Korea's Samsung in subsidies for mobile phone
handsets.
The sense of injustice has been reinforced by revelations
about tax. Amazon, Google and Apple have found ways to reduce their corporation
tax payments on international revenues to single-digit percentages of profits.
Now fear has been added to the mix, with Edward Snowden's revelations about
digital surveillance.
Reaction on the continent to the NSA scandal has been far
stronger than in Britain. Gabriel argues that we are compromising our national
security, and selling our economic and personal freedom, every time we exchange
our personal data for access to free music or email, cheap smartphones or a
page on a social network. Our preferences, our movements and our mistakes are
being collected and stored, ready to be passed on to advertisers, medical
researchers, car insurers, political strategists and even government spies, he
suggests.
When Germany's chancellor, Angela Merkel, withdrew her
support for Cameron in his push to promote an alternative candidate to Juncker,
fingers were pointed at Döpfner, whose group publishes the influential German
tabloid Bild. Döpfner is said to have persuaded Merkel to back Juncker in the
belief that he would support the battle against Google.
Juncker has not publicly indulged in Google-bashing, but
he has made the creation of a strong digital economy in Europe the first
priority of his presidency. "Europe's path to growth is paved with tablets
and smartphones," according to his campaign manifesto. He is using the
dream of creating the next digital giant in Europe as a rallying cry for closer
integration, in particular the creation of a single market for telecoms and
digital businesses.
Under the industrial policy being drafted by his team,
Brussels will encourage the harmonisation of national laws on copyright, data
protection, telecoms regulation and the auction of the electromagnetic spectrum
used by mobile phone networks.
Mobile networks, perhaps unrealistically, are seen as
central to the fightback against America's information capitalists. With
companies like Britain's Vodafone, Germany's Deutsche Telekom and Spain's
Telefónica, Europe was able to create multinationals on a far grander scale
than America's own domestically focused networks.
That competitive edge has since been lost. During
spectrum auctions, when operators bidded for the airwaves they needed to link
handsets to the internet, vast sums were handed over to national governments
for 3G licences. The UK raised £22bn in 2000, but networks were left without
the cash needed to expand 3G networks. The problem was compounded again with
4G, which delivers faster internet speeds. Wrangles over the timing of
auctions, which did not occur simultaneously across Europe, allowed the US and
many other countries a headstart.
"The reason the European telecoms industry has lost
its edge is because of our own regulatory and political decisions," says
Bengt Nordström, whose Northstream consultancy advises on telecoms.
"Without spectrum harmonisation we are just a continent of various
middle-sized and small countries and can never be an industrial leader."
With a population of 310 million to supply, American
firms gain meaningful scale before they export. The same is true in China,
where e-commerce group Alibaba and Baidu are dominant. If Europe's 500m
inhabitants are corralled into a single market, Juncker believes that
home-grown companies, like the flights comparison service Skyscanner, or music
streaming firm Spotify, can gain scale.
Will his ideas gain favour in Britain? Labour is clear
that, on tax and on search rankings, Google and its peers must operate on a
level playing field. "It's important the large online organisations pay
their fair share of tax," says shadow culture and media minister Helen
Goodman. "If your competitive advantage is built on you being able to
charge lower prices because you are paying less tax, that is not a sustainable
way for us to run our economies."
In Brussels, Cameron and Google are seen as a little too
close for comfort. The company's head of communications and public policy,
Rachel Whetstone, is a close friend of the prime minister. She is married to
Steve Hilton, architect of the "big society" policy that helped
return the Tories to power. Google's European headquarters are officially in
Ireland, but 2,000 programmers, salespeople and managers are based in London.
The company is building a new headquarters in King's Cross that could house as
many as 4,500.
John Springford of thinktank the Centre for European
Reform says Cameron signed up to the idea of a digital single market as long
ago as 2011, but that while he supports the removal of barriers to trade, he
may be reluctant to accept edicts from Brussels on copyright and spectrum
sales. On tax, however, the prime minister has made his position clear, saying
avoiders like Starbucks need to "wake up and smell the coffee".
Margaret Hodge MP, whose influential parliamentary public
accounts committee has brought digital tax evasion to national attention,
welcomes action from Brussels.
"This is a very good first issue on which David
Cameron can make common cause with the new president of Europe to heal some of
the wounds and to ensure digital companies don't evade their responsibility to
the jurisdictions where they make their money. Let's see him smelling the
coffee," she says.
The big four: Europe's key issues
Google
Google has reached a negotiated settlement with the
European commission over its search results, but new complainants have come
forward and the investigation could be reopened. In the UK, the search and
software group has come under fire for tax avoidance, and independent record
labels have complained to Brussels after being told their artists could be
removed from YouTube unless they sign up for Google's forthcoming music
subscription service.
Amazon
Amazon is under fire for tax avoidance and strong-arming
publishers and traders. In Europe, it has been banned from telling companies
that sell on its German website that they can't offer their goods at cheaper
prices elsewhere. The online retailer shelters profits by funnelling most of
its European revenues through Luxembourg. The European commission is
considering whether to investigate as part of a potentially wide-ranging tax
probe which began in June.
Facebook
With 1.2 billion users and counting, Facebook is the
largest social media platform, but its share of advertising revenue is far from
dominant at just 6% of global digital spend.
Complaints have tended to focus on privacy. The UK and
Ireland are investigating whether a study that aimed to manipulate the emotions
of its members overstepped the mark. In the US, privacy campaigners are
concerned about Facebook's purchase of WhatsApp, and how it will use the so far
advert-free messaging service's store of mobile numbers.
Apple
Apple channels its non-US revenues through Ireland, and
an alleged sweetheart deal with the Irish tax office, supposedly negotiated
under Steve Jobs, allowed it to pay just 3.7% on international profits in 2013,
according to European commission experts. This deal is now being investigated
by Brussels, and could be challenged if found to favour the company over other
corporations with tax registrations in Ireland.
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