Digital Economy Untangling the Cloud

Europe has the tools to compete with U.S. Internet giants in the global digital economy, but is being held back by a maze of conflicting national regulations. That could change with the E.U.'s new digital single market.
Cloudy forecast for the digital economy in Europe?

It sounds like a promise of salvation: an increase in gross domestic product of up to €415 billion, or $466 billion, the creation of about 3.8 million new jobs and a more cost-efficient public administration than ever before.

Those are among the benefits the European Commission expects from its digital single market, which it outlined in a policy paper on Wednesday.

“Europe has the assets to succeed in a digital economy,” Commissioner Günther Oettinger told the media, but is “not making the most of them.”

The digital single market strategy has three primary goals: to improve access for consumers and businesses to digital goods and services across Europe; to create the right conditions and a level playing field for digital networks and innovative services to flourish; and to maximize the growth potential of the digital economy.

One area where the Commission sees plenty of growth is in cloud computing. Users should have greater opportunities to store their data in the cloud with certified European providers that comply with data protection standards agreed across the economic bloc.

The Commission expects data stored in the cloud to increase from 20 percent in 2013 to 40 percent by 2020.

The high cost of shipping and a lack of choice of service providers often keep consumers from shopping online in other E.U. countries.

In the United States, where the world's Internet giants are headquartered and regulations are generally laxer, some officials view the European initiative with some skepticism.

"I'm curious what is behind the buzzwords 'digital sovereignty' and 'European cloud,'" said Julie Brill, commissioner of the U.S. Federal Trade Commission. "I'm not sure what these terms will mean in reality."

Information technology is increasingly meshing with production and products, powered by the Internet. German industry has come up with the buzzword "Industry 4.0" to describe this development.

“The quicker we structure the business environment in this growing sector, the better the market opportunities will be for European companies - and the overall prospects of the E.U. playing a leading role,” said Andreas Schwab, domestic market expert in the Group of the European People’s Party, which includes Germany's ruling Christian Democratic Union, in the European Parliament.

To make a unified digital domestic market a reality, the Commission aims to standardize copyrights, advance e-government programs and support digital cross-border trade.

For example, new European copyright legislation will reduce the differences between national copyright regimes and allow for wider online access to works across the European Union.

As for e-commerce, the high cost of shipping and a lack of choice of service providers often keeps consumers from shopping online in other E.U. countries. Only 15 percent of Europeans, for instance, shop online from another country. New harmonized rules on contracts and consumer protection aim to boost confidence to shop and sell across borders.

Also, future regulations will provide incentives for telecommunication companies to invest in broadband expansion. National markets with conflicting regulations are a major reason why the E.U. is not making progress in expanding the broadband network.

And the allocation of new mobile phone frequencies will be coordinated at the European level, even if revenues from the auction flow to member states.

Video: Julie Brill on the benefits of Big Data.

Brussels will pay particular attention to search engines, online networks such as Facebook and Twitter and sites that compare prices. Additionally, this year the commission plans to launch a comprehensive investigation and consultation on the role of platforms. The underlying fear is the services that create Internet infrastructure could amass too much power and be detrimental to competition.

Currently, the Commission is investigating Google for allegedly misusing its market-dominant position to promote its own products and services - a move that FTC commissioner Ms. Brill doesn't fully understand. "It will be interesting to see how the E.U. Commission will prove this allegation," she said. "In the U.S., we pay attention more to whether competition works for customers than to whether it works for competitors."

The commission’s efforts to address the digital economy don’t go far enough for Julia Reda, the Pirate Party’s delegate in the European Parliament. She criticizes allowing geo-blocking to remain in place when the costs of cross-border e-commerce are too high. The digital strategy, she said, is too much a patchwork.

Thomas Ludwig is Handelsblatt's correspondent in Brussels. To contact the author: [email protected]