European digital single market needs strong net neutrality guidelines

Without a strong protection of the principle of net neutrality, European digital businesses will be confronted with regional fragmentation and new barriers to market entry that will favour the already dominant tech companies from Silicon Valley, writes Stefan Heumann.

Stefan Heumann is Co-Director of Stiftung Neue Verantwortung, a Berlin-based think tank focused on technology and public policy. 

Lost in the noisy debate over net neutrality is a simple truth – without strong rules protecting an open Internet, Europe will undermine both the Digital Single Market and the aspiration to compete with Silicon Valley.

The power to set things right for Europe lies with BEREC, the body of European regulators for electronic communications. BEREC published solid draft guidelines to clarify how national regulators should interpret the EU net neutrality rules passed last year.

But they are under heavy pressure from EU network owners to water down the rules in their final guidance. That would be a serious mistake. Without a strong protection of the principle of net neutrality, European digital businesses will be confronted with regional fragmentation and new barriers to market entry that will favour the already dominant tech companies from Silicon Valley. The result will be exactly the opposite of what the Digital Single Market is supposed to achieve.

The problem we are trying to solve here is no mystery. While Americans quickly build and scale new, innovative technology companies, European entrepreneurs have been struggling. Worse yet, too often the best of Europe’s innovators end up starting their companies in the US. Even though the entire EU with more than 500 million people has a bigger marketplace than the US with 350 million, tech companies in the EU are hampered by differences in national laws and regulations that make it difficult to scale across the EU.

When Andrus Ansip, the European Commission’s Vice-President for the Digital Single Market, announced the harmonisation of rules at the launch of the initiative, he had a strong message for European entrepreneurs: “Stay Home!” BEREC could amplify this message with the final adoption of strong net neutrality guidelines at the end of this month.

Here is why BEREC should not follow the arguments of the network providers.

First and foremost, it would lead to a fragmentation of the Digital Single Market. A startup that would need a fast lane for the delivery of its content would have to negotiate deals with multiple network providers in every EU member state to reach all 500 million customers. None of this would be neccessary in the US. Strong US rules guarantee every startup that network operators have to deliver its service or content to every US customer without discrimination.

This will be a huge advantage for the US digital marketplace. Investors will put their money where business models can quickly scale. Any business plan that requires negotiating pay-for-play deals with dozens of cash-hungry telecommunications giants will be a non-starter for venture firms. Yet these investments and the ability to scale will determine where the next generation of global technology companies will come from. It would not be the EU.

Furthermore, the dominant US players are far better able to afford paying for fast lanes than European digital businesses. US technology companies like Google or Facebook are afloat in cash. They will protest paying extra fees, of course, but if they must pay them, they will ensure that these fees lock in their monopolies. This is why the biggest brands in Silicon Valley did not lift a finger to help pass net neutrality in the US – they win either way in the US market. In Europe, a fee-based fast-lane on the Internet will create an additional market entry barrier for smaller European competitors that might seek to challenge US incumbents.

The combination of fragmentation and market barriers will be a disaster for the EU digital economy. US companies will more quickly scale in their home market than their competitors in the EU. And once they enter the EU market their ability to negotiate and to buy fast lanes will put even more distance between them and their European competitors.

Without strong net neutrality, the dominance of US tech companies will be entrenched at the expense of European innovators that seek to challenge them. Small wonder that EU start-ups have been vocal supporters of strong net neutrality.

Following the network owners’ push to water down the net neutrality rules would counteract the EU Commission’s Digital Single Market initiative. Fragmentation and new market entry barriers would be a disaster for the European tech sector.

But BEREC can still save the day. Adopting strong net neutrality guidelines would reaffirm the call from the EU Commission to European tech entrepreneurs: “We want you to stay!”