15/07 – Digital Single Market: Who is in charge and does it matter?

The Digital Single Market (DSM) has been defined by the European Commission as a top priority to strengthen the competitiveness of European companies writes Carole Tongue. According to the new DSM Strategy, published in May 2015, it is particularly the e-Commerce sector that is singled out as a key driver to boost industrial competitiveness in the EU. In order to improve the business environment for digital services, the whole added value chain of e-Commerce, including the “online” as well as the “offline” sphere, the Commission believes, needs to be taken into account.

It is safe to say that European companies have already lost their competitive edge, both globally and within the single market, in the online retailing sector. A particular problem is the market power of unregulated international digital contenders. The most important online trading platforms or payment processing services for the European e-Commerce sector are all US owned (Facebook, Google, Amazon, Apple, Ebay, etc.). These companies control consumer and business access to online markets and are assertively pursuing a highly aggressive expansionist policy. While e-Commerce is booming in Europe, the power, turnover and profits generated through the internet are being shaped by US business models and companies. It is estimated that only 2 % of internet revenues go to the creative content industries and creators for example.

The market dominance of US internet giants is affecting all large sectors of the European economy: traditional bookstores, record shops, advertising agencies and parcel delivery services to name just a few. Google’s revenues from search have drained advertising spending from European newspapers, magazines and radio stations. Piracy, facilitated by search engines and broadband, has hit revenues for artists and record labels hard as well as that of film-makers and traditional broadcasting channels. Bookshops and electronics stores have disappeared as sales migrate to Amazon and even Apple’s bricks and mortar retail outlets. Authors and publishers are under constant pressure to reduce prices by Amazon. Europe’s mobile phone networks, once considered global technology pioneers, have handed fortunes to Apple.

In almost all strategically important industrial sectors, European companies are being taken over by global markets player from the US and emerging markets, resulting in the pressing threat of European industry becoming victims of global developments instead of successfully growing with them. As outlined in the new Working Programme of the EU-Commission, there is hardly any sector of European industry that is not at risk of losing its international competitiveness. It is therefore more important than ever to ensure that European industries remain competitive towards their U.S. and global competitors in the offline sphere of e-Commerce.

Let’s consider the case of the European logistics and express sector. While European companies rely on US online infrastructure (US based online services account for 57% of the European digital market), they still remain the key enabler in the “physical” of e-Commerce. By providing delivery and logistics services, such as sourcing and warehousing or sustainable delivery in urban areas, European companies play a major role in the overall e-Commerce supply chain, allowing the online retailing sector to operate under optimal conditions.

In this regard, the recently notified take-over of Dutch-owned TNT is of great concern as it shows the eagerness of FedEx to increase its presence in the European express delivery market, and to position itself as a critical link in the European E-commerce sector. FedEx is already equally strong or even stronger than its competitors in several European countries in Eastern Europe as well as in France and the UK. The two companies have greater combined market shares in these Member States than in others. If cleared by the European Commission the acquisition would, hence, shift the market power in the delivery express sector yet again towards US owned companies resulting in an adverse impact on competition and customers. We could see a situation of unfair competition and a lack of a level playing field among operators causing damage to businesses which are in compliance with European standards.

Growth and job creation depend on healthy, well-connected markets, where competition and consumer access stimulate business and innovation. The transaction would likely run directly counter to these objectives and be a clear threat to employment.

In Europe, FedEx currently has two main logistic hubs in Paris (Charles de Gaulle Airport) and Cologne, while TNT operates out of its central logistic hub in Liège. Consequently, a take-over would leave FedEx/TNT with three European hubs (Paris, Cologne and Liège) within a rather small area. The predictable outcome of such a situation would be a redesign of the network to leverage economies of scale and efficiency. Potential rationalization, with the creation of one or two main hubs, with reductions or closures in the others, would result in potentially severe job losses in France, Belgium and/or Germany depending on the outcome of such a review process.

European economies are only now beginning to see signs of recovery from the effects of the financial and economic crisis. Still, unemployment remains high, with 10.3% by the end of 2014 in France and even rising in Belgium (7.6% in 2012, 8.4% in 2013 and 8.5% in 2014). To maintain and increase the moderate improvements in economic growth that most European economies are experiencing, it is essential that healthy competition is maintained in all economic sectors and especially one that provides an indispensable role in Europe’s economic activity, and as a result in the creation of much-needed jobs. In addition it is important that existing employment should not be sacrificed as a result of operations that clearly themselves have questionable beneficial effects on competition.

EU competition policy must place stronger emphasis on developments in global markets by setting appropriate conditions that allow European companies to compete against growing competition from around the world so as not to be left behind. This is why DG competition should undertake a thorough review of the proposed transaction (and any comparable transaction in the Digital Single Market), not only evaluating the competitive concerns and their dynamics in the internal market, but also the potential impact on job creation in the EU economy, and the coherence of this proposed transaction with the Digital Single Market Strategy.