How 5G Could Alter the European Commission’s Aggressive Posture Towards US Tech Companies
While the average American consumer has probably never heard of Margrethe Vestager, the mere mention of her name is enough to make even the boldest US tech executive shudder with either fear, loathing, or both. That is because, as European Commissioner for Competition since 2014, Vestager has somehow managed to slap US tech companies with nearly €23 BILLION in fines just in the last 48 months (Apple: €13+ BILLION; Alphabet/Google: €8.5 BILLION; Qualcomm: Nearly1€ BILLION; Amazon: €250 Million; Facebook: €110 Million).
While some of those fines may be justified (tax avoidance is a legitimate and fairly straightforward topic that Vestager and I can agree on), other fines have been questionable. In some cases, they have been somewhat fact-challenged posturing exercises and pretexts to impose fines on companies with very deep pockets (antitrust cases are especially vulnerable to abuse and negligence these days). Case in point: Vestager’s Commission inexplicably resurrecting a decade-old case inherited from her predecessor over 5 years ago, just to score another win against yet another US tech company on the eve of an important election.
The case, based on a complaint brought by now defunct British chipmaker Icera against rival US chipmaker Qualcomm, was arguably so weak and devoid of merit that it had been banished to the outermost edges of Europe’s sea of lost antitrust litigation pretty much from its inception, where it had been allowed to drift aimlessly about until almost forgotten—as cases of this type often are.
But Vestager, whose zeal when it comes to imposing fines on US tech companies is matched only by her sense of timing, made a point to tow that ghost ship back to shore, scrape off its growing islet of barnacles, prosecute the case, and arrive at a decision just in time for the very European Commission elections that would have seen her ascend from her post as European Commissioner for Competition to that of President of the European Commission. How convenient.
Both as a pragmatist and a student of Public Relations, I have to admit that the timing of the operation was brilliant. It also helped explain why such an otherwise forgotten and problematic case had somehow been stitched back together and brought back to life after all this time. What no one can explain, however, is how the ruling ended up falling on the wrong side of the facts, and how, having failed to prove wrongdoing by Qualcomm or validate Icera’s case, the commission still ruled against Qualcomm and imposed a fine on the US tech giant. And here is where Vestager adds insult to injury and undermines her own credibility: About 20 minutes into an interview with the press about the matter, Vestager herself admitted that she didn’t know if Qualcomm had driven Icera out of business, despite the fact that this very claim was a core premise of the case.
A cloud of head-scratching side-eye also hangs over how the Commission arrived at the dubious conclusion that pricing associated with only 3 chips somehow translated into a portfolio-wide price-fixing conspiracy against Icera. The Commission’s theory of the case doesn’t make sense. The more credible and likely scenario is that Huawei and ZTE chose Qualcomm over Icera because Qualcomm’s chips were better, and that working with an established industry leader like Qualcomm was a safer business bet than taking a chance with smaller, less established Icets….but I digress.
Ironically (and surprisingly), Vestager was not elected President of the European Commission, after all. Germany’s Ursula von der Leyen was. And so now, members of the US tech community are left sort of scratching their collective heads and wondering “now what?” Will Vestager stay on the job? Will the EC continue to drop the hammer on US companies whether or not they are guilty of wrongdoing? Will the Commission for Competition return to legitimate enforcement actions or will it continue to drift towards becoming a protectionist toll booth? That is the €23 Billion question.
Meet the New Boss, Same as the Old Boss
As I write this article, I have no idea whether Margrethe Vestager will remain head of the European Commission for Competition for a second (5-year) term, but I am inclined to believe that she might. For starters, she is exceptionally good at her job, and the Commission would be crazy to replace her. Second, the role is one of the most powerful in the European Commission, and she is far too young to even start thinking about retiring. Having said that, she could very well move into another Commissioner role.
Two possibilities therefore seem most probable: On the one hand, Vestager continues to oversee US tech companies in some way — either as Commissioner for Competition, or in another capacity. On the other, she could move on to bigger and better things. Either way, all (other) things remaining the same, I don’t see the EC’s stance towards US tech companies moving in a radically new direction anytime soon.
For starters, issues of tax avoidance, perceived anticompetitive behaviors, data privacy, and political interference are not likely to go away in the next five years, and the EC will therefore continue to aggressively represent the interests of the European Union, as it has until now, for at least that long. Second, Europe has spent too many years fighting what it perceives as a form of economic imperialism from the US – first with regards to culture (music, TV, movies), then food (fast food chains), and now technology – to reverse course now.
Besides, as Margrethe Vestager has demonstrated during her five-year tenure, going after US tech companies is a lucrative endeavor for the EC. And not just lucrative, but the €13-million-per-day kind of lucrative. (€23 BILLION in fines in 5 years amounts to just shy of 13 million Euros per day.) Unsurprisingly, the EC has already announced that it is looking into the business practices of Amazon, Google, Apple, and Facebook, all companies with very deep pockets, signaling that the next round of investigations is already under way – investigations that will most certainly lead to hefty fines.
President Trump’s own protectionist, pro-Brexit, and dubious-of-NATO posture since taking office in 2017 has done little to help the US and the EU get in sync when it comes to their common economic interests, but, adding insult to injury, his public criticism of Vestager herself just a few weeks ago probably did little to help US tech companies’ efforts to get on the EC’s good side. Where that leaves us right now is pretty much where we were a year ago, and the year before that: EC investigations into US tech companies, followed by hefty fines. Rinse, repeat until 2025.
But change may be coming after all, thanks to an entirely new variable: 5G.
How 5G Could Alter the Balance of Power Between the US Tech Community and the European Commission
With or without Vestager at the wheel of the European Commission for Competition, a new variable has entered the picture, and it could very well change the dynamic of the EC’s relationship to some US tech companies. That variable is, of course, 5G.
The reason why 5G brings a new dynamic to the EC’s relationship with US tech is that 5G is essentially a technology leadership war between East and West, and more specifically between China and the US, with Europe caught in the middle. The choice facing the EU and EU-adjacent economic areas is essentially whether they will trust China or the US to help build their critical 5G infrastructure.
The safer of the two options is of course the US. The more cost effective of the two options is, however, China. The question now is whether EU members, their telcos, and the EC will prioritize cost-efficiency or security. And here is where the US finds itself in possession of a bargaining chip that it didn’t have a year ago – one that could help convince the Commissioner for Competition to start thinking of US technology companies more as partners to EU members than as economic threats.
That’s the good news. The bad news is that this new balance of power might only help US tech companies poised to help Europe pursue its 5G and cybersecurity objectives. The main beneficiaries of this possible new understanding between the US and the EC would be Qualcomm and Intel. Unfortunately for Facebook, Amazon, Apple and Google (Vestager’s other favorite targets), none have much to do with 5G technologies, and aren’t likely to directly benefit from a détente between transatlantic economic frenemies with regard to 5G cooperation. Important 5G-adjacent opportunities do exist however, like the auto industry’s new CV2X connectivity and vehicle safety standards, and the Digital Single Market Initiative, which US tech companies already support, and which can easily become vehicles (no pun intended) for deeper collaboration between the EU and the US.
In other words, a new understanding between EU and US around 5G security, transportation infrastructure, and the DSM Initiative could open the door to a wholesale de-escalation of the EC’s broader anti-US tech company’s posture IF the US and the EC agree to sit down and work out their differences. Whether or not Margrethe Vestager will have a role to play in this possible scenario remains to be seen, but no matter who Ursula von der Leyen appoints to the College of Commissioners in the coming months, one would be right to suggest that helping Europe embrace 5G without opening itself up to the risk of Chinese interference or aggression in the future is a much more important objective than pursuing the same old investigate-and-fine routine that the EC engaged in during the 4G era. For someone with equal measures of political talent and ambition, focusing on helping Europe take a leadership role in 5G without compromising its security would also plant a far bigger feather in one’s cap than continuing the tedious and uninspired task of collecting tolls from US tech companies.
I can’t imagine that Margrethe Vestager (or anyone cunning enough to take her place over at Competition) would somehow miss that sea change and the opportunity that comes with it. And because of that, I believe that the EC’s posture towards some US tech companies may be about to change for the better.
To be continued.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.
Check out some of my other recent articles:
Latest posts by Olivier Blanchard (see all)
- How 5G Could Alter the European Commission’s Aggressive Posture Towards US Tech Companies - August 21, 2019
- Samsung and Qualcomm partner to make ACPCs mainstream. - August 7, 2019
- MSRC issues alert about widespread Corporate IoT vulnerability - August 6, 2019