Why is it in the news?
- Recently, the EU Commission has designated 22 services provided by six major tech companies as “gatekeepers” in its efforts to regulate Big Tech.
- The tech companies identified as gatekeepers are Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, and TikTok owner ByteDance.
- The designation is based on the European Union’s Digital Markets Act (DMA), which came into force in November.
Overview of the EU Digital Market Act (DMA)
Introduction and Purpose:
- The DMA came into force in the European Union (EU) on November 1, following approval by the European Parliament in March.
- It aims to address unfair practices by tech companies acting as ‘gatekeepers’ in the online space.
- The goal is to counter the dominance of Big Tech, which can hinder the growth of new platforms and innovations.
- The DMA applies six months after entering into force, starting from May 2, 2023.
Key Provisions and Objectives
- The DMA establishes quantitative thresholds and penalties for companies that dominate core platform services.
- It seeks to create a level playing field for smaller and emerging players to compete based on the merit of their products and services.
- Consumers benefit from increased access to options and potentially lower service prices through enhanced competition and de-exclusivity.
Designation of Gatekeepers
- Companies with substantial dominance in ‘core platform services’ are designated as ‘gatekeepers.’
- These services include app stores, search engines, social networks, messaging services, video-sharing platforms, virtual assistants, web browsers, cloud computing, operating systems, online marketplaces, and advertising services.
Quantitative Thresholds for Gatekeepers
- To be considered a ‘gatekeeper,’ a company must meet specific criteria:
- Annual turnover of at least €7.5 billion in each of the last three financial years in the EU.
- An average market capitalization of at least €75 billion in the last financial year.
- At least 45 million monthly active users in the EU.
- Over 10,000 annual active business users in the last financial year.
- Sustained meeting of these criteria for the past three financial years.
- Proportional obligations may apply if a non-gatekeeper company reaches these thresholds in the future.
Penalties for Violations
- Non-compliance can result in fines of up to 10% of the company’s annual revenue from global operations, potentially increasing to 20% for repeated infringements.
- Violations may also lead to periodic penalty payments of up to 5% of daily worldwide turnover.
- For systematic infringements, additional remedies can be pursued, including the forced sale of a business or essential parts, restrictions on acquisitions, or other measures.
Interoperability and Data Access
- ‘Gatekeepers’ must not favour their services over third-party offerings on their platforms.
- Interoperability with similar services is required.
- Businesses must have access to user data generated on the platform, preventing unfair advantages.
- ‘Gatekeepers’ must allow users to easily unsubscribe from core platform services.
- They cannot pre-install default software with the operating system.
- Businesses can use alternative in-app payment systems, and users can download alternative app stores.
Messaging Services Interoperability
- Interoperability is crucial for messaging services, allowing users to send and receive messages across competing platforms.
- Text message interoperability starts immediately, group messaging within two years, and audio or video calls within four years.
- Users of non-gatekeeper companies can choose whether to enable interoperability.
Criticisms and Concerns
- Critics argue that interoperability could compromise end-to-end encryption, which is essential for security and privacy.
- Sharing user data may hinder targeted advertising and affect competitive success.
- Some fear that the ‘gatekeeper’ threshold may discourage innovation due to compliance requirements.
- Restrictions on acquisitions may disrupt start-up lifecycles, reducing exit prospects for entrepreneurs.
- The trade-off between innovation and compliance could deter companies from pursuing ‘gatekeeper’ status.