Big Tech-EU regulation battle is 'new chapter in an old movie'

Meta Platforms (META) is under fire by EU regulators who claim the company's ad subscription model is a pay-for-content scheme that requires users to choose between paying a fee or handing over more personal data to use for targeted advertising. Imperial College Business School professor of economics Tommaso Valletti joins Catalysts to discuss Big Tech's regulation issues in the EU.

Valletti notes that the European Commission tried to use antitrust laws to curb the market power of some Big Tech companies. However, that approach moved slowly, so they decided to regulate companies under the Digital Markets Act (DMA), which is a new policy that is designed to target companies identified as "gatekeepers." Meta was identified by the Commission as a "gatekeeper" and could be faced with fines for violating the Digital Markets Act in its advertising model.

Companies charged under the Digital Markets Act may respond, which would kick off a regulatory dialog. Valletti says, "I suspect that the stakes are so high because the philosophy of the European Commission is that they would like some Big Tech companies to change the business model. So in terms of Meta, it's about data collection. In terms of Apple (AAPL), they have an ecosystem which is completely closed and they want to have a revolution there. But these companies are making so much money that for them, it's better to fight on legal grounds instead of changing the business model."

He explains that fines for violating the act are more like a "slap on the wrist" compared to the revenue generation of Big Tech names like Apple, Meta, and Alphabet (GOOG, GOOGL):

"Those fines don't really help at all if you want a certain conduct to be changed. And so you have to impose higher fines that DMA has the power to impose up to 10% of the global turnover. So actually this would be fines that hurt more. But then you have to go through courts to see whether this is going to happen or not. To me, it's more important, not that the fines are imposed, but the behavior of firms changes up-front because you don't want to fine people after they drive too fast. You want people to start slowing down."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video transcript

Big tech targeted once again over in the EU meta becoming the latest company under fire by regulators who say that the company's a subscription model is a pay for content scheme that requires users to choose between paying a fee or handing over more personal data to meta to use for targeted advertising.

Joining us to discuss not only me in the EU but also some other big tech names being targeted.

We've got Tomaso, professor of economics and business school.

He's also the former chief competition economist of the European Commission.

So thank you so much for being here with us.

So talk to me about your thinking on the EU strategy here when it comes to looking at several big tech names at once, particularly given that we've kind of seen this movie before.

This has already been an ongoing theme in the EU I. I'm just curious, given your background with the EU what you make of their strategy on this.

So, as you said, there is an old movie but a new chapter in an old movie.

The European Commission tried for many years to use antitrust laws to curb the market power of some dominant companies that were abusing their market power.

So and as you said, I was working for the European Commission for for a few years.

And then I joined my academic position.

Uh, but that didn't work.

So the cases were taking too long.

The Google shopping case took seven years, So as a reflection of the discontent with that approach, they decided to regulate xante some companies, they are designated as gatekeepers and there is a new law.

So this is what you're observing now is the instances of the cases brought under the new the new law, which is called the D MA, the Digital Markets Act.

And this law was enacted in in in March after a long discussion, as you might expect, and we are seeing the first result.

So you see positives and negatives, depending on whether you approach enforcement or against enforcement.

So the good aspect, at least, is the speed of the intervention.

So this case started in early March, and now at the end of July, the European Commission already came with provisional views.

So compared to Google shopping, say that took seven years.

This is an advancement, in my view, the negative is that the European legislation was meant to be self executing.

So the language, the legal jargon, should have been so clear about what companies could and could not do so that they would just self execute it.

And people believe that for a while.

But now we are seeing that that was kind of a dream because the companies are actually saying We did execute the spirit and the letter of the law, and the European Commission is saying no way.

What you are proposing now is not aligned with the law.

So to cut a long story short, we are going to see a long legal battle again, right?

So that is my exact next question.

Where do we go from here then?

So the idea that there would have been a regulatory dialogue, by the way, these are just provisional findings so the companies can respond.

They can have this regulatory dialogue.

I suspect that the stakes are so high because if you want, the philosophy of the European Commission is that they would like some companies, some big tech companies, to change the business model.

So in terms of meta, is about data collection in terms of Apple.

They have an ecosystem which is completely closed, and they want to, you know, have a revolution there.

But companies are making so much money that for them it is better to fight on legal grounds instead of changing the business model.

Well, exactly.

And we've seen this.

Regulatory pressure from the EU just result in fines in the past that these companies with some of the highest free cash flow rates we've ever seen in corporate history are perfectly capable of paying and then kind of moving on.

Given that you have sat in the shoes of regulators previously, how frustrating is that?

Well, the fine.

So, for instance, I personally ran the economic analysis of three cases against Google.

It was shopping.

It was Android and also AdSense.

In the end, the European Commission imposed over the three cases more than 8 billion which is a lot of money for ordinary citizens.

But Google is making $300 billion every year from the advertising side, so this is like the slap on the wrist so that those fines don't really help at all.

If you want a certain conduct to be changed and so you have to impose higher fines.

The D MA has the power to impose up to 10% of the global turnover, so actually this would be fines that hurt more.

But then you have to go through courts to see whether this is going to happen or not.

To me, it's more important not that the fines are imposed, but the behaviour of firms changes upfront because you don't want to find people after the drive too fast.

You want people to start slowing down if you want.

If you believe that drive too fast is actually dangerous, I want to switch gears a little bit and ask you about in video, according to sources speaking with Reuters and video set to face French antitrust charges, To what extent do you think it's likely that that could expand more broadly within both the EU and then globally?

So before I respond to that and I don't have a lot of information because, as I said, there are some rumours.

We haven't seen the findings yet, so first of all, it's not just Europe against the US companies, because if I take Google, there is currently more than 100 different cases in 25 different jurisdictions worldwide.

OK, so the problem with big tech is not just a European problem.

It's something which is much wider than that.

Another interesting case in this instance of the French intervention is that it's not just the EU Digicom, which is the regulator for competition at the European level but also national competition authorities, which are having views.

So, for instance, the first case against Facebook is not the one against Meta is not the one of the now.

But it was Germany who started a few years back and France is looking into NVIDIA.

So we are looking into the cloud market.

We are looking into a you know, it's not even the next the next generation.

It's already happening now with a I.

This market is already extremely concentrated, so they are looking at where the bottlenecks are.

So it makes sense to have an investigation.

They did da raids, But as I said, this is This is I'm not informed enough to let you know what I think about the substance of the case, because nothing has been said by the French authority yet, but you are definitely informed enough to give us a great perspective just on how the EU and regulators are viewing these companies.

And that was a great conversation.

So we do really appreciate it.

Thank you so much.

That was Tommaso Valetti.

He is a professor of economics at Imperial College Business School and formerly with the European Commission.

Thank you so much.