EU Takes Shot at Google’s AdTech
But also — Nuclear Energy, Huawei & 5G, Spanish Presidency
Hi! This is Monday, 19 June 2023, and here’s the EU news you need this week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
The Briefing
On 14 June, the European Commission sent a statement of objections to Google which identifies a number of anti-competitive practices by the multinational in the online advertising sector.
The Commission accuses Google of abusing its dominant position in the market to favour its own display advertising technology services, and goes so far as to consider forcing the multinational to divest certain of its activities to avoid conflicts of interest.
THE FACTS • Opened on 22 June 2021, the Commission's investigation into possible anti-competitive practices by Google in the online advertising sector seems to have borne fruit. In recent years, Google has been fined several billion euros for infringing EU competition law.
To better understand what the Commission is accusing Google of this time, we need to look at the organisation of the internet display advertising technology services sector, also known as the "AdTech sector". Two types of players use the digital tools of the AdTech sector:
On the one hand, advertisers want to display their advertising on the internet and use ad buying tools to do so.
On the other hand, publishers use ad servers to manage the space allocated to advertising on their site.
These two players — who make up the supply and demand for advertising — meet in ad exchanges where online advertising space is bought and allocated.
Google provides AdTech services used by both advertisers (Google Ads & DV 360) and publishers (DFP). It also has its own ad exchange, AdX.
ACCUSATION • The Commission accuses Google of favouring AdX by using its presence on the advertiser and publisher side — a presence identified by the Commission as a dominant position, i.e. Google has supposedly sufficient market power to escape competitive constraints in the market for advertising technology services for advertisers and publishers.
REMINDER • To understand why this is problematic, it is important to remember that EU competition law does not prohibit an undertaking from holding a dominant position.
Indeed, prohibiting undertakings from acquiring a dominant position in a given market would be tantamount to considerably reducing their incentive to develop and compete with their rivals.
Achieving a dominant position — provided it has been achieved through lawful competitive practices — is therefore seen as the reward for a company's long-term efforts to become more efficient and innovative than its rivals.
Under Article 102 of the Treaty on the Functioning of the EU (TFEU), however, EU competition law prohibits companies from abusing their dominant position.
BAD GUY • This is precisely what Google is accused of doing: the Commission considers that the company is using its dominant position in the market for advertising technology services for publishers and advertisers to favour its own ad exchange, AdX.
It fears that Google's practices are aimed at eliminating competition.
The company has a right of defence: it can therefore respond to the Commission and try to convince it that it is not infringing competition law. However, if Google is not sufficiently convincing, and if the Commission considers that the facts are overwhelming, it may decide to impose a fine of up to 10% of the multinational's annual worldwide turnover.
REMEDY • The payment of a fine by Google would enable the Commission to punish the company, but would not automatically put an end to the problem.
The Commission has two tools at its disposal to ensure that Google's anti-competitive behaviour stops once and for all. It can ask Google to change its behaviour, and if that is not enough, it can initiate so-called "structural" remedies.
At present, the Commission considers that a change in Google's behaviour is not realistic and/or would not put an end to the problem. The EU executive is therefore considering the option of introducing structural remedies, which would involve asking Google to divest part of its services in order to avoid future risks of conflicts of interest.
Ordering a Big Tech company to divest part of its business would be a first for the European Commission.
WHAT NEXT? • Google has until September to exercise its right of defence and respond to the Commission. As a reminder, the Commission's conclusions are only preliminary and do not mean that Google will be found guilty. However, if the multinational is found guilty, it may appeal to the European Court of Justice.
In Case You Missed It
NUCLEAR ENERGY • Pro-nuclear EU member states have secured concessions from the European Commission and their counterparts regarding the Renewable Energy Directive. However, France, supported by other member states, initially blocked the adoption of the agreement due to two reasons. Firstly, France wanted nuclear energy to be recognized as a viable energy source in achieving the EU's climate targets. Secondly, meeting hydrogen targets was challenging for France because its ammonia production for fertilisers relied on fossil-hydrogen.
On June 16, the Ambassadors eventually adopted the deal with an additional recital — non-binding paragraph — that ““acknowledges that other sources of fossil-free energy than renewable energy contribute to reaching climate neutrality by 2050 for member states who decide to rely on such sources of energy”.
The text will now undergo voting in the Parliament's Energy Committee and plenary session, with anticipated tense debates ahead. Even the French pro-nuclear shadow rapporteur criticized Paris for blocking the deal.
HUAWEI & 5G • On 15 June, the Commission announced new measures to improve the cybersecurity of 5G networks in the EU. The Commission plans to go further to limit infrastructure dependence on Chinese companies such as Huawei and ZTE — both companies are named directly, something the Commission had previously avoided.
This announcement comes as a progress report on the implementation of the EU's 5G network cybersecurity toolkit reveals shortcomings in many states — notably Germany — and highlights a "high risk of persistent dependence".
To speed up the process of distancing itself from Chinese companies, the Commission wants to take "measures to avoid exposing its business communications to the use of mobile networks that include Huawei and ZTE as equipment manufacturers", and to withdraw Huawei and ZTE from all EU funding programmes.
"We cannot afford to maintain critical dependencies that could become a weapon against our interests (...) I hope that these measures will be put in place quickly", said Thierry Breton, European Commissioner for the Internal Market.
The Commission is therefore calling on the Member States to move up a gear to limit their dependence on China for 5G networks.
For its part, Huawei said it was "firmly opposed to and disagrees with" the Commission's announcement, and accused the report of "not being based on a transparent, objective and technical study of 5G networks".
SPAIN • On 1 July, Spain will take over the EU Council Presidency for 6 months from Sweden.
Only 3 weeks after this date, early general elections will take place. They were called by Prime Minister Pedro Sanchez after defeats for the Socialist Party in regional and municipal elections last month.
While these elections could cost Pedro Sanchez his position as prime minister — the "blue wave" of the right and far right seems threatening — he wants to reassure himself about the presidency of the Council of the EU.
"Democracy is never a concern (...). This is not the first time that elections have taken place during a rotating presidency", he told the press, assuring readers that Spain had been preparing seriously for this presidency for nearly a year.
What we’ve been reading
John Springford and Sander Tordoir of the CER explain why the outlook for the EU’s green industry is brighter than what Europeans think.
For Bruegel, Maria Demertzis Catarina Martins share their assessment of the potential and limits of central bank digital currencies (CBDCs) for the euro area.
The CEPR has released its fifth report in The Future of Banking series, authored by Jeromin Zettelmeyer, Barry Eichengreen, Xavier Vives and Giancarlo Corsetti, which consders the effects of the Covid-19 pandemic and of the Russian invasion of Ukraine for the international economic system.
This week’s newsletter is brought to you by Augustin Bourleaud and Maxence de La Rochère. See you next Monday!