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EU moves ahead while U.S. steps back on regulation

The European Commission found both Meta and Apple to be in violation of the Digital Markets Act.

As the European Union enforces new digital regulations, the U.S. moves in the opposite direction by curtailing federal agencies' regulatory powers. Nonetheless, the EU's actions might force tech giants to fundamentally change their operating models.

EU regulators this week found social media giant Meta's "pay or consent" advertising model non-compliant with the Digital Markets Act (DMA), a law that requires companies predetermined as gatekeepers to open their ecosystems and create more interoperability with third parties. The European Commission, the EU's executive arm, also found that Apple breached the DMA with its App Store rules.

The DMA aims to create a fairer and more competitive environment among digital platforms by targeting what the EU considers closed off operating models, which allows companies such as Meta, Apple and Google to control aspects of platform operation like data collection and product placement. As the DMA will likely usher in significant changes to the way tech giants operate, the U.S. could experience some of the same changes by default, said Tom Wheeler, visiting fellow at the Brookings Institution.

Still, he argued that it shouldn't stop the U.S. from advancing its own digital policy. Without U.S. policy, others like the EU take the lead on regulation, he said. The recent Supreme Court rulings dampening federal agencies' regulatory power, however, indicate that big tech regulation might be a long way off for the U.S.

"Congress is being forced to anticipate future developments, and the agencies are being constrained from addressing future developments, which means that we're stuck in industrial-era regulation," Wheeler said. "That means it's other countries, such as the EU and the U.K., and states who will end up making the rules."

EU regulation will change tech giants' operating models

The DMA currently applies to seven companies that provide 24 core platform services that the EU designated as gatekeepers: Meta, Apple, Alphabet, ByteDance, Microsoft, Amazon and Booking. The designated gatekeepers were required to submit DMA compliance plans by March 2024.

The EU took issue with both Meta and Apple's efforts to comply with the DMA. In its preliminary findings, the EU said Meta introduced a "pay or consent" offer in November 2023 as an effort to comply with the DMA. The offer would ask users to choose between paying for an ads-free version of its social networks or accessing the networks free-of-charge but with ads.

The EU said the model doesn't comply with DMA because it doesn't allow users to opt for a service that uses less of their data. For Meta to ensure compliance with the DMA, "users who do not consent should still get access to an equivalent service which uses less of their personal data, in this case for the personalization of advertising."

For the last 25 years, it's the big tech companies that have been making the rules and making the rules in order to benefit themselves. The American government has failed to step up to that.
Tom WheelerVisiting fellow, Brookings Institution

The EU also found Apple non-compliant with the DMA because its App Store rules stop app developers from freely communicating with consumers about channels outside of the App Store for offers and content. Apple has long kept other app stores from its operating model, citing privacy concerns.

Initial compliance plans from companies like Apple and Meta outlined how they planned to comply with the rules, which the EU inevitably found issues with, Wheeler said. The EU has set standards through the DMA that it now expects big tech companies to meet, he said.

Wheeler said one reason the EU advanced the DMA for big tech regulation is because existing laws including antitrust failed to check their power. Regulatory measures like the DMA try to consider what oversight looks like in a digital environment rather than "clone industrial oversight," which he said was designed for industrial era challenges.

Wheeler said the European Commission is making it clear that tech companies no longer have the power to follow their own rules of operation.

"For the last 25 years, it's the big tech companies that have been making the rules and making [those] rules in order to benefit themselves," Wheeler said. "The American government has failed to step up to that."

EU will face challenges

Some disagree with the EU's approach to regulation of digital markets.

While Meta offered European users a choice between using Facebook and Instagram with ads or paying for an ad-free version of the apps, the EU wants Meta to offer a version that's both free of cost and without ads. Forcing companies to offer online services free of both a subscription fee and targeted ads would create a "massive freeloading problem" where users globally subsidize the cost of providing services to the EU, said Daniel Castro, vice president of the Information Technology and Innovation Foundation, in a statement.

"If regions outside the EU implemented similar policies, internet services would quickly enter a death spiral of unsustainable costs versus revenue," he said. "The United States should vigorously defend the interests of American companies who EU regulations have unfairly targeted, and the Biden administration should formally object to this preliminary finding by the European Commission."

The EU's investigation into Meta and Apple for noncompliance will continue for the following year. If the companies don't come into compliance, they could face fines of up to 10% of the company's total annual turnover. Continued infringements of the DMA could lead to additional remedies, including structural remedies like requiring companies to sell parts of their business.

Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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