US tech giants face sweeping changes as EU approves controversial new law

Tech giants will have to make their messaging services interoperable and provide business users access to their data. PHOTO: AFP

BRUSSELS (BLOOMBERG) - European Union (EU) negotiators ironed out the final details to a new law that will force sweeping changes to how Big Tech companies operate in Europe, with significant fines or, in extreme cases, banning the worst offenders from acquisitions.

The new Digital Markets Act (DMA), agreed to by negotiators in Brussels on Thursday (March 24), targets so-called gatekeeper companies, platforms such as Facebook and Google with the power to control distribution in their markets.

The key rules lawmakers set for gatekeepers include: 
• making their messaging apps interoperable to prevent users from being tied to one network;
• letting users choose a default search engine, Web browser and virtual assistant when they buy a new smartphone;
• ensuring fair access conditions for their app stores;
• gaining explicit consent to combine personal data to target ads and;
• banning the companies from ranking their own products higher than others

Fines of as much as 10 per cent of a company’s global annual sales will apply for an initial breach of the law, rising to 20 per cent for repeat infringements. Companies that routinely violate the rules will be temporarily banned from conducting mergers and acquisitions.

Negotiators agreed that “gatekeepers” include companies with a market value of €75 billion (S$112 billion) or €7.5 billion in annual revenue within the EU, and at least 45 million monthly end users and 10,000 yearly business users of at least one core platform, including Web browsers and virtual assistants.

The legislation, which takes effect next year, will apply to companies such as, Facebook parent Meta Platforms, Google parent Alphabet, Microsoft, Apple and Booking Holdings. Online marketplaces Zalando and Alibaba could also be affected.

“The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions,” Ms Margrethe Vestager, the EU’s competition chief, said in a statement.

"This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”

Internet giants such as Amazon and Google have long been targets of antitrust investigations from Brussels, but these cases drag out for years in the courts and have had little impact on the behaviour of the companies.

To successfully break what the EU says is a stranglehold on digital ecosystems by a handful of giants, officials say they need new tools like the DMA.

“From now on, digital companies must show that they allow fair competition on the Internet,” Mr Andreas Schwab, the parliamentarian in charge of writing the rules, said in a statement. “That can be enforced more easily with the new rules. This means that the time of long antitrust cases, during which the authorities were lagging behind the Big Tech companies, is over.”

Some of the industry’s leaders warned that the DMA will cause problems for users and be a financial hit for companies.

An Apple spokesman wrote after the agreement that the company remains “concerned that some provisions will create unnecessary privacy and security vulnerabilities for our users while others will prohibit us from charging for intellectual property in which we invest a great deal”.

Others have warned that forcing messaging apps such as WhatsApp or iMessage to be interoperable will affect encryption, or stifle iterative product design that is a hallmark of Silicon Valley entrepreneurship.

Mr Nick Clegg, Meta’s president of global affairs, criticised the proposal last May, saying “what happens in the next two years will define the next 20 years” and that “some of the DMA’s fine print suggests policymakers could find themselves deep in the weeds of product design”.

Join ST's Telegram channel and get the latest breaking news delivered to you.