The European Commission’s Directorate General for Competition (‘DG COMP’) launched its sectory inquiry into IoT in July 2020 focused on smart speakers, wearables and home appliances. The inquiry did not come out of nowhere, and followed suspicions of market distorting behaviour including: restrictive data access policies, limited interoperability between ecosystems, forms of self-preferencing and the use of proprietary standards to block market entrants. DG COMP was also examining Google’s acquisition of the smartwatch producer Fitbit at the time.
Consumer IoT devices are being scrutinised for several reasons. One is that they are an emerging gateway for consumers to interact with the digital economy. This is particularly true of how IoT devices are used to access subsequent services which themselves are immensely popular among consumers. The sector is still in the early stages of development but the interim report found that providers of services accessed through IoT devices overwhelmingly offer creative content such as music or video (51%), followed by shopping (22%) and search (22%).
Another reason is the prevalence of IoT devices and/or voice assistants from a select group of companies and the extent to which they use IoT to feed into other areas of their business. The position of the likes of Amazon, Google and Apple are an important consideration as IoT devices form part of their suite of digital services available for consumers and data collection points to inform their other verticals, like advertising.
Lastly, IoT depends on a system of connected devices communicating seamlessly to deliver the insights and benefits promised with an IoT world. This requires interoperability, data flows and accessibility between devices - which can be undermined without the right policy frameworks in place.
The interim report sets out some initial concerns for the European Commission based on submissions to the inquiry. These are preliminary and will certainly develop, yet they do give a picture of the main avenues of interest.
A lack of interoperability between IoT devices, due to a lack of frameworks and de facto standards from large players is emerging as a result of proprietary technologies. Brands play a strong role here, in creating an ecosystem of devices with the potential for lock-in of users into products or services. However, note is made of the fact that de facto standards from a select group of companies are not always a downside, and enable efficiencies by avoiding too many fragmented approaches.
Another concern is whether producers of devices or voice assistants are in effect promoting their own ancillary products by limiting the functionalities of third-party devices and consumer services compared to their own by imposing technical constraints, such as limited APIs. Furthermore, it has been observed that smaller players have less bargaining power when negotiating interoperability frameworks, potentially leading to distortions and barriers for new entrants to compete.
The interest here is where data is controlled or limited, so that providers of services through IoT devices (like apps or streaming), or third-party device manufacturers (like smart TVs), receive limited access to data on consumers’ interaction with their services. Another area of inquiry is how data is combined by large tech companies to drive their advertising models, as well as the scale of data required for new entrants to build and then train IoT systems such as voice assistants.
Pre-installation and default settings
Devices can have pre-installed services or settings which favour voice assistants or content providers of certain companies. This can lead to competitive advantages and limit the ability for competitors to challenge established providers, as users are not setting up the services that they want to receive through the device. An explanation is given here on how users tend to make requests, such as “tell me the weather”, rather than specifying where they would like to get the information from, giving pre-installed services an advantage.
Some voice assistant providers are ensuring that only their systems are available on certain devices, or tying these together with other offerings from the same provider.
The interest here is over who controls the relationship with the user, with some service providers taking issue with disintermediation by voice assistants or device operating systems. Some have found that they lose their brand recognition and their direct relationship with the user.
Sector inquiries are thorough and can unearth all sorts of information leading to extensive policy interventions. For example, an inquiry into e-Commerce which began in 2015 led to bans on the use of certain most favoured nation clauses and eventually led to the introduction of the ‘Platform to Business Regulation’ and by extension elements of the upcoming Digital Services Act.
The sector inquiry will provide the European Commission with a wealth of information when assessing anti competitive behaviour. The work is not over, and it will feed into broader discussions at EU level about competition in digital markets, not least through the proposed Digital Markets Act.
Moving away from competition policy, there are complex questions on how the wider IoT sector develops interoperability and an open set of standards. Standards are key for IoT - they get to the heart of how devices connect when it comes to device communication and data portability. But there is not a comprehensive framework in place. Corporates that can offer contributions to this puzzle are in a strong position to shape the debate and offer solutions to policy makers.
Taso Advisory supports clients with the political, policy, and regulatory challenges they face. We work with several large technology businesses to monitor and engage with European policy developments.
For a confidential discussion about how we can support your public policy and public affairs work on IoT please get in touch by emailing [email protected] or by calling +44 (0) 20 3488 4489.