#77 Shackling Digital Giants: India's New Digital Competition Bill
Learning from the EU’s Digital Markets Act, Birth of a New Trilateral: India - US - ROK Trilateral Technology Dialogue
Today, Bharath Reddy compares India’s recent draft Digital Competition Bill with the EU’s Digital Markets Act to understand the direction ex-ante digital regulation may soon take, while Saurabh Todi reports on the India—US—ROK Trilateral Technology Dialogue.
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Cyberpolitik: Learning from the EU’s Digital Markets Act
— Bharath Reddy
Have you ever had to jump through hoops to renew your Spotify subscription via the website instead of through the app on your phone, which you use daily? The same goes for purchasing books on the Kindle or Audible. These are app developers' efforts to bypass the exorbitant commissions that Apple and Google charge on in-app purchases.
The Union Government has recently released the draft of the Digital Competition Bill, 2024. The draft bill prohibits large digital platforms from activities such as self-preferencing, restricting third-party apps, imposing anti-steering policies, misusing business users' data, and bundling products and services. This is a move towards ex-ante regulations that aim to prevent anti-competitive activities before they happen as opposed to ex-post, where regulators act after the impugned activity has occurred.
This is not new, and other geographies have already tried this approach. The Digital Markets Act (DMA), introduced in the EU two years ago, came into effect on March 6th. This landmark legislation seeks to reign in the power of big tech companies that serve as "gatekeepers". For example, Apple has been forced to allow access to rival app stores on the iPhone and iPad while also allowing developers to stop using its payment service. Epic Games, which has been battling Apple and Google to avoid paying hefty commissions on in-app purchases, is finally allowed to have its own app store.
While this sounds great in theory, this article in FT indicates that it might not be working as expected.
"There is little evidence yet to suggest that the law is having the desired effect. Industry groups representing travel apps such as Airbnb and Booking.com, and entertainment apps like Spotify and Deezer, complain the tech companies are focused on the letter of the law rather than the spirit of it, and it is having no meaningful impact on their businesses.
Judging by the record stock market highs enjoyed by some of these companies, Wall Street doesn't believe it will have much practical effect on profits or the level of competition either — particularly as the tech industry hurtles into the AI age, resetting the competitive dynamics in some of the core tech markets."
However, tech companies have found innovative ways of bypassing these regulations and holding on to their advantage. The FT article goes on to say:
"This year, Apple published a highly detailed set of technical changes that in effect open the way for rival app stores on the iPhone and iPad, while also allowing developers to stop using its payments service.
But it also said that anyone choosing to take advantage of these new arrangements would have to pay a new fee of €0.50 for every app downloaded over a million installations — something that would hit companies that have large numbers of free app users on mobile platforms, making them less likely to take advantage of the new freedom to launch an app store of their own.
The music streaming app Spotify, for example, said the new fee meant it would end up in a worse position if it opted out of Apple's current App Store arrangement."
Digital platforms have network effects. To put it simply, the more users on a platform, the more useful it is for everyone. For example, having more drivers and users on a cab aggregator platform is good for everyone on the platform. This also explains the popularity of WhatsApp as a communication app and YouTube as a video streaming service.
The scale of these platforms also provides them with the resources and incentives to improve their offerings. Ben Thompson who publishes the popular newsletter Stratechery, points out that a lot of aggregators succeed because users like them. He points out the massive investments they make to retain their advantage.
"Aggregators, meanwhile, were like the printing press but on steroids; everyone talks about the astronomical revenue and profits of the biggest consumer tech companies, but their costs are massive as well: in 2023 Amazon spent $537 billion, Apple $267 billion, Google $223 billion, Microsoft $127 billion, Meta $88 billion. These costs are justified by the fact the Internet makes it possible to serve the entire world, providing unprecedented leverage on those costs, resulting in those astronomical profits."
While we have discussed the commissions for in-app purchases, the DMA also has a lot of other requirements for gatekeepers such as interoperability, allowing contracts outside their platform, and preventing users from uninstalling any pre-installed software among others. The fines for non-compliance could go up to 10% of the company's total worldwide annual turnover, or up to 20% in the event of repeated infringements. Will the heavy fines be a strong disincentive for anticompetitive practices or will it hinder innovation in the region? The developments will have interesting lessons for India.
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Technomachy: Birth of a New Trilateral: India - US - ROK Trilateral Technology Dialogue
— Saurabh Todi
The Trilateral Technology Dialogue (TTD) convened by the United States, South Korea, and India on March 13, 2024, marked a significant step towards expanding regional cooperation on critical and emerging technologies. The dialogue aims to foster innovation, bolster economic growth, and enhance technology supply chain resilience in the Indo-Pacific region. It underscored the preference for multilateral initiatives among regional countries amid escalating great power competition, particularly with China. Geopolitical tensions and economic vulnerabilities have prompted nations to implement supply chain resilience measures like friend-shoring, derisking, and decoupling.
Bilateral initiatives between the US, South Korea, and India, such as the US-ROK Next Generational Critical and Emerging Technology Dialogue and the US-India Initiative on Critical and Emerging Technology, reflect shared concerns over technological vulnerabilities. The TTD aims to bolster cooperation across various technological domains, including semiconductors, telecommunications, artificial intelligence, quantum computing, defence, and biotechnology.
While ambitious, the TTD's scope necessitates prioritising sectors with existing synergies, such as semiconductor production and green technologies like hydrogen and small modular reactors (SMRs). The dialogue could facilitate collaboration in areas where each country has a competitive advantage, thereby mitigating supply chain risks and advancing common goals like achieving net-zero emissions.
However, potential cooperation faces challenges, including geopolitical shifts and evolving trade policies. Political dynamics, particularly in the US, can impact trade relations and multilateral initiatives. For instance, South Korea's trade surplus with the US may provoke a political backlash, necessitating careful navigation of trade discussions. India also grapples with trade deficits, particularly with South Korea, prompting a renegotiation of its FTA with South Korea to address concerns.
Despite challenges, the TTD represents a crucial step towards enhancing regional security, stability, and prosperity. It underscores the importance of sustained cooperation to achieve tangible outcomes amidst geopolitical complexities and economic uncertainties. Efforts to navigate trade dynamics and leverage technological synergies are vital for realising the full potential of trilateral collaboration in the Indo-Pacific.
What We're Reading (or Listening to)
[Opinion] The Hidden Dangers in China’s GDP Numbers, by Amit Kumar
[Takshashila Working Paper Compendium] Artificial Intelligence: Impact and Governance, by Bharat Sharma, Saurabh Todi, Satya S Sahu, Sridhar Krishna, Bharath Reddy, and Shrikrishna Upadhyaya
[Video] US House passes bill that could ban TikTok in America [TRT World Now]