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How to shake up the digital duopoly

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To resolve the issues surrounding inefficiencies in access to data, we advocate a mix of three key approaches: a) data privacy approach,b) data localisation approach, and/or c) universal data approach. PIXABAY

How to shake up the digital duopoly

The great digital divide is not between developed and developing countries. Many developed countries are also far behind in the digital race.

The global digital economy seems to be concentrated in just two countries – one developed and the other, still developing. It may seem outrageous but the US and China account for about 90 per cent of the market value of the world’s 70 largest digital platforms and they own around 75 per cent of all patents related to blockchain technologies. They are also responsible for approximately 50 per cent of global spending on Internet of Things (IoT) and dominate 75 per cent of the cloud computing market.

Amber lights are blinking on the dashboard of the global economy once again. The fight for dominance by a few digital behemoths has far-reaching consequences, in ways that were not thought of before.

Players with access to consumer data thwart the rise of local, smaller players. At present, big tech companies are the subject of several investigations to see if they use their large data trove to take unfair advantage of competitors.

Smaller rivals and traditional incumbents are not privy to this customer data. For example, a search engine company has been accused of favouring its own services over those of rivals. There are concerns over whether a few companies unfairly wield power over their application stores hurting rival apps from competitors. Some e-commerce players use their data algorithms to favour their own goods over products from third-party sellers.

Acquire smaller rivals, if they thrive, in an early stage. Big tech companies often pursue acquisitions to eliminate the threat from smaller rivals. For example, Facebook acquired rival Instagram in 2012, followed by WhatsApp in 2014. But how can market efficiencies be realised when many of these local start-ups are acquired at an early stage by their bigger rivals?

Regulators must walk the fine line of regulating tech companies without hurting innovation. Yet, the fight for dominance in the digital world has far-reaching consequences due to data-access, in ways that was not thought of before. For example, traditional market regulation mechanisms such as marked maximum retail prices and checks and balances to prevent price fixing and collusion, seem to be losing meaning in a digital world where prices are set in a non-transparent approach, at times by using algorithms.

Is there a single strategy to win a football game? Highly paid club manager often evaluates the strengths and weaknesses of his team to come up with a strategy. Likewise, each nation needs to address the problem of regulating digital platforms in a different manner. To resolve the issues surrounding inefficiencies in access to data, we advocate a mix of three key approaches: a) data privacy approach, b) data localisation approach, and/or c) universal data approach.

Data privacy is important but scattershot crackdowns are hurting small fries while digital behemoths thrive. In May 2018, the EU introduced General Data Protection Regulation (GDPR) to harmonise data privacy laws across its member states. To date, about 120 countries have enacted data protection laws and around 40 countries and jurisdictions have pending data-protection bills.

While helping to preserve data privacy, these regulations at times exacerbate market efficiency. At times, smaller players feel pressured to put a stop to data collection practices, even when such data is integral to their businesses for fear of noncompliance. Since GDPR was put into effect, the advertising share of a leading search engine has grown while most other ad-tech vendors in North America and Europe have lost ground.

Some countries such as Vietnam are attempting to fight inefficiencies through data localisation requirements and mandating digital platform companies to open local offices in the country. This led to multiple data centres being set up locally, creating many jobs and benefiting the economy. The government can also collect taxes easily with local operations in the place. Many developing countries, however, do not have the required digital infrastructure, implying higher cost of data storage and higher security risks.

There are also talks in India about mandating digital companies to sell public or non-personal data to anyone within the country seeking access to the database to level the playing field for the smaller players. This approach is similar to governments acquiring land for making highways or roads, where the owners are expected to act in national interests. However, in encouraging sharing and access, one must also not lose sight of privacy and security risks.

Each country is trying to pick a mix of approaches that suit its reality. Indonesia’s digital economy is the largest and fastest growing in the Southeast Asia region, but the archipelago does not have regulations on personal data protection yet. With the EU’s GDPR as a guiding light, Indonesia has drafted a law on personal data protection, which is being reviewed by the House of Representatives. Once adopted, Indonesia will join the ranks of over 120 countries that have enacted data protection laws

To exercise greater sovereign control over the country’s data, Indonesia adopted strict data localisation mandate in 2012. However, data localisation requirements were relaxed in October last year in a bid to promote foreign investments. Since then, data localisation regulations only apply to public entities and those operating digital platforms on behalf of the public entities. However, regardless of the location, all players must ensure that their digital platforms and data are accessible by the regulator.

There is no talk of universal data access in Indonesia yet. If home-grown companies can get an access to the public data for a fee, it may encourage them to tackle country-specific challenges which are less relevant for the global players.

However, bear in mind that the digital behemoths have the financial muscle to lobby for favourable regulations. Hence, in order to push for the right moves, many developing nations including Indonesia will need the backing of Europe, Japan, regional bodies and multilateral organisations. Otherwise, the lobbying power of large digital platforms may simply prove too much.

Sachin Mittal is regional head of Telecom, Media and Technology Research at DBS Bank.



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