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Digital Compass: Europe’s Digital Sovereignty?

Analysis - 6 April 2021

On March 9, 2021, the European Commission presented its vision for a human-centred, prosperous and sovereign digital future by 2030: the Digital Compass. This strategy aims to make the European Union an assertive player in fair and rule-based international trade, thanks to a solid industrial base, highly-skilled citizens and a robust civil society.

In this article, Katrin Suder, President of the Digital Council of the German Federal Government, former Secretary of State of Ursula von der Leyen at the German Ministry of Defense, and Ramon Fernandez, Deputy CEO at Orange, highlight some priorities to address the European Union’s strategic vulnerabilities and high-risk dependencies, in order to have a digitally sovereign Europe.

This paper is a contribution to a broader project initiated by Institut Montaigne and the Gemeinnützige Hertie-Stiftung which brings together French and German decision-makers and experts to define common priorities for building a self-confident and forward-looking Europe.

Summary

The Covid-19 crisis has shown the importance of digital technologies and also the extent to which European organisations’ freedom of choice regarding digital services can be limited. This is the most visible part of Europe’s dependency on foreign entities to collect, transport and process data in various sectors, especially in the area of consumer space. But there exists many profound dependencies in the business-to-business (B2B) space too - especially when we look at cloud services as well as semiconductors, a layer of the information and communication technologies (ICT) stack where we are depending on both US firms and manufacturing capabilities in Taiwan. Consequently, the European Union is faced with a challenge: how can it be sovereign in the digital field?

There are two potential ways to be sovereign. The first entails the complete independence of European companies and public institutions from foreign services and infrastructures. Aiming at this model of sovereignty would require excluding foreign actors from the European market and rebuilding the digital infrastructures from the ground up. The second encourages the acknowledgement of the dependencies between foreign actors and European ones whilst promoting the European Union’s own competences and preserving its freedom of choice.In this model, the objective is to ensure that the existing services can be used at the European Union’s advantage in order to foster economic development and freedom of trade. We are firm believers in the second model - the first model being neither inspiring nor realistic.

In order to succeed with the second model, we believe there are four priorities, that go in the direction of and complement the European Commission Digital Compass: the first is to accelerate the digitalisation of Europe’s economy and society, in order to increase demand in digital services as well as the development of cloud-native B2B services, which will be the main source of value in the years to come. The second is to commodify digital infrastructures - by digital infrastructures, we mean infrastructure as a service (IaaS) models such as cloud computing digital infrastructures - to ensure that European organisations have freedom of choice while leveraging innovative services. The third is to emphasise the importance of scale in the digital sector to allow European companies to reach the size they need to compete internationally. The fourth is to create a process to identify the areas that pose important sovereignty questions and that should be prioritised.

What is at stake ?

The tip of the iceberg: Europe’s reliance on foreign digital services

For most European companies’ executives, the Covid-19 crisis has been a wake-up call in terms of digital services, as most video-conferencing services that have helped organisations function during the crisis (companies, institutions, schools, associations) were foreign. However, whilst in this remote communications sector European solutions can be chosen over American ones if European actors want to, other sectors are more worrying. In the semiconductor space, Europe’s dependency on foreign companies, in some cases de facto monopolies, is manifest (high-end chips are only produced by TSMC and Samsung, US companies dominate chips’ design) and the declaration of UK-based ARM’s buy-out by US player Nvidia could drastically reduces Europe’s bargaining power in this domain, if it is approved by regulators. However, let’s note that, in parallel, the European Commission has ambitions to have, by 2030, a European production of cutting-edge and sustainable semiconductors doubling EU share in global production to reach 20% of world production in value.

The industrial base will make the core of the European data economy; the European Union cannot lose its edge.

In reality, Europe faces a value-creation challenge. Companies that offer cloud services and help other companies collect and process data have been the ones that performed the best and in which investors trusted the most. This illustrates the state of the new economy: value creation stems from data usage. There is, however, a promising message for Europe: while the consumer battle is widely lost, the B2B one is not. The industrial base will make the core of the European data economy; the European Union cannot lose its edge.

Europe’s reliance on foreign digital services is a concern for national public services. In France, the new Health Data Hub, a platform designed to centralise data and access data from patients, health practitioners and hospitals, is operated by Microsoft, due to the lack of a French alternative that meets the government’s requirements. The annulment of the Privacy Shield by the European Court of Justice has led the French data regulation body (the CNIL) to forbid the exportation of French health data outside of the European Union, and has significantly slowed down the creation of the data platform. If this shows the will of the European Union to bend its power relationship with American companies, it is also proof of the dependency of the public sector on foreign technologies and of European actors’ limited freedom of choice.

The iceberg: the need to foster the development of efficient, effective and innovative European B2B services

At a less visible level, Europe also relies on non-EU actors in key areas of its digital infrastructures, especially cloud computing. Cloud providers are managing to move up the stack, from providing infrastructure as a service (IaaS) using platform as a service (PaaS), to offerings in data spaces, thus leveraging their dominant position in IaaS to own the digital B2B space.

In the near future, this dependence on foreign infrastructures risks growing bigger. Europe lags behind on the deployment of its own submarine cables and of satellite-based communications, with consequences on the speed at which data can be processed using American actors. Some American platforms are new actors in these strategic fields. For example, the coalition led by Facebook, of which Orange is a member, will build a 37,000 km cable to link 23 African countries with the Middle East and Europe. Most American digital companies also invest heavily to launch satellites that will play a key role in telecommunications. The race for space has economic and geopolitical consequences since it will allow different actors to provide services in parts of the world that were previously insulated from online networks. In the long run, Europe’s sovereignty can become at risk if such actors start offering phone subscriptions using their own satellites, reinforcing their dominant position across various sectors of the communications industry, potentially weakening infrastructures’ diversity and the freedom of choice of consumers and companies alike.

How can the European Union react?

In light of this brief overview of the challenges Europe faces when speaking of digital sovereignty. Ursula von Der Leyen has claimed she will make 2020-2030 Europe’s digital decade.

The European Commission has put forth a vision in order to reinforce Europe’s position in the digital field. The vision evolves around four cardinal points: first, digitally skilled citizens and highly skilled digital professionals; second, secure, performant and sustainable digital infrastructures; third, digital transformation of businesses and fourth, digitalisation of public services.

Ursula von Der Leyen has claimed she will make 2020-2030 Europe’s digital decade.

We too are convinced that European actors must be able to choose freely between efficient, secure by design and innovative networks and digital services. Our model of sovereignty takes into account the dependencies between foreign actors and European ones. The objective is to ensure that the existing infrastructures and services can be used at the European Union’s advantage in order to foster economic development and freedom of trade.

1. Accelerate the digitalisation of the European economy and society, in order to increase demand in digital services as well as to encourage the development of cloud-native B2B services, which will be the main source of value in the years to come

Digital data-driven services have the potential to offer solutions to today’s challenges around health, mobility, climate and modern industrial operations. The first step is to make sure innovative services across the ICT stack are developed in Europe. To do this, the European Union needs to continue investing in digital development. In this regard, we welcome the European Commission’s requirement, in its vision for 2030, that 75% of European enterprises should use cloud computing services, big data and Artificial Intelligence and that more than 90% of European SMEs should reach at least a basic level of digital intensity. The digitalisation of existing organisations is essential, in particular to foster demand for digital services and to create value in Europe. Similarly, the European Commission’s ambition to have a 100% online provision of key public services available for European citizens and businesses, 100% of European citizens to have access to medical records (e-records) and 80% of citizens to use a digital ID solution will increase the role of public actors in creating demand for digital services.

In order to foster European companies’ digitalisation, the European Union should also continue investing in innovation programmes as well as to encourage private investments. The objective is to help them develop data strategies to gain a competitive edge. In order for them to understand the benefits of technology, more cooperation and experimentations are needed between telecom operators and companies. Innovation hubs could be deployed with the help of national governments in all European member states.

At the same time, the European Union needs to continue investing in the deployment of new services. Investment programmes such as the €8,2 billion Digital Europe Programme are necessary and should become a central piece of the European Union’s strategy. Investing in human capital is also critical: without an acute understanding of technologies, sovereignty cannot be achieved.

Future data uses will be inside companies and will stem from data-sharing between companies and across sectors. The fourth revolution rests on industrial data, and the European Union must seize this opportunity. The sharing of data between private actors must be facilitated. The European data strategy from February 2020 makes this objective very clear. In this line of thought, we encourage the creation of European common data spaces.

Diversity drives innovation, and the European Union must foster local initiatives, to encourage experiments and allow European companies to learn from a diversity of backgrounds.

It is important that any actor in the European Union, even those that are not part of the digital sector strictly speaking, be given access to common data spaces - openness is essential for innovation. However, we believe the European data strategy could be strengthened by accelerating its execution through Europe’s strength: its diversity and its decentralisation. Diversity drives innovation, and the European Union must foster local initiatives, to encourage experiments and allow European companies to learn from a diversity of backgrounds.

2. Commodify digital infrastructures to ensure that European organisations have freedom of choice while leveraging innovative services

Interoperability between digital platform services must be fostered (cloud providers, digital intermediaries, etc.). European companies and citizens must be able to use the services that best suit their needs. To do so, they must be free to change services as their requirements evolve, including to choose emerging European ones. If companies want to, they should also be able to segment their needs and use different actors for different services. In this regard, we expect a lot from the Digital Markets Act to reduce locking effects and the gatekeeping power of large platforms: actors with a gatekeeping role will be asked to share data with other players or offer the possibility for new competing platforms to use their key features.

In parallel, the European Union must continue its efforts to reassure European companies on the perceived risks associated with data processing. We welcome the Gaïa-X project, which aspires to develop standards and promote secure interface options for companies to access, share and process data. These standards must ensure the necessary commodification of cloud computing, in order to allow European companies to innovate and create their own digital solutions.

3. Emphasise the importance of scale in the digital sector, and allow European companies to reach the size they need to compete internationally

Scale matters. Digital data-services need scale to be successful; digital companies need to be able to grow organically, without costs and obstacles stemming from national rules. Put simply, European digital actors need the Digital Single Market, and they need it fast.

European companies must also be able to gain scale in an inorganic manner, through means such as mergers. In order to do so, the European Union’s competition policy doctrine, and more generally its regulations, must be updated. For example, in May 2020, the European Court of Justice (General Court) annulled a decision by the European Commission’s competition authority, which in 2016 blocked mobile operators O2 and Three UK from merging. In the following months, the European Commission appealed this decision by the European Court of Justice.

Whilst these issues are predominantly political, they should nevertheless be at the center of Europe’s strategy for the future. We regret that these challenges are not addressed in Europe’s vision for 2030. These tensions between various parts of the European institutions need to be dealt with. Europe has been focusing for too long on consumer prices, in an inward-looking position. Should it be reminded that, whilst it prohibited the merger and appealed the European Court of Justice’s decision, the Commission authorised in 2014 the merger between Facebook and WhatsApp, thus significantly reinforcing Facebook’s market power ever since? Today, the European Union must look outward and build European giants. This means allowing companies to merge and to reach the scale they need to compete internationally.

4. Create a process to identify the sectors that pose important sovereignty questions and that should be prioritised

Whilst the European Commission is pushing forward ambitious projects to invest in strategic technologies such as 5G, microprocessors, quantum computing or artificial intelligence, to date these fail to systematically assess Europe’s sovereignty risks - in the sense of a lost ability to make free choices - with the exception of the 5G cybersecurity toolbox.

Taking the toolbox as an example, we encourage the European Union to create a wide and transparent process that, in each sector, evaluates the European actors’ dependencies on foreign companies, and especially across the ICT stack. This methodology should result in the prioritisation of investments in emerging technologies with which Europe’s sovereignty is most at risk. This exercise needs to be undertaken keeping in mind the relations across sectors (for example, the impact of a dependency on foreign 3 nanometre microprocessors on artificial intelligence or high-performance computing).

Building a political strategy

The European Union’s strategy should build on the specificities of each country, redistribute responsibilities and competences inside the European Union, in order to insist on one fact: our sovereignty can only be shared.

Our view is that the European Union can develop its own competences and preserve its freedom of choice whilst using foreign services. In the long run, this will allow European companies to grow and reach the scale they need to compete with international players. However, in order for this strategy to work, the European Union and national States need to pay special attention to smaller European countries, who might see the emergence of national giants from other parts of Europe as a threat to their individual sovereignty. Addressing this issue requires strong coordination and better communication between European and national leaders to constantly stress out our common interests and the mutual dependencies that exist inside the European Union. The European Union’s strategy should build on the specificities of each country, redistribute responsibilities and competences inside the European Union, in order to insist on one fact: our sovereignty can only be shared.

 

Copyright: Olivier HOSLET / POOL / AFP

 

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