Britain exiting the European Union — dubbed the Brexit — threatens an effort to simplify rules for technology companies. But the United Kingdom, a substantial overseas market for American Internet companies, will probably impose its own regulations.
(TNS) -- Eric Schmidt’s nightmares may soon be restlessly shared throughout Silicon Valley, if Britain’s populace votes to quit Europe this week.
I wouldn’t have blamed the Alphabet chairman if he’d lobbed back a cliche response to the cliche question — “What keeps you up at night?” — posed at the Virtuous Circle conference in Menlo Park last fall. However, the overseer of the world’s largest search engine gamely offered a thought-provoking answer: “The balkanization of the Internet.”
At a time when technology has enabled instant communication throughout the world, the Internet is in danger of being divided into fragmented spheres of existence, he said. At the time, I assumed Schmidt was referring to heavy-handed censorship in China, a country whose government has not been kind to Silicon Valley names like Facebook, Twitter and Alphabet’s Google.
Now, though, Schmidt’s warning has taken on a newly ominous meaning. In Great Britain, people will vote Thursday on whether to leave the European Union. Such a move, dubbed "Brexit," for "British exit," would be devastating for Europe’s hopes to create a digital single market, in which goods and services can move seamlessly across the continent under the same set of rules.
Under the rubric of a digital single market, Europe has sought to craft uniform rules that protect intellectual property, safeguard consumer data, eliminate mobile-phone roaming charges and end country-by-country restrictions on content like movies and TV shows. Netflix, for example, can offer a more consistent stream of programming to all of Europe instead of negotiating rights country by country, as it must do under the current video-licensing setup.
A Brexit threatens this effort to simplify rules for technology companies: The United Kingdom, a substantial overseas market for American Internet companies, will probably impose its own regulations. And the countries remaining in the European Union are more likely to take a protectionist line.
The European Commission estimates that eliminating remaining barriers to online services between the 28 EU nations, a market of 500 million people, could add $470 billion to the economy. Cleave off an eighth of that market, and you’re talking about a lot of lost opportunity.
Add to that the challenge of complying with two sets of rules: one for Great Britain, one for the rest of Europe, said Mark Webber, a partner with Fieldfisher law firm in East Palo Alto.
“It will be just as complicated as when we had a fragmented market,” Webber said.
Ironically Great Britain was one of the biggest proponents of the digital single market.
“A separation from the EU would mean ... the digital single market would lose its greatest ally, while the (United Kingdom) could only influence the debate from the sidelines,” a report by Institute for European Studies argued.
Some Brexit supporters say Great Britain can follow Norway’s example and participate in a digital single market without having to be in the EU. But a top German official recently ruled that scenario out.
“That argument is pie-in-the-sky thinking,” Webber said.
Without a digital single market, Europe minus Great Britain might make things even tougher for American tech firms. Over the past decade, Europe has challenged companies, including Microsoft, Google and Facebook, with regulations and lawsuits ostensibly designed to preserve competition and privacy.
In reality, Europe’s uneasy relationship with American tech firms is also rooted in deep insecurity: that the continent needs to blunt U.S. business dominance, at least until Europe can narrow the gap between itself and Silicon Valley. France and Germany once tried to back a search engine, Quaero, to challenge Google; the project quietly ended, after years of irrelevant stumbling, in 2013.
According to European Commission data, U.S. online firms control 51 percent of the continent’s digital market. The rest is split between national telecommunications companies and European cross-border services. Some Europeans see a digital single market as a way to boost homegrown tech firms and compete with Silicon Valley on a more equal footing.
Yes, a strong, unified digital single market — with the United Kingdom in it — could be good for Silicon Valley. But conversely, the more confident Europe feels about its high-tech prospects, and the more it embraces open competition, the more likely the continent will be hospitable to the likes of Google, Facebook and Twitter.
In a Brexit world, as Schmidt feared, the Internet is in danger of splitting off into pieces dominated by nationalist agendas rather than serving as a unifying force for both economies and culture.
“The Internet does not care about legislation,” Siemens CEO Joe Kaeser once told me. “The Internet is without borders. There should be a global approach, not a U.S. or European one.”
©2016 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.
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