Mon. Jul 26th, 2021
network, iot, internet of things
The EU Commission inquires the Internet of Thinks. Photo by jeferrb on Pixabay

Source: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_2884

The European Commission has published today the preliminary results of its competition sector inquiry into markets for consumer Internet of Things (IoT) related products and services in the European Union. The Preliminary Report confirms the rapid growth of these markets, but also identifies potential concerns put forward by the respondents to the sector inquiry.

Executive Vice-President Margrethe Vestager, in charge of competition policy said:

“When we launched this sector inquiry, we were concerned that there might be a risk of gatekeepers emerging in this sector. We were worried that they could use their power to harm competition, to the detriment of developing businesses and consumers. From the first results published today, it appears that many in the sector share our concerns. And fair competition is needed to make the most of the great potential of the Internet of Things for consumers in their daily lives. This analysis will feed into our future enforcement and regulatory action, so we look forward to receiving further feedback from all interested stakeholders in the coming months.”

The consumer IoT sector inquiry was launched on 16 July 2020 as part of the Commission’s digital strategy and following an announcement in the Commission’s Communication on Shaping Europe’s digital future. During the inquiry, the Commission has gathered information from over 200 companies of different sizes, operating in consumer IoT product and services markets and based across Europe, Asia and the United States. Furthermore, these companies have shared with the Commission more than 1000 agreements. This information forms the basis of the Preliminary Report published today.

Main Findings of the Preliminary Report

The findings of the Preliminary Report on the sector inquiry on the consumer IoT cover: (i) the characteristics of consumer IoT products and services, (ii) the features of competition in these markets, (iii) the main areas of potential concern raised by respondents in relation to the current functioning of consumer IoT markets, as well as to their future outlook.

Characteristics of consumer IoT products and services

The Preliminary Report indicates that, while the consumer IoT is a relatively new area, it is growing rapidly and becoming more and more a part of our everyday lives. In addition, there is a trend towards increasing availability and proliferation of voice assistants as user interfaces enabling interaction with different smart devices and consumer IoT services.

Features of competition in the markets for consumer IoT products and services

The majority of respondents to the sector inquiry indicate the cost of technology investment and the competitive situation as the main barriers to entry or expansion in the sector. According to the replies, technology investment costs are particularly high in the market for voice assistants. With respect to the competitive situation, a large number of respondents has reported difficulties in competing with vertically integrated companies that have built their own ecosystems within and beyond the consumer IoT sector (e.g. Google, Amazon or Apple). As these players provide the most common smart and mobile device operating systems as well as the leading voice assistants, they determine the processes for integrating smart devices and services in a consumer IoT system.

Main areas of potential concerns
  1. Respondents raised concerns regarding certain exclusivity and tying practices in relation to voice assistants, as well as practices limiting the possibility to use different voice assistants on the same smart device.
  2. The Preliminary Report sets out a number of potential concerns raised by respondents in respect of the position of voice assistants and smart device operating systems as intermediaries between users, on one side, and smart devices or consumer IoT services on the other side. This position, combined with their key role in the generation and collection of data, would allow them to control user relationships. In this context, respondents have also raised concerns in relation to the discoverability and visibility of their consumer IoT services.
  3. Providers of smart device operating systems and voice assistants seem to have extensive access to data, including information on user interactions with third-party smart devices and consumer IoT services. The respondents to the sector inquiry consider that this access to and accumulation of large amounts of data would not only give voice assistant providers advantages in relation to the improvement and market position of their general-purpose voice assistants, but also allow them to leverage more easily into adjacent markets.
  4. According to respondents, the prevalence of proprietary technology, leading at times to the creation of “de facto standards”, together with technology fragmentation and lack of common standards, raise concerns as to the lack of interoperability in the Consumer IoT sector. In particular, a few providers of voice assistants and operating systems are said to unilaterally control interoperability and integration processes and to be capable of limiting functionalities of third-party smart devices and consumer IoT services, compared to their own.
Next steps

The Preliminary Report on the findings of the sector inquiry will now be subject to a public consultation for a period of twelve weeks, until 1 September 2021*. All interested parties will be able to comment on the findings of the sector inquiry, submit additional information or raise further areas of concern.

The Commission aims to publish the Final Report in the first half of 2022.

The information collected in the context of the sector inquiry on the consumer IoT will provide guidance to the Commission’s future enforcement and regulatory activity. Any competition enforcement measure following the sector inquiry would have to be based on a case-by-case assessment. The findings of this sector inquiry can also contribute to the ongoing legislative debate on the Commission’s proposal for the Digital Markets Act.

For further background, please see the Q&A and the sector inquiry website.

*Modified on 9 June, at 15:55