Europe’s Digital Fragmentation Is Becoming an Antitrust Issue

European Union Commissioner for Competition Margrethe Vestager of Denmark attends her hearing at the European Parliament in Brussels, on October 2, 2014. AFP Photo/Thierry Charlier. (Photo credit should read THIERRY CHARLIER/AFP/Getty Images)
Photograph by Thierry Charlier — AFP/Getty Images

The European Union’s lawmakers know they face a problem with “geo-blocking” — where online retailers and digital media vendors in one EU country won’t sell to people in another. The question, how much of a problem?

That’s what the European Commission’s competition directorate set out to find last year, when it asked businesses to describe their geo-blocking practices. The results are in and, according to the preliminary results, the issue is widespread.

Why does this matter? Imagine if consumers and businesses in the U.S. got charged different prices from online suppliers according to which state they’re in. The uniformity of the American market is one reason the country works so efficiently in the online realm, and the EU — which is supposed to be a single market anyway — wants to reach the same point.

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According to those preliminary results, there’s a difference in how things work with online retailers of physical goods and those selling digital content, such as music and movies.

When it comes to the retail of ordinary consumer goods, 38% of the sellers put geo-blocking restrictions on their sales — they refuse to sell to those in other countries, they refuse payment from other countries, they route customers through to local versions of their websites, or sometimes they block foreigners from even seeing their web stores.

However, in most of those cases it’s down to the retailer to decide how open they want to be to trade in other countries. When it comes to digital content, where a whopping 68% of sellers have geo-blocking restrictions, it’s usually their suppliers who are demanding the blocks be put in place.

That’s where it potentially becomes an antitrust issue. Here’s what Margrethe Vestager, the Commission’s competition chief, said in a statement.

“The information gathered as part of our e-commerce sector inquiry confirms the indications that made us launch the inquiry: Not only does geo-blocking frequently prevent European consumers from buying goods and digital content online from another EU country, but some of that geo-blocking is the result of restrictions in agreements between suppliers and distributors. Where a non-dominant company decides unilaterally not to sell abroad, that is not an issue for competition law. But where geo-blocking occurs due to agreements, we need to take a close look whether there is anti-competitive behaviour, which can be addressed by EU competition tools.”

This is not to say there will definitely be an antitrust crackdown, but it is certainly starting to look that way. The Commission said it would tackle antitrust abuses, where they exist, on a case-by-case basis.

The Commission has for the last year been trying to establish (not for the first time) a proper digital single market in the EU. It has several ways in which to try cracking this nut, and competition is only one of them.

For more on EU antitrust, watch:

However, the alternatives have turned out to be political quagmires. Particularly when tackling digital content, the Commission’s upcoming copyright reforms are likely to be weak sauce thanks to countries such as France, whose entertainment industries see lucrative market segmentation as their best defense against the Hollywood hegemon. It may not be in the best interest of consumers, but divide-and-conquer suits the industry just fine.

Of course, the U.S. studios are themselves very keen on segmentation, so they can control release windows and score the best-paying deals with broadcasters and other distributors in each country. That’s where Vestager’s department has already stepped in, issuing charges last July against the big studios over their country-specific deals with pay-TV providers.

Having already waded into the pay-TV aspect of this issue, it could be that Vestager is preparing to seriously tackle the online angle too.

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