Europe Takes the Lead

Wall Street is worried that the Federal Trade Commission may scuttle the AOL-Time Warner merger. As usual, they’re missing the point.

The point is Europe. It’s Europe that is forcing a more aggressive regulatory climate on the U.S., and the coming election won’t change that.

A European Commission “statement of objection” to the AOL-TW deal expresses worry about competition in the news and music markets. U.S. regulators, on the other hand, have been more worried about interactive cable, and were ready to green light the deal if AOL promised to be nice.

But if Europe says no, maybe it’s no.

Europe has already said no and scuttled a big U.S. merger. Remember Worldcom-Sprint? That one was blocked outright by EC regulators. A three-way merger among Canada’s Alcan Aluminium Ltd., France’s Pechiney and Switzerland’s Alusuisse Group aluminum groups was also scuttled in Europe.

Europe is not just leading in antitrust. The European Union Directive on Data Protection has been causing U.S. dot-coms trouble for a year now.

The directive requires that if you want personal data from European consumers you have to get permission, and tell them what the data will be used for. You also have to make those files available on request, and you can’t use cookies to track visitors or sell email addresses without getting prior permission. More important, no company may deliver personal information about citizens of the European Union to countries whose privacy laws do not meet EU standards.

U.S. negotiators won a “safe harbor” agreement from Europe on data privacy, but that came at a price. To transfer data from Europe, companies here must respect detailed standards of notice, user choice, data access, and security.

These are just two examples where rules that govern your business are being made outside the U.S., beyond your control. The Euro may be a bomb (it was supposed to be worth $1, but it currently sells for less than $.85), but if you want to do business worldwide, you have to pay attention to Europe. The Internet, remember, makes you a de facto worldwide business.

More is coming. The German government, for instance, figures it has a solution to the copyright problems caused by systems like Napster. It’s a tax on computer hardware, similar to levies now placed on copiers and fax machines, that would raise prices by 30 percent. The money would go to such copyright holders as writers, filmmakers, and musicians, and the system would be made part of that country’s copyright law.

U.S. portals are finding Europe a tough market to crack. Lycos is suffering in Europe despite its pending acquisition by a Spanish company. AOL Europe trails both German and U.K. ISPs in those markets. At its Jupiter forum in July, Media Metrix showed that local portals are competing fiercely with U.S. rivals throughout Europe, and that those markets are growing faster than the U.S.

This is what you call an unintended consequence of a shrinking globe. Europe is not a market we can control, and it’s pushing back against business practices we consider normal. Expect that to continue.

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