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EU announces sweeping new rules that could force breakups and hefty fines for Big Tech

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Key Points
  • One of the potential changes is putting an end to self-preferencing.
  • Companies like Apple and Google will also have to allow users to uninstall apps that have originally come with their devices.
  • Failure to comply could result in fines as high as 10% of the companies' annual turnover worldwide.
  • The remedies could ultimately include forcing companies to disinvest if they breach the rules systematically.

In this article

EU Commissioner for A Europe Fit for the Digital Age - Executive Vice President Margrethe Vestager is talking to media during a virtual press briefing in the Berlaymont, the EU Commission headquarter on November 26, 2020, in Brussels, Belgium.
Thierry Monasse | Getty Images

LONDON — Tech giants could soon face hefty fines and stricter controls over their behavior as part of sweeping new rules in the European Union.

The European Commission, the executive arm of the EU, on Tuesday presented two new pieces of legislation that will affect how Big Tech operates. The region has long had concerns about how powerful some companies have become, and how this is a problem for smaller firms looking to compete in the European market.

In this context, the new Digital Markets Act aims to tackle behavior that closes these markets off.

One of the potential changes is putting an end to self-preferencing — when, for instance, app search results in an Apple product display options developed by the tech giant. The idea is to give smaller app developers the same chance of being found and chosen by consumers.

Hefty fines

Other practical changes include: companies like Apple and Google will have to allow users to uninstall apps that have originally come with their devices, and performance metrics will also have to be shared for free with advertisers and publishers.

Failure to comply could result in fines as high as 10% of the companies' worldwide annual turnover.

One senior EU official, who didn't want to be named due to the sensitivity of the issue, told CNBC the EU's aim is to enforce remedies that will lead to practical changes rather than fining those breaching the rules constantly.

Forcing companies to divest

The remedies could ultimately include forcing companies to divest if they breach the rules systematically. The same official said that selling parts of the business would only happen "if no other remedy is available."

Additionally, the European Commission presented a second piece of legislation: the Digital Services Act. This is designed to address illegal and harmful content by asking platforms to rapidly take it down. There will also be fines for companies that do not follow these rules.

The EU's competition chief, Margrethe Vestager, said Tuesday that the two proposals would ultimately serve a dual purpose. "To make sure that we, as users, have access to a wide choice of safe products and services online. And that businesses operating in Europe can freely and fairly compete online just as they do offline."

The two pieces of legislation will have to be approved by European governments and lawmakers, but policy experts have suggested that the adoption could be quicker-than-usual at the EU level.

Vestager told CNBC she hopes the new rules will be adopted "as fast as possible" but that this could take two years.

VIDEO8:2408:24
Why the EU is getting tough on Big Tech

The EU has been at the forefront of tech regulation, with new data privacy laws established in 2018. However, experts believe that the latest step is even more significant as it challenges the hearts of the business models of tech giants.

Big Tech had expressed concerns about the new rules in the runup to their presentation. Google, for instance, was worried about the prospect of the latest legislation preventing it from combining certain data, such as the location of a restaurant, its menu and the option to book a table.

At the same time, other parts of the world are taking similar steps toward tougher tech regulation. The U.K. announced Tuesday that tech giants could be fined up to £18 million ($24 million) or 10% of their annual global turnover, whichever is highest, if they don't take down illegal content quickly.

In the United States, the Federal Trade Commission is investigating how social media firms use personal data and drive user engagement. It also launched a case against Facebook over monopoly concerns.

The EU's work on tech regulation has previously raised some concerns in the U.S., but Vestager believes this time is different.

She told CNBC that the latest step is part of a "global conversation about how to balance things," adding that "there are no surprises" in the new regulations for her U.S. counterparts.

Big Tech response

Caroline Greer, director of government relations and public policy for TikTok in Brussels, said: "It's clear that platforms play an important role in society, and it is right that they are transparent and held to account."

"At TikTok, safety isn't a bolt-on or a nice-to-have, it's our starting point. We look forward to reviewing the proposals brought forward by the Commission today and discussing the opportunity this reform presents to strengthen how platforms keep their communities safe online."

Separately, Sinead McSweeney, VP of public policy at Twitter EMEA, said: "Twitter is committed to advancing the principles of the Open Internet and keeping people safe online."

"We welcome the European Commission's publication of the Digital Service's Act and Digital Markets Act today, which come at a critical political juncture — in Europe and around the world."

Correction: An earlier version misstated how large the fines could be.