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COLUMN-France says 'Non' to the digital age

Source: Reuters - Fri, 10 Jan 2014 22:06 GMT
Author: Reuters
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By Peter Gumbel

Jan 10 (Reuters) - France has kicked off 2014 with an array of skirmishes against Amazon, Google and other U.S. Internet companies, in what is shaping up as a classic battle between comfortable Gallic tradition and disruptive modernity.

On Thursday, Jan. 9, the French Senate unanimously approved a bill that would ban Amazon from offering free shipping on books in France. Strongly endorsed by the Ministry of Culture, the legislation is supposed to safeguard the existence of the country's 3,500 bookstores, about 800 of which are independent.

A few hours earlier, France's national agency for data protection, known by its acronym CNIL, announced that its sanctions committee had found Google to be in breach of national privacy laws, based on the company's March 2012 decision to merge different privacy policies for each of its services - including YouTube, Gmail, Google Maps and Google Docs - into one policy. CNIL, along with data protection agencies in five other EU nations, argued that Google doesn't sufficiently inform its users about how or why their data is processed. It ordered the Internet giant to pay a fine of 150,000 euros (about $200,000) and to publish a communiqué on its French home page informing users of the sanction.

And in late December, a handful of companies offering private minicab services online in France, including the San Francisco-based startup Uber, began organizing against a new government decree that forces minicabs to wait 15 minutes before picking up a customer, unlike regular taxis that have no such restriction.

While the circumstances differ in the three cases, they together reveal a France that can be slow, reluctant and sometimes downright ornery about accepting the sort of changes that the digital age brings. French officialdom pays lip service to the importance of innovation - there's even a government minister charged with fostering it - but the government can be vigorous when it comes to defending the French way of doing things. Netflix, which is available in other parts of Europe, hasn't yet been able to launch its services in France, and last year a government minister prevented Yahoo from buying the French video site Dailymotion. Culture is an especially sensitive topic. France provides big subsidies to TV shows, movies and even newspapers, and insists that its "cultural exception" is exempted from any new European free trade deal with the U.S., in order to be able to continue paying subsidies and imposing quotas on the proportion of U.S. shows on French television.

Industry groups have a far stronger voice than consumers, and the regular licensed taxis, and even the bookstores, are no exception. Last January, the nation's 55,000 taxis staged a series of road blockages protesting the arrival of new cab services like Uber, and the 15-minute wait period is one result of their action. The national bookstore association decried Amazon for using "dumping" prices - and persuaded the government to give booksellers an additional $25 million in subsidies.

A third characteristic is that consumers' interests are at times sacrificed for a perceived common good. European Union legislation bans most monopolies these days, but oligopolistic practices are common. Under a law dating back to 1981, for example, bookstores are not allowed to offer discounts of more than 5 percent on the retail price of books set by the publisher. That's great for authors, publishers and bookstores, but an anomaly at a time when books are quickly discounted in price elsewhere. And despite the ability of consumers to buy around the clock online, the government hasn't yielded to public pressure to allow stores to stay open on Sundays or late in the evenings.

Competition - a source of innovation and low prices, but a threat to the status quo - is frowned upon. France's national antitrust authority came out strongly against the 15-minute rule for online cabs, saying it would introduce "unjustified distortions to competition." The two government ministries that issued the decree, the Ministry of the Interior and the Ministry of Trade, ignored its advice.

The big question is whether any of these attempts to crack down on the Internet firms and their methods will have an impact. This is not just a French issue: Amazon and Google are also being targeted by regulators in other European nations, including the UK, Germany, Spain and Italy. The European Union has been investigating alleged anti-competitive actions by Google for the past three years, and several countries have expressed dismay at the relatively small amounts of tax that Google and Amazon pay to their national treasuries, largely as a result of smart financial engineering and use of transfer payment loopholes in European corporate accounting.

In Google's case, the 150,000 euro fine levied is an all-time record for the French data protection agency, but a mere slap on the wrist for the Internet giant, whose worldwide daily revenues are about 1,000 times as large. And the alleged lack of privacy protection hasn't stopped the onward march of Google's services in France. Former President Jacques Chirac in 2006 tried to create a Franco-German search engine called Quaero to compete with the U.S. giant, spending $130 million of government money on the effort, which has gone nowhere; Google today has more than 90 percent of the French search engine traffic.

The new law aimed at Amazon also seems unlikely to stop or slow the growing trend of online book buying in France and the demise of bookstores. About 17 percent of books in France are now sold online, compared with about just 3 percent in 2005, according to the Ministry of Culture. Four out of every five of those online sales goes through Amazon. The profit margins of bookstores, long wafer-thin, have all but vanished. In 2011-12, according to official figures, bookstore profit margins were just 0.3 percent of their revenue on average. (For Amazon, profitability is an afterthought. Its stock continues to soar as it loses money.)

The proposed ban on free shipping must still receive final approval from the lower house of parliament before it goes on the books, but that seems probable given the broad bipartisan support it has received. Once it is enacted, Amazon and its online competitors will have to choose between offering less expensive shipping or less expensive books. The total discount won't be able to exceed 5 percent - ensuring that books bought online will be more expensive than those bought in stores.

As for the taxis and their 15-minute grace period, the government decree has been widely chided, and not just by the online cab firms. Jacques Attali, an influential former government adviser and writer who proposed a full liberalization of the taxi system in France several years ago, described it as "absurd." Uber, together with other online cab services, plans to lodge a formal complaint against the decree in French administrative courts. But their advantage over regular cabs won't come through court decisions; it will come because their services are easier, more convenient, often cheaper, and simply more modern than conventional cabs. And however much France likes to intervene to keep the status quo, it's a losing battle.

It's also detrimental to France as a whole. The Organisation for Economic Cooperation and Development, among others, frequently reproaches France for over-regulating its product markets, arguing that the restrictions on competition "not only reduce productivity growth but also hinder the development of employment."

The French answer to that is usually a Gallic shrug. France moves at its own pace, even in a frenetic digital world.

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