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By Joanna Plucinska, with help from Laurens Cerulus, Mark Scott, Rosemary Belson and Nicholas Hirst | Send tips to [email protected], [email protected], [email protected] and [email protected] | View in your browser
**POLITICO Pro Morning Tech newsletter is free in partnership with Web Summit, where Mark Scott, our Chief Technology Correspondent, and Ryan Heath, Editor of Brussels Playbook, are reporting from this week. Have you heard of our POLITICO Pro premium news service? Contact us to learn more here.**
THE MIDAS CLUB: Brexit may have taken the wind out of Britain’s economy, but when it comes to tech, the soon-to-be ex-EU country still dominates the region’s digital economy. That’s the finding of a new list published on Europe’s top investors (based on a methodology designed by Forbes) that gave most of the top 25 spots to London-based investors.
It’s not hard to see why. While so-called tech unicorns (or companies valued at more than $1 billion) have popped up across the Continent, it’s London that still dominates when it comes to writing large checks to support the growth of startup minnows into a digital whales. Partly, that’s down to the U.K.’s global role in the financial services sector. It also helps that London (despite its high rents and bad weather) still remains a preferred place to live — at least in the minds of tech investors — than other parts of Europe.
But before you break out those Union Jacks in celebration, something is rotten in the state of U.K. tech — maybe not based on money raised by investors or valuations of British startups, but certainly when it comes to the sentiment you hear on the streets of London compared to Berlin, Paris and Stockholm, among others.
So what’s eating at Britain’s digital folk? It’s uncertainty created by Brexit.
Already, the country’s venture funds have lost their top spot to French rivals when raising new investment — though some of that is down to the falling pound. And from investors to entrepreneurs (a crowd almost guaranteed to offer a rosy picture of almost everything), there’s a sense that the U.K. may become less attractive to coders, programmers and other tech talent when the country leaves the EU in early 2019.
That doesn’t mean Britain’s place will disappear. Instead, you’ll likely see other European tech hubs take on greater prominence (in both investment and big-name startups). As Reshman Sohoni, a co-founder of Seedcamp, an early-stage investment house, who finished 16th on this year’s rankings, said: “For the next five to 10 years as Brexit plays out, we’ll see other ecosystems start to play a bigger role.”
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Hello and welcome to Morning Tech. Web Summit continues today in Lisbon. Research and Innovation Commissioner Carlos Moedas will take part in a panel debate on “Repairing our relationship with experts.” Moedas will also do a Facebook Live chat with Competition Commissioner Margrethe Vestager on female innovators.
In Brussels, the Thon EU hotel hosts the Economic Ideas Forum. The last session will focus on the digital single market. Three-way talks between the Council, Parliament and Commission on the Audiovisual Media Services Directive kick off again today. The working party on intellectual property meets to discuss EU copyright reforms. Council’s telecoms working party meets, too.
THE VIEW FROM LISBON: “Imagine what a big rock festival would look like if it was full of people who want to make money rather than get high.” That’s the apt description from POLITICO Playbook’s Ryan Heath, who is hanging out in Lisbon for the Web Summit. Read his scene-setter for a better understanding of what it’s like to be there right now, or scroll down.
— Mark writes about tech’s teenage identity crisis, laid bare at the Web Summit. “The digital sector is being forced to recognize (and discuss) its faults. That means taking greater responsibility for the darker sides of technology that are increasingly apparent,” he writes. Read his take online or scroll down.
— Vestager: Tech rock star? Europe’s competition chief is more accustomed to dealing with lawyers and lobbyists. But when she took the stage at Web Summit on Monday night, the Danish politician was greeted like a rock star by the 15,000-strong crowd, who whooped and hollered when she gave her routine answers that people had to learn how to trust technology again if they were going to get the best out of it. Beyond such platitudes, Vestager made her pitch for digital tax reforms, saying that both companies and their lawyers should be more transparent on their tax practices worldwide. On the use of data, she was more blunt. “Sometimes data is a barrier to entry that can harm competition.” Tech companies, you’ve been warned.
HAPPENING TODAY — SURVEILLANCE CASE: British surveillance chiefs face 14 digital rights NGOs in court, today, in a hearing on a landmark case before the European Court of Human Rights. The Strasbourg-based court is being asked to rule on mass surveillance practices known as the “Tempora” program, which were revealed by Edward Snowden in 2013. The case revolves around the U.K.’s intelligence agencies exchanging data with their U.S. counterparts and could affect the U.K.’s Investigatory Powers Act, which parliament passed last year.
PARADISE PAPERS ON TECH: It’s the other Jersey Shore, except this one could be a tax haven of sorts for Apple, according to the BBC. The tech giant moved its company dealing with much of its offshore cash a few years back to the island of Jersey, a channel island between the U.K. and France, in an effort to avoid an Irish tax crackdown. “Apple said the new structure had not lowered its taxes. It said it remained the world’s largest taxpayer, paying about $35 billion (€30 billion) in corporation tax over the past three years,” the story says. The findings are just one of the many tax avoidance discoveries in the so-called Paradise Papers.
BROADCOM IN $130 BILLION BID: That is the vast sum offered by chipmaker Broadcom on Monday in a surprise move for troubled rival Qualcomm. The latter said it is assessing the offer, though is expected to push back, setting the scene for an improved offer — or a giant hostile takeover attempt! Persuading Qualcomm to accept the deal is just the first challenge for Broadcom. Next up: Slipping the sprawling tie-up past merger regulators without giving up too many business lines. And, as Nicholas reports online and below, regulators in Brussels have a track record of intervening in the semiconductor sector, whether forcing changes on earlier Broadcom deals or pursuing antitrust charges against Qualcomm. Broadcom has tapped it usual competition counsel Latham & Watkins, with partners Joshua Holian and Luca Crocco leading from Brussels. Qualcomm’s lawyers are Quinn Emanuel Urquhart & Sullivan.
BOTH SIDES ANGRY OVER EC MOVE ON SEPS: Back in Brussels the fight over standard essential patents (SEPs) (of which Qualcomm owns many) continues. Last month, the Fair Standards Alliance and the ACT | The App Association — which both represent companies that use (a.k.a take a license for) the patents — sent angry letters to policymakers over a forthcoming communication on the licensing of SEPs, warning it should not endorse use-based licensing. This means the patent-holding firm would be able to charge different fees depending on how their technologies were used. Now the other side has also voiced concerns over the paper. IP Europe, whose members include Airbus and Ericsson, have issued a statement saying the forthcoming paper’s stance that SEP-holders should give a license to all companies, regardless of whether they make chips or make the final product, risks killing innovation and could supposedly reduce EU GDP by 0.5 percent. “No communication would be a far better alternative,” said Francisco Mingorance, executive secretary of IP Europe, who described the current draft as “calamitous.”
— The Commission’s intervention in this field was always going to rattle stakeholders, despite the communication being non-binding. The draft’s support for use-base licensing as well as for a “license-for-all” has been described as policymakers wanting to avoid siding with one side or the other. Now, both sides are unhappy. Is that a sign the Commission has struck the right balance, or does it just underline the pointlessness of an exercise that does not appear to resolve the tensions at the heart of the system?
CONSUMER SHOPPING RULES, RELAUNCHED: The Estonian Council of the EU presidency wants to get talking about consumer rules. Seems easy enough, right? Apparently not. Member countries have turned up their noses at a digital consumer proposal first issued by the Commission in December 2015. They say it stinks when rules for online shoppers buying mugs and phones on Amazon differ from those regulating the offline world.
The European Commission tried to appease the stubborn countries last week with an amended proposal to address this very issue. The Estonians have scheduled a working group meeting for November 27 to discuss the new draft. Will it come up smelling like roses? Read more.
GOOGLE SHOPPING FAIL? The Commission won’t accept Google’s current solution to comply with the antitrust verdict against Google Shopping, at least so says original complainant Foundem, a British comparison shopping website. In a newly published presentation outlining its concerns and expected next steps, it describes Google’s proposal to auction off space in the Google Shopping box as “monopolistic profiteering” and its internal separation of the Google Shopping unit as a “masquerade.” Foundem’s preferred solution is clear: Google should drop the sponsored links in the box and rank everything inside and outside the box according to relevance. What the Commission wants, by contrast, is a mystery: Vestager suggested just last week that an auction could be acceptable solution, but has yet to reach any conclusion on Google’s actual changes.
**In the second chapter of Global Policy Lab, we look at fixing the French economy — how can the new government boost competitiveness and prepare the workforce for the next industrial revolution? Register here to receive our free newsletter, and share your ideas with us.**
THE US AND RUSSIA: Trump’s Russian fan club piped up on Twitter much earlier than previously expected, the Wall Street Journal reports. Accounts showering the businessman with praise started popping up only three months into his candidacy.
WHATSAPP THREATENED IN INDONESIA: The Indonesian government gave Facebook Inc.’s WhatsApp Messenger a 48-hour ultimatum to remove obscene GIFs or else the popular app would be blocked. The images in question, searchable through the app, are provided by Tenor, a third-party provider that has already been blocked by the Indonesian Government, Reuters reports.
TOO MUCH SEXTING? Authorities in the U.K. are seeing a spike in underage sexting offenses, according to the BBC. Youngsters under 18 sharing inappropriate snaps rose by a third from 4,681 offenses between 2015 and 2016 to 6,238 between 2016 and 2017. That’s 17 offenses everyday.
TWEET DU JOUR: It’s gotta be James Comey’s metamorphosis on Twitter, where he changed his handle to @comey Monday and tweeted “Here’s my new handle. Glad to be part of the Twitterverse. Grateful to Reinhold for the cover these last few years.” (It’s a reference to his online alter ego Reinhold Niebuhr, first unearthed by Ashley Feinberg on Gizmodo.)
Morning Tech wouldn’t be possible without Nirvi Shah and Zoya Sheftalovich.
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***POLITICO Pro Articles***
My kingdom for a unicorn!
By Ryan Heath
LISBON — Do you believe in unicorns? 60,000 people in Lisbon do.
They’ve flocked to the Portuguese capital for a great collision of tech and politics called Web Summit.
Call it Davos for millennials, the Olympics for geeks, or a summit for the renting class.
Imagine what a big rock festival would look like if it was full of people who want to make money rather than get high.
These tech enthusiasts don’t believe in legendary creatures with a single horn but they do believe in billion-dollar startups. (Yes, analog deadbeats, that’s a unicorn in the tech finance world.)
Sure, not everyone in Lisbon is on-message. The Portuguese Communist Party is campaigning this month to raise the minimum wage to €600 a month. But please, don’t spoil the party.
Future is now, so hand over your data
It might break the hearts of the thousands of Web Summit volunteers (no minimum wage here!) who swarm like smiley overcaffeinated flies to greet you at the airport, convinced that happiness is just a scan of your summit QR code away.
Because the future is now, they whisk you immediately to registration while still in the airport terminal. From the moment you arrive until the moment you leave, Lisbon is the Web Summit and the Web Summit is Lisbon.
After causing a problem at registration because of an unwillingness to give the summit app all my phone contacts and photos, your author’s Web Summit got off to a slightly rocky start.
Belief in the summit’s ways is so strong that it took a couple of efforts to convince my assigned volunteer that a journalist has confidential information to protect on their phone, which can’t be bartered for a conference badge.
Despite the hiccup, the volunteer enthusiasm was admirable: something the heavily structured and tediously negotiated ways of the EU and World Economic Forum could never match.
Also, the summit app is where everything happens: Your experience is defined by what the app tells you and where your QR code lets you go.
Think part soap opera, part early Facebook.
You stayed for an extra beer after lunch? Too bad! The opening ceremony is now completely over-subscribed!!! New security procedures are in place: check the app for updates.
Summit-goers casually message their heroes and total strangers. Hey Caitlyn Jenner, what’s up?
Drivili — an app to reduce traffic congestion — wants to meet for a date Thursday, if I’m free. Cityseeders would love my feedback. Elizabeth, who goes by the job title “head of UX + brand” told me: “The app recommended we connect and after a bit of professional stalking, I had to agree.” Who could say no?
Elephant in the room
Lest you think this is frivolous, or libertarian Silicon Valley bro culture, Web Summit is actually very earnest about ensuring tech confronts the growing political backlash against it.
The summit is base camp for the progressive wing of the European Commission and European Parliament this week. A place where the EU digital illuminati can cease looking painfully cutting edge next to their peers, and just be one of the pack.
Look! There’s Competition Commissioner Margrethe Vestager knitting her famous elephants over a glass of vinho verdhe. Ann Mettler, like a homing pigeon, is letting her innovation streak loose after a hard year of political reality inside the Commission’s strategy team.
It’s a conference with women’s dinners and panels about Universal Basic Income. Mayors compete to have their cities named iCapitals and former French President François Hollande is scheduled to talk about how there can be “more social good in tech.”
If there’s anything that defines the digital revolution, it’s the belief in learning through failing before a triumphant comeback. Having spent two years with single-digit approval ratings, Hollande is ripe for that comeback.
Brits big hits
The week’s two other stars are host country Portugal and the United Kingdom; entwined online in ways never imagined in the Treaty of Windsor between the two countries, the world’s oldest surviving strategic alliance.
While the European Court of Human Rights Tuesday hears three cases against the mass surveillance policies of the U.K., there’s not much talk of that here in Lisbon.
Instead, it’s toasts for the Brits taking most of the 25 places in a new Forbes list of top European tech investors.
For a country weary from its domestic political turmoil and desperate to live up to its Global Britain branding, Web Summit is the perfect tonic.
Of the other seven remaining members of the Forbes list, five are from Switzerland and Israel. Final score: non-EU (if you count Britain as already out) 23 — EU 2. Take that, Remainers!
***
Tech’s teenage identity crisis
— By Mark Scott
LISBON — The tech world is suffering from an adolescent identity crisis.
As tens of thousands of startup founders, venture capitalists and policymakers gather here in Lisbon for Web Summit, there’s an ongoing disconnect between the world’s digital set and many outside the conference walls. While the attendees view tech almost overwhelmingly as a force for good, the wider public across Europe, the U.S. and elsewhere is increasingly skeptical over the role these online products and services play in their daily lives.
This divide has become more pronounced as companies like Google, Amazon and Apple have grown to be some of the most valuable companies in the world, shredding their past identities as plucky startups fighting legacy corporate interests.
Big Tech’s power in society has undoubtedly grown when almost anything is available through a mere swipe on a smartphone.
And to many in the industry, including the hoodie-wearing startup founders that flocked to Lisbon this week in search of cash and new business, technology remains the solution, not the problem, to everything from climate change to — arguably less important — finding a date.
But the digital sector is being forced to recognize (and discuss) its faults. That means taking greater responsibility for the darker sides of technology that are increasingly apparent amid allegations that Russian-backed efforts through social media may have swayed last year’s U.S. presidential election and possibly played a role in a series of nationwide votes across Europe in 2017.
It also involves not overlooking the inequalities that tech can often produce, with a small group of founders and investors becoming rich beyond their wildest dreams while many in society still struggle in the aftermath of the financial crisis.
“I have this worry about our democracy,” Margrethe Vestager, the European competition commissioner and a frequent antitrust scourge for Big Tech, told an audience at Web Summit on Monday evening. “Maybe some of the platform businesses underestimate the power that they hold.”
That’s starting to happen, with some in the tech industry finally coming around to the idea that they must play a wider role in society. “About time,” say critics, after a string of high-profile issues — including the spread of hate speech and extremist content online, Uber’s banning in London and sexual harassment allegations at companies across Silicon Valley — have highlighted the downsides of the digital utopia.
One approach for tech is to open corporate checkbooks, pouring in millions of euros of investment in digital skills, fake news-fighting initiatives and other social programs to address some of the issues that may have been swept under the carpet even a few years ago. That includes an industry-led push to tackle the spread of terrorist propaganda online — an issue that has routinely come up after a spate of attacks across Western cities over the last 18 months.
“There is no magic computer program that will eliminate online terrorist content,” Kent Walker, Google’s general counsel, recently told the United Nations. “But we are committed to working with everyone in this room as we continue to ramp up our own efforts to stop terrorists’ abuse of our services.”
These efforts by the tech industry to grow up also have arrived at Web Summit, an event more accustomed to pub crawls and hackathons than debating the complexities of global digital public policy.
Alongside the typical talks aimed at coders and fireside conference chats from Silicon Valley’s chief executives, this year’s event also includes panels on how best to tax the digital economy, as well as how fake news may have been spread through social media. It may not be much. But it’s at least a start for those in the digital economy to realize that not everything that they touch turns to gold.
Still, there’s undoubtedly a standoff brewing between public authorities and the digital great-and-the-good. Already, European officials have taken the lead, fining Apple €13 billion for failing to pay back taxes in Ireland (the company denies wrongdoing) and regulating what can, and cannot, be considered hate speech on Facebook. U.S. lawmakers also are debating new ways to police Big Tech, though analysts expect such initiatives will remain on the backburner amid ongoing political inertia on digital regulation in the U.S. Congress.
Yet for techies, the era of acting first and asking questions later is quickly being replaced by greater scrutiny from policymakers who now have the digital industry in their sights.
“No one likes to work on regulation,” said Will Murphy, chief technology officer at Blackstone, the American investment firm. “Whenever it comes up, we still want to pound our heads against the wall.”
With the technology honeymoon with much of the wider public over, there are likely to be more walls ahead.
***
Broadcom’s bid for Qualcomm likely to face intense merger scrutiny
— By Nicholas Hirst
It seemed Qualcomm’s dealings with regulators in Europe could not get more complicated.
Then Broadcom came along.
The rival chipmaker on Monday launched a $130 billion (€112 billion) takeover bid in what would be the largest technology deal of all time — and one that would be closely scrutinized by EU merger regulators in Brussels.
“With greater scale and broader product diversification, the combined company will be positioned to deliver more advanced semiconductor solutions for our global customers and drive enhanced stockholder value,” said Hock Tan, Broadcom’s chief executive officer and renowned deal maker.
Broadcom, like Qualcomm, is seeking to sell a broader range of chips and technologies in the face of stiff Chinese competition, falling prices and powerful clients.
In a statement Monday, Qualcomm said it “will assess the proposal.” Bloomberg reports it is likely to resist, saying it is being undervalued by its rival and citing regulators as a potential roadblock to any combination of the world’s No. 4 and 5 chip-makers.
Part of that has to do with U.S. opposition to an American giant being sold to a firm registered in Singapore — though CEO Tan met U.S. President Donald Trump just last week and announced the company would relocate to the U.S.
Another part of that regulatory opposition would be competition concerns over having a single company make many of the key components that go into mobile devices. That could put any integration on hold for at least a year and force the companies to sell some business lines.
“It is a very large transaction that will raise antitrust issues,” said Damien Gerardin, a partner with Euclid Law. “On the other hand it might be an opportunity for regulators to extract remedies.”
Of course, Qualcomm knows a thing or two about antitrust issues, in particular in Europe where it is trying to secure merger approval for its $47 billion takeover of Dutch chipmaker NXP and is battling two antitrust probes that could result in major fines.
But then so does Broadcom: It has steered two major mergers through EU regulators in the last two years, part of its meteoric rise from a Hewlett Packard spin-off in 1999 to the present-day $110 billion semiconductor giant. It secured EU approval for its 2017 bid for Brocade and its 2015 tie-up with Avago Technologies only after making concessions.
“They are well advised and they know where they are going; they have been there before,” said Joele Frank of agency Joele Frank, Wilkinson Brimmer Katcher and a spokesperson for Broadcom.
Yet it is the ongoing, seven-month review of Qualcomm’s takeover of NXP that probably serves as the best road map for how regulators would examine a deal with Broadcom.
Investigators have been concerned that Qualcomm could leverage a leading position selling certain chips to cross-sell technology, or use its market-leading technology to force customers to take its chips.
A tie-up with Broadcom could magnify the potential opportunity for either company to leverage a strong position in one market into another. Broadcom is a leading supplier of WiFi chips, while Qualcomm is the world’s largest supplier of baseband chips for mobile phones. Both companies own patents that are essential inputs for telecommunications, giving each extra negotiating might.
The way Qualcomm has wielded that might is at the heart of its global dispute with Apple, with the phone-maker accusing its supplier before courts in the U.S., the U.K. and other jurisdictions of abusing a dominant position to extract unfair royalties and stifle competition.
Qualcomm, which could not be reached for comment for this article, has firmly contested the allegations. However its dealings with Apple are the subject of an EU antitrust probe, as well as a lawsuit filed by the U.S. competition authorities.
The dispute contributed to a fall in Qualcomm’s share price, which has significantly underperformed that of rivals. Broadcom appears to be betting it can better resolve Qualcomm’s differences with a critical customer in the mobile space.
“We would not make this offer if we were not confident that our common global customers would embrace the proposed combination,” Tan said.
However, regulators are likely be concerned about the reverse: that Broadcom adopts Qualcomm’s hardball negotiating stance as its own.
In that case, it is not hard to imagine the Commission demanding concessions in exchange for approval to prevent that from happening — and so ending a battle with Qualcomm that dates back all the way to 2005.
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