Last Thursday, the European Commission (EC) published the Final Report of its sector inquiry into consumer Internet of Things (IoT), largely confirming the concerns raised in its Preliminary Report in June. As we explained in more detail back then, the EC is worried about the growing ‘gatekeeper’ role of leading voice assistants, such as Amazon’s Alexa, Google Assistant and Apple’s Siri, within the exponentially growing consumer IoT space. The EC plans to use the Final Report's insights not only as fuel to launch potential new targeted antitrust investigations, but also as input for further tech regulation.

Five recurring practices

In the EC’s view, there is a pressing need to urgently address five recurring practices in the consumer IOT sector in particular, to avoid a scenario where only a handful major voice assistant operators take most or all of the market as it matures:

1. Lack of interoperability - Alexa’s, Google Assistant’s and Siri’s owners are also providing the leading (mobile) operating systems (OS), making these companies crucial for the integration and interoperability of nearly all smart devices for consumer IoT networks running on their OS. The Final Report confirms concerns in particular around the power this gives these companies to preference their own smart devices and consumer IoT services over those of rivals who might face more burdensome technical limitations.
   
   
2. Unilateral standard setting powers - According to the EC, major voice assistant operators equally take a lead role by de facto imposing their proprietary technology solutions as standards for all companies active in the consumer IoT ecosystem that they govern. This risks not only further locking in users, but also poses a threat to proper communication between devices and services connected to different IoT ecosystems.
   
   
3. Leveraging advantageous access to valuable data - Another concern of the EC relates to voice assistant providers controlling the data flows and user relationships within their ecosystems. Their central position enables them to ‘guard the gate’ through which third parties get access to this valuable data and to what extent. Meanwhile, they can leverage these insights to expand swifter and with less commercial risk into the provision of other, related consumer IoT products and services themselves, thanks to their advantageous access to this data. Concerns around this ‘hybrid’ role as a (potential) gatekeeper are also driving the EC’s antitrust investigation into Amazon.
   
   
4. Exclusivity and tying requirements - The Final Report also confirms concerns of device manufacturers facing ‘package’ obligations, including requirements of default pre-installation or prominent placing of major voice assistants on popular smart devices like smart TVs and their remotes. Concerns around promotion of own services was also a key feature of the EC’s Google Shopping investigation.
   
   
5. Cutting the middleman - A last major concern is the unavoidable intermediary role of voice assistant providers, who sit in between a user and the provider of the smart device or consumer IoT service that it is accessing via the voice assistant. This makes it more difficult, especially for smaller businesses, to establish crucial customer relationships. Such a preferential customer communication channel moreover enables voice assistant providers to lure customers to their own rival proprietary services.

Using the findings as fuel to launch antitrust investigations

A sector inquiry does not allow the EC to directly impose remedies to address the problematic power of certain voice assistants (often considered an Achilles heel of the system compared to for example the UK’s market investigation regime). But just like previous sector inquiries have subsequently led to targeted antitrust enforcement, the EC is likely to use its findings as a trigger to launch investigations. In fact, with its public consultation only barely closed, the EC has already launched an antitrust probe into Google Assistant (read more).

Complementing enforcement with regulation

Importantly, several respondents to the EC’s consultation highlighted the need to complement ex-post case-by-case antitrust enforcement with ex-ante regulation. In response, the EC announced that the learnings from this sector inquiry will certainly feed into its upcoming standardisation strategy, which aims to ensure that the process for adopting industrial standards in the EU is fit to respond to the needs arising from the digital transformation. It will also bring its findings to the inter-institutional negotiation table as it kicked off ‘trilogue’ discussions on the Digital Markets Act proposal with the European Parliament and the Council of the EU just two weeks ago.

One of the specific amendments proposed by the European Parliament is the inclusion of voice assistants and certain connected consumer devices in the categories of services to be covered by this new regulation. EU governments do not seem to be aligned on this point. Although the formal position is to leave voice assistants out of the DMA’s scope, Italy is advocating for inclusion. The EC’s report therefore (deliberately) comes at a convenient moment to give negotiators additional food for thought.