EUROPEAN COMMISSION Brussels, 6.5.2015 SWD(2015) 100 final COMMISSION STAFF WORKING DOCUMENT A Digital Single Market Strategy for Europe - Analysis and Evidence Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions A Digital Single Market Strategy for Europe {COM(2015) 192 final}



Contents 1.Completing the Digital Single Market 2.Policy Context 2.1.Digital economy and digital society 2.2.Benefits of the Digital Single Market 3.Online access to goods and services across Europe 3.1. The online trader's perspective 3.2. The consumer's perspective 3.3.Cross-border parcel delivery services 3.4.Territorial restrictions and geo-blocking: goods and services 3.5.Access to and use of copyright-protected content 3.6.VAT procedures on cross-border online sales 4.Conditions for digital networks and services to develop 4.1.A single market in telecommunications 34 4.2.Audiovisual Media Services 4.3. The protection of personal data 4.4.Cybersecurity and the fight against cybercrime 4.5.Online Platforms 4.6.Liability of Online Intermediaries

5. Digital economy and society 5.1. Digital services in a data-based economy 5.2.Digitisation of research 5.3.Interoperability and standards 5.4.Employment, digital skills and expertise 5.5.e-Government 5.6.Digitisation in basic sectors 6. Investing in the Digital Single Market Annexes References and Data sources

1.Completing the Digital Single Market The European Commission has identified the completion of the Digital Single Market (DSM) as one of its ten political priorities. The DSM is also a key priority for the European Council and the European Parliament and has been highlighted in the Annual Growth Survey 2015. A Digital Single Market is one in which the free movement of goods, persons, services and capital is ensured and where citizens, individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition, and a high level of consumer and personal data protection, irrespective of their nationality or place of residence. Achieving a Digital Single Market will ensure that Europe maintains its position as a world leader in the digital economy helping European companies to grow globally. A fully functioning DSM will present European businesses, particularly small and medium-sized enterprises (SMEs), with a potential customer base of more than 500 million people, enabling companies to make full use of ICT to scale up for productivity gains, creating growth along the way. It offers opportunities also for citizens, beyond their economic activity, provided they are equipped with sufficient digital skills. Enhanced use of digital technologies can improve citizens' access to information and culture, and can promote open government, equality and non-discrimination. It can create new opportunities for citizens' engagement in society at large, including democratic participation, and for better public services, information exchange and national and cross-border cooperation. To maximise these opportunities the Commission is launching a Strategy which sets out ambitious steps towards a completed DSM and focusses on three strands: ·Better access for consumers and businesses to digital goods and services across Europe (making sure the Internal Market is ready for the digital age with rapid actions, and helping to ensure a "single" digital market by removing barriers that hold back cross-border e-commerce); ·Creating the right conditions, level playing field and environment for digital networks and content services to flourish (actions to create the right conditions for infrastructure investment, ensuring a level playing field between market players and improving the European basis for the digital economy); ·Maximising the growth potential of the digital economy (actions with far-reaching effects on European industrial competiveness, investment in ICT infrastructures and technologies such as Cloud computing and Big Data, research and innovation as well as inclusiveness and skills). The purpose of this document is to provide the background and evidence base which underpins the DSM Strategy. The following chapter provides a horizontal economic analysis of the DSM, while chapters 3 to 5 provide a detailed analysis structured along the three main strands of the DSM Strategy. Chapter 6 presents the EU financial means in support of the DSM.

2.Policy Context 2.1. Digital economy and digital society Digitalisation has been changing not just our economy but also our daily lives for at least the last twenty years, and it is expected that this process will continue. Where digital technology was once a niche market for specialists, it has become a general purpose technology which affects all sectors of the economy and society. This digital economy has the potential to create growth and employment by providing opportunities for investment and innovation, which leads to expanding markets and more choice in goods and services at lower prices. Better information flows can improve everything, from health, food safety and food security and resource efficiency to energy, intelligent transport systems and smart cities. Digital technologies have already made a major contribution to economic growth. Between 2001 and 2011, digitalisation accounted for 30% of GDP growth in the EU . The key variable for the digital economy is scale. Digital technologies, which know no borders, enable businesses, including small ones, to serve large numbers of customers cheaply. The positive effect of digitalisation on the economy is therefore correlated with the number of potential customers. The larger the market in which companies operate, the stronger the growth impulse. Put another way, the larger the market, the more consumers can benefit from the opportunities offered by wider choice and better prices. Therefore the DSM is very much intertwined with the global digital market. European companies face significant barriers in a wide variety of third countries (such as requirements to store data locally). Such barriers particularly affect European firms, because the EU is the biggest global exporter of digital services. Global digital openness could hence be a priority for European trade and investment policy. Innovation in all parts of society is the cornerstone of the development of a digital economy and of the deepening of the DSM. Never before has innovation been so easy with the immediate circulation of information and technologies. New business models are emerging: scaling up or down, digital solutions have never been easier with marginal costs close to zero. Policy makers have to keep pace with rapid innovation, often of a disruptive nature (such as the rise of the "sharing economy"), and balance risks with intelligent regulatory and governance models preserving the values of our societies. Small start-ups or web entrepreneurs are particularly vulnerable and may be strongly affected by ill-adapted regulatory measures. There is a high demand from policy makers for reliable evidence to support better decision-making, monitor policy implementation, as well as measure new economic and social phenomena. The data revolution, which makes data cheaper, should also ensure that policy makers and citizens have better access to quality information. Hence, the necessary infrastructure for such information, especially for official statistics, must be an integral part of the policy measures . 2.2. Benefits of the Digital Single Market Between 2001 and 2011, ICT accounted for 30% of GDP growth in the EU but for 55% in the US. The difference is partly the result of the sectoral composition of the corresponding economies but also the result of disparities in the perception of ICT, investment volume in ICT production and use. For the period 2006-2011, the estimated productivity differential between the US and EU due to ICT was 0.2% growth annually The DSM is an opportunity to close this gap. The potential contribution to European GDP from achieving such a fully functioning DSM has been estimated at EUR 415 billion . The long-run impact on GDP growth of the already observed digital reform efforts has been estimated at above 1%, while further efforts in line with the Digital Agenda for Europe targets would lead to an additional 2.1% of growth . Benefits from the current level of cross-border e-commerce are estimated at 0.27% of GDP. On the other hand, without a completed, secure and trustworthy DSM, new digital services for consumers and businesses, as well as services underpinning them (the Internet of Things, big data and cloud computing), may happen later or to a lesser extent in Europe. e-Commerce is an important element of the DSM, providing increased choice and economies of scale. Cross-border e-commerce, allows citizens and business to enjoy a wider variety of goods and services and lower prices through increased price competition. Some of these benefits will increase GDP (lower prices increase purchasing power for other goods, increasing demand), while others, even though they do not show up in national accounts, will improve quality of life (the so-called consumer surplus, i.e. the option to buy a good or service which better corresponds to the consumer's desires). There are also beneficial impacts in economic and societal terms. Thus for instance, a completed DSM will help consolidate Europe's leading position in the production of cultural goods and services. Businesses benefit from cross-border e-commerce by exploiting economies of scale which reduce costs, increase efficiency and promote competitiveness, improving total factor productivity. In many cases, without these economies of scale an online business may not be viable, either because there is not enough demand in a single Member State or because lower production increases prices to unaffordable levels. This is especially important for SMEs that remain confined to a small home market with high production costs. If the DSM can lower cross-border trade costs for SMEs, it could increase their production, lower production costs and make them more competitive . Moreover, e-commerce also helps businesses to improve their sourcing strategies, by making available a wider variety of production inputs and enabling them to take advantage of lower prices through competitive forces. In fact, business-to-business (B2B) e-commerce accounts for the lion's share of e-commerce (87% in revenue terms). A DSM is also of particular importance for innovative businesses setting-up online-only operations. Pure online retailers, online intermediaries or other web start-ups can scale up to the entire European market. For EU businesses to benefit from the expanded market provided by cross-border e-commerce, the demand side must be fully unleashed. Consumer expenditure accounts for 57% of the EU's GDP. However, there is consistent evidence to show that consumers have less trust in cross-border e-commerce than in shopping online nationally and are more inclined to buy from domestic sellers than cross-border. Whilst this "home bias" can be attributed to some extent to cultural and proximity factors (language, brand recognition, etc.), a strong and harmonised regulatory framework and consistent enforcement of consumer rights across the EU will increase their willingness to engage with suppliers from other Member States. Such engagement will boost the volume of cross-border transactions and increase consumer surplus through increased availability of a wide variety of products and better prices. Moreover, it will exert competitive pressure on products and services supplied nationally and will result in more transparent and dynamic consumer markets. It is estimated that consumer welfare gains from e-commerce in goods in an integrated DSM could reach over EUR 200 billion, with two thirds of these gains coming from increased online choice. Several studies have stressed the growing importance of the demand side beyond just e-commerce: today, consumers are key drivers of technology and change as new digital tools – such as comparison websites, social media, customisation of goods and services and mobile shopping – have empowered them. Their adoption of technologies and online engagement are crucial in creating an environment in which ICT innovation (e.g. big data analytics) can flourish. The scale provided by a DSM is also important for the deployment of high-speed infrastructure to enable advanced digital services and the development and adoption of new technologies in Europe, such as the Internet of Things, big data analytics or cloud computing. Companies may refrain from investing in the deployment of these technologies if they have to use different costly specifications or have to invest in new infrastructure (e.g. cloud based data centres), as regards the transfer of data or cross-border service delivery, making it unprofitable to innovate. In the long run, this can lead to a further weakening of Europe's industrial base, as competitors from abroad with more advanced technology backed up by a larger market with scale will take more market share. e-Commerce is growing rapidly in the EU at an average annual growth rate of 22%, surpassing EUR 200 billion in 2014 and reaching a share of 7% of total retail sales. Out of this, 40% of sales are by pure Internet retailers which operate only online and around 14% corresponds to mobile commerce. Online sales are concentrated on a limited number of products such as clothing and footwear, consumer electronics and appliances and media products, which represent nearly half of all online e-commerce transactions (49%).

Chart 1. Evolution of total and online retail sales in goods in the EU, 2000-2014 (EUR billion) Source: Duch-Brown, N. and Martens, B., 2015 (a) Online sales represent a much larger proportion of services. For instance, in the travel and tourism sector – one of the activities most affected by the Internet revolution – online sales represent some 40% of total retail sales. In 2013 in the EU, online sales in this sector reached a volume close to EUR 70 billion. For goods, online sales in this sector increased steadily during the period 2000-2013 despite the sharp fall in total retail sales registered after 2007.

Chart 2. Evolution of total and online retail sales in travel and tourism services, 2000-2014 (EUR billion) Source: Duch-Brown, N. and Martens, B., 2015 (a) European firms have been slow in adapting to selling online. The proportion of firms selling online has been growing rather modestly over recent years, increasing only from 12% in 2009 to 15% in 2014. Turnover from online sales has similarly increased from 12% to 15%. The expansion in the volume of online sales has been driven by increasing sales by firms already present in online markets. The top 100 online retailers represent 52% of total online retail turnover in 2013. Average turnover per firm increased significantly in the period 2010-2013, for the top 100 online retailers from EUR 674 to 924 million (+37%). For the top 500 online retailers, online turnover increased by 56% in the same period. For the vast majority of online sellers these electronic sales are not their major distribution channel; indeed, for two thirds of them, online sales account for less than 25% of sales. At the other end of the spectrum, for 11% of firms, more than 75% of their sales are online. On average, 80% of EU online expenditures go to domestic shops. Consumers in smaller Member States have a stronger tendency to shop across borders because local supply and variety is more limited and better price deals may be found across the border. Regressions based on data from a 2015 consumer survey show that the probability of doing cross-border e-commerce increases by 4% when cheaper prices, and by 7% when better quality, are cited as the main reasons to shop online for the average European online shopper. Among the top 100 online retailers, 52% only sell in their home country. While 17% of SMEs in the EU sell online (which is already very low), only 7% sell cross-border to other EU countries. Concentrating on retailers (companies selling goods and/or services to final consumers), the picture is somewhat more favourable: in 2014, 41% of these businesses sold online to final consumers and 12% sold online cross-border within the EU . Among the retailers who sell online cross-border, higher risk of fraud and non-payments, differences in national contract laws, national tax regulations and national consumer protection rules are the most frequently quoted obstacles to the development of cross-border sales (indicated respectively by 42.7%, 38.8%, 38.6% and 38.4% of businesses) . For companies selling online cross-border, these international sales account for about 15% of their revenues, of which two-thirds (i.e. 10%) are from other Member States. For firms which have experience with selling online cross-border (either currently or in the past), the following are the most important barriers to cross-border selling identified: Chart 3. Barriers to online cross-border sales identified by firms which have experience with selling online cross-border Source: Flash Eurobarometer 413, 2015 Lowering the cost of resolving complaints and disputes could increase the likelihood of engaging in cross-border e-commerce by 9%. Similarly, limiting the suppliers’ restrictions to selling abroad would induce an increase in the propensity to sell online across the border by 11%. Finally, reducing delivery prices could boost the probability of European firms engaging in cross-border e-commerce by 7.5%. Looking on a sector by sector basis, for retailers the biggest impact would come from lifting restrictions by suppliers to selling abroad (20%), while copyright restrictions are the most important for information and communication providers (31%). In terms of online purchases across borders, improving security of payments to other countries would increase online purchases from another EU Member State by 5%, improving language skills for dealing with foreign countries would have a similar effect, and lowering the costs of resolving complaints and disputes cross-border would increase the likelihood of firms purchasing online across borders by 12%. There are big differences by firm size. SMEs are more exposed to barriers to cross-border e-commerce than large firms, both in engaging in online trade with other Member States and in increasing online export volumes. Similar results are found when looking at electronic purchases in terms of sector and size differences. While information costs have declined very substantially in the online economy compared to offline costs, cross-border trade costs are not zero. The fixed costs associated with establishing an active presence in foreign markets remain significant, especially for SMEs that have insufficient market size prospects to amortize these fixed costs through their cross-border sales. Thus, in cross-border business-to-consumer (B2C) transactions, the costs for businesses of adapting to the laws of other Member States are roughly EUR 9,000 per business and per country targeted. For a small enterprise (92% of all EU companies) which is exporting to only four other countries, this represents on average 17% of its average annual turnover. Therefore, it was estimated that the cumulative contract law related costs incurred by companies active in cross-border B2C trade (legal, IT and translation costs) ranged between approximately EUR 4 and 8 billion . 3.Online access to goods and services across Europe

3.1. The online trader's perspective In a DSM, the rights and obligations arising between e-commerce traders and their customers should be governed by a common set of rules and principles. EU law provides protection for EU consumers, irrespective of how goods are purchased. Harmonized EU legislation ensures safety of the goods being placed on the market. Moreover, the Consumer Rights Directive (2011/83/EC) has fully harmonised certain aspects of consumer and contract law applicable to online sales to consumers, such as pre-contractual information the customer should receive and the right of withdrawal from the contract. However, in other areas there are only minimum EU rules, which Member States may supplement with stricter requirements. For example, the Consumer Sales Directive (1999/44/EC) has set a minimum level of harmonisation for the remedies available when tangible goods are not in conformity with the contract of sale. Member States can also go beyond the requirements of the Unfair Contract Terms Directive (93/13/EEC), which provides protection against unfair clauses which have not been individually negotiated in B2C contracts relating to both tangible goods and digital content products. When it comes to remedies for non-conformity with the contract for digital content products (such as cloud services, web-streamed music or movies or sports events broadcast over the Internet), no specific EU rules exist. This means that in this area national laws apply, which differ from one Member State to another. This is not only because the national laws diverge, but also because the relevant contracts for the supply (e.g. download or streaming) of such digital products are qualified differently in the Member States. In some Member States the rules on services, on lease or on sales contracts are applied while others may apply any of those rules, depending on the content of the specific contract. There is also a risk of specific new, divergent national laws appearing. For instance, the UK has recently adopted new rules on the conformity with the contract and the corresponding remedies for certain digital content products. The Netherlands has also proposed rules to clarify remedies available to the consumer depending on the type of digital content product. As the situation now stands, while online traders may choose the contract law of their own Member State to apply in B2C transactions, when a product or service is targeted to a consumer in another Member State, the mandatory protections afforded to that consumer by their national law must be respected. Also, in case of conflict in such situations, the consumer may go to the courts of their country of domicile. In practice, traders appear to have difficulties in understanding how the existing rules apply in a digital environment. In addition, regulatory differences between Member States may not be limited to contract law: different technical specifications or rules on labelling and selling arrangements may also apply in specific areas and, depending on where in the EU the consumer is located, they may require the trader to adapt their products and packaging accordingly. This complex legal situation means that online suppliers of goods and services who wish to serve a pan-European market may potentially need to know about, and comply with, 28 differing sets of national regulations. Finding out which regulation applies in which case may be difficult. 37% of firms in the EU that have experience with selling online to other Member States stated that lack of knowledge on the rules that have to be followed presents a barrier to selling online cross-border. Moreover, 63% of firms that have no experience with selling online cross-border stated that they believe that lack of awareness of which rules have to be followed may present a barrier. This shows that the perceived barriers are significantly higher than the real barriers and that there is space for better communication and transparency. This situation creates significant information and compliance costs for many online traders, especially for SMEs, in particular when the value of the transaction remains low. Adding up only costs related to contract law differences, the costs suffered by businesses when they sell to consumers in other EU Member States have been estimated at between EUR 4 and 8 billion. These set-up costs are of course more difficult to amortize for smaller businesses interested in online cross-border sales. Addressing the regulatory fragmentation described above by providing for more harmonised rules for online cross-border consumer contracts, and by allowing traders to rely on their national laws by further harmonising the main rights and obligations of the parties, combined with guidance on which courts have jurisdiction and which laws apply in a digital environment, would result in reduced transaction costs, greater legal certainty for businesses, increased cross-border competition and improved incentives for SMEs to engage in cross-border transactions. Chart 4. Believed impact of rules harmonisation on online cross-border sales Source: Flash Eurobarometer 413, 2015 3.2. The consumer's perspective Many people in Europe remain reticent about engaging in the range of online activities that are now offered via the Internet as a means of facilitating their daily lives. 72% of Internet users in Europe still worry that they are being asked for too much personal data online . 80% of people express concerns about using the Internet for online banking or buying online, up from 75% in 2013. While three quarters of Europeans used the Internet on a regular basis in 2014, only 44% engaged in e-banking, 47% in e-government and 50% in e-commerce . Travel services are among the most popular services bought on-line. When it comes to cross-border online activity, consumers' trust in the digital environment is even lower. In fact, while 61% of EU consumers in 2014 felt confident about purchasing via the Internet from a retailer/provider located in their own country, only 38% felt confident about purchasing via the Internet from a vendor located in another EU Member State. When it comes to actual transactions, only 15% of consumers reported having bought online from other EU Member States in 2014, while 44% did so domestically (within a total of 50% of Europeans shopping online). It is clear that the economic potential of the DSM for consumers and business is currently under-exploited. It was estimated that consumer welfare gains from e-commerce in goods in an integrated DSM could reach over EUR 200 billion per year, with two thirds of these gains coming from increased online choice. Chart 5. Main reasons for buying products online Source: European Commission, Consumer survey identifying the main cross-border obstacles to the DSM and where they matter most, forthcoming 2015 Results from the recent survey of online consumers on DSM obstacles indicate that the most frequently quoted reasons by online shoppers for purchasing online relate to convenience in terms of time (49% being able to order at any time of the day/week, 42% saving time by buying online), price (49% finding cheaper products online, 37% due to ease of comparing prices online) and choice (36% more choice online, 25% finding certain products only online). The same survey showed that the main consumer concerns about purchasing products online domestically are linked, inter alia, to: data protection and payment security (30% of respondents were concerned that personal data may be misused and 25% that payment card details may be stolen) and consumer rights (fear of receiving wrong or damaged products (26%); 25% were concerned that it is not easy to replace or repair a faulty product; 22% were concerned that it is not easy to return a product they did not like and get reimbursement). When it comes to cross-border purchases from other EU Member States, delivery costs (27%), high return shipping costs (24%) and long delivery times (23%) appear among the main consumer concerns. A large number of perceived obstacles are related to key consumer rights, such as return and replacement (getting a faulty product replaced or repaired, 20%; returning a product consumers did not like and getting reimbursed, 20%). Concerns related to redress are also frequently quoted, i.e. the difficulty of solving problems if something goes wrong (23% of respondents). These problems are very similar to the concerns identified by enterprises. A significant proportion of consumers are also concerned about conformity-related issues, such as non-delivery (15%) or delivery of a wrong or damaged product (15%). These concerns are mirrored in the actual problems encountered by consumers who bought online over the past 12 months: of those consumers reporting problems (a third of all respondents), 15% quoted low product quality, 14% defective products, 13% delivery of wrong products and 13% non-delivery. Moreover, 7% of those facing problems in the past year reported that they could not return products and get reimbursement, while 6% said the seller refused to replace or repair a faulty product.

Furthermore, difficulty in assimilating and understanding the implications of the terms and conditions established by the online trader can discourage customers from making online purchases. Results from the recent survey of online consumers on DSM obstacles indicate that trust in and understanding of the terms and conditions are of concern to 8% and 6% respectively of those online users who think about purchasing online from other EU Member States (6% and 3% respectively for domestic purchases). In fact, the average online consumer shopping cross-border is 8% less likely to buy online cross-border when concerned about lack of knowledge of their rights. There is also evidence showing that when buying products and services online, the vast majority of consumers who accept terms and conditions do not read them. 21% of people surveyed in the UK said that they had suffered as a result of blindly accepting online terms and conditions. In particular, consumers are often bound by contracts unbalanced in favour of the trader; for example, they are left without appropriate protection or remedies when the quality of the digital content they acquire is too low. Approximately 5% of respondents who experienced problems with purchases that took place or were attempted during the last 12 months attributed their most recent problem to sellers not respecting the terms and conditions. Finally, the lack of knowledge of consumer rights when buying online from another EU Member State and the fear of being exposed to a lower level of consumer protection in other EU Member States are of concern to approximately 11% and 8% of online users respectively with regard to buying online from another EU Member State. More guidance on consumer rights in this respect, in particular with respect to applicable law and competent courts in case of dispute, would contribute to fostering trust in engaging in online transactions. Concerning the purchase of combined travel services on-line, the on-going revision of the Package Travel Directive will inject further transparency as to the nature of the contract at stake and related levels of protection. Enforcement of consumer rights legislation The borderless nature of digital technologies poses challenges for the enforcement of consumer rights by public authorities whose action is constrained by their jurisdictional boundaries. On the other side, big online players implement their business models at the EU level, if not at the global level, directly. To ensure consistent enforcement of consumer rights across the EU and to tackle efficiently infringements of consumer rights legislation spanning over several Member States, it is necessary to coordinate public enforcement activities. The Regulation on Consumer Protection Cooperation provides the framework for such cooperation. Every year, the network of competent authorities under this Regulation carries out a screening of e-commerce websites in a given sector ("sweeps") to check their compliance with consumer rights legislation and to ensure they are put in conformity when necessary (more than 3,000 websites have been corrected since 2007). This network has identified a number of online malpractices spreading across the EU and is carrying out joint actions, facilitated by the Commission, directly to require the operators concerned to change these practices. In 2014 for example, it tackled the misleading marketing of online games as "free" when in fact they included in-app offers and the control of payment settings was insufficient to ensure explicit consent for each purchase. This action resulted in a significant change of practices by major Internet platforms and was considered as an efficient and pragmatic model by the business sector and national authorities. The results of yearly sweeps point to persistent compliance gaps in consumer markets, including for online practices. On average 60-80% of websites checked are found to be non-compliant with the most basic pre-contractual information requirements of the EU consumer and e-commerce legislation. This shows that there is a need to strengthen enforcement to make sure consumers are adequately protected in the DSM. There is also scope for stepping up enforcement beyond the coordinated actions by national enforcement authorities and beyond traditional infringement proceedings, notably by working proactively with stakeholders and through a much closer cooperation among market surveillance authorities. This is the aim pursued by the Commission for example in its work on comparison tools, where it is sensitising stakeholders on the mandatory requirements of the Unfair Commercial Practices Directive and fostering adherence to a series of principles to improve the compliance of comparison tools with the Directive as well as their transparency and user friendliness. Existing legal instruments should also be adapted so that they can meet the twin challenges of globalisation and digitisation. As part of the scheduled review of the Consumer Protection Cooperation Regulation, a public consultation carried out over the winter of 2013-2014 called for strengthened enforcement capacity at the EU level. Enforcement needs therefore to be faster, more agile, consistent and efficient, and this requires increased cooperation among national authorities. With more effective enforcement and market surveillance, legal certainty for traders and consumers will increase, compliance costs will decrease, administrations will save time and resources and rogue traders will be deterred from playing on enforcement gaps in the Single Market. Such progress in enforcement and market surveillance must be obtained both for the economic rights of consumers and for the safety of products sold online so as to ensure the effectiveness of consumer rights legislation for online and digital purchases. Consumer advice and redress When consumers encounter problems when buying goods or services in the Single Market (the resulting financial losses of which have been estimated at 0.4% of the EU’s GDP), it is important that they should be able to seek and obtain redress. Amongst those DSM consumer survey respondents that reported their most recent problem with purchases that took place within the last 12 months, 16% indicated that they didn’t take any action whatsoever to remedy the situation. Out of these, 23% reported that it was unlikely that they would get a satisfactory solution to their problem, 19% thought it would take too long and a further 12% did not know how or where to complain. Of those respondents who did complain, between 29% and 38% were dissatisfied with the way their complaints were dealt with (lowest proportion of dissatisfied respondents among those dealing with an out-of-court dispute resolution entity, and highest proportion of dissatisfied respondents among those who went to court). Indeed, when disputes arise with traders, cross-border proceedings can be disproportionately costly and lengthy for the average online transaction, even if swift and low-cost uniform European procedures already exist (e.g. European Small Claims, European Order for Payment). Even when the consumer obtains a judgment in their favour, it requires costs and effort to enforce it effectively against the trader. At the same time, the possibility of litigation in foreign courts and, even more importantly, differences in the laws applicable to the contract also lead certain businesses to refrain from engaging in cross-border online activities. Resolving complaints and disputes across borders is expensive for firms as well. Around 21% of firms engaged in cross-border e-commerce declare this issue to be a major problem, affecting particularly micro firms (1-9 employees). Offering easily accessible, efficient and cost-effective mechanisms to resolve disputes between consumers and businesses engaged in cross-border e-commerce is therefore an important element in creating a DSM. The European Consumer programme, together with national consumer authorities, funds the Network of European Consumer Centres so that individual consumers can get information and assistance for their cross-border purchases. This network, active since 2005 and now counting an office in all 28 EU Member States, Norway and Iceland, helps solve in an amicable manner more than 35,000 complaints per year. The Directive on consumer alternative dispute resolution (ADR), which is to be transposed into national law by July 2015, will ensure that quality ADR entities are available in virtually every business sector. The Regulation on consumer online dispute resolution (ODR) provides for the establishment of an EU-wide ODR platform to facilitate the online resolution of disputes between consumers and traders over online transactions. The implementation of this legislation and the planned launch in January 2016 of the ODR platform will benefit traders by saving on costly court proceedings, maintaining their business reputation and good customer relations. The new legislation is also expected to encourage traders to open up their business to consumers from other EU Member States. The European Small Claims Procedure gives parties easy access to cross-border simplified court procedures. This procedure is currently being revised in order to make it available also for SMEs (by raising the threshold of the claims which fall within the scope of this procedure from EUR 2,000 to EUR 10,000) and to modernise the procedure, bringing it in line with 21st century justice by improving the use of electronic means (e.g. videoconferencing for carrying out oral hearings, electronic service of documents, distance means of payment of court fees). This should reduce the costs and length of cross-border proceedings. The European e-Justice Portal provides easy to understand access to information on legal systems in other Member States, including consumer rights, as well as on possibilities for redress. The Portal is being adapted to make it easier for consumers to make use of this facility, through electronic assistance in filing the required form, as well as through making it possible to address the form directly to the competent court in another Member State. 3.3. Cross-border parcel delivery services Problem and problem drivers

e-Commerce deliveries to consumers continue to drive growth in the European parcels market, which is estimated at EUR 42.8 billion (including B2C and B2B) . Most parcel traffic is still domestic, representing 85% of total EU shipments . The market has increased by 5.7% in value terms compared with 2011, yet it is a very concentrated market, with five Member States , where e-commerce markets are already well developed, accounting for 70% of the total EU parcel market. Consumers and e-retailers are increasingly demanding in terms of delivery services when buying online. In the recent survey of online consumers about DSM obstacles, low delivery costs (33%), convenient delivery options (e.g. time, place - 22%) and the possibility to deliver to the country of the consumer (20%) were amongst the seven most frequently reported reasons for consumers choosing the website where they conducted their latest online purchase of a tangible good. In addition, those respondents who last purchased a tangible good online reported most often that it was delivered to their home/work address (83%). Other delivery options chosen included picking it up in person from a shop (8%), from a collection point/safe box in a public location (5%) or from a local post office (4%). Various surveys in recent years show that the growth of cross-border e-commerce is hampered by a lack of affordable, high-quality delivery services. These are consistently cited amongst the top reasons mentioned by both e-retailers and consumers for not engaging in cross-border e-commerce. Stakeholders complain about a lack of transparency, the high prices of delivery for small shipments, the lack of interoperability between the different operators typically involved in a delivery of a cross-border shipment and the lack of convenience for the final consumer. Over 60% of manufacturing and retail (including wholesale) companies selling online across borders declared the high prices of cross-border delivery to be a problem for them. This is the most prevalent barrier to cross-border e-commerce for firms selling online. The recent survey of online consumers on DSM obstacles indicates that indeed concerns with respect to various delivery aspects were amongst the top consumer concerns in relation to purchasing online cross-border (27% high delivery costs, 24% high return shipping costs, 23% long delivery times, 15% non-delivery). Amongst online buyers who reported their most recent problem(s) when purchasing a tangible good in the last 12 months, long delivery times was reported by 17% of respondents (and was the highest ranked consumer problem), while non-delivery and delivery of the wrong product were both reported by 14% of respondents. Likewise, e-retailers are also concerned about the availability, quality and price of delivery options. Between 85 and 100% of e-retailers consider delivery within two to four days, delivery at an agreed time slot, and next day delivery to be the top three most important delivery features . E-retailers want to reflect consumer needs and expectations by offering simple, transparent and reliable shipping services (e.g. track-and-trace, on time delivery). They also want low delivery and return prices to attract (and retain) consumers. Notably, due to their lack of bargaining power, SMEs are the most affected as they face high delivery prices for low volume cross-border shipments. This limits SMEs' competiveness in cross-border e-commerce given that their growth opportunities are dependent on a seamless EU delivery market. However, the single delivery market is not yet a reality across the EU. The EU delivery market is fragmented, with 28 national delivery markets consisting of national postal operators, alternative parcel delivery operators, express operators or global integrators , logistics players and in-house operators . Global integrators have developed an integrated network traditionally focused on B2B deliveries but in recent years have been increasingly moving into B2C deliveries. Except for integrators, cross-border delivery usually requires the combination of two or more national delivery networks, which can be delivery networks of national postal operators, but also alternative delivery operators. Furthermore, domestic (public) postal networks are traditionally set-up to deal with historically high letter volumes, rather than parcels. Thus, existing postal networks were not designed to address the current rapidly changing needs stemming from growing e-commerce, and especially not cross-border delivery requirements. Postal delivery operators' IT and electronic communication systems were developed independently and primarily for domestic services and are not integrated with each other, resulting in heterogeneous (i) ad-on services (e.g. different track and trace solutions), (ii) labelling practices and (iii) quality measurement across the EU Member States. The lack of compatibility of different logistical solutions affects the quality of the service offered (e.g. relabeling items increases the cost and time of a cross-border delivery), the convenience of the service (alternative delivery options may not be available) and the price. Insufficient interoperability between operators and low consumer volumes result in weak competitive pressure in the cross-border delivery markets. More interoperability can provide for more growth opportunities for both delivery operators and e-retailers. Concerning price, several research studies estimate that list tariffs for cross-border parcel delivery (for non-account customers) charged by national postal operators are often two to five times higher than comparable domestic prices . High prices are commonly attributed to low volumes and lack of bargaining power by low volume senders, typically SMEs and consumers. Low volumes generate a higher cost per item and may partly explain the narrower range of services available for cross-border deliveries compared to domestic deliveries. On the other hand, high prices may also reflect weak competitive pressure in the cross-border delivery market. Although in most Member States there are typically more than three delivery operators , this does not mean that they all provide the delivery service e-retailers need (e.g. a simple, cheap, traceable and reliable delivery). High prices may also be attributed to complex and opaque interconnection costs. As members of the Universal Postal Union , national postal operators comply with a set of rules on tariffs, which, as some studies suggest, may not reflect the real costs incurred . Furthermore, delivery operators can engage in bilateral agreements or multilateral agreements such as REIMS , Express Mail Service (EMS) or E-Parcel Group (EPG) . Some of these agreements may be out of line with the spirit of Article 13 of the Postal Service Directive (PSD) which encourages the cost orientation of cross-border tariffs. Lack of enforceability of the PSD principles on tariffs is also one of the possible reasons for high prices. Only very few postal national regulatory authorities (NRAs) focus their responsibilities also on cross-border delivery markets, as many NRAs have a limited mandate on this segment . A lack of easy availability and transparency of information in this market is also a problem for e-retailers and consumers on a micro-level and for NRAs on a macro-level. Despite the existence of more than three operators in the cross-border parcel delivery segment in most Member States, one in five e-retailers say that they are aware of only one delivery operator . This lack of information extends to the choice of services available. Although most services are offered by delivery operators, e-retailers need sometimes to combine several offers from different delivery operators to be able to offer a wider choice of delivery services to their customers. Consequently integrating these different services increases costs to e-retailers. From a regulatory perspective, on a macro level adequate information on the parcel market is lacking, making it more difficult to assess the extent of and address effectively any market failures. Currently, information on the delivery market is fragmented and only partly available to national postal regulatory authorities. At present, the latter have a limited mandate to monitor and regulate cross-border delivery, often restricted to parcel markets that fall under the universal service obligations of postal services and represent a small share of the delivery market . Policy steps taken so far and need for the issue to be addressed at European level As shown above, delivery related barriers are considered an obstacle for both e-retailers and consumers, hindering their further participation in e-commerce growth, particularly cross-border. These barriers have already been acknowledged by the Commission both in the Green Paper and in the Roadmap on cross-border parcel delivery. In these documents the Commission identifies the following challenges as action points: lack of transparency of information, excessive costs for low volume shipping, lack of convenient services for the final consumer and lack of interoperability between the different operators typically involved in cross-border delivery. The Roadmap set out a number of actions which aim to improve the quality, availability and affordability of cross-border parcel delivery services (including a complaints handling procedure), and the transparency of information about the services on offer. The Commission's Roadmap defined an eighteen month period for the assessment of industry-led initiatives taken to address the issues identified on cross-border delivery. This period ends in June 2015. The industry (postal/logistics operators and e-retailers) is addressing some of the areas of concern identified in the Roadmap. For example, the postal incumbents have committed themselves to introducing a number of improvements in the area of quality of service and logistics operators are developing tools for better tracing of shipments and for increased interoperability. The Commission's role is to monitor the implementation by the industry of their commitments and ensure that they are fulfilled. Other areas where the industry has not yet proposed any solutions might, however, need complementary measures. Expected Impact – what changes/opportunities do we expect from solving the issue? Improving the availability and affordability of cross-border delivery services will make it easier for e-retailers to sell across borders, especially for SMEs. This would enhance SMEs' growth potential and contribute to more jobs. Consumers would also benefit from cross-border parcel delivery services that are more convenient, as well as from a wider choice and lower prices. Improved cross-border delivery options would be especially beneficial for e-retailers and consumers located in rural or peripheral areas. Moreover, any improvements in the cross-border delivery market might also have further positive spill-overs on the domestic delivery market. 3.4. Territorial restrictions and geo-blocking: goods and services Problem and problem drivers In a single market, consumers expect to be able fully to enjoy the benefits of e-commerce, by comparing and taking advantage of wider choice and better prices. Instead, EU consumers often find that online shops based in a different Member State will not sell certain goods or services or digital content to them or only sell them via a different website specifically targeting their country of residence, frequently under different conditions. There are two common types of market practices and territorial restrictions which differentiate between consumers within the Internal Market: geo-blocking, i.e. simple refusal to sell or automatic re-routing and geo-filtering, i.e. unjustified diversifying of sale conditions . These practices are commonly based on the location of the consumer, which is for instance determined by means of the IP address used by the consumer, the country which is registered for the customer's means of payment or the postal or delivery address indicated by the consumer. While 97% of domestic online orders lead to a successful shipment, in only 48% of all attempts at cross-border orders does the seller actually deliver to the country of the consumer. Refusal to deliver is most prominent for electronic goods. 10% of consumers with experience of cross-border online shopping report that on at least one occasion over the past 12 months the foreign seller refused to deliver to their country; 8% were at least once redirected to a website in their own country where prices were different, while 5% report that the retailer did not accept payment from their country.

In the recent survey of online consumers on DSM obstacles, of those respondents who reported on their most recent problem(s) when making or attempting to make a cross-border purchase from another EU Member State, 5% indicated that they were not able to access the seller’s website because they were redirected to the seller’s website in their own country and a further 6% indicated that foreign sellers refused to sell to them because of their country of residence. Similarly, 7% of respondents attempting to purchase from another EU Member State reported that they could not access the foreign seller’s website (or only limited content was displayed to them), whereas another 4% reported that their means of payment was refused by the foreign seller. In addition, 74% of the complaints concerning services which were received by the European Consumer Centres Network related to consumers facing differences in price or service when buying online cross-border. Cross-border complaints alleging discrimination in online shopping identified refusal to deliver as the main cause, followed by price discrimination and technical requirements such as country of credit card. Only half of the traders contacted could explain the reason for the discrimination and in only 1 in 6 cases did they agree to change their practice. Automatic rerouting to national websites of a company when booking a service online has been frequently observed in certain sectors. Moreover, price differences based on the country where consumers are resident can be significant even though the prices are often applied to the same service provision taking place at the same location. To analyse the extent of price discrimination the Commission initiated a web-scraping study in 2013. The study showed that a leading car rental company consistently used to set different prices based on the consumer's place of residence (the situation has improved since then). For an identical car rental in a given country, a car could at the time be up to 53% more expensive if the consumer resided in the UK compared to Romania, Slovenia and Poland. Consumers' behaviour on the market is greatly influenced by their perception of fairness regarding market conditions and prices. In the Internal Market, prices charged by service providers in one Member State, are often used as "reference prices" by consumers in other Member States, which determines their perception of price fairness. This practice has intensified as a result inter alia of the increased use of price comparison tools. For that reason, consumers' perception of fairness and their sensitivity to price discrimination may be amplified in the context of the Internal Market . At the same time, there are a number of economic realities that can either make a single price impossible or that provide justified reasons for applying price differentiation. Consumers are also confronted with lack of access to support services from sellers when orders are made from other Member States (e.g. customer service offered only via non-geographic numbers not accessible from other Member States). In the recent survey of online consumers about DSM obstacles, poor customer service was quoted by approximately 13% of those respondents who reported their most recent problem(s) with purchases in the last 12 months from other EU countries. There are a number of reasons why companies limit the geographical scope of their online activity and use geo-blocking practices to apply it in practice. In certain cases, geo-blocking is necessary to comply with legislation. For instance, online companies might need to restrict access of consumers to betting websites when they come from a Member State where online betting is prohibited, or access to certain content might be limited in order to comply with specific legislation (e.g. legislation on advertising, protection of minors, etc.). In other cases, restrictions on cross-border sales are imposed on the online shops by the manufacturers of the products through contractual agreements. Recent evidence shows that the likelihood of engaging in cross-border e-commerce would increase by 10% should the suppliers' restrictions be removed and the volume of sales would also increase by 6% on average. A company may also decide, as an individual business choice and on the basis of a variety of considerations, not to sell to a customer from another Member State. One of the main underlying causes of the refusal to engage in cross-border sales is found in costs stemming from the current legal fragmentation of contract and consumer law and other regulatory barriers, which discourage companies from selling to foreign consumers (as described in previous sections). In addition, in many cases, companies do not sell abroad because the delivery and overhead costs stemming from occasional online transactions are considered too high (see section 3.3 on parcel delivery). Policy steps taken so far and need for the issue to be addressed at European level The e-Commerce Directive lays down the country of origin principle for information society services with the aim of dismantling barriers to online activities in the Single Market. The e-Commerce Directive, however, does not contain any particular provision related to geo-blocking. Nevertheless, other tools and instruments applicable to territorial restrictions are in place at EU level. Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between undertakings that have as their object or effect the restriction of competition. EU competition law can therefore tackle anti-competitive agreements for the sale and purchase of goods or services which are entered into between undertakings operating at the same (horizontal agreements) or different levels of the production or distribution chain (vertical agreements) that create barriers to cross-border e-commerce. Moreover, under EU competition law (Article 102 TFEU) undertakings with a dominant position are prohibited from abusing their dominant position. Competition law cannot, however, address restrictions that are imposed through unilateral business decisions by non-dominant companies. In order to systematically analyse restrictions that create barriers to cross-border e-commerce, the Commission will launch a sector inquiry into the e-commerce sector in all Member States. The results of this inquiry will help to target competition law enforcement better to remove such restrictions. The Services Directive prohibits discrimination based on nationality or place of residence in the provision of services, including online services, unless there are objective justifications (Article 20). Specifically, Article 20(2) covers instances where different treatment is applied by service providers – that is, firms or professionals offering services in a market. It obliges Member States to ensure that the general conditions of access to a service, which are made available to the public at large by the provider, do not contain discriminatory provisions relating to the nationality or place of residence of the recipient, but without precluding the possibility of providing for differences in the conditions of access where those differences are directly justified by objective criteria. This provision has at times proven difficult to enforce effectively because of the broad range of potential objective justifications. Moreover, EU law imposes transparency requirements on sellers vis-à-vis the consumer that also apply to geo-blocking practices. The Consumer Rights Directive requires traders to inform about delivery restrictions clearly and legibly at the latest at the beginning of the ordering process (Article 8(3)). As far as payment services are concerned, the EU has also taken initiatives that will affect the use of innovative payment services. The draft Interchange Fee Regulation, which has been recently adopted by the European Parliament, will enhance transparency for card transactions, pave the way for innovative payment technologies to be rolled out, improve competition in card payments and give more freedom of choice to retailers. It also foresees the possibility for EU citizens to obtain a credit card from any banking institution, regardless of its place of residence. Expected Impact – what changes/opportunities do we expect from solving the issue? Addressing the problem of territorial restrictions in e-commerce within the EU could bring increased price transparency, more competition in cross-border e-commerce and greater availability and choice of products for consumers. Several actions could be considered to reduce the prevalence of these restrictions by eliminating unjustified geo-blocking and addressing the underlying real and perceived obstacles that currently discourage certain companies from extending the scope of their activities to the whole EU. Geo-blocking may be examined from a competition law perspective, as well as from other legal perspectives (e.g. non-discrimination and freedom to provide services, enforcement of consumer rights, commercial practices and contract law). 3.5. Access to and use of copyright-protected content The EU copyright system is a key element of the EU's cultural, social and technological environment and of the digital economy, with copyright-intensive industries (e.g. audio-visual, music, books) generating 7 million jobs and contributing around EUR 509 billion to EU GDP. These industries are one of Europe's most dynamic economic sectors and are dominated by micro firms, 95% of which have fewer than 10 employees. Copyright and related rights provide an incentive for the creation of, and investment in, new works and other protected matter (music, films, print media, software, performances, broadcasts, etc.) and their exploitation, thereby contributing to improved competitiveness, employment and innovation. The EU is a world leader in certain important copyright-intensive sectors (e.g. publishing, music, video-games or scientific, technical and medical journals) and relies on creation and on knowledge-intensive goods and services to compete globally. Digitisation has deeply impacted the ways in which copyrighted works and services are both created and consumed. Consumers expect to be able to access content anywhere and from everywhere and innovation in the knowledge and research sector strongly relies on the availability and ease of access and exchange of copyright-protected material. At the same time, creators expect fair remuneration.

Key copyright-intensive industries are expected to grow in upcoming years and mostly the growth will be driven by digital content. Global consumer books revenue will increase at a Compound Annual Growth Rate (CAGR) of 0.9% to 64.9 billion USD in 2018. While growth in consumer e-books is strong, at a 17.6% CAGR over the next five years, growth is slowing as the market matures, with year-on-year growth down to 10.3% in 2018. In magazine publishing, similarly to books, digital consumer magazine circulation will drive growth. Filmed entertainment revenue is expected to rise globally at a CAGR of 4.5% from 88.3 billion USD in 2013 to 110.1 billion USD in 2018. 'Over the Top' (OTT)/streaming services will see the fastest rates of growth (28.1% CAGR). At the same time, subscription TV should not be daunted by the rise of OTT, as it grows across global markets. Territorial restrictions in access to digital media content Accessing digital (copyright-protected) content is one of the most popular online activities. 35% of Internet users engage in playing /downloading of games, images, films or music , making it the most popular online activity. During the next five years global digital spending on entertainment and media is expected to increase at a rate of 12.1%. In addition, behaviour is changing and smartphone viewers in Europe consume more than four hours of video content on a weekly basis, almost half of which they view on-the-go. In parallel, over recent years the availability of legal online offers of digital content has developed significantly. For instance, there were over 2,500 on-demand audiovisual services available in Europe at the end of 2014. However, there are concerns related to accessibility of digital media content in cross-border situations, both when it comes to the portability of content available in the home country and as regards cross-border access to content from another Member State. First of all, 27% of citizens said they would be interested in watching or listening to audiovisual content or music transmitted from their home country when moving temporarily abroad, for example for holidays or for business. However, when crossing an EU border, consumers are frequently prevented from using the content services (music or video services) for which they have paid in their home country and which they expect to be able to carry with them. Indeed, a recent survey showed that of the 31% of respondents who streamed films and TV series in the last 12 months and tried to access streaming services of their own country while being abroad, 43% reported not being able to access the content when abroad. Equally, of the 38% of respondents who streamed live events (e.g. sports matches) in the last 12 months and tried to access streaming services of their own country while abroad, 51% reported not being able to access. Furthermore, there is curiosity in the population for foreign media content, and more generally interest for accessing content across borders. 19% of citizens are interested in watching or listening to content from other EU countries. However, when trying to access or purchase digital media content from another Member State, citizens are in many cases confronted with the message that it is unavailable or cannot be accessed from their own country, or may be automatically redirected to the website of their country of residence, which may offer a different catalogue of content. Cross-border accessibility of online content services varies, with many services available at national level only. For example, in May 2011, about 35% of broadcasters offering long-form video content on their websites (e.g. through catch-up TV services) used geo-localisation to restrict access to certain types of content, especially US content, international sports and music events, which suggests that national content is more broadly available. In addition, the cross-border availability of content is still limited, in particular for audiovisual content: only 40% of all films on offer on a major online distribution platform are available in the 27 national country stores of this platform (for music the share is closer to 80%), and the share is lower for EU-produced films (about 28%). More evidence on cross-border accessibility of Video-on-Demand (VOD) film services shows that variations in overall VOD accessibility in the EU range between 3.6% and 9%. Cross-border accessibility of VOD in the EU varies between 0.4% and 3.8%, with a mid-range value of 1.9%. Geo-blocking is also applied in the case of political reporting and news broadcasts. This was made apparent, for instance, during the European election campaign, where a number of the debates involving candidates were not visible in some Member States because of systematic geo-blocking by the producers of these debates. In addition, there is also evidence of a lack of information for consumers about territorial restrictions. In a study carried out by the Commission in 2012 about 1,000 websites proposing digital content downloads were screened; 73% of them remained silent on geographical restrictions and when information was given, it was often presented only in the general terms and conditions and difficult to find. The limited cross-border availability of online content services is largely influenced by the territorial dimension of copyright, by territorial restrictions in licensing agreements between right holders and distributors and by the commercial practices of online service providers. Rights under copyright are granted by national law and the geographical scope of copyright protection under each national law is limited to the territory of the relevant Member State. A service provider willing to offer content online in several EU Member States may therefore have to acquire a licence for all the different territories in which the content is made available. However, the current copyright regime does not prevent multi-territorial or pan-European licences being granted. Restrictions to cross-border use often originate from practices aimed at exclusive territorial protection (based on absolute exclusivity in one territory) and are more prevalent for films, TV series and sports programmes. Indeed, producers of audiovisual programmes typically grant an exclusive licence to a single distributor within a given territory. For European films and TV programmes, such an exclusive licence is commonly granted to distributors in order to obtain upfront investments that contribute to the financing of production. For sports programmes, there is an important difference between the value of media rights on the main market, where the level of interest and demand is highest, and the value of those rights in other markets. This variation is often very substantial. In the music sector, multi-territorial selling of rights is more widespread, especially with regard to Anglo-Saxon music and less so for other national music repertoires, which distributors chose to acquire only for certain territories for cultural and linguistic reasons. As regards the book sector, publishers generally acquire rights for a book in a given language on a global or pan-European basis and are therefore able to grant a licence to a distributor for multiple territories. However, there are still some access restrictions to e-books, which may be linked to business decisions made by the online distributors. This applies to other sectors as well, where service providers may prefer to organise the distribution of online content on a territorial basis, even when they have a multi-territorial licence. Finally, the cross-border accessibility of digital content is also affected by a range of other factors. Some of these hindering factors are common to all online commercial activities, regardless of the type of good or service offered (e.g. VAT regime, varying national rules regarding protection of minors and consumer policy, lack of a convincing business case or unilateral business decisions of content-delivery platforms not to operate in certain countries or to allocate customers to a specific national store) . Others are more specific to the distribution of online content and may possibly include divergences in national rules or practices on release windows (i.e. media chronology) or the lack of incentives for right holders to make their content available online due to fear of illegal exploitation (e.g. piracy). Directive 2001/29/EC was designed to update copyright to the Information Society and to implement the two 1996 World Intellectual Property Organization (WIPO) Internet Treaties - the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. It harmonises several exclusive rights of authors and neighbouring right holders which are essential for the digital transmission of works online: reproduction right, right of communication to the public and making available right. As explained above, right holders may nevertheless prefer to issue exclusive licences with a limited territorial scope (e.g. matching the territory of a Member State or based on linguistic criteria). In the Premier League cases (joined cases C-403/08 and C-429/08) which addressed issues related to cross-border access to satellite broadcasting services, the Court of Justice of the European Union (CJEU) concluded that right holders and service providers may conclude licencing agreements based on territorial exclusivity but cannot include in such licensing agreements clauses aiming at achieving absolute territorial exclusivity in breach of competition law and the Internal Market freedom to provide services. In the music sector, the Collective Rights Management Directive – which is to be transposed by April 2016 - should make it significantly easier for online service providers to get multi-territorial licences for the use of authors’ online rights in music. In addition, a stakeholder dialogue on 'Licences for Europe' was launched on 4 February 2013, which led to the adoption of 'Ten pledges to bring more content online', presented at a plenary session on 13 November 2013. One of the pledges took the form of a statement by representatives of the audio-visual sector affirming their willingness to continue to work towards the further development of cross-border portability of films, TV programmes and other audio-visual content for which users have subscribed at home, when travelling in the EU on business or on holidays. Cross-border aspects of activities related to access to knowledge, research and heritage The copyright legal framework plays an essential role in providing incentives for creativity and for investing in creativity also in the digital environment. Well-defined property rights are a pre-condition for markets to work efficiently. At the same time, copyright rules need to take into account the pursuit of other public policy goals. Moreover, several aspects of the copyright framework in Europe (copyright as exclusive rights, the three-step test, etc.) are subject to multilateral and bilateral international agreements to which the EU and their Member States are parties and which may have an impact on the scope of exceptions. Across the EU, as in most world jurisdictions, certain uses of copyright protected works take place on the basis of exceptions and limitations to copyright, which are contemplated in law in response to the inability of the licencing markets to deliver contractual solutions (market failure) or to support public policy objectives. In these cases, a defined group of users does not have to ask for the authorisation of right holders and enter into licensing agreements to carry out certain activities (for example, cultural heritage institutions making copies for preservation purposes). In some cases, exceptions are linked to the existence of licensing schemes, in the sense that if a license agreement is in place, certain exceptions might not apply.

Most exceptions to copyright foreseen in European law remain optional for Member States to implement, resulting in a fragmented landscape across the EU. Exceptions identified as optional in EU law may or may not have been transposed in national law, and their wording and scope can vary considerably. This means that certain activities that are allowed under an exception in one Member State might be illegal in another unless they are covered by a licence. The most recent development in this area is the Orphan Works Directive, which introduced an exception for the use of orphan works by institutions like libraries, museums and archives. This is one of the very few exceptions in EU law that are harmonised and mandatory for all Member States. In general however, the existence and scope of exceptions to copyright varies in different Member States. Growing mobility within the EU, as well as increased investment and interest in cross-border activities, make specific exceptions in certain areas like education (including for persons with a disability), research and cultural heritage particularly relevant to the DSM. For example, a recent study identified 253 cross-border higher education programmes operating in the EU. International mobility amongst researchers is quite high with 56% of EU researchers having worked (or currently working) in a country other than the one where they graduated. Exploitation of big data, thanks notably to text and data mining techniques, could generate significant benefits in terms of productivity and competitiveness in the field of research. Differences in the way Member States implement exceptions can therefore be problematic for activities where the cross-border aspects or the European significance of a certain activity is relevant and growing in importance, notably in the area of education, access to knowledge and research. Persons with a disability cannot access books in special formats made under a copyright exception in other Member States, which limits the number of works available to them. In the area of research, text and data mining has also emerged as an area where legal uncertainty as regards EU copyright law and divergent approaches at national level could hamper European research, including cross-border research collaboration. Adequate and well-balanced changes to certain of the existing exceptions would enable the relevant actors to fully grasp the opportunities of the digital age whilst meeting the requirement of an efficient protection of rights. The work of the institutions in charge of promoting access to knowledge should be facilitated, by providing them with a clearer framework and a level playing field regardless of the Member State in which they are based. Research would more fully benefit from the potentialities of text and data mining, thus contributing to innovation and competitiveness. Copyright enforcement The enforcement of copyright online continues to raise increasingly difficult challenges for right holders, impacting the functioning of the DSM. Improving enforcement against commercial-scale infringements while protecting fundamental rights is an essential feature in promoting an efficient marketplace for copyright works in the DSM. The most recent data available confirm a correlation between the growth of cultural and creative industries and IP protection legislation, showing value destruction and employment losses where measures/policy changes are not taken to address piracy. The fragmentation of rules in this area makes it cumbersome for the right holders to enforce their rights across the EU. As an example, where local legislation implementing Article 8(3) of the Directive 2001/29/EC provides instruments for obtaining injunctive measures against intermediaries whose services are used by a third party to infringe a copyright or related right, certain aspects of the conditions and procedures relating to these injunctions remain fragmented. Furthermore, any improvement to the mechanisms for enforcement of IP rights in the EU would be useful to support the efforts to seek a balanced and effective enforcement of such rights in third countries where they are sometimes infringed on a systemic and wide-spread scale. Digital value transfer related to copyright protected content and remuneration of authors With the development of new online services, a sense of unfairness is perceived in the relations between Internet platforms and right holders: there is a growing concern from certain stakeholders from the creative sector regarding the lack of level playing field on the online content market, due to uncertainties in the current legal framework which was designed at a time when technology limited the ways content could be distributed and made it easier to define the roles of different market players. Today, the lines between hosting service providers and content service providers engaging in the act of communication to the public of protected works under copyright rules have become more difficult to distinguish. This legal uncertainty could create distortions on the online content market where platforms that make content available to the public without a licence compete with licensed services for similar or equivalent services to the consumer. The unclear legal situation can also make it hard for right holders to licence their content with the platforms or obliges them to accept licensing conditions that are below the potential value of the content. Beside the issue of transfer of value, content creators are also generally concerned about the fairness of remuneration conditions. The fragmentation of national legislation in that area could create difficulties for the providers of multi-territorial services in the internal market as they have to comply with a variety of different legal requirements for the remuneration of authors and performers for online exploitation within the EU. Two studies investigating these issues are currently underway and should become available in the course of 2015. 3.6. VAT procedures on cross-border online sales In the EU, in principle, every supply of goods or services for consideration by a business is subject to VAT, which is typically levied at the standard rate of between 17% and 27% of the sales price depending on the Member State. This VAT is – like a general sales tax – a tax on consumption, and by now there is a consensus amongst Member States that VAT revenues should, in principle, accrue to the Member State in which the consumption takes place. This makes sense because it ensures fair competition between domestic and non-domestic businesses selling the same goods and services. It also creates a level playing field for SMEs and other companies that cannot relocate to a lower-tax Member State and who may otherwise lose out to more mobile competitors. Finally, it ensures fair distribution of tax revenues between Member States, as they receive the tax on the goods and services consumed by their own residents. However, unlike a sales tax that is charged only at the level of final consumption (typically the retail level), VAT is generally levied on the value added (the difference between the sales price and the cost for all purchases) generated by the suppliers involved in the supply chain. This approach minimises the risk of unreported turnover as each supplier has an incentive to report their sales, as otherwise they would not be entitled to claim back the VAT they have paid on their input. Nevertheless, since it cannot be assumed that all suppliers will voluntarily comply with existing VAT obligations, a set of registration and reporting obligations have been put in place as well, which involve an administrative burden for businesses, likely to be felt in particular by SMEs. In addition, compliance with the VAT rules inevitably becomes more complicated and burdensome when a business engages in online cross-border transactions with customers located in other Member States or third countries. Since VAT (as a tax on consumption) is levied in the country of the customer and in accordance with that country's laws, different national VAT rules will apply and different tax authorities will be involved. At the same time, digitalisation and the Internet have made industrial and commercial activity more international, while offering opportunities to businesses to shortcut traditional supply chains and interact directly with their customers, wherever they may be, without having to rely on wholesale and retail trading intermediaries. Even SMEs are therefore being given the chance to be international players, something they would not have dreamt of in the traditional “brick and mortar” world. Indeed, as the online ordering of goods and services and the online supply of services turns from being the exception to being the rule, more and more SMEs would like to conduct cross-border e-business but are confronted with having to comply with tax legislation in all the countries in which they have clients, as well as the need to communicate – often in another language – with foreign tax administrations. 38% of traders with experience of selling online cross-border and 54% of potential online cross-border sellers mention dealing with foreign taxation as a problem. In general, a vendor making supplies of tangible goods to consumers in other Member States is required to register and account for VAT in each of those Member States. The situation is somewhat different for vendors of electronic services supplied to consumers in other Member States. Until the end of 2014, VAT on all telecommunications, broadcasting and electronic services was levied in the country where the supplier was located but now, since 1 January 2015, with the coming into effect of new rules, VAT on those electronic services is levied instead where the consumer is located (in accordance with the country of consumption principle). However, in parallel with this change and in order to simplify compliance with the new rules, a mini "One Stop Shop" has been implemented, which will reduce the costs and administrative burdens for businesses concerned. Instead of having to declare and pay VAT directly to each individual Member State where their customers are based, businesses will be able to make a single declaration and payment in their own Member State. Suppliers will use a web portal in their Member State of establishment to account for the VAT due on sales in other Member States. In this way a vendor of electronically supplied services has to charge the VAT of the country in which the consumer is located, but is only required to register and account for VAT in their home country. In contrast to this, for goods ordered online from a third country, the non-EU supplier generally benefits from a 'small consignment' import exemption (usually up to EUR 22) to ship its goods VAT free to EU private customers. This puts them at a competitive advantage over EU suppliers and market distortions have already been signalled in various Member States, notably in respect of close territories such as the Aland Islands and the Channel Islands which are not in the EU VAT area. Since 1999, the number of small consignments benefitting from the import exemption has increased from approximately 30 million parcels to 115 million in 2013. That represents an increase of approximately 300%. If this trend were to continue in line with the growth in e-commerce, it is not inconceivable that it could reach 300 million parcels by 2020. In terms of VAT foregone at the level of the EU, it is estimated that there was a loss of between EUR 550 million and EUR 850 million to EU Member States in 2013. Before the exemption was removed by the UK for small consignments coming from the Channel Islands, the VAT foregone was estimated between EUR 650 million and EUR 900 million in 2011. Such a loss in VAT could translate into a reduction of nearly EUR 4.5 billion in turnover for EU business due to the un-level playing field. If this trend were to continue in line with the growth in e-commerce, it is not inconceivable that the VAT foregone could reach up to EUR 2.2 billion by 2020. Thus, a provision aimed at reducing administrative burdens for both tax administrations and business in respect of small-value supplies has turned into an expensive tax subsidy for big global players located outside the EU.

The Commission Expert Group on Taxation of the Digital Economy, in its final report of May 2014, proposed that the EU should pursue the destination principle for all supplies of goods and services, and specifically recommended that a single electronic registration and payment system for VAT, hosted and managed by the Member State of the supplier, should be extended as a priority to cross-border B2C supplies of goods, and that the VAT exemption for the importation of small consignments from third countries should be removed with suitable simplification arrangements for the businesses affected. While the single electronic registration and payment system is itself a substantial simplification, two issues need to be considered. The first relates to small start-up businesses which supply goods and services cross-border but which are covered by the current Member State level exemption thresholds for small business, which range from EUR 0 to EUR 110,000 depending on the Member State. Under the 2015 place of supply rules, such businesses are now required to charge and account for the VAT of the Member State of the consumer. There is a perception that this requirement may act as a barrier to trade within the Single Market and therefore some mitigating measures may be needed, such as a common cross-border exemption threshold. As regards the second issue, EU legislation on the mini One Stop Shop provides that controls and audits are to be carried out by the Member State of consumption. For both EU and non-EU companies, this may involve up to 28 different tax administrations auditing the same companies without any coordination and leading to information requests in multiple languages. Not only could this create disproportionate administrative burdens on business but it could also put at stake the efficiency of the audits themselves as well as the level of voluntary compliance (which is particularly sensitive where non-EU companies are involved). Some Member States have agreed audit guidelines which attempt through coordination to alleviate any unnecessary burdens on business. The Commission Expert Group has recommended that "home country control" should be considered, i.e. the supplier will only have to comply with the rules applicable in the Member State where they are established. If all businesses selling goods and services cross-border could account and remit the tax due in the Member State in which they are established, rather than having to register and remit the tax in every Member State in which they do business, this would significantly simplify and reduce the burden of compliance for many businesses. The following costs have been reported: for hiring accountants, a merchant needs to budget EUR 5,000 per year per country, many of which require the merchant to register for VAT when sales hit a paltry EUR 35,000 a year. As regards direct taxation, the Commission has already delivered significant progress in the fight against tax avoidance and tax fraud through the implementation of its 2012 Action Plan to Strengthen the Fight against Tax Fraud and Tax Evasion. However the political debate has moved on and the earlier focus on improving tax compliance and administrative cooperation has now expanded to encompass those features of tax systems which contribute to aggressive tax planning. This is why the Commission will shortly present an Action Plan on a renewed approach for corporate taxation in the Single Market, under which profits are taxed where the value is generated, including in the digital economy. Further information on the challenge of the digital economy for direct tax systems is provided in Annex II.



4.Conditions for digital networks and services to develop 4.1. A single market in telecommunications All activities in the digital economy depend on electronic communication (broadband) networks. The DSM can only be realised when all European citizens, businesses and public administrations are connected to reliable, high-speed and affordable networks. Current situation in Europe Telecommunications markets in Europe predominantly remain either national, regional or local in scope, with different supply and demand conditions. Telecoms operators have national strategies even when they form part of larger multinational groups. Important differences exist within the EU as regards telecoms regulation and spectrum policies , which cannot be justified by national circumstances and which hinder the potential for further investment and the emergence of innovative businesses at an EU level. This prevents the EU from reaping the full potential of an EU-wide telecoms market in which players active at a multi-territorial or pan-European scale would compete with innovative local providers relying largely on their own infrastructure. The current regulatory framework for electronic communications (in force since 2002 and updated in 2009) has successfully liberalised previously monopolistic national markets and reduced barriers to entry, promoting effective competition and creating common principles for electronic communications markets across the EU. The main economic regulation provisions of the framework are based on market analysis by national regulatory authorities (NRAs) which impose ex-ante remedies to ensure effective competition in the presence of significant market power (or dominance) of one or more operators. The current framework is therefore premised on the implementation of rules by national authorities in 28 Member States. Whilst there appears to be a general consensus with regard to the need to regulate access to broadband networks in certain circumstances, the regulatory remedies chosen by the NRAs to redress specific market failures and competition problems identified tend to vary considerably. This situation increases the burden on operators to invest in networks and related services on a cross-border basis or to enter new markets on the basis of a mere extension of existing commercial and technical models. As a result, consumers and businesses in all sectors may have access to electronic communication services of varying quality across countries; low quality access networks hinder the performance of certain economic sectors and reduce citizens' interest in engaging in online activities. The current regulatory framework has been broadly successful in creating the conditions for effective competition in the distinct national markets. Traditional providers of vertically integrated telecoms services ("incumbents") compete against access seekers ("entrants") and with providers of cable networks (historically delivering television services). Innovation in mobile broadband networks has delivered a new service platform. The regulatory framework was crucial in driving take-up of broadband: currently 78% of homes subscribe to broadband compared to only 15% in 2004.

Chart 6. Households having a broadband connection Source: European Commission, Eurostat, ICT survey of Households and Individuals At the same time, broadband has become more affordable, as retail prices decreased by over 20% between 2009 and 2014. Moreover, there is very little in the way of price premium on high-speed broadband offers, which supports migration of consumers. Nevertheless, 26% of those households without Internet access still consider broadband access prices to be a barrier to take-up, while for 30% the required equipment is not affordable. Chart 7. Broadband retail prices

Source: Broadband Internet Access Cost (BIAC), annual studies for the EC realised by Van Dijk However, the beneficial effects of liberalisation have only been felt so far at national level and have not resulted in real market integration at EU level, arguably to a significant extent because of inconsistent regulation across Member States. For example, the chart below shows that in 2013 there were significant differences in the monthly rental prices of full and shared local loop unbundling (LLU) in different Member States. These large differences cannot be explained by differing underlying competitive or economic conditions.

Chart 8. Local Loop Unbundling monthly average cost Source: Communications Committee Also, the framework is less well equipped to steer national authorities towards providing favourable conditions for widespread investment in capital-intensive broadband networks of the type likely to be increasingly needed in the future (e.g. with high upload as well as download capacity, and demanding quality of service parameters), especially in less densely populated areas. Rules in the current framework were initially designed to spur competition in existing networks and have also generated some competitive pressure for incremental upgrades of such networks. However, the social return from investment in higher quality networks tends to be greater than for the individual operator. The framework was not conceived to lead to generalised roll-out of new networks in accordance with public-policy objectives. Problem and problem drivers Recent technological developments are crucial to understanding the changing environment of electronic communications and the speed of change. Important steps have inter alia been: (i) technological convergence of broadband connections of traditional telecoms (copper) and broadcasting (cable) networks; (ii) development and greater political emphasis placed on new generation access networks based on fibre optic technology; (iii) important developments in wireless communications thanks to the quality ensured for mobile broadband by 3G and 4G network standards, the significant provision of wireless connectivity through WiFi offloading to fixed networks, together with the advent of the smartphone and other portable devices; (iv) the introduction of flat-rate offers followed by a trend in bundling telephone, TV, Internet and mobile services; (v) the rise of Internet platforms and of the app ecosystem, including the polarisation of the operating systems. Competition is a key driver for investment in telecoms. The migration from copper-based to high-capacity fibre-based networks has however been slow. Former incumbents appear often to lack incentives to overbuild their own largely depreciated copper network assets; they react to competition from cable operators by upgrading incrementally existing access networks. Alternative operators, however, may not always have the financial capacity to deploy new networks on a large scale (although they have been behind major network upgrades. Finally, their investment incentives may be reduced if regulated wholesale access is made disproportionately attractive, i.e. access seekers' build-or-buy decisions rendered economically inefficient. As traditional incumbent fixed-line networks increasingly face retail competition, at least at regional level, from cable and sometimes other alternative infrastructure developers such as utilities (often now allied with mobile assets to make bundled offers), proportionate regulation in the face of "infrastructure competition" raises difficult questions. Moreover, the framework is less well adapted to promote to any significant extent a "first-mover advantage", i.e. incentives to be the first to provide qualitatively superior networks to those currently in existence that could override higher investment risk. In the Digital Agenda for Europe in 2010, the Commission announced a vision for more ambitious connectivity with specific broadband targets. The target of universal access to connectivity at 30 Mbps indicated the ambition to ensure territorial cohesion in Europe. While most connectivity technologies were expected to be able to provide 30 Mbps access, and wireless was assumed from the outset to be part of the mix, the underlying assumption was that such universal access would be provided at a fixed location (e.g. homes and workplaces). The penetration target of 100 Mbps (50% of subscriptions in Europe by 2020) sought to anticipate future competitiveness needs in line with the most likely global developments . According to the Digital Agenda for Europe scoreboard, Next Generation Access (NGA) fixed-line technologies capable of providing at least 30 Mbps are available to 62% of EU households (at the end of 2013). The closer one gets to 100%, the more expensive it becomes to deploy fixed solutions; progress in technology should allow wireless solutions (terrestrial, mobile and/or satellite) to deliver at least 30 Mbps by 2020 and to contribute to covering the last percentages of the population located in the most geographically isolated areas. Regarding the take-up objective (50% of the population subscribing to ultrafast >100 Mbps services), this currently remains marginal at 1.6 subscriptions per 100 people, corresponding to 3% of homes. The Commission estimates that on currently discernible trends, at least 75-80% of the population would have to be covered with 100 Mbps technologies in order to reach this 50% take-up target, which wou