The opposition to this new figure of the information society challenges the community concept of freedom to provide services
What are the free tours?
It is an innovative business model, which has entered with disruptive force to change the way of booking a very traditional service: the tours offered by guides and tour companies through traditional channels.
Inevitably linked to the services of the information society, and driven by the movements of the collaborative economy, free tours in recent years have sought to “update” a figure that was very stagnant in the past. The tourist guide (“cicerone”, alluding to M. T. Cicero, 106–43 B.C., a Roman orator, and in the Italian language, extensive to tourist guides) is a figure almost as old as the foundation of Rome, and had been functioning in the same way as in its beginnings. Tourist agencies usually offer these services through their offline channels, in their offices or through distributors, etc. and online, on their websites, linking them to packages of various tourist activities to some specific activity (such as tours of one or more museums and galleries, churches or ancient monuments or of historical value, archaeological sites or natural parks, etc.) that include the accompaniment of specialized guides. In short, the tourist guide rarely provides and offers his services by himself, but generally acts through an intermediary (a tourist agency, generally framing his relationship with it as one of professional services, and not labor) who is the one who sets in advance the date, place and price of the services that the user who hires them will receive.
The revolution of the free tours is due to the fact that, in a digital platform, app or web portal, interested users can book a guided tour, for a specific date and place, and without predetermining any fixed price, which the user will be able to quantify later once the tour is over. This new modality is much more appealing to the user than going to the web portal of the agency on duty, where, in order to confirm a reservation, the user must anticipate part or even all of the price before the tour starts.
A priori it would seem that a free tour is “free”, since that is what this particular combination of words means. However, although it could even be free for the user if in the end he decides not to pay any amount as compensation, this definition does not apply to the particular pricing system, which excludes any advance or payment before the end of the service. Only then, once the free tour is over, should the user “freely” value the service provided by the guide and quantify the price he is willing to pay.
Thus, in all the free tour platforms that exist today, it is possible to book a guided tour, together with other interested users, completely free of charge. The platforms themselves tell you that the guide’s fee will be paid after the tour is over, and its setting will depend entirely on the user. This means that the price of the tour, for a particular person who has enjoyed that service, can go from 0 to infinity.
This is, in fact, an incredibly attractive price setting because it will be the consumer who will determine what value the tour has had, so it will be impossible to be dissatisfied with the price paid. It is true that, faced with this great advantage for the user, the tour guide runs a great risk: he will not charge anything for his services, while consumers will be able to choose not to pay anything.
At this point the psychological factor is key, both on the part of the platforms, and on the part of the group of tourists or users. The free tours platforms already establish a range of prices as an example, through which they intend to illustrate the freedom to set the price, but for psychological purposes they function as a minimum and maximum limit. And, on the other hand, it would be difficult for all the members of a guided tour to agree not to pay, so, in the end, group pressure would prevail, with the result that most of the members of the group would pay a very similar price. Price that in turn will not differ notably from previous experiences with other guided tours.
If the end user or consumer is given more freedom, what is the problem?
This is a problem that we have already seen again and again in every sector where an information service arises to drastically change the rules known until now. So, the traditional wing of a sector is confronted with the new wing, based on quite hackneyed legal arguments.
In the first place, unfair competition is invoked, and secondly, it alludes to professional intrusion. Furthermore, these conflicts are accentuated in countries where tourism traditionally represents an especially important sector.
According to the OECD in its report”Tourism Trends and Policies 2018"in 2016 tourism represented 11.1% of the Spanish GDP and 11.8% of the Italian GDP, the two countries of the European Union with the highest tourism index. More recent data from the WTTC places tourism at 14.6% of the Spanish GDP, and, in general, according to the report”Travel & Tourism Regional Preformance, 2019", tourism represents 9.65% of the world’s GDP
It is not surprising that this sector is being exploited to the fullest worldwide, and that this generates controversies such as the one we are experiencing in the case of free tours.
Is there unfair competition in free tours?
Here we must make a first particularly important point, and that is that the media tend to constantly confuse unfair competition and professional intrusion. The professional intrusion is not, a priori, a practice of unfair competition, but a crime defined in the criminal codes of the countries (as an example the article 403 of the Spanish criminal code or the 348 of the Italian criminal code) or an administrative infraction, according to the legal system we are talking about.
Unfair competition is governed by economic guidelines. It is a figure that watches over the “health” of the market, protecting consumers, businessmen and the services or products themselves. The aim is that the infringement of basic economic principles does not generate an unfair competitive advantage that can play against the rest of the participants in the market or any specific one.
The acts constituting unfair competition are set out in the laws, and in the case of Spain, it is highly harmonized with the rest of the European Union as the Community Directives are transposed in this respect. The Spanish Unfair Competition Act (LCD) includes a series of practices that are understood to be unfair competition, and the requirements that must be met to do so. These are not closed cases, so that other conducts can be classified as unfair competition, but it is a fairly comprehensive list.
One of the problems that is common to all the problems of free tours is that of separating the business model from the platform and the specific tour guide. Article 15 LCD determines that it will be unfair competition to take advantage of the competitive advantage in the market, always significant, generated by the infringement of the laws. The nuance here is “significant advantage”.
The violation of the rules on the required qualification to act as a tour guide does not offer a significant advantage, since it simply places the offender at the level of the one who has obtained his qualification. The advantage obtained will consist of time and resources, while a guide has invested resources and time in obtaining a license, someone who does not have that license has decided to practice without that investment. In the case of Spain, the costs required for the qualification of a tourist guide are usually very low, and this is not a particularly relevant time. In fact, most of the guides who promote their free tour services already have this administrative qualification or have received training.
Infringement of other regulations, usually labor and tax, must be assessed on a case-by-case basis, but normally they will not be such an advantage that it can be considered unfair competition. In any case, these are obligations that are not related to the platforms, since the service they are providing is that of intermediating or putting professionals and users in contact, within the framework of a typical professional service provision relationship, and any tax obligations that may arise are the responsibility of the parties separately.
In any case, and returning to the common problem, who would be committing an act of unfair competition? The intention is to automatically attribute such action to the platforms and the business model itself, when the truth is that both tour guides and users freely go to the platform, which only imposes the requirement of absolute freedom to set the price, which is determined by the typically weak party in the relationship: the consumer, who must nevertheless pay a price, even if only the one who determines the amount. So, the platform, whose service would consist of mere intermediation and control of compliance with the rules, does not incur in unfair competition, much less the business model is, by its nature, anti-competitive.
Another point of interest is Article 17 LCD. According to this legal precept, the provision of a service at a loss would be an act of unfair competition. If we were talking about products it would be better understood: if the investment in the acquisition of a product or its materials was higher than the value of its sale, the seller would be making losses with its business model, and therefore would be acting under a figure of unfair competition. This can be recreated in a service insofar as the provision of the same requires investment of time and resources, for the transfer to the place of the appointment, for example.
If there is a (theoretical) possibility that the tour could be free, there could be cases of loss of service. However, is this an undesirable consequence of a market strategy, or is it the objective pursued by the business model?
The question is important, since loss events can occur in all business models, and this does not mean an act of unfair competition, but rather a specific and undesired consequence of a business decision. Hardly, if we analyzed each tour made under the free tour service, we would see that it is a loss-making service, since in that case it would not be a problem for the traditional sector. But even if this were to happen relatively frequently, the purpose of the service becomes crucially important.
The legal reasoning behind Article 17 LCD is that selling a product or providing a service below cost seeks nothing more than to eliminate competitors. The purpose of the business would not be profit, but merely the frustration of the competitors’ business. We are not facing the same assumption.
Finding unfair competition practices in the platforms or in the business model itself is simply (almost) impossible. It would be necessary to investigate each specific tourist guide who offers his services, determine the frequency of this practice, if there is any correlation between the quality of the activity provided and the price paid (or its absence) or if it is a fraudulent intention of the user (occasional or periodic?), etc., and even then it would be extremely complicated to reach a conclusion and be able to prove this type of behavior.
Is it professional intrusion?
As we have commented, professional intrusion is an illicit act, which may be criminal or administrative according to the legal system. In Spain, it is a criminal offense.
There are two prerequisites to speak of professional misconduct: first, the exercise of a profession is regulated (conditions to be able to practice) and, second, a person who is not respecting this regulation is practicing the profession.
The first question we must ask ourselves then is, is the profession of tour guide a regulated profession? And the answer is that in Spain yes. But not only in Spain, in most of the countries where tourism is such a strong sector, the activities related to the sector are regulated.
The regulation of the tourist guide in Spain is autonomous, and has undergone certain changes, but it persists in the face of the clear liberalization trend of the latest European Union directives. It does not make much sense to analyze community by community what the existing regulation is, it is enough to say now that normally to work as a tourist guide a certain degree and administrative authorization will be required.
We find the liberalization trend in Europe interesting. After a series of directives that seek to liberalize the exercise of professions, eliminate obstacles to access, and reduce state interventionism, we find Directive 2013/55/EU, transposed into Spanish law as Royal Decree 581/2017. In this regulation it is established that for a profession to be regulated, there must be a foundation in favor of the general interest.
Is the general interest protected when regulating the profession of tourist guide? The truth is that the Court of Justice of the European Union has made a very wide interpretation of this concept, including the protection of consumer rights in its ruling of July 4, 2019, in case C-377/17. So, the debate is not easy, and it is not resolved. But at least it raises questions about the relevance of such comprehensive regulation in Spain of this profession.
Accepting the regulation for the time being, whether it is pertinent or not, we are forced to return to the common problem that we already warned would be found throughout the analysis. Who commits the act of professional intrusion?
In fact, there will only be professional intrusion to the extent that a non-qualified tour guide comes to the platform to provide services. This event can happen in a tourism agency environment as well. The facilities in terms of registration and use of the platforms, could diminish the control over the qualification of the tourist guides that go to them, so that there can be a greater risk of professional intrusion.
Again, neither the free tour platform nor the business model (which would not exist without the platforms) can be accused of professional intrusion. What is certain is that first we would have to determine if the rate of tour guides committing professional intrusion through these platforms is really high.
What is a free tour platform? It is an intermediary, just like the Crowdfunding Platforms, for example. Its objective is to put the client or consumer in contact with the service provider, which in this case is a tour guide. It is not a free business model; it charges the tour guide in exchange for being offered on the platform.
Protection of free tours as an information society under EU Competition Law
In short, we are talking about a service that is part of the services of the information society, regulated in Spain by the Law of Services of the Information Society and Electronic Commerce (LSSI). This leads us to analyze the remarkably interesting ruling of the Court of Justice of the European Union in the case C-390/18 (Airbnb), of December 19, 2019.
In this case, it was questioned whether the well-known Airbnb platform, framed within the services of the information society, and with a functioning essentially very similar to the free tour platforms, should comply with the regulations governing the exercise of a certain profession (that of real estate agent in France), as well as whether a Member State could limit this intermediary action.
The ruling by the European High Court has been enlightening: the service provided by the platform is nothing more than an intermediary, a service for which it charges a price, and which may have services that are ancillary to the intermediary; consequently, it must not comply with the rules regulating the exercise of the profession for which it intermediates. Regarding the capacity of the State to limit this intermediation, the provisions of Directive 2000/31/EC cannot be ignored, by means of which the limitation must be notified to the European Commission and to the Member State where the service provider concerned is located, in addition to being based on reasons of Public Order.
As a consequence of the above, the free provision of services of the free tour platforms cannot simply be limited, but must be motivated by reasons of Public Order, and proceed with the corresponding notifications. It would clearly be very difficult to justify the limitation of the free tour service based on reasons of Public Order. In fact, the only possible limitation could only come from a regulation of the service, as for example happened with the crowdfunding platforms.
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Originally published at https://gowper.com