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6 June 2019

All political guns train sights on US big tech 4

A rare alignment of political forces in the US has cleared the way for a coordinated anti-trust investigation into the country’s four tech giants Google, Facebook, Apple and Amazon. It is a sign of the times that Microsoft has escaped attention this time despite its recent revival under Satya Nadella after years of stagnation when Steve Ballmer was at the helm. Microsoft after all was subject to one of the most famous anti-trust actions of all around 2001 when the US government accused it of illegally attempting to shore up its monopoly position in the PC market, chiefly by restricting rivals’ access to key software such as the Internet Explorer browser.

Google itself has also been subject to US antitrust action in an investigation lasting 20 months from 2011 to 2013 when the Federal Trade Commission accused it of attempting to stifle competitive sites by giving priority to search results featuring its own services and also scraping other websites to obtain material it then passed off as its own.

However, that investigation took place under a more benign climate and proved rather toothless as Google escaped without even paying a fine, merely voluntarily changing some of its practices to give fair access to competitors. This current investigation will cut much deeper but as a result will probably last several years and even then there is no guarantee of significant action.

Even so, there are reasons to believe the US government is more serious this time as was reflected in the hit on share prices of the four companies. Even the Nasdaq Composite as a whole fell 1.6% on the news, reflecting concerns over the impact on the US tech sector in general. Shares in Alphabet, Google’s parent, slumped 7%, while Facebook was down 7.5% and Amazon 4.6%. Apple fared least badly edging just 1% down, reflecting its lower exposure to any putative anti-trust action. The other three could in theory be forced to divest themselves of significant subsidiaries, such as Facebook with its hugely successful cross-platform WhatsApp messenger.

While such draconian action is unlikely, the mere possibility hanging over the company during a protracted investigation exerts a drag on the company’s value. That such a threat emanates from the US has been cited as evidence that the country plays fair over anti-trust and does not favor its own, given that such actions against successful indigenous companies would be less likely in the EU, never mind China. On the other hand, the punitive stance against Huawei in the absence of compelling evidence refutes this claim. The supposed issues are different, but it is still motivated more by politics and fears over competition rather than genuine security concerns, which is why the UK government has been reluctant to concede to US pressure by shutting Huawei out of its impending 5G infrastructure completely.

The US big four have so far suffered far more at the hands of the EU than the US, with political factors at play here too. The failure of local players to match invading US tech giants even in their home markets has incensed regulators which have pulled all the strings to impede their progress mostly without much success. That said, we should concede the EU has made positive contributions in some key areas, notably mobile roaming where it has successfully ended the era of punitive charges for data and even SMS texts for consumers crossing member state borders. This has benefited not just consumers and businesses but also the operators themselves which have generated new revenues from services and apps.

It could even be said that the EU has set a worldwide precedent for actions against big tech over data privacy through GDPR and also a series of actions over alleged abuse of power by Google relating to search, data and the Android operating system. The most recent, concluded in March 2019 when Google was fined €1.5bn ($1.25 billion) by EU regulators over use of its AdSense targeted ad service, was deemed unfair for several reasons such as rivals being prevented from appearing in online search ads as a result of “exclusivity contracts” with publishers. This followed a €4.3 billion ($4.8 billion) fine in 2018 for undercutting rivals by disseminating the mobile version of Android too cheaply and €2.4 billion ($2.65 billion) for promoting its own shopping service over rivals.

These actions have clipped Google’s wings in Europe and helped inspire the US investigations that are just beginning. But the bigger factor there has been that both the main political parties, the Republicans and Democrats, have their own vendettas against big tech, especially the social media platforms. The democrats have still not forgiven Facebook in particular for its perceived role in Hilary Clinton’s defeat by Donald Trump in the 2016 Presidential Election, while also nurturing left wing anathema to any successful capitalist enterprise. Trump himself meanwhile blames social media for promulgating stories either condemning or ridiculing him that he decries as “fake news”. Both sides are guilty of paranoia, but this mutual antipathy has helped bring together.

The key point here is that two parties have to agree to clear a path for coordinated antitrust action in the US against all of those four, with one controlled by Republicans and the other by Democrats. These are the Department of Justice (DoJ) and Federal Trade Commission (FTC), which between them enforce federal antitrust laws with some overlap in authority but with the aim of being complementary. In some respects, their authorities overlap, but in practice the two agencies complement each other. While the DoJ tends to focus more on B2B sectors, the FTC focuses more on consumer facing areas such as pharmaceuticals, food and high-tech industries with a retail front including internet services.

However, the line is blurred and for the big 4 the two agencies have come together to carve out the investigation between them, with the DoJ gaining jurisdiction for a potential inquiry into Google and Apple, while the FTC will take on Facebook and Amazon. Traditionally the agencies have operated at arm’s length reflecting in part the DoJ being more under control of the democrats and the FTC by the republicans. Both parties have acknowledged growing public antipathy to what is seen as almost unchecked power by the big 4 and it is certainly true that so far, they have faced stronger headwinds in Europe where the EU exerts greater resistance against untrammeled market forces.

However, there is also a backlash against the backlash, with an argument the US is in danger of handicapping ability of its tech giants to compete against the Chinese, apart from imposition of tariffs or barriers on spurious national defense grounds. There is also a sense of futility in that antitrust actions do little to stop the emergence of new big monopoly players to take the place of existing ones. That after all should be the function of the overall regulatory and fiscal climate, rather than individual actions. Some freedom advocates argue that market forces ensure that monopolies inevitably come crashing down in time anyway as they are unable to support innovations that cannibalize their existing revenue streams. On the other hand, the big tech companies have been quite successful at acquiring successful competitors and then ring fencing them, so they have freedom to grow and thrive independently, as Facebook has done with Instagram.

What is beyond doubt is that the new coordinated antitrust investigation does open a new chapter in US high tech history and one that will make the big players uncomfortable. It is most likely they will attempt to reform themselves in order to pre-empt serious action.