Facebook, Google in the firing line: Breaking up the digital giants

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PM Scott Morrison threatens social media companies over extremist content (Screenshots via YouTube)

There is an increasing number of reasons behind calls to break up the tech-giants, the most recent being the failure to stop the live-stream video of the Christchurch massacre.  

Hi-tech companies should have systems in place to immediately stop the spread of such high levels of violence and, for that matter, hate speech, racism and so on.  At the same time, there should be far better education and information on how users can report this as soon as they see it. The buttons are often there on the websites but very few people are aware of them.

In Australia, both the Federal Government and the ACCC have called upon the tech giants to come up with firm actions on how to improve this situation. The Government has indicated that it is underwhelmed by the outcomes of the meeting in late March and by the actions undertaken so far by social media organisations. They have now threatened that further regulation can be expected.

But, of course, there are many more issues with these companies. Leaving the tax avoidance situation to one side, let's concentrate on the privacy issue and the monopolistic nature of the giants.

However, while we address a lot of negative issues, it is important to note that most of the digital developments have been positive, so let’s keep things in perspective and let us not throw the baby out with the bathwater. What would we do without Google Search and Google Maps and Facebook? They are providing great platforms that bring people together and are facilitating grassroots democracy. The hope is that the current threats from the Government will not lead to another legislative debacle as we are seeing happening around the hastily pushed through encryption laws. Cool heads, not emotional reactions, are what's needed.

Nevertheless, changes are needed. From the very start of the social media platforms, I have argued (in the case of Google, directly with them) that they should build their business model on "permission-based" models. All personal information should be "owned" by the individual user. Companies would then have to rely on gaining the trust of the customer to provide them with services in exchange for certain personal information. The role of data in modern economies will be a major part of any further review and a transfer of ownership of private data to the users could create a major change in the business models of social media.

I also argued – some five years ago – that if the digital giants did not follow this path then at some point they would incur the wrath of the regulators. Over the last decade, especially in the USA but also elsewhere, digital companies have successfully argued for little or no regulation. Under the Trump Administration, these tech companies can now basically do what they want.

This era is now clearly coming to an end.

Intervention is going to happen – certainly not overnight – but the beginnings are there. The European Union, the UK, Australia and the State of California have all indicated they will come up with more regulation and legislation. In Australia, News Corp put in a submission that the regulator should break up the tech giants. However, the problem with these national or regional approaches is that this is pitting countries against each other and divide-and-conquer strategies would be deployed by the giants that would make implementation patchy and not very effective.

This could really change if U.S. presidential candidate Elizabeth Warren (not in her position as Senator) gets her way with plans to address the problems of the tech giants.

My colleague, Harold Feld, analysed this situation — it is all about how to best break up the giants in order to avoid the massive industry concentration created by them. Unlike the initiatives in other countries, if the U.S. were to indeed take the lead here, the impact would be real, as all the giants are based in the USA. The Chinese giants also have immense market power, but their footprint outside China is very small.

The major way to control monopolies in the USA is through its anti-trust legislation. But this is not enough in the case of modern digital developments and Warren is one of the first of the more senior politicians to acknowledge this. She is looking at the tech giants as utility platforms.

Nearly half of all e-commerce in the U.S. goes through Amazon. More than 70 per cent of all internet traffic in that country goes through sites owned or operated by Google or Facebook.

Warren’s plan is to designate large tech companies that have annual global revenue of $25 billion or more as "platform utilities" and as 'broken apart from any participant on that platform’.

Warren explains:

Amazon Marketplace, Google’s ad exchange and Google Search would be platform utilities under this law. Therefore, Amazon Marketplace and Basics, and Google’s ad exchange and businesses on the exchange would be split apart. Google Search would have to be spun off as well.

In countries such as New Zealand and Australia, we have gone through similar processes with the incumbent telcos and we call it "structural separation".

In addition to structural separation, these digital utilities would:

  • have a requirement to deal with others in a fair, reasonable and non-discriminatory manner;
  • not be allowed to share or transfer data to third parties.

Smaller companies – with between $9 million and $25 billion in annual global revenue – would be subject to the requirement for fair, reasonable and non-discriminatory dealing and the prohibition on sharing or transferring data to third parties, but they could still participate on their own electronic platforms.

While the U.S Election is still 18 months away and there is no certainty that Elizabeth Warren will win, the fact that she has put the issue on the agenda in a well thought-out, robust plan is a major development in American telecommunication/digital politics. It opens the discussion and will now get many experts (and non-experts) commenting on it, creating an industry-wide discussion.

Of course, there are elements that will need be reviewed and new ones will be added, but that is all positive; Elizabeth Warren herself has indicated that her plan is a starting point for the discussion.

Interestingly, Mark Zuckerberg has asked governments to regulate the industry. While this appears to be an admirable move from him, at the same time, we must be wary of such a suggestion coming from a tech giant. What we have seen happening in the telecom industry over the last century (since AT&T asked for government regulation of this industry in 1913) is that this industry has ended up in very cosy regulated monopolies — continuously gaming the regulator to its advantage. I believe a break-up would be preferable just to avoid such a situation to happen all over again in the digital industry.

Watch this space as it is only the start of a prolonged period of change in a political economy that is undergoing a rapid digital transformation. This is like what we have seen and are still seeing in financial and telco markets. The emergence of dominant market forces has repeatedly resulted in legal and political responses.

We can’t do without the new digital technologies and the internet, and with cool heads, we can make sure that most of the serious excesses get addressed. But in the end we humans are messy beings and the internet is also a reflection of that. So, to a large extent, we will be muddling on.

Paul Budde is managing director of Paul Budde Communication, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde

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