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The death of competition?

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Amazon is one of a few companies that aims to totally eliminate competition (image by DonkeyHotey via Flickr).

Are we approaching a new economic period where competition is but a distant memory, replaced by monopolies and concentrated business power?

COMPETITION HAS worked well for many decades after World War II, especially until the 1970s and 1980s when, thanks to liberal policies, competition made a wonderful job of creating the dynamic world we now live in.

But is liberalism now turning against us?

Has competition peaked? Is it still delivering those dynamic benefits? The signs are not positive.

The Global Financial Crisis (GFC) clearly showed that financial institutions had become too big to fail. They have become so big that they can influence governments and basically set the regulations. They have been able to merge to such an extent that competition became very limited. We could perhaps better call this "managed competition".

The Big Four accounting firms became captives of the banks and under pressure, audits were manipulated. In the absence of genuine competition, greed took over, and we are still suffering from the consequences of this. To show the power of these corporations hardly anything has changed in the way of legislation and regulation since the financial crisis.

The 'Financial Services Royal Commission' in Australia showed similar results. Here also the banks had become too big to fail. They became arrogant and greedy, mainly to the detriment of the more vulnerable elements in society. Regular luncheons between bankers and regulators created the cosy environment where banks were able to "get away with murder".

We see a similar development in telecommunications.

Historically, the national telcos were masters in protecting their monopolies and often incurred the wrath of the market, industry and regulators for their misuse of market powers. But what has happened here is that by constantly looking into the rear-vision mirror the telcos largely missed the opportunity to move into the new digital services world.

Competition here came from left field and the telcos hardly realised what had hit them when the – at that stage – minnows in the industry started to nibble away on the edges through content-based services.

By now these companies have grown into giants, have taken over many more telco services.  Within 20 years GAFAM (Google, Apple, Facebook, Amazon, Microsoft), which better reflect the previous FAANG Team (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) are now among the largest corporations in the world.

While the telco industry is still quibbling about the dominant position of a Telstra or NBN Co, the real action in the market is taking place elsewhere. Like the banks, these new digital giants are rapidly becoming too big to fail and are setting the rules and using their financial and political influence to get their own way.

They now often have more information about the workings of the societies in which they operate than the governments of these countries. And all this information is stacked away in private databases. Add to this the fact that, unlike the telcos, these digital giants are not hampered by industry-based regulations and we see the results in the problems posed by these multi-national (read "American") corporations. The same applies to similar giants in China, but their impact internationally is smaller.

And competition is no longer about dominance in a local market, as is the case in relation to the telcos. A handful of these giants are now dominating world markets.

There is no regulatory global counterpart to these companies. Instead, there are close to 200 independent parochial regulators facing up to these giants. And it has become evident that individual countries are no match for these companies. They use the divide and conquer strategy to have their financial affairs operated from countries where they pay hardly any taxes.

At a recent ITU presentation in Hong Kong, the Australian internet pioneer, Geoff Huston, added another element to the dominance of these players. These digital content providers have now built their own ICT infrastructure and this largely bypasses the national and international telecoms structures through their content distribution networks.

With their own portals providing direct access to billions of customers they basically operate as large private telecommunications networks, with none of the regulatory oversight that applies to the traditional telcos.

This will further diminish the role of the national telco operators as, like national regulators, they will largely be unable to make a fist against them. These digital companies will simply take over more and more services; they will dictate to the telcos and other suppliers in the market and competition will be a further casualty in this process. Again, at best we are talking here of a cosy situation of "managed competition".

Between them, these giants simply buy any start-up that could turn into a potential competitor, a strategy that is already taking place in the market. And they won’t stop there. All of them are already involved in AI – some in driverless cars, drones, space technologies, aviation and renewable energy.

And this is only the beginning.

Huston warned that if these giants become even more powerful, they might be able to go back to proprietary systems – as that will maximise their profits – and as a result we could lose our international connectedness and the openness of the current telecoms infrastructure.

I would like to add to this that countries such as China, Russia, Turkey and most likely many others with large regimes would love these data-rich ICT monopolies to build them their own proprietary internet systems, allowing them to control their population.

Within a few years the giants will run out of new people and advertisers to connect to their business, and without any oversight – and with profit as their sole aim – under shareholders’ pressure, the internet giants could well support such mass state surveillance developments. The technology is already there to provide states with "corporate surveillance" systems along the lines envisioned by George Orwell. We only need to follow developments in China to see what such a reality will look like.

Furthermore, without proper oversight, the enormous amount of data held by these digital organisations can be used for all the wrong purposes.

As we saw with Cambridge Analytica (CA), companies can influence democratic elections in both developed and developing economies and seriously undermine human society. And literally thousands of marketing, advertising, PR and propaganda companies have commercial relationships with these data giants in relation to the data they keep or manage.

While the world seems to be turning itself inside out again, with nationalistic politics becoming more dominant, what we need to ensure is global cooperation. We need first of all to make sure that these giants are not going to inflict more damage. But more importantly, we need international cooperation to ensure that competition and other policies are going to benefit the economy and society as they did in the first few decades after World War II.

If we look around us this trend is not just limited to the banking and telecoms industry. Similar tendencies are apparent in insurance, healthcare, pharmacy and even government. Here there is a clear failure of the duopoly policy – it is now based, not on the national interest, but on party politics and with the same outcomes – greed, misuse of power, fake news. The U.S. federal election is now a veritable industry, with politicians totally captive to their donors. There is a desperate need for more competition here as well.

Even the fight against climate change is failing, due to failed competition. There is overwhelming investment and business support for renewable energy but government policies are preventing the market from moving in that direction.

Radical changes are required to ensure that the great gains that competition brought us between 1950 and 1980 – and to a lesser extent up until 2008 – will continue to deliver the positive benefits to our economy and our society.

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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