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Regulators May Finally Get to Tame Big Tech

March 05, 2021 Information Management
David Roe
By David Roe

Last September, the CEOs of four of the biggest tech companies in the U.S. faced the House Antitrust Subcommittee.

At that meeting, the CEOs of Alphabet, Amazon, Apple and Facebook (the only one missing was Microsoft's Satya Nadella) were grilled on a wide range of subjects under the broad umbrella of an anti-trust probe.

Then in October, the CEOs of Facebook, Google and Twitter all faced lawmakers again, this time to defend the legal liability shield that underpins their business models. At the end of February 2021, the judiciary committee's antitrust subcommittee met again to hear testimony from companies and other parties that claim they have been mistreated by the tech giants. And later this month, the bosses of Twitter, Google and Facebook will appear again in front of the House Energy and Commerce Committee, which is looking at the way misinformation is posted and spread by their platforms.

All of this is only on the U.S. side of the Atlantic. Cases against all these companies have already been tested in Europe with several stiff fines handed down by the European Union for anti-competitive behaviors or privacy infringements. 

The charge on big tech is coming from two directions: privacy enforcement and anti-trust probes. There has also been discussion of the size of these companies and whether they should be allowed to continue to exist in their present form, but it's far from clear what actions legislators can take and whether it will have any impact on the business models of these companies.

Breaking Up Big Tech Won’t Work

Breaking up big tech firms will do little to change the business model that enabled Facebook, Google, and the rest to become titans, said Sharon Polsky, president of the Privacy & Access Council of Canada, an independent professional association that offers advice on data governance and access, because their growth was enabled by laws that have nothing to do with competition or consumer protection.

“Breaking the companies apart will only create a greater number of companies that will be able to do more of the same thing and obtain consumer consent according to the requirements of the GDPR, CCPA and PIPEDA (and other existing and proposed privacy laws),” she said. “That essential feature has enabled Facebook, Google to become what they are and spawned an entire industry of data brokers, now estimated to number in the thousands.”

The essence of the problem from the consumer viewpoint is that the current consent model gives consumers the illusion of control over their information. Polsky said that illusion is perpetuated in proposed legislation that merely requires consent provisions be in plain language to enable consumers to understand how their information is collected and used. Consent clauses that span multiple pages are seldom read, so organizations collecting personal information are doing so in violation of the privacy laws that require consumers to give informed consent.

She added that consent provisions that are written in a few paragraphs of plain language are no better if they require nothing more specific than explanation that might says something like: “We collect personal information from you and about you, and it might include information that reveals or includes preferences, beliefs, opinions, demographic, health, behavioral, or biometric information.”

Related Article: 4 Ways a Chief Privacy Officer Can Help Your Company

Traditional Regulation Won’t Work Either

Traditional methods of regulation are not likely to work on big tech firms as they have for other industries. Common forms of public utility regulation, including price controls like those imposed against electric and gas companies, and attempts to break up large firms will not happen, said Harriet Chan, co-founder of Singapore-based software development company CocoSign.

Breaking up a company like Facebook, where the business model relies at its core on creating a large network to connect everyone on a single platform, could ruin the business itself and harm customers. However, some forms of antitrust regulation could take aim at the scale of those companies and their ability to retain market dominance.

“If the impact of mergers and acquisitions by large tech companies is that they’re blocking off future competition and innovation, then some regulation of the strategy could actually stimulate more innovation by giving small firms a chance to sink or swim into success,” she said.

When the rate at which companies are merging or making acquisitions is high, the chances a startup will get bought is also higher and the incentive for more entrepreneurs to launch one and begin to innovate follows suit. While the U.S. government is trying to protect consumers by regulating these companies it could end up taxing innovation, Chan said.

Related Article: Enterprise Data Strategies in the Aftermath of the US Privacy Shield Defeat

What Kind of Regulation Can Work?

The fact that Google has moved to stop selling ads based on specific web browsing shows that pressure can influence data-theft centric business models, said Heather Kendall of Reno, Nev.-based web42.io. The other lawsuits like the ones Facebook is currently facing regarding personal data use and targeting validity are also helpful in keeping tabs on big tech companies, she added.

“Even so, it is highly likely that companies like Google and Facebook who externally make that transition will not give up sucking up consumer data for good,” she said.

The result is that big companies will find ways to work around regulations that put smaller rivals at a disadvantage. "The behemoths will ultimately end up with less competition and new routes to milk consumers' digital data dry,” Kendall said.

From taxes forward, regulators should roll back moves that get in the way of small- to medium-size tech companies who are working to do better and create the Web 3.0.

Regulation Drive Gains Pace

This is only the beginning, according to the UK-based consultancy GlobalData, which points out in a research report published last month titled "Antitrust in Tech, Media, and Telecom Industry" that big tech companies do not have much incentive to change their anticompetitive behavior despite facing large fines.

But the case for new regulation around the monopolization of user data by big tech companies is getting stronger every day. While regulators have attempted to take on big tech before, the current rules mean that companies can only be caught after or in the act. What is needed, the report pointed out, is new ex-ante (‘before the event’) regulation that addresses the complexity of the digital economy.

"Existing antitrust rules are broad in scope and only allow enforcers to act after wrongdoing has been committed," said Laura Petrone, senior thematic analyst at GlobalData in a statement. "Big tech companies have been fined billions for their anticompetitive practices over the last decade, however, these practices are still in the spotlight after years of scrutiny.”

The application of strict, transparent rules to digital platforms before they engage in any anticompetitive behavior will allow regulators to address structural competition problems without having to find an infringement of antitrust rules, she said. Petrone added that the proposed Digital Markets Act aims to abandon lengthy proceedings against large platforms in favor of ensuring the minimum conditions that avoid monopolies. Europe is leading the charge, but other jurisdictions are following suit, including China and India.

The problem is huge. According to GlobalData’s deals database, GAFAM (Google, Amazon, Facebook, Apple and Microsoft) completed a total of 168 M&A deals between 2018 and 2020. Many of these deals were not investigated nor were competition authorities notified. Some regulators have introduced obligations for big platforms to notify antitrust agencies of all M&A activity, potentially resulting in more investigations and more acquisitions being blocked.

“In the U.S., breaking up digital platforms has emerged as a popular remedy but that’s easier said than done," Petrone said. "It is doubtful whether separating companies would increase competition in any key markets. While it would undoubtedly reduce each platform's power in the short-to-medium-term, the underlying market dynamics, such as network effects and economies of scale, would continue to favor concentration”.

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