Commentary on Political Economy

Tuesday, 15 December 2020


Tech titans' global dominance suddenly hits a wall of punishment

It’s not been a good week for the titans of tech. Last week the US Federal Trade Commission launched an anti-trust action against Facebook and now the Europeans are proposing radical new rules that could force a range of structural and behavioural changes on them.

On Tuesday the European Union unveiled its proposed new legislative framework for regulating the biggest of the technology companies, rules that would capture digital behemoths like Google, Facebook, Apple and Amazon.

The EU is proposing two new pieces of legislation: a Digital Services Act and a Digital Markets Act.

Tech giants face heavy fines under new proposals unveiled by the EU and the UK government.

Tech giants face heavy fines under new proposals unveiled by the EU and the UK government.CREDIT:PAUL ROVERE

The Digital Services Act would force the tech giants to take responsibility for the content they carry, imposing a duty of care on them, forcing them to moderate their content and to be more transparent with users of their platforms and regulators.

The Digital Markets Act covers anti-competitive behaviours and would ban some behaviours by what the EU described as “gate-keepers” – companies with EU revenues of more than €6.5 billion ($10.5 billion) – or a market capitalisation of at least €65 billion and more than 45 million active end-users.

Companies caught by those thresholds would be prohibited from linking access to one of its services to purchases of another or giving preferential treatment to their own services or products over competitors’. It would force price transparency for advertisers and impose data portability for users.

It would, for instance, stop Amazon giving preference to its own products over those of third-party sellers, or using the data it gleans from those sellers to decide what it should sell. Apple would be forced to open up the payments technology in its devices to others. Facebook would have to remove harmful material – terrorist material has been cited – from its platform.

The era of unlimited and lightly-regulated global expansion for the tech giants appears to be ending.

Fines for breaches of the Digital Services Act could be as much as 6 per cent of global revenues and the penalties for breaches of the Digital markets Act up to 10 per cent of global revenues.

Even as the EU was unveiling its approach, the UK announced its own plan to fine the big tech giants up to 10 per cent of their global revenues if they fail to remove illegal or harmful content.

The EU proposals represent the most comprehensive and threatening attempt to regulate Big Tech even as regulators and their governments around the world are starting to push back against the size, market power, practices and impact on competitors and other third parties and societies more broadly of the biggest of the tech giants (not to mention the taxes they don’t pay).

While enactment of the proposals is probably at least a couple of years away and may evolve during the negotiations and inevitable lobbying from the companies and the US, the era of unlimited and lightly-regulated global expansion for the tech giants appears to be ending.

The recognition of their market power and the impact of their platforms and behaviours on competitors and societies have regulators questioning why they should be regarded as utilities with near-monopolies and anti-competitive business models. Banks, telecommunications companies and energy utilities are intrusively and intensely regulated, so why not Google, Facebook, Amazon and Apple?

In the past, European efforts to regulate the big technology companies – and the biggest are all American – have been met with fierce pushback and threats from the US. That’s partly because of the revenue implications but more broadly because they have been regarded as attacks on national champions.

That’s changing. The US has itself become concerned at the market power and perceived anti-competitive behaviours of the tech companies, along with the nature of some of the content they carry but aren’t liable for.

Anti-trust suits against Facebook and Google are in train amid a broader debate about whether the companies are too big and powerful and their social impacts too significant to leave them unregulated or, for those like Facebook and Google that have grown by acquiring potential competitors, intact.

There is a bipartisan consensus, albeit with different nuances, among the Democrats and Republicans that the power of the platforms needs to be constrained.

That changing mood in the US makes the EU proposals a potential starting point for discussions with the incoming Biden administration - which has said it wants to pursue new approaches to regulating technology companies - about a trans-Atlantic approach to regulating the platforms. The EU has proposed the creation of a trans-Atlantic council to discuss digital regulatory issues with the new administration.

While it is improbable that the US would support all the detail of the European approach — or the size and nature of the potential fines — it is conceivable that there could be some consensus on the key issues of concern, given that there are echoes in the US of the issues the Europeans have with the platforms.

Any EU-US framework for regulating technology companies would become the de facto global standard.

Interestingly, while the tech companies are understandably opposed to the regulation and are already lobbying against it, Facebook has said it would welcome harmonised EU rules on harmful or illegal content.

That signals it's not all downside for the tech companies. At the moment individual countries, in the EU and elsewhere (including Australia), are trying to impose their own regulations on the companies, creating a compliance nightmare for the companies.

A pan-EU, or potentially a standardised global regulatory framework, would have some significant commercial benefits and provide greater certainty for the companies. As with the anti-trust actions in the US, the EU’s ultimate sanction could be to force break-ups of tech companies deemed to have been behaving egregiously.

Whether or not the EU proposals are ever legislated in the form proposed they will have an impact.

The big tech companies must be able to see the writing on the wall in the US, Europe and elsewhere and recognise that the era of unconstrained behaviours and growth is ending.

If they don’t change the way they conduct their businesses themselves they risk having far more draconian and costly measures imposed on them.

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