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Pandemic Profit Hikes Mean More Regulatory Scrutiny For Big Tech – OpEd

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By Cornelia Meyer*

The old saying that it is possible to have too much of a good thing often proves to be an adage rooted in reality — as Big Tech in China and the US are discovering, or are about to.

Major technology companies on both sides of the Pacific are among the biggest beneficiaries of the coronavirus (COVID-19) pandemic. Revenues and profits have soared because they could offer the world exactly what it needed during this time of social distancing and lockdowns, when the ways in which we work, learn, shop and entertain ourselves have increasingly shifted online. This trend of moving more of our lives into cyberspace was already underway, of course, but it has greatly accelerated during the global health crisis.

In September 2020, the valuation of the so-called FAANG companies — Facebook, Apple, Amazon, Netflix and Google — reached an all-time high that was 60 percent up from the market low point in March to a combined total of $7.5 trillion. This represented 25 percent of the total valuation of the S&P index.

They have since lost about 6.3 percent of this total as investors rotated some of their money out of growth stocks and into value stocks and cyclicals. However the combined valuation of the five still amounts to a staggering $7.1 trillion. When they reported fourth quarter earnings last week, Amazon and Apple both announced that quarterly revenues had surpassed $100 billion for the first time.

On the other side of the Pacific, Alibaba, Ant Group, Tencent, ByteDance and others are making similar headlines.

This much financial success has inevitably attracted the attention of regulators. This has been a three-pronged situation, geographically, involving the US, China and the EU. In terms of substance, there are four issues being examined: Monopoly powers/concentration, responsibility for the editorial content of social media platforms, technology competition between China and the US, and taxation.

Authorities in all three regions are concerned about the concentration risk or monopoly powers of Big Tech. On Monday, China released its latest rules aimed at curbing monopolistic behavior, the sharing of customer data and below-cost subsidizing of big Chinese internet players to squeeze out smaller ones. It took the State Administration for Market Regulations just three months to issue the new rules after announcing it would do so.

Jack Ma’s financial technology giant Ant Group avoided being broken up by agreeing to place its assets in a financial holding company that would be subject to capital requirements comparable to those of banks. According to Bloomberg, it may have cost the company as much as $130 billion in terms of market value, as a result of fines and a canceled initial public offering that had been planned for the fourth quarter of 2020.

Big Tech bosses in the US have become used to testifying before Congress on antitrust issues. Former President Donald Trump famously filed an antitrust lawsuit against Google last September. Fast-forward to a Congress now controlled by Democrats, and Minnesota Sen. Amy Kolbuchar plans to introduce a bill that would limit the monopoly power of tech firms.

In Europe, Margarethe Vestager, the EU’s vice president and commissioner for competition and digital policy, has been vocal for some time about the monopolistic power of US Big Tech, arguing that breaking the businesses up should be in the realm of possibilities. She takes particular issue with the monetization of users’ personal data through advertising.

However, finding consensus on the digital services act in the European Parliament might take some time, just as Kolbuchar’s attempts to pass her bill also may not be so straightforward.

Responsibility for the editorial content of social media, meanwhile, is a particularly murky issue in Western democracies. To what degree should the Twitters, Instagrams and Facebooks of this world be held accountable for what people post on the platforms? Examples of hate speech, and the storming of the Capitol in Washington by a right-wing mob on Jan. 6, continue to ensure this issue remains at the forefront of concerns.

Section 230 of the 1996 Communications Decency Act has so far excused the operators of social media platforms from editorial responsibility for messages posted by their users. However, the decisions to remove former President Donald Trump’s accounts from Twitter, Facebook and Instagram after the attack on the Capitol added a new dimension to the debates about where freedom of speech ends and corporate/editorial responsibility begins.

All of these questions are part of big issues that affect how we want to organize our societies and economies. It is therefore not surprising that regulators are investigating them.

In terms of competition between the US and China, and who has the upper hand in technological development and penetration, geopolitics enters the fray.

The decision by Trump to block Huawei from operating in the US and among allies, for reasons of national security and in an attempt to curb the Chinese company’s role in the installation of 5G networks, was just the start of these geopolitical tensions. It was followed by an attempt to block ByteDance’s TikTok app in the US for similar reasons. Expect the jostling to continue under the new administration in Washington.

The EU, meanwhile, has been concerned about the taxation of tech giants for a long time. It wants to move from a system where revenues are taxed in international headquarters to one where they are taxed at point of origin. This will be a continuing fight between the EU and US administrations, the latter of which are bound to protect Silicon Valley.

These massive, complex issues have been simmering above and below the surface for at least a decade. However, they have been brought to the fore as never before by the growing penetration and importance of Big Tech during the pandemic, and the resultant profitability and market power of the companies.

When the going gets too good, you can bet that the regulators will come knocking on the door. The history of Big Oil teaches us that lesson: Standard Oil was broken up 110 years ago after it was declared a monopoly under the Sherman Antitrust Act.

Going forward, regulatory scrutiny will be par for the course for as long as Big Tech continues to generate such massive profits.

• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources

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