DoJ antitrust chief readies for battle against big tech

There have been plenty of whispers in the back alleys of Silicon Valley of the antitrust boogeyman and now the nightmares are turning into reality.

Speaking at an industry conference in Israel, Assistant Attorney General Makan Delrahim outlined his views on competitiveness in the technology industry. Those who were anticipating an antitrust battle in the US can feel suitably vindicated, as Delrahim effectively confirms he has Google and Apple firmly in the crosshairs.

“The digital economy is a fact of life, but it is not all things to all people,” said Delrahim. “There has been robust public discussion about whether the broader economy, undoubtedly transformed by digital technologies, is working well for everyone.”

Although this is not necessarily shocking news, it is a nuanced confirmation of the up-coming assault against big tech.

Last week, the US took the first tentative steps towards addressing the influence of technology on today’s society. The House Antitrust Subcommittee announced the launch of a bipartisan investigation into competition in digital markets, potentially offering a threat to solid foundation of the technology giants. Diluting the dominance of big tech is going to be a very difficult task, but it does appear the groundwork is being laid.

In this speech, Delrahim is effectively outlining the Department of Justice’s plan, as well as the justification for tackling big tech.

“Where there are credible concerns that a transaction or business practice is anticompetitive, timely and effective antitrust enforcement is imperative,” said Delrahim.

“…After all, the government’s successful antitrust case against Microsoft arguably paved the way for companies like Google, Yahoo, and Apple to enter the market with their own desktop and mobile products.”

Microsoft’s dominance of the technology world in the 90s should not be underplayed and perhaps can be very accurately likened to Google’s influence today. Although the US Government was not successful in breaking-up Microsoft as an organization, it did manage to dilute its power and broaden the spread of wealth. When a company starts to dictate play in the way Microsoft did, the US Government starts to get a bit twitchy.

This is the issue which the likes of Google, Amazon and Apple are facing today. Such is the success of the business, through the creation of best-in-class products and strategic acquisitions to stutter the progress of competitors, the fortunes of the technology industry are incredibly concentrated. This is what Delrahim and his colleagues want to address.

Specifics are often lost in such conference speeches, but an interesting point raised by Delrahim focused on “network effects”. In short, an organization has such control over the supporting ecosystem competition is suffocated before it has any genuine chance to be competitive. Perhaps this is done through acquiring nascent competitors or manipulating the ecosystem.

Although there have been some hints of strategy from Delrahim, the specifics are still evading the industry. That said, it is becoming increasingly clear that the US Government wants to dilute the power and influence of big tech.

US attempts first step towards breaking up big tech

The US House Antitrust Subcommittee has formed a bipartisan investigation into competition in digital markets, potentially offering a threat to solid foundation of the technology giants.

While the technology giants have increasingly become political punching bags over the last few years, the industry has been pretty effective at dodging any material impact. Many politicians have taken aim, but few have landed a shot. This approach, taking in voices from both sides of the US political spectrum might offer more of a challenge.

“The growth of monopoly power across our economy is one of the most pressing economic and political challenges we face today,” said Antitrust Subcommittee Chairman David Cicilline. “Market power in digital markets presents a whole new set of dangers.

“After four decades of weak antitrust enforcement and judicial hostility to antitrust cases, it is critical that Congress step in to determine whether existing laws are adequate to tackle abusive conduct by platform gatekeepers or whether we need new legislation to respond to this challenge.”

To date, the technology giants have operated with relative regulatory freedom, though the shackles are being dragged towards Silicon Valley. This is not an unusual situation; embryonic industries are often given room to growth and prosper before being tied back with red tape when the influence starts to become notable.

For the tech space, the calls for regulation have been getting lounder month-on-month. GDPR was one of the first major pieces of legislation, while the constant inability of the industry to demonstrate its ability to self-regulate have been forcing the hand of politicians who often do not like to get involved in things they do not understand.

“Big Tech plays a huge role in our economy and our world,” said Congressman Doug Collins. “As tech has expanded its market share, more and more questions have arisen about whether the market remains competitive.

“Our bipartisan look at competition in the digital markets gives us the chance to answer these questions and, if necessary, to take action. I appreciate the partnership of Chairman Nadler, Subcommittee Chairman Cicilline and Subcommittee Ranking Member Sensenbrenner on these important issues.”

Despite negative connotations, monopolies do offer significant benefits to a country, and it seems the US has traditionally been very effective at judging when it is happy to stand-off and when to step-in.

In 1890, the Sherman Antitrust Act was passed into US law. This act banned trusts and monopolistic combinations that lessened or otherwise hampered interstate and international trade. Although it was not necessarily the most successful of Acts to start with, it soon began to swing into motion.

One of the first monopolies to be attacked by politicians was Standard Oil in 1911. At the time, Standard Oil had cornered 90% of the oil market across the country but was allowed to thrive. It was only broken up, coincidentally, once the firm had finished construction of nationwide train infrastructure, dramatically decreasing the cost of operations. At this point, the Sherman Antitrust Act was used to open up the industry.

There has been a lot more regulation passed in the intervening years since 1890, the Clayton Act was introduced in 1914 to add more clarity to the definition of when a monopoly causes more damage than good, and more industries have been carved up. From sugar and tobacco to meat packaging and, more recently, telecommunications. The trend seems to be the same.

Every time monopolies have been challenged by US politicians there seems to be a watershed moment reached. They might be a few years late with the technology industry, but the same could be said here.

The fact is monopolies offer a concentration of wealth and scale opportunities. A few might be collecting all the riches, but operational efficiencies allow for more rapid growth and expansion. It makes sense to ‘dance with the devil’ for a short period in pursuit of the greater good.

Almost every aspect of the digital economy has now been normalised in the eyes of the mass market, and those areas which haven’t are increasingly becoming standard practice (AI for example). The likes of Facebook, Google, Amazon, Netflix, Uber, AirBnB and Microsoft can largely be thanked for that, but now the mission is complete, consumers are open to a new way of spending and ecosystems have the potential to flourish. It seems the benefits of having tech monopolies has passed and the wealth needs to be spread more evenly.

This is of course not to say the tech giants will disappear, or that the House will be successful in their pursuit of increased competition, diversity and evenly dispersed profits.

What the tech giants have become very good at in recent years is lobbying and challenging legislation. One is the subtle art of influence, a shady practise often conducted over dinner or behind closed doors, the other is the heavy hammer of legal expertise, hitting back at new rules with expensive lawyers, fuelled by the profits of market dominance.

The likes of Facebook and Amazon will not take this challenge lying down. Executives make too much money, investors have too much skin in the game and egos are too great to have empires carved apart. These companies have absorbed the blood, sweat and tears of many of these executives, with countless sleepless nights directed towards the pursuit of billions. These executives are dedicated hunters, and they will not let their prey out of their sights without a bloody fight.

One example of the industry winning is Microsoft. In the 90s, Microsoft was challenged on whether it was abusing its position as essentially a non-coercive monopoly. It might have lost the case and has been the focal point of other antitrust cases since, but the red tapers were not successful in breaking up the behemoth.

Other examples of less successful ventures from the politicians focus on the utilities space. In some regions, monopolies are allowed to exist, though strict pricing regulations prevent any, in theory anyway, market abuses. This has stemmed the prospect of flourishing spreadsheets, which would be just as bad an outcome for the tech giants and investors.

Another factor to consider is that of competence. If the politicians are going to be effective in breaking up big tech, they first have to understand how it works today and what the risks of tomorrow are.

There are two problems here. Firstly, the best talent (engineering, accountancy or legal for example) are drafting into the ranks of the technology giants. And secondly, career politicians are more common than not. These are people that specialise in the celebritised-practice which politics has become, they are not leaders of industry as they were in previous generations. This gulf in competence could prove to be a major problem for the Subcommittee.

Monopolies have their place in the economy, at least for a short period of time, and this investigation from the House  Antitrust Subcommittee will aim to figure out whether this time has been reached. First, the politicians have to prove there is evidence of monopolistic abuses, or serious potential, and then comes the difficult job; squaring up to the technology giants, industry experts and the mountains of cash fuelling them.

Qualcomm’s business model hangs in the balance as FTC case concludes

The US Federal Trade Commission accused Qualcomm of abusing a monopoly two years ago. Now a judge is set to decide if it was right to do so.

The original accusations coincided almost exactly with the commencement of hostilities between Qualcomm and Apple, with the latter saying the former was getting away with overcharging for its mobile chips thanks to having a monopoly in that market. The FTC case pretty much echoed that claim, with accusations of FRAND patent abuse thrown in for good measure.

It apparently takes a couple of years for this sort of thing to play out and the respective parties delivered their closing arguments recently. The FTC doesn’t seem to have made a formal announcement on the matter but credit to Cnet which has actually done some old fashioned reporting and sent someone into the court room.

Here’s the Cnet report from 15 Jan, which covers the FTC side of the case. The core of it seems to be that forcing companies who want to buy its chips to also take out patent licenses is wrong. It also claims that this process prevents other chip makers coming into the market and thus harms competition. Unsurprisingly a couple of Apple execs turned up to support the FTC case.

Among the FTC’s closing arguments is the warning that, if Qualcomm isn’t stopped, it will abuse the 5G market as it has previous once. But Apple’s own shift from Qualcomm to Intel chips would appear to contradict that assumption, as does Huawei’s recent launch of a 5G modem. These are also unhelpful in its bid to claim Qualcomm has a monopoly.

“The FTC hasn’t come close to meeting its burden of proof in this case,” said Qualcomm General Counsel Don Rosenberg in a press announcement. “All real-world evidence presented at trial showed how Qualcomm’s years of R&D and innovation fostered competition, and growth for the entire mobile economy to the benefit of consumers around the world.

“Our licensing rates – which were set long before we had a chip business, and revalidated time and again – fairly and accurately reflect the value of our patent portfolio. Qualcomm’s technology has been the foundation of a thriving, competitive industry.”

Now Judge Lucy Koh, who’s a veteran of this sort of thing, needs to weigh up all the evidence and arguments, and make a call one way or the other. The stakes are pretty high for Qualcomm as a decision against it would effectively be a decision against a big part of its business model. Expect Qualcomm’s share price react strongly either way when the decision is announced, which Koh warned might take a while.

German Gov told to sell DT stake

The Chief of the Monopolies Commission in Germany has suggested the German government should sell its stake in Deutsche Telekom over conflict of interest fears.

Achim Wamback, the President of the Monopolies Commission, has made the call on the grounds the German government is currently sitting in a suspect position on both sides of the fence, according to local newspaper Wirtschafts Woche. Although there is no suggestion this position is currently being abused, owning a notable share of a major telco, while simultaneously exercising regulatory power over the industry could lead to market abuse. With the 5G auction set to take place in the immediate future, Wamback’s call will make for awkward reading in the Bundestag.

As it stands, the German government owns roughly 31% of DT, the profits of which will contribute to national coffers, meaning there is less of an emphasis on taxing the general public to raise funds. This will only be a minor impact on the taxation strategies, but every little helps for a governing party which has struggled to maintain power and influence in recent years.

If you try to take a purely impartial approach to the situation, you can see Wamback’s point; this is a conflict of interest. Nationalised businesses are always a talking point for the more left-leaning members of society, but they are deeply unpopular when things are going well in the economy.

This is not the first time the German government’s position in DT has been called into question however. During 2017, when Chancellor Angela Merkel’s grip on government was starting to loosen following federal elections, two potential coalition partners pushed for the sale as well. The Freedom Party and the Greens were unsuccessful with their ambition then, though the idea was never quashed.

Part or fully state-owned telcos are certainly not an unusual fixture on the global telco scene, though you have to question whether it aligns with the pro-competition sensitivities of the European Union.