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By Alexander Jones, International Banker
With weakening economic headwinds persisting through much of 2022, the tech industry could not have seen a more decisive end to its unprecedented 15-year bull run. But while the deteriorating economic landscape was certainly instrumental in setting up the unforgiving conditions for such significant losses, the authorities’ drive to regulate big tech also appears to have played an important role — one that’s only intensifying this year becomes.
In fact, the technology sector had its worst year since the dark days of 2008, with the S&P 500’s (Standard and Poor’s 500) information technology sector posting a 30 percent loss over the 12 months. Even the tech giants couldn’t escape defeat as Apple, Amazon, Alphabet, Microsoft and Meta collectively lost a whopping $3.9 trillion in market value. And while rising inflation and mounting recession fears have no doubt underpinned much of the gloom, a growing regulatory mandate has played a major role in big tech’s drastic turnaround.
Indeed, the increasing frequency with which regulatory interference in big tech activities is taking place today underscores the growing political appetite in the United States and the European Union (EU) to curb the invariably anti-competitive practices of tech giants. For example, on Dec. 8, the U.S. Federal Trade Commission (FTC) filed a lawsuit to block Microsoft’s $69 billion acquisition of video game maker Activision Blizzard, which would be both Microsoft and the video game’s biggest deal to date industry.
The lawsuit also sought to block Activision’s blockbuster gaming franchises, such as Call of Duty, on the grounds that the deal would allow the tech giant to find competitors for its Xbox gaming consoles and fast-growing subscription content and cloud suppress gaming deals. “Microsoft has already shown that it can and will withhold content from its gaming competitors,” said Holly Vedova, director of the FTC’s competition bureau. “Today, we’re trying to stop Microsoft from taking control of a leading independent games studio and using it to uncompetitively compete in several dynamic and fast-growing gaming markets.”
Also on the same day, the FTC attempted to use a novel legal argument in court against Facebook’s parent company Meta to overturn the company’s $400 million deal to acquire virtual reality (VR) startup Within to prevent. The little-used strategy has been to argue that the deal would hurt potential competition in the potentially robust future market for virtual reality products (unlike most antitrust cases, which have typically focused on competition in already mature markets) . While a federal judge eventually denied the FTC’s attempt to block the deal, the case shows just how far the US government is willing to go to not only prevent Big Tech’s potential anticompetitive practices, but also the potential possibilities of antitrust laws expand applied.
And why not, especially since the US public seems on board as more oversight is enacted against Big Tech? A May 2022 Pew Research Center poll found that 44 percent of Americans think big tech companies should be more regulated than they currently are. And while that number was down from the 56 percent Pew recorded in April 2021, the proportion of Americans who want less government regulation of such companies was about 20 percent. Meanwhile, Morning Consult’s tracking of consumer attitudes towards the regulation of big tech shows considerable bipartisan support for more regulation. “Since at least August, more people — Democrats and Republicans alike — have supported more government regulation of big tech companies than opposed to it,” the research firm noted in January. “This net support surged among Democrats in November following big Senate Democrat victories as well as Elon Musk’s takeover of Twitter on Oct. 27, which had a significant polarizing effect on the brand.”
Figures like this greatly assist Washington in further extending its tentacles into the often opaque activities of big tech. But, despite this renewed enthusiasm, is the current approach to big tech regulation proving sufficient or indeed effective? In the area of anti-competitive behavior, there is evidence that action is being taken to address the dangers of excessively unfair monopoly practices. But shortcomings remain, particularly in relation to financial services such as payments, deposits and insurance underwriting, which are conducted in broader, more diversified big-tech ecosystems and are under-regulated at a consolidated level.
“In the case of Big Techs, most of the risks stem from their ability to leverage a common infrastructure — particularly large amounts of customer data — that helps them gain and create a competitive advantage across a wide range of non-financial and financial services Network externalities,” according to an October 2022 Bank for International Settlements (BIS) paper public and of technology services to financial institutions; Consequently, Big Techs could pose a threat to financial stability in some situations.”
The BIS also highlighted some of the most pressing regulatory flaws that remain when dealing with big tech:
Regulatory approach: The BIS noted that financial regulations often aim to reduce the risks posed by the conduct of specific activities, such as payments or wealth management services. But they tend to ignore potential spillovers from other big tech activities. They are also unable to address the various challenges associated with large platform companies benefiting from the “data-network-activities” loop that could impact financial stability, such as: B. the concentration of market power and data governance. Scope: The regulatory perimeter covers, at best, a subset of companies within the broader Big Tech enterprise. Even if a banking entity exists within the group, existing banking regulations do not apply to the broader Big Tech group. Therefore, the enforcement powers of the authorities usually only reflect the objectives of sectoral regulations (such as protecting depositors, policyholders or investors) and may prove insufficient to cover all relevant risks posed by Big Tech. Oversight: Big Techs may include non-financial companies in their groups that are closely related to regulated group financial companies (e.g., subsidiaries or affiliates) and work together to support the digital platform ecosystem. Some of these companies may not be subject to specific supervision if the supervisory authority does not have the power to collect the information necessary to assess the risks posed by the unregulated companies. Transparency: Regulators can impose reporting and disclosure requirements on regulated companies, but these may not be effective as big tech activities cross industries and borders; Centrality of data flows and cutting-edge technology within the ecosystem of digital platforms; A large number and variety of entities within large technology groups, arranged in complex, multi-layered organizational structures, making it difficult for tax authorities to accurately understand their inner workings.
But while identifying areas for improvement is one thing, putting them into practice is quite another, especially when different countries have different relationships with and rely on big tech in different ways. Ireland, the country responsible for regulating technology in the European Union in terms of data protection, has been accused by the European Data Protection Board (EDPB) in Brussels, Belgium, of taking a far too liberal approach towards big tech companies operating in the operate the entire block. In response, the Data Protection Commission (DPC) of Ireland announced plans in January to sue the EDPB for “exceeding” its powers.
“The strength of the DPC’s statement, particularly the EDPB’s reference to ‘overreach’, is remarkable and points to a long-standing tension,” Jonathan Kirsop, a partner at law firm Pinsent Masons in London, England, told British news publication The Telegraph early January. “Although the DPC has recently issued significant fines, particularly against tech companies, it has been criticized by other authorities for not being strong enough.”
dr Johnny Ryan of the Irish Council for Civil Liberties (ICCL) was also critical of Ireland’s regulatory efforts, or lack thereof. “The subject of Europe’s landmark law – the GDPR [General Data Protection Regulation]- was to finally stop the data within and between these companies and this legislation placed a duty on the Irish authority – the DPC – to monitor that,” Ryan told the business-focused Outlet Marketplace. “But in my view, it is the DPC that is crippling Europe’s enforcement against big tech. It is isolated in Europe. There is clearly a problem with the Commission.”
