Sen. Warren Gets Specific on Breaking Up Big Tech

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Friday, March 15, 2019

Weekly Digest

Sen. Warren Gets Specific on Breaking Up Big Tech

 You’re reading the Benton Foundation’s Weekly Digest, a recap of the biggest (or most overlooked) telecommunications stories of the week. The digest is delivered via e-mail each Friday.

Round-Up for the Week of March 11-15, 2019

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“We must ensure that today’s tech giants do not crowd out potential competitors, smother the next generation of great tech companies, and wield so much power that they can undermine our democracy.”  -- Sen. Elizabeth Warren (D-MA)

On March 8, 2019, Senator Elizabeth Warren (D-MA) took to Medium to outline her plan to break up digital monopolies. Her proposal aims to restore competition in the tech sector and ensure online platforms play by the rules. Warren goes beyond the familiar “break ‘em up” rhetoric and actually offers sustainable sector-specific regulation -- an important step in advancing the policy debate around Big Tech.

Warren’s Proposal

Warren notes that big tech companies have achieved their level of dominance in part based on two strategies for limiting competition: 1) Using mergers to buy out the competition and; 2) Owning as well as selling goods and services on proprietary marketplaces.

Senator Elizabeth Warren
Sen. Elizabeth Warren (D-MA)

Warren notes that America has a history of breaking up companies when they have become too dominant; AT&T is an example. She notes that, instead of nationalizing these industries, Americans in the Progressive Era “decided to ensure that these networks would not abuse their power by charging higher prices, offering worse quality, reducing innovation, and favoring some over others. We required a structural separation between the network and other businesses, and also demanded that the network offer fair and non-discriminatory service.”

In this tradition Warren outlines her two major steps to restore competition in the tech sector:

  1. ​Structural Separation: Designate large tech platforms as “Platform Utilities” and prohibit them from owning both the platform utility and any participants on that platform.
    • Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.”
    • Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.
    • For smaller companies (those with annual global revenue of between $90 million and $25 billion), their platform utilities would be required to meet the same standard of fair, reasonable, and nondiscriminatory dealing with users, but would not be required to structurally separate from any participant on the platform.
    • To enforce these new requirements, federal regulators, State Attorneys General, or injured private parties would have the right to sue a platform utility to enjoin any conduct that violates these requirements, to disgorge any ill-gotten gains, and to be paid for losses and damages. A company found to violate these requirements would also have to pay a fine of 5 percent of annual revenue.
  2. Sectoral Regulation: Warren also promises to appoint regulators committed to reversing illegal and anti-competitive tech merges. “Current antitrust laws empower federal regulators to break up mergers that reduce competition. I will appoint regulators who are committed to using existing tools to unwind anti-competitive mergers.” 
    • Warren says unwinding these mergers will promote healthy competition which, in turn, will make companies be more responsive to user concerns. 

    "[M]y administration will make big, structural changes to the tech sector to promote more competition — including breaking up Amazon, Facebook, and Google.” -- Sen. Elizabeth Warren

    Amazon Marketplace, Google’s ad exchange, and Google Search would be platform utilities under Warren's proposed legislation. Therefore, Amazon Marketplace and Basics, and Google’s ad exchange and businesses on the exchange would be split apart. Google Search would have to be spun off as well.

    What Makes Warren’s Proposal Unique

    Harold Feld, senior vice president at Public Knowledge, says that Warren’s proposal is a game changer because it goes well beyond the standard “break ‘em up” rhetoric that has dominated policy conversations around Big Tech. Warren goes the next step and proposes a plan for permanent, sustainable sector-specific regulation. Public Knowledge’s President and CEO Gene Kimmelman has said that antitrust is only half the answer to promote competition. “Strong antitrust has only worked when paired with equally strong regulations that promote competition and markets,” he wrote in February

    Feld details what makes Warren’s proposal so important:

    • It Actually Defines Something That Can Be Regulated. The proposal attempts to define “platform utilities,” “online marketplaces," and other elements of the digital economy, which provides a crucial starting point for a debate to inform policy.
    • It Gives Clear Lines of Demarcation For Its Proposed Structural Separation, And Imposes Rules To Keep Them Separate. Warren is the first significant policymaker to go beyond ‘break ’em up’ to ‘here is how we ought to break ’em up and keep them from coming back together.’
    • It Recognizes That Dominance Matters In Sector Specific Regulation. By dividing between the largest platforms (those with over $25 billion in revenue) and nascent ones, Warren creates a balance between creating what amounts to a regulated “platform utility” monopoly and allowing platforms to compete against third parties on the platform they control. 
    • It Recognizes the Importance Of Multiple Enforcement Remedies. Policy should be enforceable not simply by federal regulators, but by states and by private rights of action. 

    Feld concludes:

    The enormous contribution of Elizabeth Warren’s proposal is therefore not so much in the substance (who knows if this is what we settle on as the right answer), but for smartly laying out a proposal that addresses the right questions. Until now, we have engaged in a tail chasing exercise over defining the problem. Warren’s proposal puts critical questions on the table with some proposed solutions to provide substance to the debate. We no longer need to remain in academic/philosophy mode identifying the inherent problems with sector specific regulation. We can start reacting to the specifics that Warren has proposed, and demand that counter proposals address the same questions of line drawing and policy trade offs.

    Warren’s proposal has not been universally embraced. “Breaking up large internet companies just because they are large won’t help consumers. It will hurt them by reducing convenience, reducing quality of service and innovation, and in some cases leading to the introduction of priced services,” said Rob Atkinson, president of the Information Technology and Innovation Foundation, a Washington, DC-based think tank. “Consumers now benefit greatly from having one Amazon, one Google, and one Facebook. The goal of competition policy should be to enhance consumer welfare, not penalize companies for earning market share and operating at scale—yet that is exactly what the Warren proposal would do.”

    The New York Times’ Kevin Roose offered his suggested edits to Warren’s proposal, which include:

    • Applying specific fixes to specific problems: Rather than one giant package that crams everything together, a set of effective tech regulations would treat each problem discretely, and address each with surgical precision.
    • Split off cloud businesses: Warren does not mention one of the clearest examples of oligopolistic behavior in the tech industry -- cloud computing. “An effective breakup proposal could require companies like Amazon, Google and Microsoft to spin their cloud-computing divisions off into stand-alone businesses” in a manner similar to the one Warren proposed for breaking up e-commerce marketplaces.
    • Get rid of the “app tax”: Stop Apple and Google, the makers of the two dominant mobile operating systems, from taking unfair advantage of mobile app developers.
    • Don’t get lured into a censorship debate: One problem with the debate over the tech companies’ power is that it risks conflating real anti-competitive behavior (like Facebook’s shutting off data access to competitors) with imaginary abuses (like Sen. Ted Cruz’s (R-X) unsupported claims that social media platforms are biased against conservatives). The former is a real menace; the latter is a bad-faith attempt to work the refs and preserve a partisan advantage. But in political discourse, both can be framed as proof of the need for ‘neutral platforms,’ Roose notes.  “The worst outcome of a push to regulate big tech companies would be a set of rules that made it easier for people to exploit these companies’ power, while leaving their fortresses intact.”

    Where is the Rest of the 2020 Field? 

    For the most part, 2020 presidential candidates have not been very outspoken about breaking up Big Tech, at least not in providing specifics. But there are two notable exceptions.

    Rep. Tulsi Gabbard (D-HI) is one of the few candidates who has commented on Warren’s proposal, tweeting, “I agree with Senator Warren on the need to break up big tech companies like Facebook, Google, Amazon. Will be introducing similar legislation in U.S. House.”

    Earlier this month, Senator Amy Klobuchar (D-MN) said the tech industry poses the biggest antitrust problem out of all industries. When asked if she agreed with calls to break up Facebook, she said: 

    I would like to see investigations which are going on right now at the [Federal Trade Commission] of the different aspects of these monopoly companies. That’s what I’m pushing for right now, and then you look at the facts and you make a decision then. But I would love to get more competition in. And it’s going to be very hard to do that before we get major investigations and we start changing the law.

    Sen. Klobuchar has also suggested taxing companies when they exploit user data. Platforms like Facebook “use us, and we’re their commodity, and we’re not getting anything out of it,” Klobuchar said. “When they sell our data to someone else, well, maybe they’re going to have to tell us so we can put some kind of a tax on it.”

    Conclusion

    Warren’s proposal moves the conversation forward. “We may finally be past the debate on ‘should we even have a debate on regulating digital platforms’ to debating ‘how should we regulate digital platforms,’” said Feld.

    To see the debate unfold for yourself, be sure to follow along daily in Headlines

     


    Quick Bits

    Weekend Reads (resist tl;dr)

    ICYMI from Benton

    Events Calendar for March 2019

    March 20 -- Competition and Consumer Protection Issues in U.S. Broadband Markets, FTC

    March 25 -- The FTC’s Role in a Changing World, FTC

    March 25 -- Roundtable with the State Attorneys General, FTC

    March 26 -- Technological Advisory Council, FCC

     

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