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Senator Elizabeth Warren imagines big tech after the breakup

Mar 10 2019 20:45
Joshua Brustein, Bloomberg

Senator Elizabeth Warren has laid out a detailed plan for breaking up Facebook, Google and Amazon.com, which she said have become so big and powerful that they're damaging the US economy and American democracy.

Warren, a Democrat from Massachusetts, joins a growing chorus across the political spectrum voicing concern about the power of Silicon Valley and proposing some kind of government action.

But her proposal is notable for a few reasons. First, Warren is running for president, and her decision to stake out a spot as a strong tech critic is an indicator of what Silicon Valley can expect as the 2020 campaign heats up.

Warren also not only expressed a desire to break up big tech companies, but articulated what should come afterwards – unusual detail for a public official trying to win votes in a broad, national election.

At the center of Warren’s is the argument that certain parts of the tech industry have become utilities. The services these companies provide are so ubiquitous and essential that they're  now similar to electricity and water: basics for human existence that must have their supply and price regulated for the benefit of society.

This isn't necessarily a new idea - Donald Trump's former adviser Stephen Bannon suggested this. When their companies were young, Facebook CEO Mark Zuckerberg and Amazon CEO Jeff Bezos are said to have described their aspirations to turn their businesses into utilities, although neither has expressed much enthusiasm about being regulated like one.
 
People who watch the tech industry have also been developing the tech-platform-as-public-utility argument for almost a decade. It featured prominently in "The Amazon Paradox", a 2017 article published in Yale Law Review that is often credited with kicking off a wave of antitrust energy directed at Silicon Valley.

The article’s author, Lina Khan, argued that it was logical to apply some form of public utility regulation to the e-commerce company because so many independent businesses rely on Amazon’s platform, even as they compete with other parts of Amazon. (Kahn recently joined the Democratic staff of a House Judiciary subcommittee focused on antitrust.)

Warren proposes legislation that would define companies offering online marketplaces as public utilities if their annual global revenue exceeds $25bn. They would be required to spin off any parts of their business that also participated on the platform, couldn't share data with third parties, and would have to treat participants on their platforms in a fair, reasonable, and nondiscriminatory way.

Companies running some smaller platforms would face similar requirements, but wouldn't have to sell off businesses that used their services, according to her proposal.

'Platform utilities'

For Alphabet Inc.'s Google, both its search engine and its ad exchange would be classified as "platform utilities", and would have to be separated from the company’s other properties. This would address one of the main antitrust complaints smaller competitors have made about Google — that it has cut them off by designing its search engine to promote other Google services.

While Warren doesn't identify a specific agency in charge of enforcing these rules, she said that private citizens and state and federal officials could sue companies that run afoul of them, with penalties reaching as much as five percent of annual revenue.

Warren also named a handful of mergers that she would look to unwind, including Amazon’s purchase of Whole Foods and Zappos, Facebook’s acquisition of WhatsApp and Instagram, and Google’s deals for Waze, Nest, and DoubleClick.

At an event on Friday evening in Long Island City, Queens, which Amazon had selected as the site of a major campus before it backed out amid local opposition, Warren quipped: “I understand you had a visitor. Amazon came. Amazon left. That is the problem in America today. We have these giant tech companies that think they rule the earth.”

Regardless of their feelings about tech companies, Republicans are likely to oppose any plan based on such a sweeping increase in government regulation. They made their hostility toward the idea of expanding the definition of public utility clear in another debate that has dominated the technology policy world  — the one over net neutrality. The GOP has been almost unanimous in calling Obama-era net neutrality rules that classified the internet as a utility as a government takeover.

The immediate effect of those rules made telecom companies including  Verizon Communications Inc. and AT&T Corp. treat online traffic equally – rules the companies said they supported anyway. Dismantling some of the most successful private enterprises in US history would be far more radical.

Monopolies

While Warren's proposal aims to end monopolies, public utility regulation is usually an acknowledgement that monopolies naturally occur in some markets and the best thing to do is to come up with a way to live with them. Maybe it makes sense to run just one set of phone wires to a town, then rely on the government to make sure the company that does so doesn’t abuse the lack of competition by gouging customers or blocking access for potential rivals.

Getting these ideas moving will be a heavy lift in a country which celebrates entrepreneurship in the way the US does. But progressive advocates for significant action on big tech see Warren’s proposal as the end of the beginning for Big Tech.

"You have a presidential candidate coming out and saying that we need to break up Facebook, Google, and Amazon, and putting out detailed thoughts on it," said Matt Stoller, policy director at the Open Markets Institute, a group pushing for aggressive antitrust action.

"This is an important beginning step in the discussion about how we take them apart."

The industry isn't happy about it. The Information Technology and Innovation Foundation, a research group that has received funding from several large tech companies and other industry groups, said on Friday that Warren’s proposal reflects a "big is bad, small is beautiful" ideology run amok.

"The proposal ignores the fact that many of the services big tech companies now provide free used to cost consumers money," ITIF President Rob Atkinson said.

"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."

Warren is already trying to head off criticism that she wants to replace Silicon Valley's innovative capitalism with a dreary socialised version of the internet. She said that Google's search engine and Amazon’s online stores will operate largely the same as they do today from a consumer perspective.

Behind the scenes, the actions will revive the competition that fuels the internet economy, she argued, just as action against Microsoft Corp. led to the rise of Google. "Healthy competition," Warren wrote, "can solve a lot of problems."

elizabeth warren  |  ict  |  tech
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