FTC chief open to tech company breakups over antitrust concerns
Federal Trade Commission Chairman Joe Simons is open to the idea of breaking apart giant tech firms like Apple by undoing mergers, if it is determined large entities like Facebook are harming competition across the tech industry as a whole by being too dominant.
The possibility of a breakup of considerably large tech companies like Apple, Facebook, Alphabet, and others, has been a major political talking point in recent months, under accusations the firms may be making anticompetitive moves in merging with others and acquiring startups in various fields.
The issue has led to US government agencies including the FTC and the Department of Justice to open up investigations, to determine how much competition there is, whether the companies are effectively monopolizing the market, and if there are any antitrust problems on the horizon. In the case of the FTC, its chief seems to be fine with breaking up the tech firms.
"If you have to, you do it," Simons told Bloomberg. "It's not ideal because it's very messy. But if you have to, you have to."
One way of breaking up the firms is to undo acquisitions that received approval to go through by the FTC, Simons suggested. While there would be a requirement of court approval, Simons believes it is entirely plausible for the FTC to admit that "we made a mistake," and force through that process.
On the subject of the parallel investigations by both the FTC and the DOJ, Simons claims there's an agreement between the two agencies to divide the tech industry scrutiny based on each firm's conduct, rather than by company. "It's possible for sure that we could be investigating the same company at the same time, but just for different conduct," told Simons, giving the hypothetical of the FTC looking at Amazon for buying a grocer while the Justice Department could look at the purchase of a music-streaming service by the retailer.
While not explaining specifically why Facebook is being investigated, Simons advised inquiries into acquisitions would be based on what would have happened to the targets if they were not bought.
"There's a question about what caused Instagram to be as successful as it is," reasoned Simons. "Was it the fact that the seed was already there and it was going to be germinated no matter what, or was the seed germinated because Facebook acquired it?"
The notion of breaking up tech companies came to the foreground in March by presidential candidate and Senator Elizabeth Warren, who demanded the introduction of legislation to make large tech platforms be designated as "platform utilities" and to be broken apart from any participant on the platform.
Warren later confirmed Apple would be a target, as it both operates the App Store as well as produces apps that exist within it. "Either they run the platform or they play in the store. They don't get to do both at the same time," insisted the senator.
Apple is already the subject of a number of antitrust investigations around the world, including one in Japan over contracts the company has with parts makers, which may be considered a violation of antimonopoly laws. In Russia, Apple is accused of violating antitrust after removing Kapersky Lab's Safe Kids application from the App Store,
Spotify filed a complaint with the European Commission claiming Apple is taking more money from consumers than it is entitled to via the App Store's in-app purchases and subscriptions, as well as limiting third-party access to technologies such as Siri and the HomePod, while giving its own Apple Music free reign.
The FTC and DOJ investigations are not the only ones Apple may be concerned about. In July, it was revealed a number of US states are also looking into antitrust motions against tech firms.
While breaking up isn't necessarily going to happen for many instances of antitrust, a recently proposed bill by Democratic Senators Amy Klobuchar and Richard Blumenthal titled the "Monopolization Deterrence Act" aims to ward off tech companies and others from anticompetitive practices, by mandating stiffer penalties of up to 15% of a company's U.S. revenue.
The possibility of a breakup of considerably large tech companies like Apple, Facebook, Alphabet, and others, has been a major political talking point in recent months, under accusations the firms may be making anticompetitive moves in merging with others and acquiring startups in various fields.
The issue has led to US government agencies including the FTC and the Department of Justice to open up investigations, to determine how much competition there is, whether the companies are effectively monopolizing the market, and if there are any antitrust problems on the horizon. In the case of the FTC, its chief seems to be fine with breaking up the tech firms.
"If you have to, you do it," Simons told Bloomberg. "It's not ideal because it's very messy. But if you have to, you have to."
One way of breaking up the firms is to undo acquisitions that received approval to go through by the FTC, Simons suggested. While there would be a requirement of court approval, Simons believes it is entirely plausible for the FTC to admit that "we made a mistake," and force through that process.
On the subject of the parallel investigations by both the FTC and the DOJ, Simons claims there's an agreement between the two agencies to divide the tech industry scrutiny based on each firm's conduct, rather than by company. "It's possible for sure that we could be investigating the same company at the same time, but just for different conduct," told Simons, giving the hypothetical of the FTC looking at Amazon for buying a grocer while the Justice Department could look at the purchase of a music-streaming service by the retailer.
While not explaining specifically why Facebook is being investigated, Simons advised inquiries into acquisitions would be based on what would have happened to the targets if they were not bought.
"There's a question about what caused Instagram to be as successful as it is," reasoned Simons. "Was it the fact that the seed was already there and it was going to be germinated no matter what, or was the seed germinated because Facebook acquired it?"
The notion of breaking up tech companies came to the foreground in March by presidential candidate and Senator Elizabeth Warren, who demanded the introduction of legislation to make large tech platforms be designated as "platform utilities" and to be broken apart from any participant on the platform.
Warren later confirmed Apple would be a target, as it both operates the App Store as well as produces apps that exist within it. "Either they run the platform or they play in the store. They don't get to do both at the same time," insisted the senator.
Apple is already the subject of a number of antitrust investigations around the world, including one in Japan over contracts the company has with parts makers, which may be considered a violation of antimonopoly laws. In Russia, Apple is accused of violating antitrust after removing Kapersky Lab's Safe Kids application from the App Store,
Spotify filed a complaint with the European Commission claiming Apple is taking more money from consumers than it is entitled to via the App Store's in-app purchases and subscriptions, as well as limiting third-party access to technologies such as Siri and the HomePod, while giving its own Apple Music free reign.
The FTC and DOJ investigations are not the only ones Apple may be concerned about. In July, it was revealed a number of US states are also looking into antitrust motions against tech firms.
While breaking up isn't necessarily going to happen for many instances of antitrust, a recently proposed bill by Democratic Senators Amy Klobuchar and Richard Blumenthal titled the "Monopolization Deterrence Act" aims to ward off tech companies and others from anticompetitive practices, by mandating stiffer penalties of up to 15% of a company's U.S. revenue.
Comments
It is one thing to break up Alphabet. They have a number of huge companies that cooperate to leverage their strength and squeeze out competitors.
It is one thing to look at Microsoft. This was done and the decision was made to break them up before the W Bush administration snatched defeat from the jaws of victory.
It's one thing to look at breaking up Facebook. They are a corrosive, utterly unethical machine that takes user data and sells it to anyone for any price regardless of how much harm the buyer may do. They are now looking at spreading their pathological model into monetary policies and elsewhere. Perhaps breaking them up would just metastasize the problem. Killing it with fire might be a better solution.
But those are very different from Apple. Apple does not dominate any market. They do not sell user data. They hold no monopoly on anything anywhere, at any time. The argument that they hold a monopoly on the AppStore is vacuous. Target and Walmart control what goes into their stores and set standards for quality just like Apple does in their store. You don't like it, don't buy an Apple product. MOST of the world uses android. I honestly do not know why they keep tossing Apple in with the others, other than they are a big target for politicians.
Android is somewhat unusual among the major OSes in that there are not open-source versions of iOS or Windows where those companies have 100% control. Google only partially controls Android. Comparing market share of "Android" to iOS as tho it is comparing Google to Apple is essentially false equivalency.
Search? Yeah Google holds a massive share on the mobile side but with a lot of help from Apple.
Apple biggest “problem” is the App Store, which could be considered a monopoly. The problem is Apple Music, Books, Games, TV etc. don’t have to pay the 30% which gives Apple an unfair advantage.
The problem with changing the rules now is a complete reversal on how companies function. Microsoft will need to be broken up into a bunch of parts... Windows, Office, Search, Gaming, Azure etc.
If I was going to ignore all the time bombs, and just look at Apple. Spinning off the App Store into a separate non-profit entity with the same mission would probably be a good thing. Apple would need to pay App Store like everyone else. But, everyone else isn’t everyone else anymore. Companies are increasing decoupling subscriptions (like Netflix) and Apps to avoid fees, Apple could do the same...
Basically, doing what they’re talking about would completely change the US economy/business environment... 90% of the S&P 500 might need to be broken up (Boeing, GE, banking, etc)
I don’t see a revisionist approach going anywhere, but I could see new mergers and acquisitions getting more scrutiny. That’s probably a good thing.
Bottom line, we can write this off as political rhetoric for now. US companies have a “competitive” advantage now. Is it really in the US governments best interest to level the playing field? The US government is more worried about Chinese state sponsored businesses encroaching on US companies...
Also, the USA is pretty much ruled by special interest groups (tech companies, farming, banking, NRA, unions, etc. etc.). Politicians know who REALLY gets them elected... So, politicians will say things to manipulate the public, but when push comes to shove, don’t expect much change.
Forest for the trees.
First of all, it cannot be considered a monopoly, except by those who do not understand what a monopoly is. Which is a single entity that has a majority share of a market; an open market that others are free to take part in. The App Store is not part of an open and free market. It only exists on Apple's iOS devices. The App Store itself is a market unto itself, but even within it, Apple does not have a majority share of its sales. What Apple does have, is ownership of it. The same way Apple owns iOS, or in the same way Apple owns iPhone. none of these are monopolies or even close to being considered one.
On the surface it may seem like Apple has an unfair advantage, and that would be the case if Apple was just a developer offering their "warez" on the App Store and the App Store didn't cost Apple anything to maintain and run. But that's not the case here. Apple spends tens of billions every year not just to keep the App Store running, but also to make sure that App Store has a place to exist, so that other developers and service providers can offer up their own "warez" to users.
Just try to imagine all that Apple has to do to enable "Spotify" to write an app and make it available on an iPhone...
hardware development: cameras, displays, silicon, batteries, materials, manufacturing, shipping.
software development: operating system, developer tools, distribution.
plus... advertising, marketing
And yes, all that money comes from people buying their devices, but that money is being spent whether Apple Music exists or not. So, should Apple be able to offer those users services at what some consider a discount? Yes. As someone who just spent money on an Apple product, why wouldn't I expect something like that from Apple? We get free software (Pages, Numbers, Keynote) and free "cloud" services (email, storage, data syncing, etc.). Companies like Spotify should be thankful that Apple doesn't offer a free year of Apple Music to customers who buy their devices.
We we just need more leadership that have the courage of their convictions to start saying no to corruption.
This is some silly bureaucrat. running around with a random hammer looking for a nail. It'll be DOA.
Politicians need to put their efforts into things like fixing corruption in DC.
On the other hand I do believe that something must be done to address some of the stupidity coming out of these companies. The trick is to find the right approach, possibly by new law, that addresses the out of bounds behavior of these companies. A perfect example is the rush many companies are engaged in to undermine your traditional right to repair. Apple is especially bad here.
The biggest problem here is that these break ups don’t always work out to be the best approach for the consumer. In fact break ups these days can mean not being able to compete on the global stage. This is perhaps the biggest risk of overly aggressive attacks on these companies. E Warrens desire seems to be the destruction of these companies rather remediation of wrongs. I have a big fear this new found interest in these so called monopolies could snow ball into a huge fiasco.
The bigger problem with break break ups is how do you expect tiny companies to then compete with the mega corporations overseas. As long as we have free trade the ability to compete on a world wide scale depends upon large corporations with deep pockets.
It’s popular to say that the 1984 AT&T breakup was a mistake. But the truth of it is murky.
For several decades after the breakup we saw tremendous advances in cellular communications as the baby bells competed with each other. Can we say that the breakup was the primary driver of innovation? Perhaps not alone. But the forced changes to the baby bell’s stale business models certainly drove improvements in everything they did. AT&T itself went through wrenching changes for years after the breakup that ended up making it a better company. Even as the baby bells merged one by one again, those decisions were driven by competition.
Do a thought experiment and ask yourself what the phone system would look like today had AT&T not been broken up.
Believe me i I fully understand that Apple has done wrong as have many of these other companies, however I can’t see the consumer being served by massive break ups. In fact I would expect the consumer to suffer if App Store was broken out of Apple for example. Why? It’s rather simple, that company would then be fully responsible for maintaining its own distribution system, profits and staff/infrastructure.
In a nut shell Elizabeth strikes me as being nuts. Like completely off her rocker.