Facebook founder and CEO Mark Zuckerberg was not even born in early 1982 when the mandated breakup of Bell System began, a move that ultimately slashed the value of the giant and previously unassailable AT&T by 70 percent.

He was 15 when Judge Thomas Penfield Jackson found that Microsoft was a monopoly which repeatedly sought to crush its opponents. Microsoft succeeded in the appeal courts, but the settlement it subsequently entered into with the US Department of Justice dragged like wet cement on it for years afterwards.

Indeed given current events Zuckerberg might like to Google, “antitrust” because the past has never seemed more like prologue for the social media giant.

US media outlets are reporting that America’s consumer watchdog, the Federal Trade Commission, is negotiating a multibillion-dollar fine with Facebook over its past privacy practices.

The fine, said to be in excess of $US2 billion, would be the largest fine the FTC has ever levied on a tech company, easily eclipsing the $US22.5 million fine Google paid in 2012.

It may also be well overdue.

Facebook turned 15 this month and in its short history has been involved in a raft of scandals. Last year alone it was revealed the platform was used to disrupt the US presidential election, played a “determining role” in the persecution of Rohingya muslims in Myanmar, and was hacked in an incident which compromised 30 million user accounts.

But the 2018 incident that drew the most attention to Facebook — the Cambridge Analytica scandal — highlighted to the public a murky world of data brokering and its consequences.

Along with its growing scale, the scandals have made it impossible for regulators to ignore Facebook any longer. And its longstanding argument of economic and consumer benefits appears to finally be wearing thin.

“Facebook is facing scrutiny on a number of fronts, including how it handles user data and its commercial practices. It might have breached privacy rules and used its dominant position to create harm to competitors and consumers, raising interest from European, Australian and federal regulators in the USA,” said Foad Fadaghi, Managing Director at Telsyte, a market research firm.

“Facebook could face record fines, regulatory oversight and even potentially being broken up, all which could impact its business model.”

For Facebook, which reported revenue of nearly $US16 billion in the last quarter alone, the fine will have a modest impact — but a bigger threat looms. As the company and privacy scandals grow, Facebook faces tightening regulation and even a potential breakup, as was the threat to large tech companies in the 1990s and early 2000s.

Already, European consumer and competition agencies have begun tightening regulations — taking several steps to increase oversight and consumer control. The Australian Competition and Consumer Commission is currently investigating the impact of digital platforms and has already flagged concerns of the opaque algorithms underpinning them.

Facebook’s response to the mounting scrutiny has been to stop resisting what appears to be inevitable regulation and instead control the conversation to ensure what it says is the “right” regulation.

Update 18/02/2019: A UK parliamentary report found Facebook intentionally and knowingly violated both data privacy and anti-competition laws, following an 18 month investigation into disinformation and fake news on the platform.

British MPs involved in the inquiry said the age of inadequate self regulation must come to an end.

“The rights of the citizen need to be established in statute, by requiring the tech companies to adhere to a code of conduct written into law by parliament, and overseen by an independent regulator,” said Damian Collins.

Thin ice

Professor Caron Beaton-Wells, an expert in consumer law at the University of Melbourne, says the horse has bolted for Facebook on regulation. Beaton-Wells, who speaks regularly with regulators and industry stakeholders for her Competition Lore podcast, said a chequered history of privacy scandals has made the social media giant’s longtime defence against increased regulation — innovation and economic growth — a bridge too far.

The string of scandals — most notably last year’s Cambridge Analytica revelations — has “galvanised governments and regulators around the world to take greater steps towards protecting personal information and data,” Beaton-Wells told Which-50.

“And in the face of that increasing political and regulatory pressure, competition arguments on the part of the platforms are being drowned out or at least muted because of these broader political and social concerns.”

While the FTC mulls a reported multi-billion dollar fine for Facebook, regulators in other jurisdictions have been quicker to act. The latest ruling by German regulators restricts Facebook’s ability to collect and merge user data across its platforms.

The decision by Bundeskartellamt, Germany’s Federal Cartel Office in charge of antitrust laws, is somewhat controversial, Beaton-Wells says, because it is made on the basis that consumers are being harmed by the data merge. Facebook proponents, on the other hand, would argue the value of the “free” platform service users receive is being discounted and the move would improve the service.

Professor Caron Beaton-Wells, University of Melbourne.
Source: Competitionlore.com

Regardless, the decision is a marked shift in the attitudes of regulators towards the social media giant, according to Beaton-Wells.

“[The German case] is controversial but it is a clear sign that in some parts of the world, largely outside of the US, competition authorities are increasingly emboldened to experiment with new theories of harm to rein in or curtail the significant market power of these digital platforms.”

Changing Tack

Facebook’s response to the growing threat has also taken a dramatic shift. While the US has been slower off the mark compared to Europe, the regulatory writing is clearly on the wall. Facebook is no longer trying to ward off the big stick but, rather, it wants a “seat at the table,” according to Beaton-Wells.

“What’s fascinating is to watch how even a year ago the platforms and their various advocates were fiercely resisting this type of regulation on the grounds that it would chill innovation that was benefiting consumers.

“They are moving from that sort of stringent resistance towards a far more accomodating and cooperative approach. Because, I think, from their point of view, the horse has bolted.”

Facebook chief Mark Zuckerberg conceded as much during his testimony to US congress in April last year, telling Senators “My position is not that there should be no regulation.

“I think the real question, as the internet becomes more important in people’s lives, is what is the right regulation — not whether there should be or not,” Zuckerberg said.

In an attempt to influence government, Facebook, like other tech giants, is ramping up its lobbying efforts on both sides of US politics. Facebook spent $US12.6 million in 2018 lobbying the US Government, with the bulk going towards market and data regulation issues, according to data from the Centre for Responsive Politics.

While the amount is relatively low for a company with a market cap nearing $US500 billion, lobbying spend is trending steadily up.

Source: Opensecrets.org Center for Responsive Politics.

Whether the investment pays off remains to be seen as much of the regulation talk in the US has been just that — talk — at least at the federal level. However, in Australia there are early signs into what the country’s consumer regulator, the ACCC, is already considering.

What is the regulatory threat in Australia?

In 2018 The ACCC released the preliminary report on its Digital Platforms Inquiry [PDF] in which it raised concerns about the market power of Facebook and its negative effects. While the inquiry is ongoing, the interim report gives some insight into how tighter Australian regulations may work.

It is a “pretty clear roadmap,” says Beaton-Wells of the report, noting key recommendations for a new regulatory authority that would have the remit and powers to scrutinise both Google’s and Facebook’s practices in ranking and display of both advertising and news content.

Such steps would also require Facebook and Google to divulge some information about their algorithms — which have long been shrouded in secrecy because of commercial and strategic sensitivity.

“I anticipate both Google and Facebook will push back on this heavily,” Beaton-Wells said.

“Not only because of its competitive sensitivity but because of concerns that advertisers and news content creators would then be able to game the algorithm in ways that serve their interest and might disfavour the commercial interests of Facebook and Google.

“Because those platforms themselves participate in the adtech supply chain, and so there is actually vertical competition at stake here.”

So far the ACCC’s proposed regulation focuses largely on increasing the transparency around the ranking and display of advertising and new content, more so than the practice of data collection and monetisation.

“The idea seems to be that shining more of a light on the way in which the platforms are influencing those markets will incentivise, in itself, the platforms to do the right thing by their advertising and news content creating partners or customers.”

But will regulators like what they see when the light is shining on Facebook’s algorithm and data practices?

“That’s an unanswered question in the ACCC’s preliminary report,” Beaton-Wells said.

“But of course, the ACCC has already in its considerable toolbox the powers to investigate and bring proceedings for misuse of market power — what is called the abuse of a dominant position in other places.”

Parallels

As for whether Facebook’s scandals and sheer size (the company claims over two billion monthly active users, including most Australians) have set it on course towards an antitrust case like those of big tech companies of the past, Beaton-Wells says today it is a more nuanced issue.

There are parallels to the famous US v. Microsoft case, now nearly 20 years old, in which Microsoft was found to have been acting in an anticompetitive way by bundling its internet browser with its operating system, thereby removing the chance for rival browsers to compete fairly.

Eventually Microsoft would settle, but continued to argue “Government regulatory actions and court decisions may hinder our ability to provide the benefits of our software to consumers and businesses.”

Former Assistant Attorney-General in the New York Antitrust Bureau, Sally Hubbard, argues that today’s scenario with Facebook and other big tech companies is not dissimilar.

“Facebook … uses its platform privilege to pick and choose what content we see,” Hubbard wrote in a CNN Business OpEd last month.

“Facebook competes against news publishers and content creators for consumers’ time and data, the fuel for its advertising model. Profit-maximising algorithms prioritise content that keeps you on the platform, including Facebook’s own Instant Articles and content that makes you fearful and angry (or as Facebook calls it, ‘engaged’).”

Beaton-Wells, meanwhile, argues that while past cases like Microsoft are “forerunners” to today’s debate, the market has changed since then with the development of platform models.

“Market dynamics have moved on considerably since then and there are new technologies driving that. We really do have a whole new set of challenges in the competition area.”

“Only defining the market in terms of the services consumers are getting doesn’t really provide the full picture.”

Indeed, with a platform model where, in the case of Facebook, users effectively trade their data for the free use of the social media service — which is funded by advertisers using the user data to buy targeted advertising — the value exchange and competitive balance is less clear, even notwithstanding Facebook’s market dominance.

However, it appears regulators around the world are beginning to take up the challenge. Its critics would argue Facebook’s history suggests it is not a moment too soon.

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