Facebook and Google risk breakups

Bloomberg

The UK’s Competition and Markets Authority (CMA) called for sweeping new powers to roll back the dominance of Google and Facebook Inc. in the online-advertising market, a move designed to push global regulators to be more aggressive against the tech giants.
The watchdog said a new regime should have the ability to respond far more quickly to digital monopolies with powers to require structural changes including potentially forcing Alphabet Inc.’s Google to split its ad server operations. Its existing powers are insufficient and an entirely new approach is needed, the CMA said.
“What we have found is concerning — if the market power of these firms goes unchecked, people and businesses will lose out,” the CMA’s Chief Executive Officer Andrea Coscelli said in a statement.
The proposals serve as a potential template for the US and the European Union to tackle the unassailable market power of the largest tech firms in digital-advertising markets. In Britain, Google and Facebook account for 80% of all spending on digital advertising, the CMA said.
The regulator had flagged in December that was unlikely to escalate the probe to a full market investigation, preferring instead to push for legislative changes.
“This is about politics and a recognition of some of the limitations they face,” said Will Leslie, a competition lawyer at Linklaters. “It’s a suite of proposals that are eye catching and controversial,” but the UK government now has to carry them forward, he said.
For now, “Google must be pretty satisfied,” said Damien Geradin, a competition lawyer in Brussels. “The report is very nicely done. But what happens next?”
The advertising revenues that fuel profits for Google and Facebook are increasingly coming under antitrust scrutiny, often prompted by complaints from media companies as advertising spend shifts to the web. France’s competition authority has flagged the scale of Google’s ad business as a potential concern while Germany is also looking at the market.
“We support regulation that benefits people, businesses and society, and we’ll continue to work constructively with regulatory authorities and government on these important areas so that everyone can make the most of the web,” said Ronan Harris, vice president of Google’s UK arm.
The CMA, which has long been keen to challenge the power of the tech giants in the UK, has recently used its oversight of acquisitions to scrutinize the firms. But the new powers of a Digital Markets Unit would enable the regulator to go as far as demanding structural changes.
Among the more stark options under consideration was a suggestion that Facebook should separate Instagram to allow the two to better compete for users. “While we recognise that a forced separation would bring significant costs and complexity, this should be a tool available,” the CMA said.
“We face significant competition from the likes of Google, Apple, Snap, Twitter and Amazon, as well as new entrants like TikTok, which keeps us on our toes,” a representative for Facebook said in a statement.
Representatives for Amazon.com Inc., which would
potentially also be affected, couldn’t immediately comment.
The EU’s antitrust watchdog is also seeking new powers to police online giants, aware that years of probes into the likes of Google haven’t extracted much meaningful change, despite hefty penalties. EU commissioner Margrethe Vestager, a regular Silicon Valley tormentor, suggested last week this could even mean breaking up companies as a “last resort” to protect competition.
Under the new UK regime, the CMA said the largest tech firms, designated as having “strategic market status,” could face an enforceable code of conduct, that would eventually be extended to mergers.
Operational splits that would specifically force Google to separate its advertising stack into different units and maintain Chinese walls within the business are some of the specific powers that the CMA wants.
“Each of these businesses potentially faces a conflict of interest,” the CMA said. “While we recognize that these would be highly intrusive interventions, they might also have the potential to change the nature of competition substantially.”