The Corner Newsletter, June 28, 2018: Fighting Against Monopoly — SoftBank's Market Power Machine — AT&T Moves to Manipulate
In this issue of The Corner, we discuss the Supreme Court’s dangerous and poorly-reasoned decision in Ohio v. American Express, how SoftBank uses a vast pile of Saudi Arabian investment capital to forge cartels in tech sectors around the world, and how an AT&T fresh from its recent merger with Time Warner is already investing in tools to more blatantly manipulate its “customers.”
The Supreme Court and Ajit Pai Fight For Monopoly. We Fight Against.
It’s been a tough two weeks for Americans who believe in the safe distribution of economic power. First, on June 11, came Federal Communications Commission Chairman Ajit Pai’s legalization of content discrimination online. The next day, a district court approved AT&T’s takeover of Time Warner, in a harsh rejection of the Department of Justice’s efforts to draw clear lines between distribution and production of news and entertainment (read our op-ed on that decision here).
Worse was to come. This week the Supreme Court, in Ohio v. American Express, wrecked even more damage on the economic structures that undergird American democracy. In a sharply divided 5-4 decision, the Court entirely redefined what constitutes a market. As we make clear in the Financial Times, the decision provides platform monopolists like Amazon and Google with a license to do pretty much whatever they want to America’s citizens, in our capacity as producers of goods, ideas, and work. (For more analysis of the decision and its implications please also read our amicus brief, our op-ed in March in The New York Times, and our official statement Monday on the Court’s decision.)
Add these three decisions together, as Matt Stoller did in Buzzfeed, and the result is an unprecedented ability by a few private corporations to manipulate how news and information flows from citizen to citizen in America, hence to manipulate us.
One thing history teaches is that Americans have faced similar threats before. We faced similar degrees of economic concentration in the Gilded Age. We faced a Supreme Court captured by libertarian extremists, during what is known as the Lochner era. History also teaches that the American people kept hammering on that power and that Court. Along the way we developed a vast array of new tools with which to build a new democracy, and we learned there is no danger we can’t overcome with creative thinking.
Here at Open Markets we are already working with our wide family of allies to develop legal strategies, regulatory strategies, and grassroots political strategies not only to fix what the pro-corporate radicals on the Court broke, but to rebuild it stronger than ever. Stay tuned.
ANTI-MONOPOLY RISING:
Coverage of Alexandria Ocasio-Cortez’s win in the Democratic primary for New York’s 14th Congressional District has focused largely on her membership in the Democratic Socialists of America, with The New York Post cover blaring the headline “Red Alert.” Less noted was that Ocasio-Cortez, who defeated Rep. Joseph Crowley with over 57 percent of the vote and who is now a heavy favorite to win in November, took a number of strong anti-monopoly positions during the campaign. Perhaps even more importantly, Ocasio-Cortez beat a big-money, corporate-sponsored politician who, as of June 6, had outspent her by millions. Crowley’s donors included not only Facebook COO Sheryl Sandberg, who contributed the legal maximum of $5,400 combined for the primary and general election, but also over 100 of the country’s biggest and most-prominent corporations. In New York’s 12th Congressional District, Suraj Patel made a strong showing but ultimately lost against incumbent Carolyn Maloney, after building his campaign around anti-monopoly policies.
The Boston Globe Editorial Board called for breaking up Google, noting the democratic and competitive harms that come with Google’s stranglehold over advertising and information. Their editorial’s suggestions included cutting Google search from the rest of Google, separating YouTube’s and Google’s advertising arms, and breaking up YouTube, Android, and Google’s cloud business.
The French and German competition authorities announced that they are launching a joint project to study how algorithms may affect competition, and to develop a framework for understanding them. In particular, the competition offices noted the potential of algorithms to facilitate collusion as well as the “interdependencies between algorithms and the market power of the companies that make use of them.”
WHAT WE’VE BEEN UP TO:
Barry Lynn delivered a keynote address at the UNI Global Union World Congress in Liverpool on the dangers that monopoly poses to workers and to the world’s democracies. The other keynoters at the Congress were Labour Party leader Jeremy Corbyn, the Rev. William Barber II, and ILO Secretary General Guy Ryder.
Matt Stoller spoke at The American Conservative’s conference, “Cronyism in Action: Government’s Cozy Ties to Big Tech & Big War.” Matt spoke of the immense lobbying power of Amazon, Facebook, and Google in Washington.
Phil Longman spoke at a Congressional Antitrust Caucus briefingtitled “Competition in Health Care Markets: How Concentrated Economic Power Hurts Patients Through Soaring Costs and Less Choice.” Phil detailed how concentration in health care markets threatens the Medicare-For-All proposals that are increasingly popular in the Democratic Party.
Barry Lynn’s op-ed for The Guardian warned that Judge Richard Leon’s vision for the AT&T/Time Warner merger subscribed to a “Godzilla versus Rodan theory” of competition, and ignored the original understanding and actual history of American anti-monopoly law.
Lina Khan’s essay, “Amazon: An Infrastructure Service and Its Challenge to Current Antitrust Law,” was published as part of a new volume about tech corporations’ power, Digital Dominance: The Power of Google, Amazon, Facebook, and Apple, edited by Martin Moore and Damian Tambini.
Austin Frerick wrote an op-ed for The Des Moines Register criticizing the Iowa Farm Bureau’s advocacy for policies that benefit Big Ag while hurting small farmers and regular Iowans alike.
Barry Lynn and Lina Khan were featured in a recent Boston Globe article about the antitrust laws and Google. The article was part of a major report by the Globe on Google’s power, and included its editorial calling for breaking up of Google.
Lina’s Yale Law Journal article “Amazon’s Antitrust Paradox” was credited by The New York Times on Saturday with jump starting the legal debate over Amazon’s anticompetitive practices. Her article, especially the part discussing breaking up Amazon, was also discussed by Martin Giles in the MIT Technology Review.
Open Markets’ comments submitted to the Department of Justice’s Antitrust Division’s Roundtable Examining the “Consumer Costs of Anticompetitive Regulations” were cited by David Leonhardt in The New York Times as a way to use regulations to check the power of big businesses.
Sandeep Vaheesan explained to Wired how a Supreme Court decision in favor of Apple in its review of the Apple Inc. v. Pepper case would make it easier for platforms and other intermediaries to avoid antitrust lawsuits and weaken private enforcement of antitrust laws.
Open Markets’ June 12 “Breaking the News” conference on monopoly in the media was covered by a range of sites including the Columbia Journalism Review, The Outline, ProPublica, Broadband Breakfast, PJ Media, The News Media Alliance, and Axios. The New York Times covered New York Times CEO Mark Thompson’s speech on the danger that Facebook poses not only to the news media, but democracy more broadly. And Open Markets Advisory Board member Rana Foroohar observed in her column for the Financial Times last Monday that during “Breaking the News,” top antitrust enforcer Makan Delrahim “made it clear that he doesn’t consider price the only measure of consumer welfare.”
WHAT’S MISSING FROM THE PICTURE?
SoftBank’s Monopoly Manufacturing Machine
Last week, the Financial Times published a feature on the Vision Fund – a $100 billion investment pot controlled by Masayoshi Son, CEO of the Japanese conglomerate SoftBank. The billionaire is using the fund to invest in dozens of fast-growing, tech-oriented businesses across the world. The list includes ride-hailing corporation Uber, office space retailer WeWork, and the British chip designer Arm Holdings.
Made up of money from Saudi Arabia’s public investment fund, Abu Dhabi’s sovereign wealth fund, and from Apple, Foxconn, Sharp, Qualcomm, and SoftBank itself, the Vision Fund is now, the Financial Times writes, “the largest private pool of money ever raised.” The fund has “allowed Mr. Son to leapfrog a cliquey club of mainly Silicon Valley venture capital firms.” With so much money in its coffers, the writer concludes, “SoftBank allows its portfolio companies to pursue growth without worrying about burning cash.”
The piece is rigorously reported and well-written, and it includes lots of human interest detail on the personalities surrounding Mr. Son. But it fails to mention the biggest problem posed by the SoftBank Vision Fund: monopoly. Even if SoftBank is, as the writer contends, providing the tight club of California investors with needed competition, it is using its investments to build cartels in industries across the world.
Sometimes, as The Wall Street Journal has explained, this just means requiring the companies it controls to “cooperat[e] on research and development and [to seek] joint ventures.” But it often means far more than that. In the ride-hailing sector, for instance, SoftBank has used its investments to create a global cartel structure with markets carefully divvied up between erstwhile competitors.
Consider how this has played out in China. As recently as the spring of 2016, Uber and the Chinese company DiDi Chuxing competed aggressively for new riders. But in June of that year, SoftBank invested $7.3 billion in DiDi. Shortly thereafter in August, DiDi acquiredUber’s China operations in a deal that gave Uber a big stake in DiDi and allowed the two corporations’ CEOs to sit on each other’s boards. As Open Markets’ Kevin Carty wrote at the time, the deal created “a de facto monopoly in China” by removing Uber while leaving DiDi as the dominant ride-hailing provider in the country.
SoftBank engineered a similar monopoly in Southeast Asia. Until 2018, Singapore-based Grab competed against Uber for the ride-hailing market in Indonesia, Singapore, and other countries in the region. SoftBank first invested in Grab in 2014, but SoftBank made its biggest investment in 2017 – putting $2.5 billion into the corporation. Several months later, in January 2018, SoftBank invested $9 billion in Uber, making it the largest shareholder in that corporation. As soon as the deal closed, SoftBank toldUber to focus on its markets in U.S. and Europe, rather than markets like Vietnam. In March of 2018, Uber sold its Southeast Asian operations to Grab in a deal that allowed Uber’s CEO to sit on Grab’s board.
Son also has unique multi-corporation insight into Asian internet platforms, holding 43 percent of Yahoo Japan’s stock, and 28 percent of China-based Alibaba. And he has also established a powerful position in self-driving cars, with a $2.25 billion investment in General Motor’s self-driving car subsidiary Cruise. Son is also aiming to “rationalize” the mobile phone industry. SoftBank acquired Sprint in 2012 and, as The New York Times wrote at the time, planned to “help finance its network overhaul and, eventually, pursue additional mergers.” In 2014, Son attempted to merge Sprint and T-Mobile, but the Obama administration blocked that deal. Now SoftBank is back at it. In the hopes that President Trump’s antitrust enforcers might take a different view of the deal. Son is once again pushing a deal to combine Sprint and T-Mobile. If permitted, that deal would cut the number of mobile phone providers in America from four to three.
While SoftBank’s strategy of investment and concentration is exceptional in its scale, it is hardly unprecedented. In many ways, it resembles the tactics of the “trusts” constructed by capitalists like JP Morgan during the American Gilded Age, which used financial power and interlocking directorates to suppress competition across whole sectors of the economy. As a congressional committee wrote in 1913, these trusts “resulted in vast and growing concentration and control of money and credits in the hands of a few men.”
WHAT WE’RE READING:
“EU Competition Law Goals and the Digital Economy” (Working paper, Ariel Ezrachi): In laying out some of the “goals and values” of the European Union’s competition policy, Oxford professor Ariel Ezrachi suggests that existing EU competition law can, in fact, rein in digital giants like Google and Amazon – if enforcers have the courage to do so.
“Technopoly” (ResPublica, Tim Cowen and Phillip Blond): Pairing well with Ariel Ezrachi’s paper, “Technopoly,” proposes ways to realize the EU’s competition goals and values. At the heart of their solution: antitrust enforcers ought to reject so-called consumer welfare and focus on encouraging consumer choice and innovation in reviewing both mergers and corporate conduct.
“The Regulatory Mistakes that Let Facebook and Google Buy Ad Dominance” (Axios, Sara Fischer): Expanding on Open Markets’ monopoly in the media conference, Sara Fischer details the specific deals, which antitrust enforcers blessed, that allowed Facebook and Google to roll up the advertising industry. Check out this article for a concise survey of the six acquisitions or “missed opportunities” that the Department of Justice and Federal Trade Commission allowed.
AT&T Buys a Digital Ad Firm, So It Can Manipulate You Just Like Facebook Does
Less than two weeks after Judge Richard Leon approved AT&T’s bid to acquire Time Warner, the corporation announced plans to purchase the digital ad tech platform AppNexus for some $1.6 billion. Most coverage of the deal has focused on the idea that AT&T is seeking to compete for digital advertising against Google and Facebook, which now entirely dominate online advertising.
That’s true, but it is only the beginning of the story. What is actually taking place here is AT&T’s first post-merger move to refashion itself into a platform corporation with the potential to rival the power of even Facebook and Google.
AppNexus is an ad exchange platform, or privately owned marketplace in which publishers sell ad space to advertisers in real time. AppNexus claims that 34,000 publishers and 177,000 brands use its platform, which makes it a big player in the digital ad sector. But it is still far smaller than its biggest competitor: DoubleClick, which is owned by Google. The deal gives AT&T access to all the data AppNexus generates, including on deals done on other platforms. Going forward, AT&T can leverage its wide-ranging power of surveillance over its 170 million cable, phone, and internet customers to offer highly targeted messages not just on Internet-connected devices, but on television screens as well —something Google and Facebook can’t yet do.
AT&T’s control of telecommunications infrastructure gives it a variety of powers that online platforms don’t have. As Free Press policy counsel Gaurav Laroia says, AT&T “has a unique view into customer browser habits.” Whereas Google and Facebook can only track what its users do on their respective platforms and on other websites that install their corporation’s trackers, AT&T’s structure allows it, Laroia says, to track everything its customers do anywhere on the Internet. This includes tracking data flowing from smart devices in the home, as well as everything a customer watches on TV. AT&T also can track when its customers make a phone call or browse the Internet over its cellular networks.
It’s a scary prospect, especially for the citizens who depend on AT&T’s services. But AT&T has a long way to go before it can really hope to have the sort of political sway over users, and over governments, enjoyed by the platform monopolists. Even if AT&T is able to fully develop the ability to exploit all this new knowledge and power, there will still be a big difference between AT&T’s reach and the reach of Google and Facebook. More than 1.8 billion people watch Google’s YouTube each month, and more than 2 billion people use Facebook, or eleven times AT&T’s customer base. Google also gathers information from such sources as Gmail, Google Maps, and the 2 billion Android devices in the world.
Another difference is that, with nearly $200 billion in debt, AT&T is now one of the most indebted large corporations in the world. By contrast, Facebook, Google, Amazon and the other platform monopolists that AT&T intends to compete with, sit atop almost infinitely large piles of cash, with which to further expand their reach and develop their powers.
VITAL STAT: $2,500,000,000,000
The volume of global mergers and acquisitions for the first half of 2018, a new record for the six-month period and a 65 percent increase over the same period from 2017, according to the Financial Times.
WHAT WE’RE WATCHING:
Fool Me Once: On the anniversary of their 2.4 billion euro fine, Google is attempting to avoid additional fines from the European Union by offering more favorable terms to competing retailers for shopping search ads. EU antitrust chief Margrethe Vestager has stated there has been a “steady increase” in rival products appearing prominently in Google shopping searches, but we’ll be watching to see whether Vestager deems these efforts good enough.
Hit the Road, Joe: The Federal Trade Commission, helmed by Chairman Joseph Simons, announced last Wednesday a series of public discussions on concentration and monopolization in America. This will include a series of public hearings across the country beginning in September and running until next January. One of the main aims of the FTC is to learn whether citizens believe the agency should be regulating the world’s largest technology corporations, and if so, how. We’re watching to see if the FTC actually listens to the increasing numbers of Americans calling for antitrust enforcers to rein in the power of giant technology corporations, or whether this is just a stalling tactic.
Push It to the Limit: Although Walt Disney this week received US antitrust enforcers’ approval to acquire 21st Century Fox, Comcast is reportedly still working with banks and investors to try to match Disney’s $71 billion offer. Regardless of the winner of this bidding war, we’ll be watching to see how Fox’s increasingly-expensive assets are used to further empower these media giants.