Trouble ahead for Silicon Valley as sweeping antitrust investigation kicks off

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A sweeping antitrust investigation of the world’s largest tech firms kicked off last week in U.S. Congress, starting with hearings on the threat that news publishers face from the growing power of online platforms.

The first hearings on Tuesday by a bipartisan House of Representatives judiciary committee launched what lawmakers called a “top-to-bottom review of the market power held by giant tech platforms,” as the United States turns up the heat on a homegrown industry already under fire in several countries for enabling hate speech, election interference and privacy violations.

The committee investigation, along with new scrutiny of tech giants by the federal government and antitrust regulators, could lead to the most significant update of U.S. competition rules in years and spell trouble for Silicon Valley – a sector that has seen tremendous growth in part thanks to largely hands-off regulations.

Lawmakers say the committee plans to examine whether the world’s largest tech companies act as monopolies when they amass troves of consumer data, buy up smaller competitors and control how third-party businesses and app developers access their platforms. That could include digging into past tech mergers, such as Facebook Inc.’s 2014 acquisition of encrypted messaging service WhatsApp, or investigating whether Amazon.com Inc. unfairly competes with third-party sellers on its Marketplace.

The investigation is expected to last 18 months and could include demands for tech executives to testify, as well as subpoenaing internal company records, said David Cicilline, the Democratic Congressman from Rhode Island who chairs the House judiciary’s subcommittee on antitrust, commercial and administrative Law.

At the hearings Tuesday, news publishers testified that tech behemoths Google and Facebook are cannibalizing the digital advertising revenues of media outlets that depend on internet platforms to reach audiences.

Media executives threw their support behind a proposed committee bill that would give publishers an exemption from antitrust laws prohibiting price collusion, allowing them to band together and press tech firms for more favourable ad revenue-sharing agreements.

"No publisher on its own can stand up to the tech giants,” said David Chavern, president of the News Media Alliance, a trade association. The alliance released a study last week estimating that Google earned US$4.7-billion in revenues last year by aggregating news content without paying publishers.

White House officials are also turning their attention to Big Tech. Earlier this month, several media outlets reported that the Department of Justice would be responsible for any antitrust investigation into Apple Inc. and Alphabet Inc.'s Google, while the Federal Trade Commission, a federal consumer watchdog, would investigate Amazon and Facebook. The FTC also unveiled a task force this year to examine whether past tech mergers and acquisitions harm competition.

Antitrust is the latest target of the growing discontentment with Silicon Valley on both sides of the political aisle in the U.S. Congress. Lawmakers have been holding regular hearings into the privacy and content moderation policies of tech firms since revelations more than a year ago that a political consulting firm had improperly accessed the personal information of millions of Facebook users.

“It does seem like the dam has broken all at once,” Nicole Perrin, principal analyst with market research firm eMarketer said in an online commentary.

The new investigations under way mark a significant shift in the way that U.S. regulators approach antitrust cases, which have traditionally focused on whether acquisitions or business practices harmed consumers through higher prices. That is a difficult argument to make against tech companies, who typically offer their services for free or at low cost.

Instead, regulators have signalled they intend to broaden their probes to explore non-financial issues, such as whether tech firms have too much power over consumer data, or whether companies harm competition by controlling access to their platform in ways that favour their own products and services.

“Where competition is harmed, consumers and markets lose with higher prices, lower quality, lower rate of innovation, less free speech and even lower privacy protections,” Makan Delrahim, the top U.S. Justice official in charge of antitrust told a conference in Tel Aviv last week. “Protecting competition means protecting all of those dimensions of competition.”

Tech companies aren’t sitting quietly amid the escalating scrutiny from Washington. Executives have been loudly pressing their case in recent weeks for why they their size and global reach benefits the U.S. economy.

“I don't think anybody reasonable is going come to the conclusion that Apple's a monopoly,” Tim Cook, the smartphone-maker’s chief executive told CBS earlier this month.

Amazon chief executive Jeff Bezos used his annual shareholder letter to point out that independent sellers now make up 58 per cent of the company’s sales, up from 3 per cent when Amazon started in 1997. “Third-party sellers are kicking our first-party butt. Badly,” he wrote.

Increasingly, tech leaders argue that aggressive antitrust actions could hobble their ability to develop cutting-edge innovations, creating a risk that the U.S. could lose out to China in areas U.S. President Donald Trump has said are a priority, such as 5G wireless technology. “[Chinese] companies are not going to be broken up,” Facebook chief operating officer Sheryl Sandberg told CNBC in May.

Google’s chief executive Sundar Pichai told CNN Friday that new antitrust regulations could undermine U.S. national security by threatening U.S. leadership in areas such as artificial intelligence. “I worry that if you regulate for the sake of regulating it, it has a lot of unintended consequences,” he said.

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