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2 January 2019

Could Facebook be broken up in 2019?

 Facebook’s essential facility is unclear – is it a social network; a publisher of video, text, pictures and games; a communications service; or an advertising agency?

By Will Dunn

In July last year, a week after she fined Google €4.34bn (£3.9bn) for  breaching antitrust rules, the EU competition commissioner, Margrethe Vestager, appeared on Anger Management, a podcast run by the former deputy prime minister Nick Clegg. It was not the first time they had spoken – the European Commission’s list of meetings shows they met officially in January 2017 – but Clegg’s public chat with the regulator most feared by Big Tech may have landed him a job. Less than three months later, Facebook announced that Clegg had been appointed as its new head of global affairs and communications.

The following month, amid many fewer column inches, Facebook made two more significant hires: Johan Keetelaar, director of telecommunications at the Authority for Consumers and Markets in the Netherlands, and Kate Patchen, who led the US department of justice’s antitrust section in San Francisco – in other words, two of the most senior competition regulators in Europe and the US. Facebook has hired top lawmakers in the past, including Timothy Muris, former chairman of the US Federal Trade Commission, and Kevin Martin, former chair of the Federal Communications Commission. But this activity has increased as the tech giant is accused of obliterating the press, spreading hatred and misinformation, and operating a monopoly.

It is this last point that is most important to lawmakers. Claims that Facebook has swayed elections or even played a role in genocide are appalling, but difficult to prove. A monopoly is quantifiable. Facebook has a market share of 77 per cent of social media use in Europe, not including Instagram, which it owns. The original uses of the mobile phone, speech and messaging, have largely been captured by WhatsApp, which serves 65 billion messages and 3,800 years’ worth of calls a day, and is owned, again, by Facebook. 

When Mark Zuckerberg appeared before Congress in April 2018, the Republican senator Lindsey Graham asked him to name his main competitor, or a product that consumers could choose instead. As Zuckerberg stalled, Graham asked if Facebook was a monopoly. The best Zuckerberg could offer was that it “doesn’t feel like that to me”.

The documents seized in late November by Damian Collins, chair of the culture, media and sport select committee, detail a pattern of activity at Facebook that certainly feels anti-competitive. Competitors that used Facebook’s Onavo app – sold as a security measure – were monitored. Commercial partners were “whitelisted” for special access to user data. On 24 January 2013, Twitter – Facebook ‘s biggest competitor for social media market share – launched an app called Vine, which enabled users to post short, shareable videos. The same day, Facebook’s vice president Justin Osofsky emailed Mark Zuckerberg to warn him that Vine users could “find friends via FB [Facebook]” and to suggest they “shut down their friends API access today” – throttling the data that Vine could receive from its own users. Zuckerberg replied: “Yup, go for it.”

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Facebook is also a new kind of company – global, nebulous and constantly changing. The economist Jean Tirole points out that natural monopolies occur when a technology’s “essential facility” cannot realistically be duplicated. Railway lines, an energy grid or a telephone network all do one job for which it is very hard to create a competing alternative. Last century, it was possible to break up Standard Oil and AT&T into smaller entities without affecting the services they provided. Yet Facebook’s essential facility is less clear – is it a social network; a publisher of video, text, pictures and games; a communications service; or an advertising agency? Nor can it be separated into equally valuable components; Facebook, Messenger, Instagram, WhatsApp, Oculus and others are interdependent, and the data they share is crucial to Facebook’s dominance.

There is also the question of who gets to regulate Facebook, and how. The EU can issue heavy fines, but a company that serves 2.2 billion people around the world is a slippery thing to regulate. This is why Facebook, despite having made £1.3bn from advertising sales in the UK last year, paid just £7.4m net tax (0.62 per cent).

The political will to tame Facebook may also waver. Donald Trump has said that his administration is “certainly looking” at antitrust allegations, but his new North American Free Trade Agreement gives Facebook more power to challenge US regulators. It must also be asked why he would regulate a company credited with assisting his rise to power.

Yet this does not mean that 2019 will be a great year for Facebook, because there are still two agents who can do more than any regulator to curtail Facebook’s power. These are the agents who gave it that power in the first place: the user and the investor.

On 25 July last year, Facebook’s total stock market capitalisation was over $620bn (£490bn). This is as much as $500bn (£395bn) more than all the revenue it has earned since it became cash-flow positive in 2009. On 26 July, Facebook published quarterly results that showed slower-than-expected growth of both revenue and users. The company’s stock fell 20 per cent, wiping $120bn (£90.8bn) off its market cap; it has since fallen to its lowest level for more than 18 months. In less than an hour, Zuckerberg lost an amount of money comparable to the yearly GDP of Cambodia.

In September, Pew Research published a survey of 3,400 Facebook users which found that 44 per cent of the 18-29 age group had deleted the Facebook app from their phone in the past year. This, more than anything else, should be Facebook’s wake-up call; nearly every trend in internet use has been led by the young. These users are the product Facebook sells to its clients, and they appear to be leaving in droves.

This could be because of Facebook’s many scandals. But  monopolies are also dull. And on the internet, sold to the young as a cure for boredom, no regulator is as powerful as the simple decision to switch off.

Read all the pieces in our “2019 – the big questions” series: 

John Bew: Will Trump go to war?

Felix Martin: Will there be another crash?

George Eaton: Will Brexit actually happen?

Anna Leszkiewicz: Are TV channels irrelevant?

Paul Mason: Will the far right triumph in Europe?

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