In the 20th century, local distribution was the epitome of monopoly power when it came to essential services. The telephone company, the power company and the water company all dominated markets by controlling the “last mile” that connected the provider to the customer.
No one was going to lay a second set of water mains up every block or run additional powerlines down the other side of the street.
Eventually, regulators settled on two strategies: forcing the monopoly providers to allow smaller local distributors access to that distribution network at fair rates or nationalizing them.
Unfortunately, that won’t work with the five Big Tech companies that dominate the digital age, Martin Cave, a professor of economics at the London School of Economics, told David Evans, chairman of Global Economics Group and co-executive director, Jevons Institute for Competition Law and Economics and visiting professor, University College London in a recent PYMNTS interview.
Google, Amazon, Meta (Facebook), Apple and Microsoft are “hugely different,” he said.
“What’s really calling the shots in digital platforms is network externalities,” he said. “Once you get to be a very big firm — because you are a big firm and lots of people can be contacted directly — it’s quite easy for you to grow. And it’s very hard for other people to come in.”
That said, there is one old-school monopoly which still has some relevant lessons for current regulators, Cave said. That’s AT&T, which in 1913 was required to interconnect its long-distance service with all local phone companies. (Of course, that didn’t work out too well — all the local monopolies then had to be regulated in turn, he points out.)
“I think that notion of interconnection or interoperability is going to be quite a powerful one in dealing with digital platforms as well,” said Cave.
But, he added, “it’s a different source. And so naturally you may want to look for different means of ameliorating any problems that are created.”
That notion is already gaining some traction, as the European Union’s forthcoming Digital Markets Act will mandate, among other things, that messaging and social media platforms will have to be interoperable — so Facebook’s Messenger and Apple’s Messages will have to be able to speak to each other — making chat less of a closed system.
See also: 6 Ways the EU’s Digital Markets Act Will Change Big Tech
That said, Cave notes that if the leading social media company has got half the world as its subscribers (Facebook has 2.8 billion users) and the top search firm has 90% of the search market (Google has 92%), it’s going to be very hard for even the big five to compete against each other in their core businesses even though they might compete in others. The 10-year lackluster run and eventually shuttering of Google+ is one example of failed Big Tech migration.
For instance, Amazon Web Services is tops in cloud service, with Google Cloud Platform and Microsoft Azure as its main competitors, although Oracle, IBM, Alibaba and Tencent are all in the mix, too.
“I guess it’s very good news, in a way, if well-funded companies are in a position to battle it out with one another in new areas,” he added.
Who’s in Charge?
One big complication Cave foresees in the growing global push to regulate the tech giants is the simple fact that they are so global in nature, and that they are managed, and manage their profits, on a global scale.
“The companies are global, and they’re run globally, and they profit-maximize globally — yet the competition authorities are national,” Cave said. “Obviously some are more important than others — the U.S. and the EU are extremely important, but everybody’s got a stake.”
One solution is to follow the playbook of regulators overseeing mergers of global corporations, he said.
“Cooperation has evolved,” he said. Because the national regulators operate under different statutes, that cooperation has to be informal, he added. And yet, he said, “my impression is that that system has worked out reasonably well,” noting that having a compatible regulatory framework in large jurisdictions like the U.S. and EU would go a long way towards that goal.
However, that can cut both ways, Cave said, “If a large block made a crippling and ill-considered regulatory intervention, [it would] de facto apply to the whole world. I know some people think that the European regulation on privacy, the GDPR, has some of those characteristics.”
While he’s not convinced the GDPR is that bad, Cave said the problem is “something which the people involved in this process ought to consider very carefully.”
One of the merits of the GDPR, Cave added, is that regulators “have to show that the company concerned is a gatekeeper, producing core platform services where those are defined in a particular way.”
That has the benefit of not terrifying everyone else that operates on a smaller scale.
One last point Cave made is that the digital revolution also means regulatory agencies have to change the way they are organized.
“You need to be headed by commercially savvy people, because you’re dealing with an organization which does have very considerable commercial skills,” he said. “And you need to have a strong technical basis in order to do it, and you need to be willing to experiment and take chances, and to learn from all the variety of different experiences which other countries are having,” adding that all regulatory bodies and competition authorities aren’t doing those things.
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