Europe too fearful to break up internet giants

If the EU orders the unbundling of firms at the core of US economic dominance, many in Washington will see that almost as an act of war

Despite sabre-rattling, the EU is unlikely to risk US wrath by dismantling Facebook, Google and such. AP

US politicians, who, like Massachusetts Senator Elizabeth Warren, want to break up the big technology companies are treading onto a path that has long drawn their European colleagues.

Europe has better opportunities and more compelling reasons to dismember Amazon, Facebook and Google. Yet it hasn’t done so, despite years of discussion.

There are at least three reasons the EU is better positioned to break up the internet giants. One is that they’re even more dominant in Europe than in the US. Only Amazon, according to some incomplete data, isn’t dominant in Europe; Google and Facebook are beyond any competition in their narrowly defined markets of search and social networking.

Another reason is recent regulatory practice. The US hasn’t broken up a company since AT&T in 1982. The example of Microsoft - which was kept intact by regulators but lost a number of competitive battles, including in browsers and mobile operating systems - has contributed to a laissez-faire attitude. As Frank Pasquale, a University of Maryland law professor, put it, US regulators have “taken a curious turn toward trying to help Google and other massive digital platforms to consolidate market power, rather than policing them”.

The EU hasn’t broken up any monopolies yet, but it has made some strong anti-trust rulings against the internet giants. At least one of them was followed by rather defiant behaviour by Google: the remedy it implemented after being fined for using its search dominance against competing shopping comparison engines has done nothing to fix the situation. According to EU competition rules, breaking up a company is possible “where there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the undertaking”. That’s an adequate description of Google’s intrinsic power in comparison shopping.

In Facebook’s case, too, if EU authorities link its compulsive data-gathering to its monopoly power, as the German anti-trust regulator recently did, no remedy but dismemberment will make much sense. The European Commission is also investigating Amazon for the same alleged sin that Ms Warren, a contender for the Democratic presidential nomination, wants to address: serving both as a platform and as a seller on it. Again, it’s hard to come up with a remedy other than making Amazon choose between the two roles and offloading assets related to the other.

The third reason Europe is better positioned than the US to disband the tech monopolies is that they have less lobbying power in Brussels than in Washington. Google is the only one of these companies represented in the top 25 of the European Union’s lobbying spenders with a budget of up to $6.25 million. In the US, Google parent Alphabet, Amazon and Facebook are all in the top 20 with combined spending of almost $48 million. Even if she was elected president. Ms Warren would be hard put to push through the new legislation she wants, which would break the companies into strictly regulated “utility platforms” and all other operations, or to force the toughest possible application of existing competition law to them.

European politicians are aware of the EU’s potential in fighting the US tech invasion. Back in 2014, the European Parliament adopted a nonbinding resolution calling on the European Commission to “consider proposals with the aim of unbundling search engines from other commercial services.” And it voted again last year to approve a report calling for the break-up of Google. Although the parliament has no power to order such action, its persistence shows that resentment against the US companies’ dominance of the internet has been simmering for years.

Last year, when Facebook chief executive Mark Zuckerberg faced the European Parliament, a German member, Manfred Weber, said it was “time to discuss breaking up Facebook’s monopoly, because it’s already too much power in only one hand”. He asked Mr Zuckerberg to convince him otherwise, and he clearly wasn’t satisfied with Mr Zuckerberg’s assurances that Facebook had plenty of competitors. Mr Weber isn’t just some MEP: he’s the leading candidate to head up the commission later this year, enjoying the support of the biggest party in parliament and of the German government. As commission president, Mr Weber could, if he chose, move resolutely toward a break-up of the internet giants.

The current EU competition commissioner, Margrethe Vestager, however, has strong reasons for discouraging all talk of dismemberment, and last week argued that milder remedies can do the job - even though she must know how ineffective they’ve been so far. If the EU orders the unbundling of companies at the core of US economic dominance and soft power influence, many in Washington, and President Donald Trump first among them, will see that almost as an act of war. The EU will suffer the economic consequences, with punitive tariffs on European cars as just one likely response.

For the US, breaking up the dominant internet players would mean voluntarily giving up the power that Europe is fearful of trying to take away. If the home country attacks Amazon, Facebook and Google as abusive monopolies, they’ll be fair game elsewhere in the world, too. They’ll have fewer opportunities to fund innovation, Chinese companies will get an edge in international competition, the stock market will react unfavourably - the string of ugly consequences for the US is easy to predict. Would even Ms Warren as president set it off?

I find it highly unlikely, if only because Europeans back down even before a weaker threat.

Bloomberg