If we regulate large tech-platform companies like monopolies they will be around a lot longer than without the help of regulation

By Roslyn Layton.

"It’s hard to see past the dominance of the large tech-platform companies today—but if we regulate them like monopolies, they will be around a lot longer than without the help of regulation.
The tech giants came to prominence with better products and services that unseated their heavily-regulated rivals, those in state-owned television, pay television, radio and print. Yet once the web firms gained critical mass, they blocked potential competitors through classic telecom rules like “network neutrality” obligations and anti-discrimination policies that were applied to the telecom operators but not to them.

These rules have given the tech titans a free ride along the information highway. They force consumers to pay the full cost of their communications, rather than have it subsidised with advertising. Just as ads let Google and Facebook offer free services, it could lower the price of internet service. This innovation would give advertisers credible alternatives to the reigning platforms. That’s why the tech giants and their globally-coordinated advocates have fought vehemently against it, aborting its birth by lambasting it as “non-neutral”.

The rules were designed by the internet industry and maintained for its benefit. But such “regulatory capture” is not abnormal. Economic history is replete with eye-popping examples of sector-specific regulations that perpetuated monopolies rather than tempered their dominance.

Consider telecoms. The Bell Telephone Company and the American government agreed on a regulated national monopoly to ensure “universal service” in 1913.  Regulators were tasked with setting prices to ensure “fairness.” Naturally the regulator that wanted to protect the entity on which its existence was predicated, so Bell earned excessive profits. However, consumers suffered unnaturally high prices and could only buy their phone from approved carriers. Finally, antitrust authorities broke up the collusion. After that, competing products and services exploded. The price of long distance fell to zero with new technologies. Incumbent profits were eviscerated. Innovation and competition could have solved the problem faster and better than regulation.

Next, consider aviation. The airline industry followed a similar pattern to telecoms in America and Europe. Until deregulation in 1978, airlines in America operated under a government sanctioned oligopoly, a cartel for airmail delivery, passenger routes, and transport rates.  Partial deregulation of the airline industry in America and sunset of its outdated regulation led to a 45% decline in consumer airline ticket prices from 1978 to 2008, a doubling of passengers, a quantum leap in airline productivity, and the emergence of America’s low-cost carriers. In Europe, airline deregulation from 1993 is associated with more routes flown, 80 new airlines and lower ticket prices.

To get a sense of the consequences of misplaced regulation to hold back industry, Europeans need look no further than its moribund telecoms industry, once the world leader in network investment and mobile innovation. Successive regulation in the last two decades was proffered to promote innovation and competition through artificial stimulation, but there is no evidence of its success today. None of Europe’s six major phone makers remain, and research and development has fallen dramatically in Europe.

In fact, a single Chinese company, Huawei, files more than twice as many patents in digital communications than all of Germany, Europe strongest patent player. Overall the European Union lacks €150 billion to meet its own connectivity goals by 2025—a gap that continues to widen as investment incentives have been regulated away. The incumbent telecom operators in Europe, most still under partial state ownership, enjoy the highest market share in subscriptions, though profits have been largely erased.

The irony to all this is that policymakers in some 50 countries promised that rules guaranteeing an “open internet” to “protect innovation” would produce the next Google or Facebook.  This hasn’t happened anywhere after more than a decade of trying. Instead, the tech giants have become more powerful as their competitors have become more regulated.

Moreover, don’t expect Europe’s exalted new privacy rules, the GDPR, to promote innovation. It will simply enshrine the status quo. Only the largest players can afford its costly requirements for staff hires, compliance, and software updates. And there is no evidence that consumers will be better off.  The EU’s morass of privacy laws, regulations, directives, and disclaimers did not deter a Cambridge University professor from violating Facebook’s terms of service in selling collected data to another party.

Essentially, users don’t understand the exchange, and the EU purposely avoided the most important tool to empower them: education. If people are empowered to make decisions that are best for them, such as whether to use an app and how to use it more responsibly, they don’t need state supervision. But then, there would be no need to grow the EU’s ganglion of 62 privacy and data protection authorities and elevate its bureaucrats, which look like the real goals of the GDPR.

What could resolve the issue is fundamental innovation in privacy-enhancing technologies, designing a service that delivers a quality experience with little to no data.  Such an innovation could upend prevailing business models.

The remedy for today’s converged technology, telecom, and content sector is a single standard of competition. Innovation and competition topples monopolies faster than anything else."