Understanding what regulation the tech industry needs

ABERMAN: Regulation of technology seems to be everywhere, but what strikes me most of all is, in this town, where everything’s so darn segmented, it looks like this is a bipartisan movement. What’s your reaction? What is it about tech that’s making this happen?

BOND: Well, there’s a couple of things, I’ll jump in first. The size of these companies, the economic value of these companies, has drawn attention. That’s one. In fact, Bill Barr said, in his hearings to be attorney general, that he wants to look at antitrust for these big tech companies. I think it’s five of the top six highest valued companies right now in the country are tech companies. So, that’s one. But it’s also these well publicized breaches, and data getting out, personally identifiable information getting out, that has people by the millions alarmed, and when people by the millions are alarmed, politicians tune in.

ROGERS: I sense that part of the reason it is bipartisan is because the Republicans want regulation, but they don’t want it to constrict innovation. And so, being in an anti -regulatory climate, they want to make sure whatever is passed has got some controls on it, so that there can be the growth in innovation in high tech. Of course Democrats, have always had the consumers’ privacy interests at heart. So, working together, we hope they can achieve somewhere in the middle.

BOND: That’s a powerful point, because it is bipartisan, but they are for very different reasons. So don’t assume that the view is all the same. The end goal seems to be the same. But what Josh Hawley talks about, Senator Hawley talks about, on the Decency Act, is a long ways from breaking up the tech companies like Elizabeth Warren is saying.

ABERMAN: And that’s really what I’m curious about. Richard, you’ve been commenting on the developments in the media, and privacy, in various ways through your columns in Forbes and elsewhere. You say the Democrats and Republicans look at this differently. What are the big differences?

Subscribe to the What’s Working in Washington podcast on iTunes.

LEVICK: Well you know, I think Phil’s raised an excellent point here, and clearly we’re gonna have a love fest on the radio, we’re really agreeing with each other. But you know, there are different things that drive different people. I find the esoteric issues fascinating, and I think where we’re at right now is that privacy is becoming a luxury good. And that’s the real challenge. Facebook used to be on Mount Rushmore two years ago, along with the others, you know, Facebook and Apple and Amazon, and increasingly they’ve gone from that stature to targets.

And I think they make very attractive targets. The question for regulators is: how successful are we really going to be? To some degree, it’s certainly unlike railroads, maybe a little bit unlike telephone, and certainly unlike the printing press. That is, there’s a network effect in every category. Social media, Facebook. Name who else survives there. We vaguely remember MySpace, Twitter. Who can you still name who’s a competitor?

Amazon? Maybe Wal-Mart. But they really have no competitors. And so the question is, even if Elizabeth Warren says break them up, I can’t envision that in a marketplace. And the only exception here: Uber and Lyft, and we’re still waiting to see what the real cost is of that kind of shared transportation. Will anything more than a single player survive, and even if it’s a duopoly, is that really breaking them up?

ABERMAN: Well here’s what I’m getting at, because there are two different significant issues here. One is the whole issue of privacy, and can we be forgotten? Is privacy, in fact, going to become a luxury item? But then the second issue is economic concentration. Speaking as somebody who gets involved in helping start companies, one of the biggest challenges I have as an investor is, figuring out how an emerging company could compete with these large, well-capitalized companies. So, these two things have gotten conflated, it seems to me. Is that what’s going on? It just happens that Democrats are more concerned about economic power and concentration, Republicans are concerned about how that power is being used to promote certain ideas? Let’s unpack it a bit.

ROGERS: Well I think one of the places you boil down to in 2019 is that it’s really no longer an argument about privacy. Privacy is antithetical to a social platform, and social is antithetical to privacy. So a lot of the advocates for not having too much regulation are following along economic injury to the consumer. So, antitrust violations by monopolizing all this data, and what is the value of the data to me, and you, a consumer, and how can we give me and you more control over our data, such that it isn’t increasing ads in certain very large Internet service provider advertising platforms? In other words, could there be a marketplace where we put the value on our own data, so that the Internet service providers and ad platforms are not monopolizing it, and profiting by our loss of that data?

ABERMAN: Right. Because certainly what’s happening now, in effect, is none of these services are free, in fact, we’re paying for them with our attention. Phil, when you were at Commerce, I’m assuming that you spent a lot of time thinking about this from a policy perspective. What makes it so hard to get after regulating technology, vis-a-vis, say, the airlines or media companies? Why is tech getting so much attention right now?

BOND: Well, I think because they have been, in my view, rightly perceived, for the last decade or more, as the primary driver of growth and innovation in the economy, in America, as a high priced labor market and so forth. We don’t survive without ongoing innovation. We don’t continue to grow. So, because of that, they’ve kind of been the golden child of American politics for a good while now. Obviously, that is no longer the case. They’ve given politicians in the body politic and consumers all multiple reasons to really be concerned about what’s going on there. So, the bloom is off that rose.

But that’s why for a long time, and that’ll still be the argument, because you know, if you look at the GDP in Europe, I think they are harming European innovation, even as they’re pursuing some things that are in the short term politically popular. So, I think we’re going to have to find that kind of balance, where, and Elizabeth alluded to it already, where through the technology, you give more power and control to the consumer, so that they feel like no information is going to get out there that I don’t want to share. And millennials, by the way, seem to want to share everything.

That’s another story, but then others will be more restrictive I think. I think that goes a long ways toward it, but tech is the tip of the spear, and every company that now uses those platforms for marketing also has a vested interest in this, because it is a powerful efficient marketing platform.

ABERMAN: So, it sounds to me that that regulation really is something that is going to happen. I want to turn our conversation to: what are the current limitations on some of these regulations, and where do we see things going?

BREAK

Richard I know you were about to come in on that. Where are we right now, from a regulatory standpoint? Here in United States, with respect to things like privacy and antitrust. I know there’s a lot of churn around it, but where are we right now?

LEVICK: A point that Elizabeth was raising before the break, in terms of how this splits politically, and that Phil was talking about the impact of regulation on innovation, and that is since GDPR, that is, the European requirement of disclosure, that what we’ve seen is a decline in the number of investments, the size of investments. And it’s actually hurting innovation, it’s hurting small companies. And that’s going to be a real challenge from a Democratic point of view. Oh, regulation, but then if it means less innovation, not the message they want to send.

Two is, what a life raft to Mark Zuckerberg and Facebook, hence his recent op-ed in The Washington Post, and others around the world, in which of his four pillars, one of them is, oh, let’s regulate. And what he really means is, we can afford it. We know that smaller companies can’t. And this just helps us more dominate the market. And I think just like everything else in today’s political environment, the political spectrum that we all grew up with, the left and the right, doesn’t really fit anymore. It’s going to be a real challenge as we look at Tech.

ABERMAN: I have libertarian friends who were really concerned about privacy, and I have progressive friends that are really concerned about privacy, for plainly different ideological reasons. But there is a convergence. Okay, let’s separate privacy. And Elizabeth, I’ve got some expertise on that, we’ll come back to that in a moment, or maybe right away. But the second one is antitrust. You know, the concept of breaking up companies, you know, there’s an argument that could be made, and I could make as a venture investor, that I hate it when there’s a large well capitalized company with enormous resources in an industry I want to get into. Having said that, I talk with the antitrust lawyers that I know who’d say, Jonathan, the horse has left the barn. It’s too late. Antitrust doesn’t apply. Let’s start, Phil, with the antitrust. What’s the current state of play on it? Is that right?

BOND: Well the current state of play, I would say there are 3 big indicators out there. One, we talked about a presidential candidate who’s already calling for a breakup, but we heard the attorney general say he wants to look at that when he gets in. He’s got a background in antitrust, so that’s significant I think. And then, I think you see also a lot of angst among other members of Congress on some of the relevant committees about Amazon’s ability to buy up other areas, go into whole new markets. Or in Google’s case, able to buy up every promising company that comes along in their space. So, it heightens the barrier. The fourth indicator would be that there are serious people, I’ve been invited to some of these discussions, serious people in town looking at and thinking about, how could you do it under the law? And they of course harken back to the Microsoft case, back 20 years ago now.

ABERMAN: You could almost hearken back, if you wanted to, you could harken back to AT&T. The breakup of AT&T created the modern telecom industry. Elizabeth, if antitrust is going through this this period of transition, perhaps, where people are looking at what’s old is new again, an analogizing the the tech companies to the oil companies, we’re going back to Teddy Roosevelt in some ways. Where are we with privacy?

ROGERS: I think they are intertwined at this point. And I would like to hopefully see that framework developed, because I think that with the tech giants being the pioneers of the information age, much like the automobile makers were the pioneers of the manufacturing age, and brought forth a lot of regulations in that era. What may have worked in the 20th century will not accomplish the objective for privacy under pure antitrust laws and rules. And the reason why is that so much of the controversial scandals and gaffes that have been committed by these high tech companies have to do with inappropriate data sharing practices, lack of transparency, not telling people. Now, that may be because they’re too big, but it has to be both. There has to be a focus on the principles of privacy that are classic to the GDPR and others, without killing the little companies that are not committing these sins.

ABERMAN: The GDPR has come up a few times. What is the GDPR?

ROGERS: So, the General Data Privacy Regulations became effective in May of last year in Europe, and for any United States company doing business there, and that passes the test, they also have to follow the same rules that the the companies there do. What’s scarier, in the United States, is that there have been states that have passed laws, such as California, Washington. New York is looking at that. And I was speaking at a Duke technology law conference just two months ago, and a man asked me from the audience, who is a startup, so I just need to avoid California, is that my answer? So, I think levelling the playing field somehow is going to have to be the right answer.

BOND: Yeah, and that is easier said than done. We’ve seen this movie before. Something new comes along, the states are experiments, they try to react usually much faster than the federal government can, and then we have to come in and preempt state laws to get to some kind of level playing field. That will be hard to do in this political environment.

ABERMAN: Indeed. The European Community has been very activist on the antitrust side, against the technology giants.

BOND: Right. And I think there’s already evidence, by the way, that that is not working very well. One of the stated reasons for GDPR was that, because we were going to live up to this European level of privacy, there would be more trust in the European community, therefore more online engagement, because there was greater trust. In fact, surveys have shown that does nothing to increase consumer trust in the EU. Nothing to increase their online, and in fact, U.S. companies and websites very often are just pulling out of the EU and saying, I don’t want the hassle. So you may go to your favorite news website here in the U.S., and then you’re in London and you can’t get it.

ABERMAN: Richard, over the years you and I have talked about privacy more than once, and I think you may have suggested it earlier. Privacy is becoming a luxury good.

LEVICK: It has become a luxury good, the wealthy can opt out. You know in China right now, we have a citizenship test, and the wealthy have a way of weighing, putting the thumb on the scale, if you will. But increasingly, it’s how viable are you as a citizen. I get very very confused over what privacy is anymore. You know, I purchased the Google Nest, and it turns out we’ve got a two-way microphone in the very security system I set up to protect my privacy.

There is debate over the fact that we know Alexa is listening in, because suddenly within 24 hours, you get all those ads for the Indian cookbooks after you bought, or it laughs at you. But I hear that all the time, so that’s not new. But increasingly, the technology exists that, can Alexa hear what you’re thinking, just thinking, and not saying? And so, when it comes to privacy, those challenges are just around the corner. I also think as Americans, we’re a little bit spoiled. Yes, we have had an election that, in 2016, was infected by the Russians, as did the Indians, the Germans, and the Filipinos.

But I think it goes even deeper than that, and that is life and safety are increasingly at risk. And if you look at Myanmar, Facebook relied on having only two translators of Burmese, and you have the death of tens of thousands of Rohingyas, where they use Facebook as their primary platform. So we have the luxury here of talking about privacy, but I think increasingly these issues are going to become about presidential elections, local elections, life and death, and that’s when it’s going to become incredibly challenging. And I don’t know what that means for the body politic.

BREAK

BOND: Richard spoke about how these platforms these companies have become so big and ingrained into our lives, in ways that we could never really imagined before. And I think where the regulatory path could lead, and Mark Zuckerberg and others need to be cautious when they say please regulate us, they are so vast and so intertwined with our lives that maybe they should be regarded as public utilities, that are privately owned companies, but essentially are a utility for the public. And that means much heavier regulation.

ABERMAN: That’s magic language which means that I’m operating a business where my ability to capture profits, and my margins, are actually second guessed and constrained by the public interest.

BOND: Yes, as if investors weren’t alarmed enough about all the headlines, and Zuckerberg having to testify, and calls for breakup and everything else. The embrace of regulation, while I think smart and necessary, is also fraught with long term potential disaster.

ROGERS: I agree. And one of the reasons I agree is because, many may have heard already the FTC is seeking greater authority to regulate privacy in this space, and they’re asking for jurisdiction over common carriers. And so, this will be a potential watershed moment in the grandparent of privacy regulation. And I would just add that, while all of this is going on, while startups small and large are waiting to see what happens, those companies that are the most responsible with consumer privacy are going to be the most successful. And so, we see the ones that had been so irresponsible facing these regulations.

BOND: And I think there aren’t really good options, when you think down that path a little bit. FTC regulation is, necessarily, being federal, going to be slower and a bit more ponderous. Leaving it to the states means that infamous patchwork quilt of regulations that everybody always talks about. So, that’s problematic. I think you will probably, in between those debates, hear more from industry saying, wait a minute, we can build more technology that puts the power in the hands of the consumer, rather than otherwise. And then you can have broad guidelines, but leave it to the consumer to pick and choose among them.

ABERMAN: So this is where the ideological fight’s going to be. Because I can find people who would point to the history of American Telephone and Telegraph, and say this was a natural monopoly, it was regulated, that everybody had phones, it was subsidized. Bell Labs created all these great innovations, it worked. How do you respond to that?

LEVICK: You know, one is we’re not very good at predicting the future. But if you recall back in 1984 when Judge Green breaks up AT&T, into the Baby Bells, one of the last issues decided was this worthless concept that was in its nascent form, which was wireless. What do we do with wireless technology? Oh OK, AT&T, we’ll take it. Well, that is the future. And that is why once again, even though they broke them all up, just like almost every time we’ve done this before. Once again, you know, John D Rockefeller was really upset a century ago about this split up of Standard Oil into what was it, 34 companies?

But last time I looked, Exxon Mobil had merged, and those 34 had largely become just one or two again. I think, how do we break them up, and is that really an answer? It makes us feel good, but I think, Phil, your point about the opportunity to regulate as utilities, a number of years ago really was the watershed moment. And now that we don’t think of them as utilities, we freely give our data, which may very well be more valuable than the service we get in return, in quotes, for free, from these companies. And so, it changes the whole commercial structure.

BOND: And there’s another difference between AT&T and here. One, the AT&T case was absent any glaring headlines about wrongdoing, unlike the privacy challenges now. And also, because we’re talking about digits, you can say you’re a utility, and we’re going to regulate you as such, and we’re gonna slow you down as such, and somehow somewhere between the shots and the titles of that law, somebody will create a new platform, and they will get the eyeballs and the traffic. So, it’s like you know trying to tattoo a water balloon or something.

ABERMAN: Well, the whole point of creative destruction was that it was destruction. So, I’m not gonna let you off the hook. Let’s prognosticate for a moment. What do you think is going to happen?

BOND: I don’t think the feds can pass an omnibus privacy bill in the current political environment, which means the action is in the States and in Europe, which has, they’ve done this on a number of tech issues over the last 20 years, where the U.S. chose not to move or could not move, and they kind of fill the void. So, I think that’s where the action is for a while, and then the action will be in the courts over some of these other issues and questions.

ROGERS: I happened to have the opportunity to have met with the FTC in December of last year, and I believe what is going to happen as well, alongside the movements by the states, is there’s a brand new commission. There are four new commissioners, a brand new chair. They’re very aggressive. As of last summer, testifying for more of this authority. And I think at the end of the day, until the Congress can pass a law, there’s going to be an increased enforcement by the FTC.

They’re struggling, based on what we discussed with what the standard will be. Is that standard reasonable? How do you define that? Especially when so many fines are at stake for these companies to pay. So they are literally strangling themselves with, how do you define harm to the consumer? How do you define what will make a company liable for a violation of Section 5? So, I think that’s where it’s going to stay for a little while, along with Phil’s point.

BOND: And I said I can’t see them passing an omnibus privacy bill. I can see especially late in the session, when an omnibus privacy bill hasn’t passed, that people get together and say, well, at least we can agree on some increased enforcement regulation for the FTC, and give them some authority.

ABERMAN: What do you think, Richard?

LEVICK: I think there are two areas that are not getting as much attention right now. First of all, litigation. I think we’re going to see some extraordinary litigation where there are real damages. And as I mentioned earlier, as if privacy isn’t bad enough, where life health and safety are at issue, we’re going to be talking substantial judgments. And two, an area that is not getting a lot of attention, maritime. Ninety percent of our goods travel by maritime. The Russians have made it clear that’s where they’re attacking next. It’s not a heavily regulated area. And I think extraordinary risk.

ABERMAN: Out of all the time that I’ve been on the air with you, Richard, I never would have thought of you as a maritime expert. And that’s why I love having such great guests on my show.

BOND: He just teed up the next show he wants to be invited to.

ABERMAN: He really did! And more importantly, in today’s show. I think that you all did a really great job of of unpacking a very important issue. Anybody who’s involved in technology needs to take regulation seriously. This is not a theoretical, it’s an actual. So, Richard thank you very much for coming, the CEO of Levick. It was great to have you.

LEVICK: Thank you.

ABERMAN: And Phil Bond, the president of government affairs for Potomac International Partners, it was great to meet you and have you as well.

BOND: My pleasure.

ABERMAN: And Elizabeth Rogers, part of Michael Best, thanks for flying in and joining us in this episode. Great to have you as well.

ROGERS: Thank you so much for having me.

ABERMAN: That was a What’s Working in Washington EXTRA. We learned something new today. Tune in next time and learn something else.

Copyright © 2019 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.