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Facebook Acquisitions Probed by FTC in Broad Antitrust Inquiry

Ben Brody and Daniel Stoller

(Bloomberg) -- The U.S. Federal Trade Commission is scrutinizing acquisitions by Facebook Inc. as part of an early stage antitrust investigation of the social media platform, according to people familiar with the matter.

The agency’s look at whether the company acquired upstarts to thwart competition is part of the broad probe into into several business lines -- social media, digital advertising and mobile applications -- that Facebook disclosed in July.

The commission has contacted third parties that could aid in the investigation as it tries to understand competitive dynamics, Bloomberg reported. The people asked not to be named because the inquiry is confidential.

Facebook and the FTC declined to comment. The agency’s scrutiny of Facebook’s acquisitions was reported earlier by the Wall Street Journal.

The Trump administration is escalating antitrust scrutiny of technology giants. Last month, the Justice Department’s antitrust division announced a broad review into whether the companies are using their power to thwart competition. In February, the FTC set up a task force to investigate potentially anticompetitive conduct in the industry and look at past mergers to determine if they should be unwound.

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Facebook’s critics, including co-founder Chris Hughes, have called for antitrust enforcers to break up the company, arguing it shouldn’t have been allowed to buy Instagram and the WhatsApp messaging service. Both deals were approved by the agency when they were announced, and persuading a court to undo them would be a steep challenge, according to antitrust experts.

If the FTC decided to bring a lawsuit to unwind the deals -- despite having approved them -- it would need to show that Facebook eliminated competitors by buying the apps. Facebook would counter that the companies only flourished because of the resources they gained from being part of the social-media company.

When Facebook acquired Instagram in 2012, the photo-sharing app had just 30 million users. At the time, Facebook had lost almost half its value since its initial public offering earlier that year amid investor concerns about whether it could make money from the mobile version of its service. Now Facebook has 2.4 billion monthly active users, and Instagram has more than 1 billion.

Facebook has made dozens of acquisitions over the years, though only a handful are well known. In 2014, it bought WhatsApp for $19 billion before picking up Oculus, a maker of virtual reality headsets, for $2 billion just a month later. Virtual reality hasn’t captured a mainstream audience the way Facebook hopes it will, but WhatsApp has taken off. While it still doesn’t generate big profits for Facebook, it’s amassed more than 1.5 billion users around the world.

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“There are a lot of other transactions that Facebook has engaged in that the FTC could say, ‘Well look, allowing these transactions was a mistake,’” said Harold Feld, senior vice president of the media policy group Public Knowledge.

Although the company may not worry because a breakup is less likely than other moves such as privacy legislation, it’s arguably the most scary option for Facebook in Washington, Feld said. Even an investigation could prove damaging, he added.

“How long is this going to go on?” Feld said. “How expensive is it going to be and how much is this going to cramp your style?”

Facebook has argued repeatedly that breaking up the company won’t fix the tech industry’s biggest problems -- those around election integrity and user privacy. Facebook has instead pushed for more government regulation, asking lawmakers to put guardrails in place to help dictate rules for the internet so tech companies don’t have to. Facebook’s top executives have also claimed, repeatedly, that breaking up the company might pave the way for companies from other countries, like China, to fill the void.

The FTC and the antitrust division have divvied up the biggest tech firms with Facebook and Amazon.com Inc. going to the FTC, and the Justice Department getting Apple Inc. and Alphabet Inc.’s Google.

(Updates with analysis of antitrust issues from seventh paragraph.)

--With assistance from Kurt Wagner.

To contact the reporters on this story: Ben Brody in Washington, D.C. at btenerellabr@bloomberg.net;Daniel Stoller in Arlington at dstoller1@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Andrew Pollack

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