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Breaking up Facebook won’t fix its biggest problems

Daniel Howley
Technology Editor

You can now add presidential hopeful Sen. Kamala Harris (D.-California) to the list of lawmakers who think regulators should look into breaking up Facebook. In an interview with Jake Tapper on CNN’s “State of the Union” on Saturday, Harris said that Facebook (FB) is essentially a utility and that politicians have to take a look at taking apart the company.

But calls to break up Facebook are missing the point about the controversy surrounding the company. Much of the social media giant’s issues stem from its poor security and privacy policies, and antitrust enforcement won’t fix those problems.

Scrutiny surrounding Facebook and its privacy and data security issues kicked off in earnest in March 2017 when The New York Times revealed that Cambridge Analytica, a political consultancy firm, had improperly used Facebook user data in an effort to aid in the election of Donald Trump.

Since then there have been reports of bugs that revealed users profiles, as well as the revelation that the company had stored hundreds of millions of users’ passwords in plain text on its own services, a violation of security best practices.

The case for breaking up Facebook

Harris’s comments follow an op-ed by Facebook co-founder Chris Hughes in The New York Times titled “It’s time to break up Facebook.“ In the piece, Hughes laid out his case for how Facebook is participating in behavior that violates the spirit of U.S. antitrust laws.

He points to instances of Facebook’s ability to crush competitors by more or less copying their products, such as how it aped Snapchat’s (SNAP) ephemeral posts with its Instagram stories. Then there’s the fact that the company also operates its Messages app and WhatsApp, which has more than a billion users.

According to Hughes, antitrust laws should be used to roll back Facebook’s acquisitions of Instagram and WhatsApp and turn the trio into three separate publicly traded companies.

The Facebook co-founder joins a chorus of lawmakers and Democratic presidential contenders calling to break up Facebook, which includes Sen. Cory Booker of New Jersey and Sen. Elizabeth Warren of Massachusetts in addition to Harris.

But just because Facebook is large, doesn’t mean it should be broken up.

“I think that if the problems we see are problems of privacy, then laws directed at that seem to be the best approach,” explained Penn State Law professor John Lopatka, an expert on antitrust issues who co-authored the book “The Microsoft Case: Antitrust, High Technology, and Consumer Welfare.”

According to Lopatka, breaking up Facebook doesn’t deal with its privacy problems — it just makes three smaller companies with the same problems.

Facebook, not surprisingly, agrees that breaking it up won’t fix its problems. Facebook’s VP of global affairs and communication, Nick Clegg, pushed back against Hughes’s calls for breaking up the tech giant in his own op-ed in The New York Times on Saturday, which contended, “Dismantling our company won’t fix what’s wrong with social media.”

Privacy policy would be more effective

The case for breaking up Facebook falls flat when you look at what antitrust experts consider when judging whether a company is a monopoly.

“When commentators, or politicians, or observers talk about breaking up firms, they do so because they are asserting that, first of all, that firm has a monopoly ... and having a monopoly or being a dominant firm does not violate the antitrust laws,” Lopatka said. “What violates the antitrust laws is acquiring that monopoly through anticompetitive means, which usually means exclusionary conduct.”

Facebook is certainly a shrewd competitor in the social media market. It has gone out of its way to replicate offerings from competitors like Snapchat, and purchased Instagram and WhatsApp to bolster its position in the market.

As much ill will as Facebook has generated as a result of its security and privacy failures, the company hasn’t faced any sanctions for anticompetitive practices. It is expected to be hit with a multibillion-dollar fine by the FTC in connection with the Cambridge Analytica scandal, but that has nothing to do with antitrust issues.

If size were reason enough to break up a company, then Google’s parent company Alphabet (GOOGGOOGL) would also have to be broken up into smaller pieces. After all, Google owns 90% of global search engine market share, captured a majority of digital ad spend in 2018 at 38.2%, runs the most used smartphone operating system in the world in Android, and operates one of the most viewed video sites on the internet in YouTube.

It’s worth noting that Warren has called for Alphabet, as well as Amazon (AMZN), to be broken up.

The real issue is that there are no regulations in place to hold Facebook responsible for its poor privacy and security performance. For that to happen, U.S. legislators will need to band together to pass some kind of consumer data protection law.

Regulators could look to Europe’s General Data Protection Regulation as an example, as other countries have, including Brazil and India, or craft its own specialized legislation. Various U.S. lawmakers have introduced disparate pieces of privacy legislation in Congress, and California has already passed its own data protection regulations.

But conflating Facebook’s failure to protect user data with anticompetitive corporate behavior won’t get to the heart of the problem.

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Email Daniel Howley at dhowley@oath.com; follow him on Twitter at@DanielHowley. Follow Yahoo Finance on Facebook, Twitter, Instagram, andLinkedIn.finance.yahoo.com/