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Facebook (FB) to Reportedly Increase Data Encryption

Zacks Equity Research

As per a Guardian report, social media service Facebook Inc FB is mulling ways to increase the security of users’ data amid the ongoing high profile showdown between Apple Inc. AAPL and U.S government over data encryption.

Not just Apple, other tech behemoths like Alphabet GOOGL and Snapchat are also beefing up security following the showdown, which Guardian observes as a move that could “antagonize” the U.S government “as much as Apple’s secure iPhone".

Reportedly, Facebook’s Internet messaging service WhatsApp started planning to encrypt voice calls and group chats much before the Apple-FBI feud began. The social media giant is also planning to extend the encryption to its Messenger Chat Tool. Facebook has not yet made any official comments on the matter.

We note that Facebook was recently embroiled in a legal tussle with Brazilian law enforcement authorities over WhatsApp. Earlier in the month, Brazil Federal police arrested the company’s regional vice president, Diego Dzodan, as the social service allegedly failed to hand over data pertaining to a WhatsApp user involved in drug trafficking after repeated court orders. He was released the next day after a higher court overturned the sentence.

Noting that WhatsApp functions as a completely independent unit, Facebook considered the arrest as “extreme and disproportionate measure”. WhatsApp stated that it cannot furnish the information as it does not store any data pertaining to users.

Of late, analysts observe that there have been serious differences among government and technology companies pertaining to data collection and ensuring safety of the same. While Internet companies are trying to protect users’ privacy, national security concerns sometimes require law enforcement agencies to gain access to the data.

Since Dec 2015, Apple has been contesting a court ruling (in California) that had ordered it to assist the FBI in unlocking an iPhone used by one of the attackers in the San Bernardino shooting that claimed 14 lives.

The FBI had wanted Apple’s assistance, “just once”, in creating a backdoor to unlock the iPhone of the alleged criminal as Apple devices erase all data after 10 incorrect password attempts. Since neither Apple nor FBI has the passcode to the device, the investigative agency required the iPhone maker to make another operating system that would have the backdoor to bypass the encryption and security.

Apple has been maintaining that it would jeopardize the security of other devices if it fulfils FBI’s requirement. What started as a simple investigation has now erupted into a full blown public war between the government and the tech giant.

Facebook chief Mark Zuckerberg supported Apple CEO Tim Cook along with a host of industry behemoths including Alphabet, Twitter, Amazon AMZN and Microsoft.

Facebook with a user base of about 3.8 billion (1.66 billion Facebook users, a billion WhatsApp users, 800 million for Messenger and 400 million Instagram users) boasts huge cache of data. In addition, frequently changing data policies subject Facebook to constant scrutiny from privacy groups and federal agencies. This huge database is its main asset for attracting advertisers, its primary source of revenues.

As a result, the company has been criticized for allegedly selling this personal data to advertisers in order to boost its top line. Although the company has denied any wrongdoing, we believe that increasing scrutiny by regulators on its data handling practices remains a major concern, going forward.

Not just U.S regulators, of late, European Union has been stricter than usual with big American tech companies, especially those that have market leading positions like Facebook, Alphabet, Amazon and Microsoft, over antitrust concerns. Currently, the company is facing a probe in Germany related to antitrust issues.

At present, Facebook carries a Zacks Rank #2 (Buy).

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