Why Trump's DOJ doesn't want to break up Facebook
Facebook (FB) should be anxious about a lot of potential government regulations this year, but the Trump administration’s Department of Justice doesn’t seem to be one of them.
Speaking at a conference in Washington on Tuesday, assistant attorney general Makan Delrahim, who heads the DOJ’s antitrust division, essentially ruled out the remedy many Facebook skeptics endorse—a forced breakup of the firm that would undo its acquisitions of Instagram and WhatsApp.
"It's really easy to say that Facebook and Instagram should have never been allowed to merge,” he said during State of the Net, an event hosted at the Newseum by the non-profit Internet Education Foundation. But, he added, he sees no point in relitigating those decisions: “We can’t go back.”
Delrahim also offered an overview of his perspective on antitrust enforcement in general that suggests the DoJ could bring a tolerant interpretation to other tech mergers, such as the pending tie-up of Sprint (S) and T-Mobile (TMUS). The one catch: Merger-minded companies had better be able to show that their deals won’t close doors to competition.
No undoing this
Speaking on a panel with Variety editor Ted Johnson, Delrahim anchored his argument against recanting the antitrust approval of these acquisitions on this philosophical point: You can’t revoke the decisions of 2012 based on the facts of 2019.
"Would Instagram be what it is today had it not merged with Facebook?" he asked of the photo-sharing firm that Facebook bought for $1 billion in 2012.
Delrahim then applied the same logic to another tech giant that’s been the subject of some calls for a forced breakup, Google (GOOG, GOOGL): "Would YouTube be what it is today without the investment, the search engine, the technical capability that was provided to YouTube when Google bought them?"
He did, however, allow for a faint possibility of action against Facebook’s apparent plan to integrate the messaging services of Facebook, Messenger and WhatsApp, first reported by the New York Times.
"We'll watch it with interest,” he said. “But I'm just not familiar enough with the specifics of what that integration means."
The Federal Trade Commission will have its own say on Facebook: The cavalier oversight that allowed Cambridge Analytica to use the data of tens of millions of Facebook users through a personality-quiz app seems to be a clear violation of the settlement the social network signed with the FTC in 2011, in which it pledged to get users’ explicit consent for any wider exposure of their data.
Privacy advocates such as Freedom From Facebook have urged the FTC to use its authority under that settlement to compel a breakup. (I’ve come around to that argument myself.) But the Washington Post reported that the FTC is instead looking into imposing a record-breaking fine, which, in the context of the prior record being a $22.5 million fine of Google, may not amount to much.
The strongest enforcement against Facebook may come from the European Union. German justice minister Katarina Barley told Politico that a merger of Facebook messaging properties would break that country’s antitrust laws.
Preserving current competitors versus potential competition
Throughout his discussion of Facebook, Delrahim rejected the idea that the size of a company alone should represent a problem requiring a solution from antitrust enforcers. “It can't be for the purposes of, oh, this person is too big,” he said.
But he also said that a company getting bigger by buying a competitor also doesn’t have to represent an antitrust problem.
"As a general matter, you want as many competitors in a marketplace as possible,” he said. “However, as I've said publicly before, there's not a magic number in any market."
He added that he could see approving a deal in which the dominant firm in a market bought its primary rival.
"It could very well be if there's enough competition and the barriers to entry are very low, two to one can be enough,” he said.
Sprint and T-Mobile could take comfort from that line if they think they can successfully point to the competitive role played by such “virtual network operators” as Comcast’s (CMCSA) Xfinity Mobile, which resells the network of Verizon (VZ), Yahoo Finance’s corporate parent.
Or the Justice Department could decide that since nobody seems anxious to build a 5G network from scratch, this market now looks closed to new entrants.
Opponents of the merger would be well advised to focus not on this deal’s effects on the public at large—Delrahim mocked “not in the public interest” as a standard subject to endless redefinition by “whoever’s sitting in my chair or three people at the FTC”—and instead focus on its effect on the specific metric of prices.
That remains the biggest unknown of that deal, far more so than the possible upside of combining Sprint and T-Mobile’s networks. Or as Delrahim put it, speaking of post-merger markets in general: “Is there a market force that constrains their ability to increase prices?”
Answer that, and you may have a good sense of how this Department of Justice will decide this attempted telecom merger.
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Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraro.