Jul 30, 2020

Axios Login

Sorry. I was on mute. Anyway, I was saying, "Whew. That was one long hearing."

Today's Login, meanwhile, is 1,755 words, and should only take 7 minutes to read.

1 big thing: House throws kitchen sink at tech CEOs

Illustration: Eniola Odetunde/Axios

House lawmakers aired an enormous array of grievances with the CEOs of Facebook, Google, Amazon and Apple Wednesday, throwing everything in their arsenal at four of the most powerful men in the world for six hours, Axios' Kyle Daly reports.

Quick take: The antitrust hearing, which wandered far afield at times, didn't nail a case that these companies are harmful monopolies. But the representatives succeeded in wringing some surprising admissions from the executives about how they wield their market power, providing ammunition for regulators now conducting investigations — and possibly a spur for Congress to strengthen antitrust law for the digital era.

The big picture: Here's where the House Judiciary antitrust subcommittee pressed each company hardest.

  • Facebook: Panel Democrats said the social network's acquisitions of Instagram and WhatsApp were plainly anticompetitive — that the company made the deals to stop Instagram from becoming a competitor to its main platform and WhatsApp from becoming a competitor to its messaging service. (CEO Mark Zuckerberg said Facebook had no idea the two would become such juggernauts when it bought them.)
  • Google: Lawmakers homed in on the company's acquisition of DoubleClick in 2007 as the watershed moment when its dominance of search combined with power over the levers of online ad targeting.
  • Amazon faced tough questions about its role as both a massively successful online retailer and the proprietor of the biggest online marketplace for third-party sellers.
  • Apple took sustained heat for its power over the iPhone's App Store and the cut it takes from developers who sell digital products through their apps.
  • All the companies, subcommittee chair David Cicilline said, have become bottlenecks for distribution, using their chokehold over data to surveil potential competitors and their control over technologies to extend their power.

Yes, but: The CEOs dodged most of the bullets aimed at them. Amazon's Jeff Bezos, testifying for the first time before Congress, sustained the most damage.

  • Asked if Amazon has ever broken its rule against tapping specific third-party seller data to develop its own competing products, Bezos said he couldn't rule it out. He also acknowledged that the "aggregate data" it does allow can come from as few as two or three marketplace sellers.
  • Asked if Amazon used data from companies that use its AWS cloud unit to develop competing products, Bezos first said he wasn't aware of the company doing so and then acknowledged it may learn things about AWS clients that it uses in product development.

The catch: Lawmakers repeatedly cited instances where the companies acted ruthlessly, but antitrust laws don't bar ruthless competition unless you're a proven monopolist.

  • Each of these companies wields enormous power. But antitrust enforcers at the Justice Department and the Federal Trade Commission won't be able to use the evidence the committee assembled to build an antitrust case unless they can also define markets and prove that these companies dominate them.
  • The antitrust panel did little on that front Wednesday. They raised no objections, for instance, as Zuckerberg and Apple's Tim Cook cited examples of intense competition they face in various lines of business.
  • They spent more time drilling down on the methods Facebook, Amazon and others used to develop copycat versions of other firms' products and apps.

Between the lines: Zuckerberg was quick to note that regulators at the time didn't object to Facebook's acquisitions. That argument only underscored the deeper unspoken assumption behind the Democrats' attack:

  • Our existing system brought us to this point, they seemed to say, where a handful of private companies dictate the terms of how people talk, consume, work and play online. Time to change that system.

The other side: Panel Democrats like Reps. Pramila Jayapal, Joe Neguse and antitrust subcommittee chairman David Cicilline drove tough lines of evidence-based inquiry, and a couple of their Republican counterparts joined in. But most of the GOP representatives used their time to repeat the litany of charges of anti-conservative bias that they have been pressing in the Capitol for two years.

  • Rep. Jim Jordan (R-Ohio) said "Big Tech is out to get conservatives" and pressed the CEOs one by one to denounce "cancel culture."
  • Rep. Greg Steube (R-Fla.) spent several minutes needling Google CEO Sundar Pichai on why Gmail is filing his campaign emails to supporters' and family members' spam folders.

Our thought bubble: Republicans normally provide the "hands off business" side of the antitrust argument, but their obsession with bias and "censorship" charges left that perspective with few advocates in this debate.

2. Cicilline: There's a case to break up Facebook
Photo: House Judiciary Committee via Reuters

Cicilline, who ended Wednesday's hearing by saying some Big Tech companies need to be broken up, told Axios that Facebook in particular lacks significant competitors and should not have been allowed to buy Instagram and WhatsApp.

Why it matters: Cicilline chairs the antitrust subcommittee, which has been looking into competition issues in the digital space.

"Mr. Zuckerberg acknowledged in this hearing that his acquisition of WhatsApp and Instagram were part of a plan to both buy a competitor and also maintain his money, power, or his dominance. That's classic monopoly behavior."
— Cicilline said on the "Axios Re:Cap" podcast

Cicilline's criticisms weren't limited to Facebook, pointing to the power Google and Amazon also hold in their respective markets.

"I think what we saw today was confirmation that these large technology platforms have enduring monopoly power," he said in the interview with Axios' Dan Primack.

The big picture: A key issue remains whether existing antitrust law is broad enough to address the modern tech industry, especially companies that provide their products at no direct charge to consumers.

  • "Congress is going to have to 'think outside the box' in a comprehensive way about what antitrust laws should look like in the 21st century," Neguse told Axios’ Ashley Gold after the hearing.

What's next: The committee plans to develop a set of recommendations and issue them in a final report as soon as late August, according to Cicilline.

You can listen to the podcast here.

3. TikTok trolls its rivals as Washington pressure mounts

Photo illustration: Omar Marques/SOPA Images/LightRocket via Getty Images

Congress' antitrust hearing featuring TikTok's biggest rivals didn't stop the Chinese-owned karaoke app from grabbing some of the spotlight Wednesday, Axios' Sara Fischer and Ashley Gold report.

Driving the news: TikTok launched a major new Washington offensive, just as the Trump administration circles regulatory action that could fracture the company.

Be smart: TikTok's quick ascent to the top of the social media popularity chain has Washington spooked. The company chose to launch its biggest charm offensive while its bigger rivals took the stand to defend their dominance.

Details: In a letter to House Judiciary Committee leaders Wednesday, Michael Beckerman, TikTok's head of public policy, tried to distance the app from its owners in China.

  • "We have never provided any U.S. user data to the Chinese government, nor would we do so if asked," he wrote.

Earlier that day, TikTok's CEO Kevin Mayer took a swipe at Facebook for trying to copy its product and pretending to do so in the name of patriotism.

Yes, but: TikTok's Chinese ties have raised concerns for policymakers on both sides of the aisle.

  • On Wednesday, Treasury Secretary Steven Mnuchin confirmed that TikTok is under review by the Committee for Foreign Investment (CFIUS) for an acquisition its parent company ByteDance made in 2017 of Musical.ly, a rival app that was based in the U.S. The review was prompted by data security concerns.
  • President Trump, who had already suggested his administration was looking into a TikTok ban, reiterated Wednesday that he's considering such a move.

Sources say the review will include looking at how the company is structured and who has access to the data — ByteDance or TikTok, which technically isn't based in China.

  • Whatever conditions CFIUS imposes would have to be tied to a national security risk. One scenario, according to Stewart Baker, a CFIUS lawyer at Steptoe and former Bush administrational official: TikTok could be forced to divest Musical.ly, since TikTok didn't seek CFIUS approval.
  • "That would be a nightmare, since I'm sure it's been fully integrated, and there would be endless arguments over what should be divested and how," he told Axios.

The big picture: At the antitrust hearing, TIkTok's rivals pointed to its success as proof that they aren't boxing out competition.

  • "The fastest-growing app is TikTok," Facebook CEO Mark Zuckerberg said.

Between the lines: TikTok is proving a bigger political headache for its parent company, ByteDance, than it may have anticipated. ByteDance's U.S. investors have reportedly held talks about buying a majority stake in the app, per The Information.

  • A report out Wednesday from Reuters suggested that the app is worth $50 billion, a value 50x its expected revenue this year.
4. Qualcomm CEO: COVID-related smartphone dip is easing

Photo Illustration by Avishek Das/SOPA Images/LightRocket via Getty Images

Smartphone sales continue to be lower than a year ago, but Qualcomm's CEO says the market is rebounding better than expected from COVID-19 related shutdowns.

Why it matters: Qualcomm's outlook suggests the smartphone market may be more resilient in the wake of a pandemic-driven downturn than initially feared.

What they're saying: "It's recovering faster than what we would have forecasted," CEO Steve Mollenkopf said in an interview with Axios. "It's pretty strong."

The company also said it settled a long-running dispute with Huawei earlier this month. The settlement included a patent cross-licensing deal, and Qualcomm said it expects additional revenue of $1.8 billion from the agreement.

The big picture: Qualcomm posted earnings for the three months ended June 30 that were above expectations and said it expects phone sales this quarter could be down 15% year over year, "including a partial impact from the delay of a global 5G flagship phone launch."

  • Mollenkopf declined to name the customer, but that's likely a reference to Apple, which has been rumored to be launching this year's iPhone somewhat later than expected. Apple makes its own core processor but uses Qualcomm's modem chip.

Between the lines: Mollenkopf said business in China has recovered faster and more sharply than initially feared and that he is pleased with the global rollout of both 5G networks and new phones supporting them.

5. Take Note

On Tap

  • Did you enjoy hearing the CEOs of Apple, Amazon, Facebook and Google testify before Congress? Well you are in luck. You can hear the same companies' executives today, as all four companies are slated to report earnings. Expect a very different tone as they speak to an audience — investors — that is rooting for each of them to beat the competition.

Trading Places

  • Taiwanese chipmaker MediaTek has hired former Commerce Department official Patrick Wilson, Bloomberg reported, citing a draft press release.

ICYMI

6. After you Login

Giphy

After a long day of listening about the evils of tech, I decided to unwind by watching a movie with Harvey. His choice: Ralph Breaks the Internet. There's lots of fun parts, but I think my favorite is Vanellope's encounter with the Disney Princesses.