investment – Techdirt (original) (raw)

New Net Neutrality Rules Won’t Harm Telecom Giants In The Slightest

from the cry-more dept

The FCC is expected to vote to restore net neutrality rules on April 25. And while there’re early indications that the rules may be slightly weaker than those stripped away by the Trump administration — and absolutely no indication the rules could meaningfully impact telecom revenues — telecom giants have already begun their whining about “burdensome regulation” in earnest.

Revolving door poster child Michael Powell, who once led the FCC but now lobbies for the cable industry, was quick to once again insist that the basic net neutrality rules would result in a parade of horribles:

Powell, the CEO of cable lobby group NCTA-The Internet & Television Association, was the FCC chairman under President George W. Bush. Powell said the FCC must “reverse course to avoid years of litigation and uncertainty” in a reference to the inevitable lawsuits that industry groups will file against the agency.

The NCTA said in another statement that the FCC “is pushing unnecessary regulation that will slam the brakes on Internet for all and deny millions—especially in rural areas—the important opportunities that high-speed Internet brings.”

As is usually the case with net neutrality fights, none of that is actually true. The courts have already ruled that it’s well within the FCC’s right to impose or repeal net neutrality rules provided their arguments are based in factual reality. The only thing the FCC can’t do is abdicate its federal consumer protection authority, then try and tell states what to do (something the Trump FCC tried and failed to accomplish).

Meanwhile, the rules generally give ample leeway for big ISPs to engage in dodgy and anti-competitive behavior — if they’re just slightly creative about it. And the FCC, regardless of party, has a very shaky track record as it pertains to standing up to industry on any issue of substance, meaning the idea they’d even enforce the rules with any consistent vigor is largely performative.

Derek Turner, a sector analyst over at consumer group Free Press, told me that while big ISPs put on a big show about being concerned about the rules via their trade groups, actual executives aren’t worried about the rules in the slightest. To the point where they’re not even mentioned in investor-facing statements, because they know it’s not going to impact broadband investment — or anything else:

“The impact of FCC regulation is simply a non-factor in the minds of ISP executives and investment analysts,” he told me. “Title II and Net Neutrality were not mentioned, or even hinted at, by a single ISP on any full-year 2023 investor calls or at other investor conference appearances following these calls, and no analyst asked any question about or related to this proceeding.”

Long time telecom sector analyst Blair Levin is making similar observations:

“Like its predecessors, this policy debate will generate significant headlines and commentary, [but] is unlikely to generate significant changes in how the ISPs operate, nor material changes in their revenues, margins, or opportunities,” New Street Research policy analyst Blair Levin explained in a research note (subscription required) issued earlier in the week.”

So why then are big ISP trade organizations constantly lying and freaking out about the rules’ impact?

The real worry for big providers like Comcast and AT&T is that this could result in, someday in some distant theoretical future, _actual efforts by the FCC to hold them accountable for things like exploitative market rates only made possible by monopolization and corruptio_n. You know, stuff like rate caps, or real punishments for ripping subscribers off with bullshit fees and predatory charges.

But again, there’s not much of a real worry here. The FCC at this point is largely a laughable non-factor when it comes to U.S. consumer protection. It’s generally staffed by some of the most politically feckless revolving door regulators imaginable; folks more worried about their next political post or think tank gig than protecting consumers (the Gigi Sohn fiasco shows what happens should you challenge this).

The kind of folks who currently staff the FCC can’t even acknowledge that monopoly power is a problem in public-facing statements, much less propose any sort of market remedy for it. Big ISPs like AT&T and Comcast are mostly just whining because they very much want things to remain exactly as they are: unchecked monopoly power, limited competition, and feckless oversight. Same as it ever was.

Telecom monopolies like their regulators cowed, feckless, and powerless. Even the faintest pretense that they might engage in anything else makes their well-funded policy groups cry like a colic baby.

Filed Under: broadband, consumer protection, fcc, gigabit, high speed internet, investment, michael powell, net neutrality, regulation, title ii

Our New Report Explores How Existing Internet Regulations Around The Globe Have Fared. Short Answer? Not Well

from the were-they-really-unintended,-though? dept

Read our new report on The Unintended Consequences Of Internet Regulation »

Over the last decade or so, there’s been a growing chorus of people insisting (misleadingly) that the internet is a “wild west” that needs regulation. The reasons stated for this apparently necessary regulation change over time, but the underlying discussion tends to be the same: bad stuff is happening online and it needs to stop. Sometimes, the discussion is more focused on how internet companies are somehow “experimenting” with our lives and our data.

We’ve seen plenty of new internet regulations pop up and — oddly to me, at least — no one seems to comment on how these regulations themselves seem to be experimenting on the way innovation works and our ability to communicate with others around the world.

For all the talk of how tech companies need to “take responsibility” for the consequences of their actions, we see little to no effort to see if lawmakers and regulators should “take responsibility” for the consequences of the new and often experimental laws they’ve put in place.

Today, we’re excited to launch a new report: The Unintended Consequences of Internet Regulations, written by me, and released in partnership between the CCIA Research Center and our own Copia Institute.

This report is something of a follow up to our 2019 report, Don’t Shoot the Message Board, which looked at the impact on investment (generally negative) in various countries and regions that removed liability protections from websites. A few years have passed since that report, and a number of countries around the world have pushed out new laws, or had court cases that changed intermediary liability, and we decided to take a look at how things have played out.

The short answer: not well.

As we looked around the globe, first at the predictions lawmakers made about how these laws would play out, then at how they actually worked in practice, we found that policymakers greatly miscalculated their expectations for how these laws would work. They were often redundant or confusing, and did little to achieve what was promised.

Instead, there were tremendous negative consequences in a number of different areas, starting with investment in innovation, which was shown to decline (sometimes dramatically) in many cases. We saw evidence of this with laws like Germany’s NetzDG, which appeared to actually drive some areas of investment out of Germany and into nearby countries like the UK and France. Unfortunately, just recently, we saw France pass a law similar to NetzDG, and the UK is moving in that direction as well, perhaps not realizing how it may impact innovation and competition.

The research, and included case studies, show how these laws are doing real harm to innovation and competition in the market. It appears that many of these laws serve to lock in incumbents and burden smaller companies. The patchwork of laws also makes it difficult for new entrants to build up global services.

Perhaps even more concerning is the impact of these laws on speech and expression. Remember, the internet is effectively speech, and the efforts by regulators to limit how the internet works had the clear impact of limiting speech as well. While some may consider this collateral damage, it is worth calling out not just how these laws are suppressing speech in various countries that espouse freedom, but how they’ve also become the model for authoritarian countries to suppress speech, while claiming that they’re just passing internet regulations like the rest of the world.

The report details multiple examples of countries using nearly identical laws for the express purpose of suppressing those the government doesn’t like.

One other fascinating finding came out of a surprising bit of data when we looked at India, which has been removing intermediary liability protections at a rapid rate. Unlike elsewhere that we looked in the report, we noticed that there was actually an increase in investment in internet companies following those legal changes. That went against what we’d seen elsewhere, but looking more closely at the details revealed an explanation for this unexpected result: after India passed regulations to harm sites like Twitter, a flood of investment went into a local Twitter-like clone that was friendly with the Modi government.

In other words, this bit of “internet regulation” actually was used as a form of protectionism, to boost a local competitor and harm a global service.

As we note at the end of our executive summary:

As this report shows, the end result of all these regulatory changes does not appear to be an “improved” internet where there is greater “responsibility” by large internet companies, but one in which there is less competition, less innovation, and more ability by governments to abuse their power over these companies to damage speech and privacy interests. That also means an internet that is less in the public’s interest and benefit. As governments around the world rush forward with major new internet regulations, which could have even more sweeping impact than the laws discussed in this report, it is imperative that policymakers do more to understand the impact of these laws on a variety of different areas, and take care in rushing to implement new and unproven policies.

This is not to say that the internet should be “lawless” (contrary to the claims you hear from some, it never was). But so many new policies are being pushed on the internet at rapid speed with little concern for the actual consequences of these laws.

We hope that this paper will help highlight how policymakers should be more careful in rushing to regulate, while also be more open to looking back at the impact of their own policymaking. You can read the entire report and our summary info sheet (pdf links) below or in the Copia Institute Library.

Filed Under: australia, china, competition, fosta, france, free speech, germany, india, innovation, investment, it rules 2021, netzdg, pakistan, policy, reports, uk, unintended consequences, unintended consequences of internet regulations

If Oculus Were Separate From Meta, Would The FTC Still Block Its Latest Acquisition?

from the this-is-not-how-antitrust-is-supposed-to-work dept

As you may have heard, a few days ago, the FTC announced that it was seeking to block Meta’s acquisition of Within Unlimited, a maker of a popular VR fitness app. I believe this is the first case in which the Lina Khan-run FTC has stepped in to block an acquisition by one of the big internet companies. In many ways, this seems like a test from all sides.

Since Khan took over the FTC, it seems pretty clear that Google, Amazon, Apple, and Meta/Facebook have been extremely cautious about new acquisitions. While they have continued to acquire companies, the pace (and scope) of such acquisitions appears to have dropped off noticeably. Just by way of example, from 2010 to 2014 (looking back a decade ago, along with two years in either direction), Google averaged over 23 acquisitions a year, with the “slowest” year being 2012’s 12 acquisitions and the biggest being 2014’s 34 acquisitions. In 2021, however, Google acquired just five companies, and has acquired another five this year already.

So the companies are more cautious, and when they’re making these acquisitions, they tend to be not directly connected to their core business, but to ancillary businesses. This is almost certainly done on purpose, as the issue around antitrust law, is whether or not the companies are leveraging a market they’re considered dominant in to gain an unfair advantage in another market.

That’s why even the framing of the FTC’s announcement here seems… odd. When you think of Meta… well… you probably don’t think of Meta. If you do think of the company at all, you probably think of Facebook (or possibly Instagram), but you’re thinking about social media. Yet, here’s how the FTC frames its argument:

The Federal Trade Commission is seeking to block virtual reality giant Meta and its controlling shareholder and CEO Mark Zuckerberg from acquiring Within Unlimited and its popular virtual reality dedicated fitness app, Supernatural. Meta, formerly known as Facebook, is already a key player at each level of the virtual reality sector. The company’s virtual reality empire includes the top-selling device, a leading app store, seven of the most successful developers, and one of the best-selling apps of all time. The agency alleges that Meta and Zuckerberg are planning to expand Meta’s virtual reality empire with this attempt to illegally acquire a dedicated fitness app that proves the value of virtual reality to users.

Virtual reality giant? Virtual reality empire? Yes, we can say that Meta, via Oculus, has a large part of the VR market (stats say about 80% these days), but it’s… a small market. Current estimates say it’s a few billion dollars.

To put it another way: if Oculus were separate from Meta and still had the same marketshare, would the FTC be stepping in to stop this deal? I think most people doubt that very much. This move very much feels like it’s being driven by general animus towards Facebook’s success on the social media side, not some legitimate concern about Meta’s future prospects in VR.

Now, a lot of people are comparing this to when Facebook bought Instagram in 2012. But, that was a very different kind of deal. First, Instagram was a direct competitor to Facebook. Within Unlimited is just one app maker in the space, not really a competitor. Also, at the time, the social media market was an order of magnitude bigger, and way more established with a much larger user base than the VR market today.

So, really, the bigger issue here seems to be that the FTC under Lina Khan is testing out Khan’s belief in changing how antitrust works, away from one that has a fundamental reason for preventing abuse, towards one that is more punitive and focused on punishing big companies for being big. And that has consequences.

The NY Times has a good article noting how this case upends the way most courts and policymakers have viewed antitrust law and enforcement:

Rebecca Haw Allensworth, a professor of antitrust law at Vanderbilt University, said the F.T.C.’s arguments would face tough scrutiny because Meta and Within did not compete with each other and because the virtual-reality market was fledgling.

“The way that merger analysis has stood for at least 40 years is about what kind of head-to-head competition does this merger take out of the picture,” she said.

You can argue that the old standard was no good — and I can see compelling arguments there. But this case still seems like a spectacularly weak one with which to make this point.

We’re talking about a new and nascent market, one which seems pretty dynamic, with lots of different companies exploring and testing the waters. There doesn’t even seem to be an argument that Meta is leveraging its other businesses unfairly here. It’s just… weird to focus on this particular acquisition.

Indeed, it’s so weird that Khan’s own staff advised against going after this merger, and Khan overruled them. That generally doesn’t bode well for showing that you have a strong case.

Federal Trade Commission Chair Lina Khan led her fellow Democrats in the agency’s majority vote to sue Meta Platforms Inc. this week, despite the staff recommending against bringing a case to challenge the company’s acquisition of Within Unlimited Inc., according to three people with knowledge of the decision.

But, to me, the biggest concern here is that this attempt — purportedly to help enable more competition, could actually result in less competition. Box CEO Aaron Levie explained the concern succinctly in a tweet.

If the government blocks big tech companies from buying small startups in *nascent* markets, all that will happen is there will be fewer startups over time because investors can’t underwrite the risk. This is bad for innovation, and ironically good for the big tech companies.

— Aaron Levie (@levie) July 27, 2022

I’ve seen a lot of people confused about this point, so it’s worth unpacking a bit. The startup/investor ecosystem is based on investors making huge bets knowing that most won’t pan out. There’s a common refrain that one deal in ten being successful is what’s needed to be a successful VC, though many VCs I’ve spoken to dispute that, and say it’s more of a spectrum. You expect to have a very few massively successful investments, and then a whole bunch of middling success stories, and a few failures.

It’s 15 years old now, but famed venture capitalist Fred Wilson had a post on this way back when, noting that a VC has to shoot for getting 5 to 10x returns on every deal and hope that you’ll get 30% to hit that number, but you also need another 30% or so to “under perform” — and get closer to 2x returns. And those often (not always…) are the ones that are selling out to large companies.

The VC math gets a bit complex, but VC success stories are made on the big unicorn exits. They need those. And when they’re investing, they’re not doing so with the expectation of selling to one of the big guys. I’ve met some VCs who won’t invest in entrepreneurs who say their exit strategy is to sell out to a big company — because that means the entrepreneur isn’t thinking big enough for growth capital. If they’re aiming low, then they’re creating a ceiling for themselves.

That said, having the fallback position of selling out if a company can’t be a unicorn is still super important. A VC may need a few unicorns to be successful, but having a “soft landing” by selling to a larger tech company if that fails is still helpful to keeping a VC in business.

If the FTC is saying that big companies can never buy up startups again, that wipes out much of that middle part of the spectrum for VCs, massively increasing the risk of investing in startups. Now, suddenly, you either need to make sure that more of the companies you invest in are unicorns (if that were possible to do, everyone would be doing it…), or you have to focus on even higher potential returns on each investment, so that when you do get a unicorn, it covers the missing middle of the spectrum.

And, either way, that’s going to massively disincentivize VC investment in lots of startups. The ones that are taking off and appear to be on their way to unicorn land will get more VCs piling in to try to cash in, but then you’ll just have a smaller number of super-funded players, and not a truly competitive market.

So the end result is fewer startups get funded, and there’s less competition in the marketplace, rather than more.

These things work as an ecosystem, and it would be nice if the people making the decisions at the FTC actually understood that.

We do have a real problem in this country where many industries lack true competition. But nascent, dynamic industries don’t really seem to be the areas of concern right now, and the potential consequences of messing with that could be large. Why not focus on large, consolidated industries that aren’t growing and aren’t dynamic?

Filed Under: antitrust, competition, ftc, investment, lina khan, nascent market, vr
Companies: facebook, meta, oculus, within unlimited

Biden Cuts $35 Billion From New Broadband Plan To Appease The GOP

from the good-luck-with-all-that dept

Tue, May 25th 2021 06:37am - Karl Bode

As we’ve been noting, there’s a long runway between the Biden Administration’s vague but promising broadband plan and actual implementation. And there’s millions of dollars and literally thousands of lobbyists hard at work trying to make sure that the plan, whatever it winds up looking like, doesn’t disrupt the comfortable, status quo that is the regionally-monopolized and dysfunctional US broadband market.

I’ve already seen some evidence said lobbyists have had some success weakening plan language that would limit the amount of “overbuilding” (read: competition) to existing monopolized markets. 83 million Americans live under a broadband monopoly, and incumbent giants AT&T, Verizon, and Comcast want any and all spending focused exclusively on giving them subsidies for unserved areas, instead of building out vibrant competition in their existing footprints.

Activists are also growing annoyed with the fact that the Biden administration still hasn’t fully staffed the FCC and appointed a new permanent boss, without which the agency can’t reverse the net neutrality repeal, or most of the Trump FCC’s butchering of the agency’s consumer protection authority. Giving the Canadian Ambassadorship to a a top Comcast lobbyist appears to be happening at a quicker cadence.

Meanwhile, the Biden plan overall is already starting to shrink as his administration tries to get the 10 GOP voted needed to nab a 60 vote majority. As a result, the 100billionplanisofficially[nowa100 billion plan is officially [now a 100billionplanisofficiallynowa65 billion plan, and shrinking:

“The White House informed Republicans of Biden’s willingness to cut $35 billion from his broadband proposal in a memo on Friday. “We believe we can still achieve universal access to affordable high-speed Internet at your lower funding level, though it will take longer,” the White House told Republicans, according to NPR. “Any funding agreement would need to be paired with reforms to ensure these investments create good jobs, promote greater competition, and close the digital divide.”

Even with cuts there’s still no evidence that the GOP is going to get on board.

While there are plenty of Democrats in close allegiance to the telecom sector, the modern GOP broadband platform as a whole is utterly indistinguishable from the goals of AT&T, Verizon, and Comcast in every respect. They oppose any meaningful oversight (be it net neutrality or privacy), oppose voter-approved community broadband, support absolutely every merger that comes down the road regardless of harm, and despite talking a lot about their breathless dedication to closing the digital divide, can rarely even admit that a lack of broadband competition and high consumer prices are real problems.

It’s very unlikely that a party whose positions are utterly indistinguishable from telecom monopolists are going to bend on any of this, something Senator Ed Markey has been quick to make clear:

“Despite President Biden?s efforts to engage with Republicans, they have shown no willingness whatsoever to negotiate in good faith with Democrats to confront the intersecting crises we face. We need to make the investments now to help our country and communities rebuild and recover, as well to ensure that we never return to the status quo that left too many Americans behind and created the worsening climate crisis. Now is the time to go big, to go bold, and to go fast. This is not the time for half-measures, half-spending or foot-dragging.”

Despite having broad public support (58% of voters support passing the entire infrastructure bill without GOP support), it seems extremely unlikely a broadband bill gets the necessary 60 votes unless it’s butchered to the point of uselessness, which under-delivers and undermines the Democrat chances of re-election in 2022 and 2024 (another major reason for GOP opposition). That leaves killing the filibuster, or shoveling an infrastructure bill through via reconciliation rules, the former of which seems unlikely, and the latter of which is far from a given.

Filed Under: appeasement, broadband plan, budget, congress, fcc, infrastructure, investment, joe biden

Tennessee Lawmakers' Latest Attack On Section 230 Would Basically Ban All Government Investment

from the seems-counterproductive dept

We’ve been highlighting a wide variety of state bills from Republican-led legislatures that all attempt to attack Section 230. Nearly all of them are blatantly unconstitutional attacks on the 1st Amendment. Somewhat incredibly, the latest one from Tennessee might not actually be unconstitutional. That doesn’t mean it’s good. In fact, it’s not just incredibly stupid, but demonstrates that the bill’s authors/sponsors are so fucking clueless that they have no idea what they’re doing. In effect, they’d be banning the state from investing any money it holds. To spite Section 230.

The bill — which is House Bill 1441 and Senate Bill 1011 — from Representative Tim Rudd and Senator Janice Bowling represent such a lack of understanding of how literally anything works that it should embarrass both elected officials and anyone who ever voted for either of them. The bill is pretty simple: it bans the state from investing in any entity protected by Section 230. The problem with this? Almost every single person and every single company is, in some way, protected by Section 230. So, in effect, the bill bans the state from investing any of its money.

Let’s dig in on the specifics. The bill is pretty short and sweet. Here’s the key part:

On or after August 1, 2021, monies within the pooled investment fund must not be invested in any entity that receives immunity under Section 230 of the Communications Decency Act (47 U.S.C. § 230). Any monies from the fund that are invested in such an entity as of the effective date of this act, must be divested prior to August 1, 2021. Written notice of the divestment must be provided to any such entity at the earliest practicable time after the effective date of this act.

To be clear, this text would be inserted in Tennessee Code Title 9, Chapter 4, Part 6 which covers the disbursement and investment of state funds. Amusingly, Section 602 says that “It is the policy of the state of Tennessee that all funds in the state treasury shall be invested by the state treasurer to the extent practicable.” The problem is that if this new law passes, there is almost no one who would be allowed to receive those funds, so “to the extent practicable” would be… non-existent.

Part of the issue, it seems, is that in their rush to attack “Section 230” neither Senator Bowling, nor Representative Rudd bothered to, you know, read Section 230. I’ll cover the essential part for our discussion here today:

No provider or user of an interactive computer service shall be held liable…

No provider or user. Section 230 protects both the users and providers of an interactive computer service. So, basically any entity — person or organization — who uses an interactive computer service is protected under Section 230. And, based on the text of this bill, that means… just about anyone. If you use email, you’re protected. So no entity that has email can receive investments from Tennessee state funds. No organization that has a website. I’m sure there might still be some neo-luddite organizations out there that don’t use any computers at all, so perhaps the state of Tennessee will invest its funds in, like, a toy shop with an old fashioned cash register, and a rotary telephone or something. But that seems pretty limiting, and not a particularly good investment.

Obviously, this bill comes out of the very, very false belief that Section 230 only protects “big tech.” That’s a favored myth of Section 230 haters. Of course, that’s never been the case. And you’d think that before writing legislation about it, someone who is elected to a state legislature would do the very least to actually read the law they’re attacking. But, I guess that’s too much to ask of Representative Tim Rudd and Senator Janice Bowling.

People of Tennessee, I beg of you: stop electing fools who are so focused on culture warrioring that they can’t even be bothered to understand the bills they’ve introduced.

Filed Under: bad legislators, investment, investment funds, janice bowling, section 230, tennessee, tim rudd

In The Rush To Strengthen Antitrust Law, We Could Kill Useful Mergers And Acquisitions

from the be-careful-what-you-wish-for dept

Last week, Senator Amy Klobuchuar introduced a major antitrust reform bill, entitled the Competition and Antitrust Law Enforcement Reform Act. This isn’t much of a surprise, as Democrats have made it quite clear that they seek to use antitrust much more aggressively than it’s been used over the past few decades. I’m a big believer in the need for more competition, in general, but often worry that antitrust is not the best way to get there.

The bill will put more budget and power in the hands of the DOJ and the FTC, and also would change the legal standards for anticompetitive mergers, as well as put the burden on merging companies to prove that they are not violating antitrust, rather than as it stands now, with the burden being on the DOJ to show that the merger violates the law. Better funding the DOJ and the FTC on competition issues strikes me as a sensible move here (more the FTC than the DOJ, but no need to get that picky). However, a lot of the rest of the bill seems like it could have the opposite of the intended effect.

I get the thinking behind this, but as structured, it appears like it could have significant unintended consequences that actually decreases competition rather than increases it. In a lot of ways, the key thing this bill would do is to significantly reduce merger and acquisition activity. It has two main mechanism that would basically kill a significant number of deals:

* Update the legal standard for permissible mergers. The bill amends the Clayton Act to forbid mergers that ?create an appreciable risk of materially lessening competition? rather than mergers that ?substantially lessen competition,? where ?materially? is defined as ?more than a de minimus amount.? By adding a risk-based standard and clarifying the amount of likely harm the government must prove, enforcers can more effectively stop anticompetitive mergers that currently slip through the cracks. The bill also clarifies that mergers that create a monopsony (the power to unfairly lower the prices to a company it pays or wages it offers because of lack of competition among buyers or employers) violate the statute. * Shift the burden to the merging parties to prove their merger will not violate the law. Certain categories of mergers pose significant risks to competition, but are still difficult and costly for the government to challenge in court. For those types of mergers, the bill shifts the legal burden from the government to the merging companies, which would have to prove that their mergers do not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony. These categories include: 1. Mergers that significantly increase market concentration 2. Acquisitions of competitors or nascent competitors by a dominant firm (defined a 50% market share or possession of significant market power) 3. Mega-mergers valued at more than $5 billion

On that first one — changing the standard to “create an appreciable risk of materially lessening competition” seems potentially insurmountable for nearly any merger. Any merger decreases competition in some form, because (definitionally) it’s removing one competitor from the market. But that doesn’t mean that it’s necessarily damaging to the market, to innovation, or to consumers. Say, for example, there’s a market with 10 firms, and one of them is struggling and likely to go under. A merger between it and one of its more successful competitors technically “lessens” competition, but it might mean that that same firm doesn’t go out of business at all. Or, it might mean that by combining two of the companies in the market that they can better compete with some of the others.

I recognize this becomes a very different story when the market is down to just a few players — and that’s certainly true of a few too many industries these days. But that’s why the standard is set at the current “substantially lessen competition” not “creating a risk” that it might “materially lessen competition.”

The second one, on the burden shifting is perhaps equally problematic. And, here, the real risk is in killing off new startup creation. When VCs invest in a startup, their hope is that the startup is their unicorn or rocketship — becoming a multi-billion dollar market leader. These are the deals where VCs make all their money — on the huge success stories, the 100x return investments. But only a very small percentage of investments are such hits. The second best result for a VC is to have the startup acquired for a decent gain. A 10x gain is nothing for them to write home about, though it’s nice. A 2 to 3x gain is a failure in the world of VC, but it’s better than… nothing at all.

So, for an investor to fund startups, it helps to know that the backup plan for companies that don’t become billion dollar unicorns is that they can sell out to someone else, and at least get some return. But under this bill, the deal flow for those kinds of deals will dry up. The big companies that startups and VCs rely on for decent (but nothing special) exits go away. As a result, it makes VCs less interested in investing. Because the expected returns drop significantly. That means it’s likely that they’ll invest in fewer startups, thereby diminishing innovation and competition.

This is the exact opposite of the intention of this bill, but it (tragically, again) suggests how little regulators understand how startups, investments, and competition actually work.

And, of course, none of this even touches on the fact that we just had a DOJ and Attorney General in place who, it was revealed, deliberately used antitrust as a weapon against companies the president disliked. It’s kind of amazing that not even a year after that was revealed, Democrats are quick to make it even easier for a future Bill Barr to have even more power to do that.

Yes, competition is important — and there are certainly many industries that have become too consolidated. Indeed, I’ve been coming around to the belief that almost every “problem” people describe when talking about the tech industry (and a bunch of other industries) simply comes down to a lack of viable competition. But assuming that the only tool to increase competition is via antitrust, you run the risk of having exactly the wrong result. It can lead to a world in which you get less investment in startups and new competitors, since the risk becomes much greater.

Filed Under: acquisitions, amy klobuchar, antitrust, competition, investment, mergers, startups

Nikola's Bad Quarter: Company's Deal For General Motors Ownership Stake Goes Sideways

from the fallout dept

The trouble for Nikola Motor Company began only in September, a couple of months ago. That’s when a hedge fund very publicly called out the company and its founder, Trevor Milton, for essentially fooling people with doctored video of its electric semi-truck product to get them to invest in the company. This led to rumors of federal investigations, the resignation of Milton, and the company idiotically trying to use copyright takedowns to silence its critics. All of this was likely in the service of trying to save a very public $2 billion deal with General Motors that was due to be closed upon in early December.

Well, what was Nikola’s bad month is turning into a very bad quarter, as the General Motors deal has gone fairly sideways.

Nikola (NKLA) won’t have General Motors (GM) as an investor, at least for right now.

The electric truck maker said on Monday it has revised the terms of a prior deal with GM, and that the auto giant won’t be taking a stake in Nikola. The two companies will not work together to produce Nikola’s pickup truck, the Badger. Nikola’s shares were down more than 21% in pre-market trading.

The Badger was supposed to be a consumer pickup truck made in partnership with GM, utilizing GM’s manufacturing and logistics operations alongside Nikola’s electric batteries and drivetrain. But now, the general consensus is that this deal going under with GM has rendered the Badger completely dead.

EV and hydrogen truck start-up Nikola’s deal with General Motors has fizzled, the EV startup revealed, after several weeks of speculation about a deal that would have seen the Michigan auto giant produce the Nikola Badger truck. Nikola indicated that it had reached a non-binding memorandum of understanding with GM regarding collaboration on GM’s hydrogen technology for large trucks, but that the pickup aimed at private consumers was not currently contemplated with GM backing. In fact, the Badger now appears entirely dead, with Nikola indicating that it will refund deposits for the EV truck.

For its part, Nikola is pointing to the deal with GM not being completely dead. Instead, the company is going to focus on producing semi-trucks that GM will make the fuel-cell technology for. The deal is now essentially a basic supply partnership, but the real impact of the change of deal terms is that GM has backed away from taking an ownership stake in Nikola.

But Dan Ives of Wedbush Securities writes in a new note that the “headline” from the new agreement is that GM won’t be taking a stake in Nikola — and that news “will be viewed as a clear negative.”

“This went from a game changer deal for Nikola to a good supply partnership but nothing to write home about and the Street will be disappointed accordingly along with lingering lockup worries,” Ives wrote.

All because the company’s founder wanted to pretend like it had a produced a product that did something that it absolutely did not. It sure seems like it would have been better for the company overall if it had just told the truth.

Filed Under: badger, copyright, electric trucks, investment, trevor milton
Companies: general motors, nikola

More Evidence FCC Claims That Killing Net Neutrality Would Boost Broadband Investment Were Bullshit

from the someday-we-might-learn-something dept

Fri, Nov 20th 2020 06:32am - Karl Bode

Since the very beginning of the net neutrality debate, ISPs have repeatedly proclaimed that net neutrality rules (read: stopgap rules crafted in the absence of competition to stop giant monopolies from abusing their power) utterly demolished broadband sector investment. It was a primary talking point during the battle over the 2010 rules, and was foundational in the Ajit Pai FCC’s arguments justifying their hugely unpopular and fraud prone repeal.

Time after time after time, big ISPs and the politicians paid to love them insisted that the rules had crushed sector investment, and repealing them would result in a massive spike in broadband investment. It was a line repeated again by Pai during an FCC oversight hearing in 2018 (for those interested he wasn’t under oath, which applies only to Judiciary hearings):

“Under the heavy-handed regulations adopted by the prior Commission in 2015, network investment declined for two straight years, the first time that had happened outside of a recession in the broadband era…we now have a regulatory framework in place that is encouraging the private sector to make the investments necessary to bring better, faster, and cheaper broadband to more Americans.”

The problem: a mountain of data continues to make it extremely clear that none of this was ever true.

Numerous studies, earnings reports, and CEO statements had already demolished the claim, yet like a relentless zombie, it simply refuses to die. To this day it remains a core talking point of the outgoing Ajit Pai FCC, most telecom lobbyists, and the absolute army of think tankers, consultants, and academics employed by incumbent telecom giants to pretend the U.S. broadband market is healthy and competitive.

This week, S&P Global took a closer look at U.S. network investment numbers and found, once again, that claims that repealing network neutrality boosted investment to be bullshit. In fact, the firm found that annual investment in fixed U.S. broadband networks is poised to have dropped 7 percent since 2016:

Getting rid of Net Neutrality (Trump's FCC) was supposed to boost incentives to invest in broadband. Guess what? In our hour of greatest need, investment way down since 2016 ! It was just another pack of lies pic.twitter.com/Spl6cfOSRr

— Tim Wu (@superwuster) November 19, 2020

Granted the telecom sector has been in the U.S. government’s driver’s seat under the Trump administration. In just four short years the industry successfully had broadband privacy rules killed (thanks to GOP Senators), net neutrality rules killed, FCC authority over telecom monopolies kneecapped, and the sector received billions in tax breaks in exchange for doing absolutely nothing. The telecom sector even managed to convince most of DC that “big tech” monopolies are the only monopolies in tech worth worrying about. All in all, a pretty good four years for one of the least liked, least competitive sectors in U.S. industry.

All of this industry ass kissing would, to hear industry and loyal lawmakers tell it, boost network investment, increase employment, and drive more innovation and competition to market. None of that happened. Why? Because when you eliminate all meaningful oversight from a broken, monopolized sector, the companies involved simply double down on the same bad behaviors (layoffs, price hikes, less investment in infrastructure and customer support). Yet for whatever reason, we cling desperately to “free market” narratives that don’t apply to a broken sector that sees little real competition and has an unrelenting political stranglehold on both state and federal leaders. No competition and no oversight means more of the same problems.

Of course the sagging investment, eroded regulatory authority, and tens of thousands of layoffs come just as a raging pandemic showcases how broadband (and objective federal leadership on broadband) is more essential than ever. And cocksure policy pundits or campaign-contribution-slathered lawmakers won’t learn much of anything from the experience, because there will be absolutely no penalty whatsoever for pushing bullshit narratives or relentlessly kissing the ass of a broken, monopolized market.

Filed Under: ajit pai, fcc, investment, net neutrality

Shocker: ISPs Cut Back 2020 Investment Despite Tax Breaks, Death Of Net Neutrality

from the ill-communication dept

Tue, Nov 5th 2019 06:45am - Karl Bode

Why it’s almost as if you can’t take telecom giants (and their lawyers, consultants, and political allies) seriously.

If you recall, the broadband industry and the Trump FCC repeatedly proclaimed that modest consumer protections like net neutrality had dramatically stifled telecom sector investment, and were we to ease regulatory oversight of giants like AT&T and Verizon, it would result in a wave of new sector investment the likes of which we’d never seen before. Ignore the fact that data routinely disproved this claim; this “net neutrality stifled investment” claim was made almost daily by the telecom sector and the wide variety of mouthpieces paid (one way or another) to support them.

Funny thing about that. Despite just having received billions in tax breaks and regulatory favors, AT&T, Comcast, and Charter are all slated to lower their CAPEX and network investment significantly in 2020. Others 2020 CAPEX projections, like Verizon, were entirely flat. This static or reduced investment arrives despite the slow but steady deployment of 5G, the accelerated deployment of which was also a big cornerstone of the net neutrality repeal’s justification:

“Comcast and Charter missed 3Q expectations for capex and guided 2019 lower than previously planned,” wrote the analysts at Nomura’s Instinet in a recent note to investors. “We have lowered our combined 2019 capex forecast for Comcast and Charter from 14.6billionto14.6 billion to 14.6billionto14.2 billion.”

And AT&T…surprised Wall Street analysts with a significantly lower-than-expected capex for 2020. The operator said it expects to spend around 20billiononcapexnextyear,whichiswaydownfromthe20 billion on capex next year, which is way down from the 20billiononcapexnextyear,whichiswaydownfromthe23 billion it expects to spend this year and the $22 billion that most Wall Street analysts had expected AT&T to spend in 2020.”

Fewer jobs, higher prices, and lower investment was not what we were promised. It’s the precise opposite of what the endless parade of telecom-linked think tankers, academics, consultants, and other hired mouthpieces claimed would happen. And it’s certainly not what Ajit Pai said would happen when he recently told Congress net neutrality had a disastrous impact on sector investment, despite the fact that biggest study of its kind on the subject ever undertaken just last month showed that net neutrality had no meaningful impact on broadband investment levels whatsoever.

It’s simply no longer debatable, and it’s fairly telling to see which groups and individuals are still trying to push this line of debunked detritus.

Granted this is a con AT&T has been running on the American public for decades now. The company will proclaim that immense broadband deployment and employment gains can be made if the government just lobotomizes itself and does whatever AT&T is demanding at the moment (lower tax rate, fewer regulations, new regulations AT&T supports, merger approval, etc.). When the government inevitably follows through, AT&T’s promises then mysteriously disappear. And like Lucy and Charlie Brown football, nobody in the US seems particularly interested in learning from the experience.

Filed Under: broadband, capex, investment
Companies: at&t, comcast, verizon

Massive Study Proves Once And For All That No, Net Neutrality Did Not Hurt Broadband Investment

from the ill-communication dept

Mon, Sep 30th 2019 06:39am - Karl Bode

The biggest study (pdf) ever of its kind has found that net neutrality rules had absolutely no impact on broadband investment whatsoever. The study took an incredibly detailed look at CAPEX data for more than 8,577 different companies (270+ of which were telecom providers) and concluded:

“The results of the paper are clear and should be both unsurprising and uncontroversial. The key finding is there were no impacts on telecommunication industry investment from the net neutrality policy changes. Neither the 2010 or 2015 US net neutrality rule changes had any causal impact on telecommunications investment.”

Since the very beginning of the net neutrality debate, ISPs have repeatedly proclaimed that net neutrality rules (read: stopgap rules crafted in the absence of competition to stop giant monopolies from abusing their power) utterly demolished broadband sector investment. It was a primary talking point during the battle over the 2010 rules, and was foundational in the Ajit Pai FCC’s arguments justifying their hugely unpopular and fraud prone repeal.

Time after time after time, big ISPs and the politicians paid to love them insisted that the rules had crushed sector investment, and repealing them would result in a massive spike in broadband investment. It was a line repeated again last year by Pai during an FCC oversight hearing (for those interested he wasn’t under oath, which applies only to Judiciary hearings):

“Under the heavy-handed regulations adopted by the prior Commission in 2015, network investment declined for two straight years, the first time that had happened outside of a recession in the broadband era…we now have a regulatory framework in place that is encouraging the private sector to make the investments necessary to bring better, faster, and cheaper broadband to more Americans.

It didn’t matter that several studies had shown this wasn’t true. It didn’t matter that journalists who had reviewed public earnings data found no evidence whatsoever to support the claim. It didn’t even matter that CEOs for numerous ISPs were clearly on record telling investors the claim wasn’t true. It was repeated over and over and over again by the telecom sector and loyal politicians like Pai in the hopes that repetition would somehow forge an alternative reality where what net neutrality opponents felt in their guts would become the indisputable truth.

Throughout the repeal, the Pai FCC repeatedly cited data from telecom lobbying firm US Telecom as gospel, at one point even directing reporters with questions directly to US Telecom lobbyists (that’s bad, in case you’re wondering). Last year, the group pushed a “study” proclaiming broadband investment had exploded in the wake of the repeal, somehow failing to even notice their study had a fatal flaw:

“Last year, telecom lobbying group US Telecom released a study it claimed showed that broadband investment had spiked dramatically in 2017 thanks to ?positive consumer and innovation policies? and a ?pro-growth regulatory approach? at the FCC.

The problem? The FCC?s net neutrality rules weren?t formally repealed until June of 2018.

The entire mess speaks plainly to how lobbyists and the lawmakers who love them use repetition, friendly media outlets, and massaged industry-sponsored lobbyist and economist analysis to construct alternate realities that support anti-consumer, anti-innovation policies (like say, letting lumbering, anti-competitive telecom giants do whatever the hell they’d like). As we’ve noted a few times, it’s important to understand that the “net neutrality repeal” didn’t just kill net neutrality rules, it all but obliterated the FCC’s ability to hold ISPs accountable for much of anything, which was the entire point.

And while the industry may have scored a victory on the front end, the choices made could still come home to roost. Three different major FCC policy efforts have been shot down by the courts in as many months for failing to provide hard evidence actually supporting the decision. Given 23 state AGs have sued the FCC claiming the net neutrality repeal was similarly flawed, plenty of folks are curious if the FCC’s net neutrality repeal will soon share a similar fate.

Filed Under: ajit pai, broadband, competition, fcc, investment, net neutrality, study