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Facebook Roundup: Regulatory, FTC Fine & More of The Usual

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Co-founder Chris Hughes joined several congressmen to call for a breakup of Facebook (FB - Free Report) , the FTC will soon have a decision on how it will make Facebook pay for contravention of settlement terms in yet another settlement, EU parliamentary elections bring more fake accounts to notice, France has a “hate” speech report and other stories are covered in this roundup. Read on for the details-

To Break or Not to Break Is the Question

Facebook co-founder Chris Hughes, holding no current stake in the company, has joined the rally of politicians calling for its breakup. This would entail the separation of the main social media platform from its acquired businesses WhatsApp and Instagram and regulating that business as a utility. The topic has gained political mileage because of growing concerns about privacy and anti-competitive practices.

Facebook founder and current CEO Mark Zuckerberg responded to the op-ed in NYT by saying that a breakup of the company wouldn’t solve the privacy problem. On the other hand, it could impact its ability to spend the billions of dollars on security and other tools to fight election interference like it is now doing. Zuckerberg has in the past welcomed regulation in harmful content, election integrity, privacy and data portability but he obviously wants a say in the execution.    

Facebook’s Global Affairs and Communications VP Nick Clegg published an op-ed of his own in the same paper claiming that Facebook was in fact a big company comprising of a number of small pieces with many competitors for each piece. Moreover, it wasn’t a dominant player in many markets, such as advertising (something Facebook officials always point to). Moreover, antitrust concerns are mainly focused around getting the best deal in terms of prices and quality for consumers, not for punishing a company. "Big in itself isn't bad," was another of his comments.

A utility type setting would essentially cap the profitability of the company and make it less tempting to take decisions to the detriment of society. On the other hand, this would limit funds for security and privacy unless the government is planning to help with that. One needs to answer the important question here: is it a good idea to allow an organization to harm society so it can raise funds to protect it? Protection also has many colors and Facebook for one has done a miserable job of it, routinely shutting down or suspending strong voices amongst victims while letting wrongdoers roam at large.

Another favorite Facebook argument is that it doesn’t dominate to the detriment of consumers. But the price consumers pay Facebook is their data and Facebook’s size enables it to make more of the data than a smaller company would be able to. As things stand now, the moment any other company shows signs of growing into a strong competitor, Facebook snaps it up (as in the case of WhatsApp and Instagram).

Facebook also prevents healthy competition in the space. For example, if Instagram was left alone, it would have limited funds to copy and scale Snap’s (SNAP - Free Report) innovations, so there would be healthier competition between them, and both would be more concerned about delivering the best to retain consumers, who would get more for the data they provide.

Further, size itself is anticompetitive in social media because the larger you are, the more advertisers want you, making it difficult for smaller players to generate revenue, thus shutting them out.

All that being said, Facebook is a really useful platform for non-personal communications, which is why everyone uses it even when they don’t necessarily approve of what the company is doing. This is a strong argument in favor of treating it as a utility. It of course also means that there needs to be an independent body regulating it, otherwise it could undermine the democratic process.

Other Stories-

FTC Fine

Earlier this month, there was bipartisan concern over Facebook’s settlement (a $3-5 billion fine) with the FTC for violating a prior settlement, according to which Facebook promised to overhaul its privacy practices to protect users. The current investigation was undertaken in light of the data breach in the Cambridge Analytica scandal which indicated that Facebook hadn’t done enough on this front.

Mark Zuckerberg’s personal liability in co-founding Facebook and retaining 60% of the voting power is also under consideration.

"We are deeply concerned that one-time penalties of any size every few years are woefully inadequate to effectively restrain Facebook," wrote members of the Senate Judiciary Committee, Richard Blumenthal (D-Conn.) and Josh Hawley (R-MO). 

"The FTC should impose long-term limits on Facebook's collection and use of personal information." It should learn from "a history of broken and under-enforced consent orders."

"The FTC must set a resounding precedent that is heard by Facebook and any other tech company that disregards the law in a rapacious quest for growth."

"It should consider setting rules of the road on what Facebook can do with consumers’ private information, such as requiring the deletion of tracking data, restricting the collection of certain types of information, curbing advertising practices, and imposing a firewall on sharing private data between different products."

"The Commission should pursue deterrent monetary penalties and impose forceful accountability measures on Facebook, including limits on the use of consumer data, managerial responsibility for violations, and other structural remedies to stop further breaches of consumer trust."

Another Election, Another Fake Account

Responding to an alert by online activist group Avaaz, Facebook took down a number of Italian fake or duplicate accounts as well as those spreading misinformation ahead of a European parliamentary election on May 23-26. A statement from Avaaz shows that 23 Italian accounts with a total of more than 2.46 million followers which were spreading "false information and divisive content" were taken down.

A Question of “Hate Speech"

Facebook’s CEO indicated a positive outcome of his meeting with the French President Emmanuel Macron in Paris. The meeting was about the way France planned to deal with “hate speech" and followed a report commissioned by Macron recommending increased oversight of the social media network and appointment of an independent regulator to police related efforts of large tech companies.

Zuckerberg said that while there could be things in there that he disagreed with, he was pleased with the progress and looking forward to similar solutions from the heads of other EU countries.

"Hopefully this can become a model, not just a national model for France but can be worked into a framework across the EU overall as the new (European) parliament comes into place," he said.

Personal Data “Misuse”

Facebook has filed a lawsuit against Seoul, South Korea-based Rankwave, which dipped into Facebook user data through 30 apps and used it for leverage at advertising partners. Facebook’s investigation of the company since June 2018 shows that it doesn’t appear to have transferred that data to any third party however.

Rankwave also refused to comply with an investigation into its practices and offered "false representations" of the data collected. It repeatedly missed deadlines to respond to Facebook queries and made unsubstantiated statements that its data use wasn’t improper. That’s when Facebook banned all the apps and filed a lawsuit.

Facebook allows app makers to use its data to improve the app experience but it doesn’t allow that data to be used for “business purposes.”

A Fine in Turkey

Facebook has been fined 1.65 million lira ($270,976.01) in April for a photo API bug that allowed third party app makers to access user photos. The KVKK, Turkey's Personal Data Protection Authority said that the 12 days of data breach last September may have impacted up to 300,000 users and showed that the company’s data protection mechanisms were inadequate.

Blockchain Update

Fearing that its users would be scammed by inauthentic cryptocurrency startups, Facebook banned ads promoting cryptocurrencies and initial coin offerings in January 2018. By June, the rules were relaxed, making exceptions for companies with prior written approval. Now the rules are being further relaxed so many types of ads will no longer require any approval at all.

It’s being rumored that because Facebook is getting more serious about its own blockchain and cryptocurrency called stablecoin, it’s taking a more charitable attitude towards the market.

Since his joining a secret group within Facebook in the middle of 2018, David Marcus (formerly PayPal CEO) has been poaching high-ranking PayPal (PYPL - Free Report) officials:

-former PayPal VP of brand and communications, Christina Smedley now brand and marketing head of Facebook’s blockchain unit

-former PayPal executive Tomer Barel now VP of risk and operations for Facebook blockchain

-former PayPal general counsel John Muller now legal head of the blockchain unit

-former PayPal directors, Meron Colbeci and Nate Gonzalez now leading the product team

Recommendation

Facebook shares carry a Zacks Rank #2 (Buy) while other players in the space like Autohome (ATHM - Free Report) and Marchex (MCHX - Free Report) are both ranked #1. For exposure to other industries, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

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