Are We Heading Towards a Splinternet?

The last few weeks have highlighted the difficulties for tech companies when it comes to handling personal data in foreign countries. Chinese messaging app WeChat is set to be banned in the US, while TikTok has narrowly avoided a ban, ostensibly because of national security concerns. And Facebook said it could be forced to close down operations in Europe, after Ireland’s data protection authority ordered it to stop transferring European users’ data overseas.

So what’s the way forward for big tech? Will we see a ‘splinternet’ emerge, where apps and websites become siloed within specific geographical regions? Or will tech companies change their business practices in order to get legislators and regulators off their backs?

Richard Kramer, Senior Researcher, Arete Research

With the EU’s proposed Digital Services Act, the Trump administration targeting Chinese apps and China, and other markets curtailing Western tech firms, we are coming closer to a politicised “splinter-net” – a fragmenting of the “World Wide” Web into something with far less than global reach.

We see three dimensions to this: first, big tech (including Chinese giants) amassed cash, resources, and political clout on an unmatched scale. Second, this is cemented by faithful use of these services, and popularity among 80 percent+ of the populace. Third, in a febrile environment prone to conspiracy theories, it is not hard to imagine nefarious use of data-rich services (as in countless elections).

This is not new: big tech has proven itself adept at lobbying in all regions. Nearly two years after I debated Scott Galloway that the break-up of the Big Four wouldn’t happen, we are still awaiting formal antitrust complaints, then needing years in the courts to conclude. Each region’s politicians want to support “national champions” and tax or hobble their rivals. Sadly for Europe, there are few of the former to protect.

We always said if the CIA had a really clever CIO he or she would have invented a Facebook or Google; in today’s world, it is not surprising to see this economic policy angle to “cyber-warfare.”

Ana Milicevic, Principal & Co-Founder, Sparrow Advisers

Big tech to date has largely operated with a global purview, frequently treating local regulations as a nuisance that can be taken care of by paying a few fines rather than something to seriously adhere to. There’s an inherent assumption that the internet is distributed, global, and borderless — a first principle that’s being actively challenged by the more centrally controlled Chinese design.

We’re now seeing the pendulum swing in the other direction from this rather laissez faire initial approach. Countries and local jurisdictions are waking up to the realization that big tech generally has a lower tax footprint and community contribution than the types of local companies that preceded them. Underneath it all there’s the issue of custody of user-level data – an area where the EU has led the discussion via GDPR and that other national regulators are now looking to replicate and localize.

We’ve already seen companies changing their offerings in certain regions (e.g. Oracle) or deciding not to operate somewhere altogether. We can expect much more of that in the coming years.”

Ian Whittaker, Founder, Liberty Sky Advisors

The recent problems of TikTok, and other Chinese services, together with the ongoing privacy issues surrounding Facebook and the like have raised a number of questions over where do big tech companies go from here. I think what happens will be determined by the following:
  • A lot will depend on the outcome of the US election: if Donald Trump is re-elected, expect a more aggressive anti-trust push against some of the major tech giants. Attorney-General William Barr is a powerful advocate for concerted action and Trump is unlikely to shed tears for a tech sector seen as generally pro-Democrat (although he will be mindful of handing certain sectors to Chinese tech firms). If Joe Biden is elected, Kamala Harris is likely to play a leading role in legislation which should be seen as more benign to the tech giants. Rules on privacy and data are likely to follow the California / GDPR protection rules, which many tech companies are likely to favour (see below). Also expect less aggressive action against Chinese firms, although many US tech firms may see bans as a form of leverage to force China to open its markets.
  • The politicisation of tech will continue and grow. It has been for a while. Both China and Russia have imposed severe limits on foreign (mainly US) tech players entering their markets so domestic players dominate both markets. However, China’s growing assertiveness on the world stage means its tech companies are seen as a tool of the Chinese state hence why India banned Chinese apps post a military clash, and the US’ actions against TikTok. This will only grow.
  • US companies are at less risk: conversely, nobody wants to get into a trade war with the US so – bar China and Russia where the services are effectively banned already – expect Europe’s response to be more based around fines (useful for plugging the deficits) and / or limited regulatory rules. There is also the issue that many regulators / politicians find it hard to understand the market and have greater problems to deal with at the moment.
  • Tech will be helped by the Coronavirus outbreak: in many ways, tech has stepped up to the plate to ensure the economic / social system did not buckle eg video conferencing to enable home working, cloud data storage etc. Therefore, tech is likely to get a reprieve because politicians will be wary of impacting a sector that has helped cushion the blow over the past and (unfortunately likely) coming months.
  • Regulation favours incumbents: the history of tech, and media before it, shows the lesson time and time again that incumbents favour regulation when they start to dominate the market because it proves to be an effective barrier to entry because of the costs of complying with regulations. So, conversely, expect more calls for regulation.

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