Data Analytics & AI

Google, Tencent running risks with regulation

If you thought the threats facing platform companies weren’t very likely to become reality, here a couple of things that have happened since we published that article.

At its analyst call on Monday, Google said it was reviewing its options after being fined a record €2.4 billion by the European Union at the end of June for abusing its dominant position. It did this by giving its own shopping service “illegal advantage” – that is the premium slots at the top of the search results.

During Monday’s call, Google found itself defending its practice of bundling services such as YouTube, Maps and Android. The EU is already accusing the company of abusing its dominant position in the smartphone market by insisting that makers of Android handset must also pre-install Google’s search and its Chrome browser. An investigation is underway.

Although Google plans to appeal the fine, the net income of its parent company Alphabet, dropped 28 percent in the quarter to the end of June to $3.5 billion. Without the fine, income would have risen 28 percent year on year to $6.9 billion. Still, Alphabet’s market capitalization has risen by $100 billion since the end of the first quarter in March.

Even so, The Financial Times’ Lex Column [subscription needed]warns that the company and the market are not paying enough attention to the potential damage regulation could do. As it points out, the fine is far from the end of the matter.

“With its leading position in search, mobile operating systems and internet browsers not to mention its 40 per cent share of US digital ad revenues, the company has a target on its back,” Lex adds. “The earnings came the same day as congressional Democrats put stronger antitrust rules at the center of their agenda for next year’s elections.”

Those who are anti-regulation argue that tech giants lose their dominance because something else comes along. It’s interesting to consider whether Google would have become the primary search engine for much of the world, though, had Microsoft been allowed to exclude it and bundle only its own solutions with Windows instead of being prevented from doing so by anti-trust investigations.

Tencent takes a multi-billion dollar hit

Meanwhile, at the beginning of July, even the threat of regulatory action was enough for Chinese company Tencent to take decisive action. The company promptly lost $15.1 billion in market value after it restricted the time children can play its most popular game, Honour of Kings. It faces a growing public backlash after a 17-old suffered a stroke having played for 40 hours without a break and a 13 year-old broke both legs by jumping out of window after his parents stopped him playing, according to an article in the Financial Times [subscription needed].

More than 50 million people play the game daily, but now children under 12 are limited to an hour a day, and 12 to 18 year olds to two hours daily. They are also barred from playing after 9 p.m. In China, companies are obligated to verify the identity of all their players and hold those identities on a central database, on pain of losing their gaming licenses.

Clearly the company felt that its reputation and avoiding political as well as regulatory interference was worth the hit.

Confusion over compliance

Google had already been in trouble with a British regulator in May, along with one of the UK’s National Health Service Trusts. A year-long investigation by the British Information Commissioner’s Office into the joint initiative between Google Deepmind and The Royal Free NHS Foundation Trust in London found the latter did not comply with data protection policies when it passed the details of 1.6 million patients to Google as part of a trial to test an alert, diagnosis and detection system for acute kidney injury.

The data was to be used to create an app called Streams, and was passed on without knowledge or consent of the patients. I am baffled why a year-long investigation was needed to conclude that handing over people’s medical records and other information without their knowledge, never mind consent, is just plain wrong: The agreement was signed in secret in September 2015 and only became public knowledge after an exposé in the New Scientist magazine in April 2016.

Although it acted illegally, the Trust is being allowed to continue with the initiative as its seen to be for the public good. So, if the situation regarding compliance was confusing before, it’s even more so now – the message that ruling conveyed is that breaking the law and violating people’s rights is fine so long as it’s deemed to be in the public interest. Hmmm.

Still it might well make many other hard-pressed National Health Service Trusts think twice about how they use their patients’ information, and maybe Google will be a bit more cautious too?

This confusing situation prompted British pub chain JD Wetherspoon to delete all the information it had collected about its customers to avoid breaching the rules unintentionally. Like Tencent, even the possibility of crossing swords with the regulator was enough to trigger a retreat.


About The Author

Snr Director, Research & Media

Annie Turner has been researching and writing about the communications industry since the 1980s, editing magazines dedicated to the subject including titles published by Thomson International and The Economist Group. She has contributed articles to many publications, including national and international newspapers such as the Financial Times and International Herald Tribune, and a multitude of business-to-business titles. She joined the TM Forum in 2010 and is responsible for overseeing the content of the Research and Publications portfolio.

Leave A Reply

Back to top