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Analysis: CNBCU Conditions Will Stimulate Growth, Not Restrict It

The Federal Communications Commission’s recent approval of Comcast’s purchase of NBCU has come with some major conditions that will limit any potential discriminatory policies the new firm might have engaged in.

The new entity, CNBCU, will become one of the nation’s largest content creation and distribution companies. CNBCU will be in a unique position in that they will not only control the creation of content but also the method in which it is distributed. Unchecked, this vertical integration could lead to monopolistic actions.

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The Federal Communications Commission’s recent approval of Comcast’s merger with NBCU has come with some major conditions that will limit any potential discriminatory policies the new firm might have engaged in.

The new entity, CNBCU, will become one of the nation’s largest content creation and distribution companies. CNBCU will be in a unique position in that they will not only control the creation of content but also the method in which it is distributed. Unchecked, this vertical integration could lead to monopolistic actions.

In his dissent to the merger, Commissioner Michael Copps said, “[this merger] confers too much power in one company’s hands.” However, with the conditions imposed by the commission, CNBCU, while powerful, will be unable to act in a monopolistic manner.

While some critics have called the FCC’s conditions restrictive, they are directed at potential areas where the new firm could do direct consumer harm. The main goal of these policies is to protect consumer welfare once CNBCU becomes a major market force in all of the cable, broadband, and online video markets. The FCC worked with the Department of Justice to include provisions that will ensure that the new firm will not violate anti-trust regulations.

The conditions placed upon the merger will guarantee the consumer welfare is protected while also supporting a vibrant marketplace.

The most prominent anti-discriminatory directives – compliance with the Open Internet Order –  is a major factor in ensuring broadband competitiveness. CNBCU will become one of the nation’s largest internet service providers offering access in over 30 states. The merger agreement mandates that the firm must follow all the provisions of the FCC’s Open Internet Order. Even if the Order is modified or struck down in court, CNBCU must adhere to the rules and regulations within the Order.

Compliance with the Open Internet Order by such a large player in the market will not only affect CNBCU but also its competitors.  To remain competitive with CNBCU’s open network, market pressure will mount for rival ISPs to follow the Open Internet Order as well. Given a choice between the open CNBCU network and a potentially closed or limiting internet service, consumers will likely pick the open network.

Verizon and MetroPCS have already filed suit against the FCC over the Open Internet Order; however, regardless of the outcome it will presumably be adopted by all major ISPs. The market power that CNBCU holds will ensure that its competitors will also follow the same rules to offer a competitive product.

CNBCU will be in a unique position of being a content provider and content maker. It will also be the largest player in the emerging online video distribution market. CNBCU will control nearly 5 percent of the online video distribution market including Hulu, Daily Candy, and NBC.com. Additionally CNBCU has signed a lucrative deal with Netflix to offer a large back catalog of content.

The online video market is growing faster than ever as more consumers “cut the cord” and drop traditional cable in favor of online video. The research firm SNL Kagan, estimates that 741,000 customers dropped their cable subscriptions.

CNBCU will presumably earn more revenue from advertising on its traditional cable properties than its online video properties.  The Commission, recognizing the financial incentive for CNBCU to force consumers to watch their programming over cable versus online video distributors, explicitly forbids the blocking or degrading of online video content. This anticipation shows that the FCC believes this emerging market will soon take off and become a major way in which consumers will access content.

The most prominent of these online video distributers is the popular free website Hulu, in which CNBCU – along with ABC and News Corp. – holds a major stake. The website is a limited alternative to traditional cable access. Since CNBCU competes with Hulu in the cable market, however, the FCC is justified that CNBCU may try to limit Hulu. In fact, the 2010 Comcast v. FCC case sprung from accusations that in 2007, then standing alone, Comcast degraded service to services such as Hulu and Skype, which provided free alternatives to their cable and telephone products.  The merger conditions restrict CNBCU from exercising any operational power over Hulu, but it will be allowed to keep its financial stake in the firm. To ensure that Hulu continues to get content from CNBCU at a fair price the FCC has mandated that CNBCU must maintain its current contract with Hulu and continue to provide the same level of content that its partners provide. By maintaining its financial stake in Hulu CNBCU will presumably want the company to do well and provide it with quality programming.

To prevent any exclusionary deals that would prevent other cable providers from access to its online video, the Commission has mandated that CNBCU must offer its online content to others at a reasonable market rate.

Additionally CNBCU is prohibited from offering to its broadband subscribers specialized online video content that includes only NBC programming. In order to offer an online video service the firm must include programming from outside sources as well. However, with its stake in Hulu it seems unlikely that the firm will launch a new online video service.

The online video conditions may seem unnecessary due to the relative size of the market in comparison to that of cable, but online video is continuously growing. The concern by the FCC over the market indicates that the Commission anticipates it becoming a prominent method of watching television and movies in the near future. If CNBCU blocks access to its content, it will severely hinder the growth of the online video market.

While some may claim that the conditions imposed by the FCC on the merger is strong handed government overreaching by the commission, these conditions actually promise to create new markets while protecting consumers and preventing years of anti-trust litigation.

Rahul Gaitonde has been writing for BroadbandBreakfast.com since the fall of 2009, and in May of 2010 he became Deputy Editor. He was a fellow at George Mason University’s Long Term Governance Project, a researcher at the International Center for Applied Studies in Information Technology and worked at the National Telecommunications and Information Administration. He holds a Masters of Public Policy from George Mason University, where his research focused on the economic and social benefits of broadband expansion. He has written extensively about Universal Service Fund reform, the Broadband Technology Opportunities Program and the Broadband Data Improvement Act

Section 230

Democrats Use Whistleblower Testimony to Launch New Effort at Changing Section 230

The Justice Against Malicious Algorithms Act seeks to target large online platforms that push harmful content.

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Rep. Anna Eshoo, D-California

WASHINGTON, October 14, 2021 – House Democrats are preparing to introduce legislation Friday that would remove legal immunities for companies that knowingly allow content that is physically or emotionally damaging to its users, following testimony last week from a Facebook whistleblower who claimed the company is able to push harmful content because of such legal protections.

The Justice Against Malicious Algorithms Act would amend Section 230 of the Communications Decency Act – which provides legal liability protections to companies for the content their users post on their platform – to remove that shield when the platform “knowingly or recklessly uses an algorithm or other technology to recommend content that materially contributes to physical or severe emotional injury,” according to a Thursday press release, which noted that the legislation will not apply to small online platforms with fewer than five million unique monthly visitors or users.

The legislation is relatively narrow in its target: algorithms that rely on the personal user’s history to recommend content. It won’t apply to search features or algorithms that do not rely on that personalization and won’t apply to web hosting or data storage and transfer.

Reps. Anna Eshoo, D-California, Frank Pallone Jr., D-New Jersey, Mike Doyle, D-Pennsylvania, and Jan Schakowsky, D-Illinois, plan to introduce the legislation a little over a week after Facebook whistleblower Frances Haugen alleged that the company misrepresents how much offending content it terminates.

Citing Haugen’s testimony before the Senate on October 5, Eshoo said in the release that “Facebook is knowingly amplifying harmful content and abusing the immunity of Section 230 well beyond congressional intent.

“The Justice Against Malicious Algorithms Act ensures courts can hold platforms accountable when they knowingly or recklessly recommend content that materially contributes to harm. This approach builds on my bill, the Protecting Americans from Dangerous Algorithms Act, and I’m proud to partner with my colleagues on this important legislation.”

The Protecting Americans from Dangerous Algorithms Act was introduced with Rep. Tom Malinowski, D-New Jersey, last October to hold companies responsible for “algorithmic amplification of harmful, radicalizing content that leads to offline violence.”

From Haugen testimony to legislation

Haugen claimed in her Senate testimony that according to internal research estimates, Facebook acts against just three to five percent of hate speech and 0.6 percent of violence incitement.

“The reality is that we’ve seen from repeated documents in my disclosures is that Facebook’s AI systems only catch a very tiny minority of offending content and best content scenario in the case of something like hate speech at most they will ever get 10 to 20 percent,” Haugen testified.

Haugen was catapulted into the national spotlight after she revealed herself on the television program 60 Minutes to be the person who leaked documents to the Wall Street Journal and the Securities and Exchange Commission that reportedly showed Facebook knew about the mental health harm its photo-sharing app Instagram has on teens but allegedly ignored them because it inconvenienced its profit-driven motive.

Earlier this year, Facebook CEO Mark Zuckerberg said the company was developing an Instagram version for kids under 13. But following the Journal story and calls by lawmakers to backdown from pursuing the app, Facebook suspended the app’s development and said it was making changes to its apps to “nudge” users away from content that they find may be harmful to them.

Haugen’s testimony versus Zuckerberg’s Section 230 vision

In his testimony before the House Energy and Commerce committee in March, Zuckerberg claimed that the company’s hate speech removal policy “has long been the broadest and most aggressive in the industry.”

This claim has been the basis for the CEO’s suggestion that Section 230 be amended to punish companies for not creating systems proportional in size and effectiveness to the company’s or platform’s size for removal of violent and hateful content. In other words, larger sites would have more regulation and smaller sites would face fewer regulations.

Or in Zuckerberg’s words to Congress, “platforms’ intermediary liability protection for certain types of unlawful content [should be made] conditional on companies’ ability to meet best practices to combat the spread of harmful content.”

Facebook has previously pushed for FOSTA-SESTA, a controversial 2018 law which created an exception for Section 230 in the case of advertisements related prostitution. Lawmakers have proposed other modifications to the liability provision, including removing protections in the case for content that the platform is paid for and for allowing the spread of vaccine misinformation.

Zuckerberg said companies shouldn’t be held responsible for individual pieces of content which could or would evade the systems in place so long as the company has demonstrated the ability and procedure of “adequate systems to address unlawful content.” That, he said, is predicated on transparency.

But according to Haugen, “Facebook’s closed design means it has no oversight — even from its own Oversight Board, which is as blind as the public. Only Facebook knows how it personalizes your feed for you. It hides behind walls that keep the eyes of researchers and regulators from understanding the true dynamics of the system.” She also alleges that Facebook’s leadership hides “vital information” from the public and global governments.

An Electronic Frontier Foundation study found that Facebook lags behind competitors on issues of transparency.

Where the parties agree

Zuckerberg and Haugen do agree that Section 230 should be amended. Haugen would amend Section 230 “to make Facebook responsible for the consequences of their intentional ranking decisions,” meaning that practices such as engagement-based ranking would be evaluated for the incendiary or violent content they promote above more mundane content. If Facebook is choosing to promote content which damages mental health or incites violence, Haugen’s vision of Section 230 would hold them accountable. This change would not hold Facebook responsible for user-generated content, only the promotion of harmful content.

Both have also called for a third-party body to be created by the legislature which provides oversight on platforms like Facebook.

Haugen asks that this body be able to conduct independent audits of Facebook’s data, algorithms, and research and that the information be made available to the public, scholars and researchers to interpret with adequate privacy protection and anonymization in place. Beside taking into account the size and scope of the platforms it regulates, Zuckerberg asks that the practices of the body be “fair and clear” and that unrelated issues “like encryption or privacy changes” are dealt with separately.

With reporting from Riley Steward

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Big Tech

OECD Ratifies Global 15% Digital Tax Rate, Aims For 2023 Implementation

The OECD finalized an earlier agreement that would impose a 15% tax on companies operating in 136 member nations.

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US Treasury Secretary Janet Yellen.

WASHINGTON, October 11, 2021 – The Organization for Economic Cooperation and Development on Friday finalized an agreement to levy a 15 percent tax rate on digital multinational businesses, like Amazon, Apple, Google, and Facebook, starting in 2023.

The ratification of the tax rate comes after years of negotiations and after individual countries have proposed their own tax systems to keep up with internet businesses that have long skirted the tax of laws of nations they operate in because they don’t necessarily have a physical connection inside those borders. The Liberal Party in Canada, for example, had proposed a 3 percent tax on revenues obtained inside the country, while Britain, France, Italy, and Spain had been contemplating digital sales taxes on their own.

The 15 percent tax rate has been signed by 136 member nations, all OECD and G20 countries, out of 140 states (Kenya, Nigeria, Sri Lanka, and Pakistan did not join) and finalizes a July political agreement to reform international tax rules. The United States had proposed the 15 percent global corporate tax rate earlier this year.

Hungary and Ireland, the latter of which is a corporate tax haven for companies like Apple and Google, were two of the last holdouts. Hungary agreed to join Friday after they were guaranteed a ten-year rollout period for the regulation, and Ireland agreed Thursday after guarantees that the rate would not be subsequently increased.

The new tax rate is expected to generate US $150 billion annually for the countries involved and targets companies with revenues of over 750 million Euros. “The global minimum tax agreement does not seek to eliminate tax competition, but puts multilaterally agreed limitations on it,” the OECD said, adding the tax will not only stabilize the international tax system but also provide companies with more certainty as to their obligations.

The regulation would be the first foundational cross-border corporate tax rate regulatory change in over a century. Some are skeptical of President Joe Biden’s and Congress’s ability to ratify the agreement. The OECD hopes to sign a multilateral convention by 2022 and implement the reform by 2023.

The final agreement will be delivered to the G20 finance ministers meeting in Washington D.C. on Wednesday, then it will be charted off to the G20 Leaders’ Summit in Rome at the end of this month, according to a OECD press release.

The United States was in a bit of a defensive pattern under former President Donald Trump, after the country made tariff threats if the European nations, particularly France, decided to tax its big homegrown corporations.

French Finance Minister Bruno Le Maire said that the agreement, “opens the path to a true fiscal revolution.” US Treasury Secretary Janet Yellen said that the OECD has “decided to end the race to the bottom on corporate taxation,” referring to the practice of attracting large companies to headquarter in one’s country through purposefully incentivized lower tax rates.

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Social Media

Congress Must Force Facebook to Make Internal Research Public, Whistleblower Testifies

Frances Haugen testifies in front of the Senate studying protecting kids online after revealing herself as Facebook whistleblower.

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Facebook whistleblower Frances Haugen testifies in front of Senate committee on October 5.

WASHINGTON, October 5, 2021 – The former Facebook employee who outed herself as the whistleblower who leaked documents to the Wall Street Journal that showed Facebook knew its photo-sharing app Instagram contributed to harming the mental health of kids told a Senate committee that the company’s alleged profit-driven motives means the company’s internal research cannot be kept behind closed doors.

Frances Haugen testified Tuesday in front of the Senate Subcommittee on Consumer Protection, Product Safety and Data Security, which is looking into protecting kids online, after identifying herself Sunday on the television program 60 Minutes as the person who gave the Journal and the Securities and Exchange Commission documents showing the company going forward with development of a kids version of Instagram despite knowing the mental health impact its apps have on that demographic. (Facebook has since halted development of the kids app after the Journal story and lawmakers asking for it to be suspended.)

“We should not expect Facebook to change. We need action from Congress,” Haugen said Tuesday.

That action, she recommended, includes forcing Facebook to make all future internal research fully public because the company cannot be trusted to act on its own commissioned work.

Haugen noted that the reason the company did not — and does not — take such action, which could include preemptively shutting down development of its Instagram for kids product, is because the company is allegedly driven by a profit-first model.

“Facebook repeatedly encountered conflicts between its own profits and our safety. Facebook consistently resolved those conflicts in favor of its own profits,” alleged Haugen, who now considers herself an advocate for public oversight of social media.

“The result has been a system that amplifies division, extremism, and polarization — and undermining societies around the world. In some cases, this dangerous online talk has led to actual violence that harms and even kills people. In other cases, their profit optimizing machine is generating self-harm and self-hate — especially for vulnerable groups, like teenage girls. These problems have been confirmed repeatedly by Facebook’s own internal research.”

Despite calls to modify Section 230 of the Communications Decency Act, which shields large tech platforms from legal liability for what their users post, Haugen said that – and tweaks to its outdated privacy protections – won’t be enough.

Facebook has for months touted it removes millions of groups and accounts that violate its community guidelines on hate speech and inciting violence. But Haugen alleges that despite the claims that it actively makes its platforms safer, in actuality, it only takes down three to five percent of those threats.

Asked by Senator Ben Ray Lujan, D-New Mexico, if Facebook “ever found a feature on its platform harmed its users, but the feature moved forward because it would also grow users or increase revenue,” Frances said yes, alleging the company prioritized ease of resharing over the feature’s susceptibility to growing “hate speech, misinformation or violence incitement,” even though the feature would only “decrease growth a tiny, little amount.”

She also alleged that those directions came from the head of the company himself, Mark Zuckerberg, who allegedly chose arbitrary or vague “metrics defined by Facebook, like meaningful social interactions over changes that would have significantly decreased misinformation, hate speech and other inciting content.”

Facebook’s troubles, up to this point

Facebook has already been the target of Washington’s ire for months now. It has been cited as an alleged enabler of the January 6 Capitol Hill riot that sought to stop the transition to a Joe Biden presidency, despite the platform banning former president Donald Trump. Its platform had also been blamed for allowing the spread of information that has led to violence in parts of the world, including genocide in Myanmar.

The platform has already been accused of suppressing stories from progressive news outlets and censors information that conflicts with its own personal interest, and that its algorithms deliver the same kinds of information to people so they are not exposed to different viewpoints, as a number of public interest groups have claimed.

In 2018, Facebook made worldwide news after reports in the Guardian and the New York Times found nearly 100 million Facebook profiles were harvested by a company called Cambridge Analytica, which used the data to build profiles of people to provide them with material that made them sway in a political direction.

Federal regulators have already been looking to deal with Facebook and other Big Tech companies, as that has one clear agenda item of the Biden administration. The White House has already perched Amazon critic Lina Khan as the head of the Federal Trade Commission, which has recently filed a monopoly complaint against the company in court, and other figures, including Google critic Jonathan Kanter to the Department of Justice’s antitrust division.

Facebook’s week has gone from bad to worse. Haugen, a former Facebook product manager and Harvard MBA graduate, testified in a hearing titled “Protecting Kids Online” before the Subcommittee on Consumer Protection, Product Safety, and Data Security Hearing on Tuesday. Previous opposition to Facebook’s plans to expand its products to minors has come from external parties like public interest groups and Congress.

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