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Facebook Must Be Restructured. The FTC Should Take These Nine Steps Now.

If FTC commissioners truly are serious about making Facebook serve the interests of the American public, here is a set of actions they should take

‘Rather than simply carve away some of Facebook’s huge profits, the FTC should immediately move to restructure the corporation.’ ,Justin Sullivan/Getty Images

Since news broke that a data analysis firm with ties to the Trump campaign harvested personal information from tens of millions of Facebook users, much of the speculation has focused on whether the Federal Trade Commission will fine the corporation for violating a 2011 deal to protect user privacy.

But the pressing nature of America’s Facebook problem, especially the way the corporation’s actions have endangered basic democratic institutions, means the FTC should go much further.

Rather than simply carve away some of Facebook’s huge profits, the FTC should immediately move to restructure the corporation to ensure this now essential medium of communication really serves the political and economic interests of American citizens in the 21st century.

What makes Facebook’s apparent mishandling of data so deeply dangerous is the corporation’s power and reach over both the distribution and generation of news and information. Facebook is the leading way that most Americans get their news. In 2017 it accounted for 26% of external traffic referral to the websites of news publishers. In tandem with Google, the figure is 70%.

It is this bottlenecking of the news that makes Facebook such a tempting target for data miners. It is this bottlenecking that has also enabled Facebook to steer readers to certain publishers and away from others, in ways that increase Facebook’s earnings but can seriously weaken or even bankrupt well-established newspapers and magazines.

To make a tough situation worse, Facebook exploits this bottleneck to divert billions in advertising revenues away from trustworthy sources of news into its own coffers. Facebook now pockets roughly a quarter of all online and mobile advertising, which added up to almost $40bn last year. The Dow Jones publisher Will Lewis said the diversion of advertising revenue is “killing news”. Facebook, he explained, has “taken the money” spent to advertise “around our content. It’s wrong and it has to stop.”

Facebook’s founder, Mark Zuckerberg, clearly recognizes how much government-like coercive power his corporation has amassed. “Facebook is more like a government than a traditional company,” he has said. “We have this large community of people, and more than other technology companies we’re really setting policies.”

This immense power comes from Facebook’s status as a de facto monopoly. This monopoly is not a natural result of networking technology or ‘network effects’. It is largely the result of Facebook buying out its competitors. In 2012, Facebook bought Instagram. Two years later it bought WhatsApp.

Facebook’s power also comes from its willingness to stiff-arm policymakers. Despite proof that Facebook was an important tool of Russian hackers seeking to disrupt American democracy, the corporation has aggressively lobbied against the Honest Ads Act, a simple disclosure proposal put forward by Senators Amy Klobuchar and Mark Warner. For years, Facebook has lobbied successfully in state capitals all over the country to block privacy rules, such as on facial recognition technologies.

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The payoff for such intentional abuse of the public interest? When Facebook in 2011 signed that “consent decree” with the FTC, its yearly revenue was $3.7bn. In 2017, it was more than 10 times higher.

The idea the FTC might take dramatic action against Facebook may strike many observers as laughable. The current FTC has indeed failed time and again to meet the enormous challenges posed by Facebook and other technology platforms, especially Google and Amazon. But for the first time in decades, all five existing seats on the commission are being replaced at once. The new incoming chair, Joe Simons, has testified that he believes platform monopolists have the power “to use inappropriate means to stay big”.

The only thing holding this up is a final Senate vote on the nominees, which Senate leaders Mitch McConnell and Chuck Schumer could hold any time.

If the next set of FTC commissioners truly are serious about making Facebook serve the interests of the American public, here is a set of actions they should begin to take on day one. Every one of these action has a strong foundation in US law and practice:

1) Impose strict privacy rules on Facebook, perhaps using Europe’s new General Data Protection Regulation as a guide.

2) Spin off Facebook’s ad network. This will eliminate, in one swoop, most of the incentive that Facebook now has to amass data and to interfere and discriminate in the provision of information and news.

3) Reverse the approvals for Facebook purchases of WhatsApp and Instagram, and re-establish these as competing social networks.

4) Prohibit all future acquisitions by Facebook for at least five years.

5) Establish a system to ensure the transparency of all political communications on Facebook, similar to other major communication networks in the United States.

6) Require Facebook to adopt open and transparent standards, similar to conditions the FTC imposed on AOL Messenger in the AOL-Time Warner merger settlement in 2001.

7) Establish whether Facebook violated the 2011 consent decree and, if so, seek court sanctions.

8) Threaten to bring further legal action against Facebook unless top executives immediately agree to work with the FTC to restructure their corporation to ensure the safety and stability of our government and economy.

9) Establish whether top executives enabled, encouraged, or oversaw violations of the 2011 consent decree and, if so, pursue personal fines against them.

Barry Lynn is the executive director of the Open Markets Institute. Matt Stoller is a fellow at the Open Markets Institute