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Tech Scrutiny Could Intensify No Matter Who Wins U.S. Election

October 31, 2018
In The News

No matter which party takes control of the U.S. House and Senate in next week’s midterm elections, technology and internet stocks are likely to face more regulatory scrutiny.

Internet companies, which are already struggling amid signs of cooling after years of rapid growth, have emerged as a rare subject of bipartisan criticism. Recent events like Facebook Inc.’s data breach have underlined the spotlight that’s been put on social media companies, especially in relation to consumer data and privacy.

“Tech is taking its place at or near the top of the agenda. Previously, it wasn’t even on the agenda,” Ed Mills, a Washington policy analyst at Raymond James, said in a phone interview. “Republicans might be more focused on consumer and data privacy, while Democrats focus on election interference and harassment, but the desire to take a new look at tech is a bipartisan issue, and social media companies are the most exposed.”

Social media has been under Washington’s microscope for months. In April, Facebook Chief Executive Officer Mark Zuckerberg testified to Congress about the Cambridge Analytica scandal and other issues, while in September, Twitter CEO Jack Dorsey testified about Russian interference in U.S. elections and an alleged anti-conservative bias on the micro-blogging platform.

While both events were widely watched, they didn’t result in any meaningful legislation. Separately, President Donald Trump repeatedly attacked Inc. earlier this year but took no significant stepsagainst the world’s biggest online retailer.

In emailed comments to Bloomberg News, Isaac Boltansky, senior policy analyst at Compass Point, suggested additional hearings are more likely than regulatory changes after the midterms.

“We should expect a number of hearings and a fair amount of headline risk, but it is hard to see much changing legislatively,” he wrote.

Polls indicate that Democrats are likely to take control of the House, and earlier this month, Representative Ro Khanna, a California Democrat, outlined an “Internet Bill of Rights,” a 10-point program that would lay out new rules on such issues as the use of data. Khanna said he was “hopeful” that the next Congress would act on some of the ideas in its first 100 days, though that schedule assumed a Democratic House majority.

House Minority Leader Nancy Pelosi has “long defended the tech industry, so this tech regulation agenda says something about where Democrats now stand on their one-time Silicon Valley allies,” wrote Paul Gallant, a senior policy analyst with Cowen’s Washington research group.

In a recent hearing that underlined the bipartisan nature of tech regulation, Republican Senator John Thune of South Dakota, chairman of the Senate Commerce Committee, said it was “increasingly clear that industry self-regulation in this area is not sufficient.”

UBS, in a report analyzing the impact of the midterms, wrote that “under all scenarios” -- meaning outcomes where Democrats take control of the House, both chambers, or neither -- “we expect to see continued pressure on Internet companies.” This “seems to be largely bipartisan,” UBS wrote, “so little impact from the midterms.”

Even so, analysts have been reluctant to turn bearish simply because of potential government impact. Ron Josey, a senior analyst covering internet and digital media for JMP Securities, called regulation one of the top five issues facing the sector, although he put it well behind a macroeconomic slowdown or further signs of waning growth in individual stocks, as has been seen recently at Amazon and Alphabet Inc., the parent company of Google.

“It’s hard to tell what the impact might be” on stock prices, he said, adding that worst-case regulatory scenarios are unlikely. “There’s no appetite for breaking up the largest companies, and I don’t see how you would go about monitoring the kind of content published on Facebook or Twitter.”