Tag Archives: google

Who Owns the Internet Pipes

The ships that lay electronic cables across the ocean floor look like cargo vessels with a giant fishing reel on one end. They move ponderously across the open water, lowering insulated wire into shallow trenches in the seabed as they go. This low-tech process hasn’t changed much since 1866, when the SS Great Eastern laid the first reliable trans-Atlantic telegraph cable, capable of transmitting eight words per minute. These days, the cables are made of optical fiber, can carry 100 terabits of data or more in a second, and aren’t owned only by telephone companies.

Among the newcomers are a few of the world’s leading internet companies, which have concluded that, given the cost of renting bandwidth, they may as well make their own connections. Facebook and Microsoft have joined with Spanish broadband provider Telefónica to lay a private trans-Atlantic fiber cable known as Marea. The three companies will divide up the cable’s eight fiber strands, with Facebook and Microsoft each getting two. The project, slated to be completed by the end of 2017, marks the first time Facebook has taken an active role in building a cable, rather than investing in existing projects or routing data through pipes controlled by traditional carriers. Marea will be Microsoft’s second private cable; a trans-Pacific one is scheduled to come online in 2017.

In June 2016, Google said it had finished a data pipeline running from Oregon to Taiwan, and it has at least two more coming: one from the U.S. to Brazil; the other, a joint project with Facebook, will connect Los Angeles and Hong Kong. Amazon.com made its first cable investment in May, announcing plans for a link between Australia and New Zealand and the U.S. Worldwide, 33 cable projects worth an estimated $8.1 billion are scheduled to be online by 2018, according to TeleGeography. That’s up from $1.6 billion worth of cables in the previous three years. And bandwidth demand is expected to double every two years. ..

Cables are just one way to increase the supply of bandwidth and cut costs, says Chetan Sharma, an analyst and telecom consultant. Facebook is also working on satellites, lasers, and drones to deliver internet access to remote places, and Google has experimented with hot air balloons. So far, undersea cables remain the best option for crossing oceans—they’re cheaper, far more reliable, and largely unregulated. The United Nations treats ocean cables in much the same manner as boat traffic, meaning companies can lay and repair cables in international waters pretty much wherever they please, provided they don’t damage existing ones.So Silicon Valley will continue to pour money into technology pioneered in the telegraph era. “It’s about taking control of our destiny,” says Mark Russinovich, chief technology officer for Microsoft’s cloud services division, Azure. “We’re nowhere near being built out.”

Excerpt from Bet you Own Broadband, Bloomberg, Oct. 20, 2016

America Inc. and its Moat

moat

Warren Buffett, the 21st century’s best-known investor, extols firms that have a “moat” around them—a barrier that offers stability and pricing power.One way American firms have improved their moats in recent times is through creeping consolidation. The Economist has divided the economy into 900-odd sectors covered by America’s five-yearly economic census. Two-thirds of them became more concentrated between 1997 and 2012 (see charts 2 and 3). The weighted average share of the top four firms in each sector has risen from 26% to 32%…

These data make it possible to distinguish between sectors of the economy that are fragmented, concentrated or oligopolistic, and to look at how revenues have fared in each case. Revenues in fragmented industries—those in which the biggest four firms together control less than a third of the market—dropped from 72% of the total in 1997 to 58% in 2012. Concentrated industries, in which the top four firms control between a third and two-thirds of the market, have seen their share of revenues rise from 24% to 33%. And just under a tenth of the activity takes place in industries in which the top four firms control two-thirds or more of sales. This oligopolistic corner of the economy includes niche concerns—dog food, batteries and coffins—but also telecoms, pharmacies and credit cards.

The ability of big firms to influence and navigate an ever-expanding rule book may explain why the rate of small-company creation in America is close to its lowest mark since the 1970s … Small firms normally lack both the working capital needed to deal with red tape and long court cases, and the lobbying power that would bend rules to their purposes….

Another factor that may have made profits stickier is the growing clout of giant institutional shareholders such as BlackRock, State Street and Capital Group. Together they own 10-20% of most American companies, including ones that compete with each other. Claims that they rig things seem far-fetched, particularly since many of these funds are index trackers; their decisions as to what to buy and sell are made for them. But they may well set the tone, for example by demanding that chief executives remain disciplined about pricing and restraining investment in new capacity. The overall effect could mute competition.

The cable television industry has become more tightly controlled, and many Americans rely on a monopoly provider; prices have risen at twice the rate of inflation over the past five years. Consolidation in one of Mr Buffett’s favourite industries, railroads, has seen freight prices rise by 40% in real terms and returns on capital almost double since 2004. The proposed merger of Dow Chemical and DuPont, announced last December, illustrates the trend to concentration. //

Roughly another quarter of abnormal profits comes from the health-care industry, where a cohort of pharmaceutical and medical-equipment firms make aggregate returns on capital of 20-50%. The industry is riddled with special interests and is governed by patent rules that allow firms temporary monopolies on innovative new drugs and inventions. Much of health-care purchasing in America is ultimately controlled by insurance firms. Four of the largest, Anthem, Cigna, Aetna and Humana, are planning to merge into two larger firms.

The rest of the abnormal profits are to be found in the technology sector, where firms such as Google and Facebook enjoy market shares of 40% or more

But many of these arguments can be spun the other way. Alphabet, Facebook and Amazon are not being valued by investors as if they are high risk, but as if their market shares are sustainable and their network effects and accumulation of data will eventually allow them to reap monopoly-style profits. (Alphabet is now among the biggest lobbyists of any firm, spending $17m last year.)…

Perhaps antitrust regulators will act, forcing profits down. The relevant responsibilities are mostly divided between the Department of Justice (DoJ) and the Federal Trade Commission (FTC), although some …[But]Lots of important subjects are beyond their purview. They cannot consider whether the length and security of patents is excessive in an age when intellectual property is so important. They may not dwell deeply on whether the business model of large technology platforms such as Google has a long-term dependence on the monopoly rents that could come from its vast and irreproducible stash of data. They can only touch upon whether outlandishly large institutional shareholders with positions in almost all firms can implicitly guide them not to compete head on; or on why small firms seem to be struggling. Their purpose is to police illegal conduct, not reimagine the world. They lack scope.

Nowhere has the alternative approach been articulated. It would aim to unleash a burst of competition to shake up the comfortable incumbents of America Inc. It would involve a serious effort to remove the red tape and occupational-licensing schemes that strangle small businesses and deter new entrants. It would examine a loosening of the rules that give too much protection to some intellectual-property rights. It would involve more active, albeit cruder, antitrust actions. It would start a more serious conversation about whether it makes sense to have most of the country’s data in the hands of a few very large firms. It would revisit the entire issue of corporate lobbying, which has become a key mechanism by which incumbent firms protect themselves.

Excerpts from Too Much of a Good Thing, Economist, Mar. 26, 2016, at 23

Who is Afraid of Google?

image from wikipedia

[Some] worry that Google could prove to be the ultimate digital monopoly. They do not think that its reason for being is primarily online search or the advertising business; they see it as being in the business of mining any and all data it can accumulate for new profit streams. The data hunger such a goal demands is the main reason, they argue, why Google is entering markets as diverse as self-driving cars, smart homes, robotics and health care. “Google is trying to leverage the advantage it has in one area into many others,” says Nathan Newman, a lawyer and technology activist. The idea is that Google could use its assets—its data, its unparalleled ability to exploit those data, its brilliant employees and knack for managing them—to take control of other industries.

For such a data-centric conglomerate to get ever more dominant seems against the flow of history and intuitively unlikely. But intuitive views of the direction of internet competition have been wrong before, as the existence of giants like Google, Amazon and Facebook bears witness. And should it show signs of coming to pass, the current antitrust skirmishes will give way to an epic battle on the scale of the one against Standard Oil. “If we will not endure a king as a political power,” said John Sherman, the senator who gave his name to America’s original antitrust law, “we should not endure a king over the production, transportation and sale of any of the necessaries of life.” Even one that makes things very, very easy.

Excerpt from Internet monopolies: Everybody wants to rule the world, Economist, Nov. 29, 2014. at 19

NSA Files and US Firms in China

CIsco UCS.  Imge from wikipedia

Foreign  companies love to complain about doing business in China. The rules of the game are rigged against them, they grouse, the locals are corrupt and the government is always turning the thumbscrews on them. Amid such moans it is worth remembering that, for all the barriers that foreign multinationals face in China, it has welcomed them with open arms compared with the protectionism imposed by Japan and South Korea at comparable stages in their economic development. Nevertheless, the recent spate of high-profile crackdowns on international firms, and people associated with them, has prompted worries about a generalised anti-foreigner backlash.

This week police in Shanghai formally arrested a British fraud investigator, Peter Humphrey, whom they had detained for six weeks as part of an inquiry into alleged bribery of doctors by foreign drug firms, along with his wife, also an investigator. Mr Humphrey had done work for GlaxoSmithKline (GSK), a British drugs firm, four of whose Chinese managers were arrested last month. Since these arrests other foreign drugmakers have come under investigation, including Sanofi and Eli Lilly.

Now foreign technology firms are worried that they may be next. Chinese nationalists were outraged when Huawei, a local telecoms-equipment giant, was blacklisted last year by American politicians on unsubstantiated allegations of spying. But they grew apoplectic when Edward Snowden earlier this year revealed the extent of American spying on China. Official media outlets have since been calling for the expulsion of Cisco and other leading American technology firms, dubbed the “eight guardian warriors”….

As for the foreign technology firms, and the fear that a nationalist backlash will drive them away, it is true that some in officialdom and in the online Weibo-sphere are eager to see their departure. And there is some evidence of such firms losing a contract here or there. However, it will be bizarre if China were to chase away these firms in the same way that America has seen off Huawei. American technology firms are the world’s best. America does not need Chinese technology, whereas China most certainly needs access to American inventions.

Excerpt, Multinationals in China Guardian warriors and golden eggs, Economist, Aug. 24, 2013, at 59

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“At the end of June, the state-backed China Economic Weekly ran a cover story calling eight US companies – Cisco, IBM, Google, Qualcomm, Intel, Apple, Oracle and Microsoft – “guardian warriors” that had “seamlessly penetrated” Chinese society. The Weekly called Cisco “the most horrible”, given its significant – more than 50% – market share in China’s information infrastructure in financial, military, government and transportation sectors. The magazine also ran a long list of ‘the Eight’s’ projects within China, including Cisco’s upgrades of the People’s Bank of China’s Intranet, IBM’s facilitation in building the Yunnan province police bureau’s database, and Microsoft’s improvements to China Eastern Air’s information technology”. Excerpt from http://rhg.com/notes/eight-guardian-warriors-prism-and-its-implications-for-us-businesses-in-china-2

The Illusion of Privacy: CISPA

medical records

When a coalition of internet activists and web companies scuppered the Hollywood-sponsored Stop Online Piracy Act (SOPA) last year, they warned Congress that future attempts to push through legislation that threatened digital freedoms would be met with a similar response. Now some of them are up in virtual arms again, this time against the Cyber Intelligence Sharing and Protection Act (CISPA)….

Its fans, which include companies such as IBM and Intel, say the bill’s provisions will help America defend itself against attempts by hackers to penetrate vital infrastructure and pinch companies’ intellectual property. CISPA’s critics, which include the Electronic Frontier Foundation, a digital-rights group, and Mozilla, the maker of the Firefox web browser, argue that it could achieve that goal without riding roughshod over privacy laws designed to prevent the government getting its hands on citizens’ private data without proper judicial oversight.

CISPA aims to encourage intelligence-sharing…  [CISPA requires of companies] to be more forthcoming by offering them an exemption from civil and criminal liability when gathering and sharing data about cyber-threats…[T]he bill is vague about what sort of information on cyber-threats can be shared. So in theory everything from e-mails to medical records could end up being shipped to intelligence agencies, even if it is not needed. Harvey Anderson of Mozilla says CISPA “creates a black hole” through which all kinds of data could be sucked in by the government.

The bill does forbid the use by officials of personal information from medical records, tax returns and a list of other documents. But its critics say it would be far better if companies had to excise such data before sharing what is left. They also note that the broad legal protection CISPA offers to firms could be abused by companies keen to cover up mishaps in their handling of customer data. A more carefully worded legal indemnity would stop that happening.

All this has exposed a rift in the internet world. Whereas Mozilla and other firms want CISPA to be overhauled or scrapped, some web firms that helped sink SOPA seem ambivalent. Google claims it has taken no formal position on the draft legislation and is “watching the process closely”. But TechNet, an industry group whose members include the web giant and Facebook, has written to the House Intelligence Committee expressing support for CISPA. If Google and other web companies do have doubts about some of the bill’s provisions, now would be the time for them to sound the alarm.

Cyber-Security, From SOPA to CISPA, Economist, Apr. 20, 2013, at 32

Ongoing Violations of Human Rights:how to use Google to suppress freedom

Facebook and other social media services have created opportunities for dissidents and revolutionaries to organise and voice their opposition. But those in power have discovered that they, too, can use the internet, in their case to stifle freedom of speech. The dream of all dictators is to know as much about you as Google does, says Jacob Mchangama, a Danish human-rights lawyer.

Authoritarian states have also learned how to use the language of human rights to legitimise their oppressive tactics, for instance by claiming to defend religious groups. But their tools of abuse—violence, torture and censorship—remain depressingly familiar. The grand tradition of making opponents “disappear,” perfected by the military dictatorship in Argentina in the 1970s, is still flourishing today. In Bahrain doctors and nurses who treated protesters injured by security forces have vanished. Also in Bahrain, Abdulhadi al-Khawaja, the former head of the Centre for Human Rights and a fierce critic of the regime, was seized by armed men in the middle of the night. A month later he reappeared, tortured and is now facing trial.

Post-revolutionary leaders can find it all too easy to slip into the abusive habits of their predecessors. In Oslo Lina Ben Mhenni, a Tunisian blogger, talked of her fear that the transitional government will use the methods of the ousted regime of Zine el-Abidine Ben Ali. When fresh demonstrations broke out in Tunisia in early May, police used tear gas and live ammunition. Journalists were beaten and had their equipment seized.

Nor do governments have a monopoly on violence. From Jamaica to South Africa, gays and lesbians continue to be the victims of vicious intolerance. Lesbians are raped in an effort to “correct” their sexuality. At the Oslo conference the Jamaica Forum for Lesbians, All-Sexuals and Gays, the first group of its kind on the Caribbean island, said it was remarkable that only one of its founders had been murdered in the past decade, such is the violence typically directed at its people.

Yet there was also brighter news in Oslo. As those in power become more inventive in their clampdowns, so do their opponents. Some have started to help victims make their experiences public. In Malawi children who have been raped or forced into marriage are encouraged to write letters to Radio Timweni, a national news programme, which then interviews them. In the age of Facebook and Google, the truth remains the most powerful weapon of all.

Excerpt, Human-rights abuses: Nothing new under the sun, Economist, May 14, 2011, at 76