Seismic shocks ahead for Big Tech loom — certainly in China, and almost certainly for firms here in the U.S. Bloomberg reported on Friday (March 12) that Tencent and Baidu have been censured by the nature’s antitrust regulators. Tencent and Baidu have been fined 500,000 yuan each for past acquisitions and investments they have made. The Wall Street Journal has reported that Alibaba may be fined more than the $975 million that Qualcomm paid six years ago.
Fines are one thing. Wholesale restructurings are quite another. And the net, it seems, is only being cast wider. And while Tencent (and Baidu) are seemingly newly targeted in regulators’ crosshairs, ground zero for the charge against Big Tech was, and is, of course, Ant Group.
As reported last year, Ant had been gearing up for a massive initial public offering (IPO), slated to be in the tens of billions of dollars. Then the regulators came knocking. The IPO was delayed. (Most recently, Simon Hu has resigned as chief executive officer of Ant Group.)
That kicked off a continuing conversation about just how far reaching Big Tech should reach, and as Bloomberg reported recently, Ant has been required to set up a financial holding company that will include banking, insurance and payments operations.
The overall goal, it seems, may be to cool off a sector that has been afire, where oversight has been signaled explicitly, specifically aimed at FinTechs and financial services. Antitrust investigations in China have been picking up steam, where Alibaba Group has been under scrutiny.
For the payments sphere, radical changes may come with radical restructurings. Ant, of course is tied to Alipay, Tencent to WeChat Pay. Hundreds of millions of users, globally, are tied to both. For Tencent the repercussions may be onerous ones, as FinTech and payments make up nearly a quarter of the top line.
Bringing those operations into holding companies in effect gives banking regulators more control over what these firms can and cannot do — and how much capital, for example, they must hold on the books to help underwrite loans. The more capital that must be on the books, the less that can be redeployed into the business. The less capital that can be plowed into growth, the less inclines investors will be to assign high multiples to business(es) … and on and on the cycle goes.
Not Just China
The same external pressures would seemingly apply to Big Tech here in the states.
As noted this week by The Wall Street Journal, Senate subcommittee hearings have focused on antitrust considerations. Sen. Amy Klobuchar, Democrat of Minnesota, has introduced proposals that would levy more civil fins for antitrust abuse, and which would make it easier to challenge corporate activities like merger and acquisitions. You know the names that have been in the news amid various probes by the Justice Department and other agencies: Apple, Google, Amazon and others.
And across the pond, regulators may be coming at Big Tech with scalpels. As reported late last year, regulators in the European Union were crafting a “hit list” of roughly 20 companies — Big Tech among them — that will face tougher rules over market competition and other operational activities. And also last year, draft rules in the Digital Services Act and Digital Markets Act (collected under the Digital Services Act Package) would broaden European Union regulators’ powers. Companies breaking the rules would face steep penalties — as high as 10 percent of their global revenues. The regulatory drafts indicate that if a company is deemed to be a repeat offender — penalized three times within five years — the EU can break up the businesses.
The pressures are varied, and global, and coming to bear on Big Tech and platforms — and payments firms, too — sooner rather than later.
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