Research Notes

Politicians like Margrethe Vestager often fail to see the side effects of the “medicine” they propose – look at share prices for Telecom vs. Media vs. FANG+ shares

Over the years, Strand Consult has measured the impact of regulation and produced reports and research notes on policies for the internet, telecommunications, and media. Signature European Union regulations include the General Data Protection Regulation (GDPR), net neutrality, mobile roaming, and others. This research note reviews performance of telecom, media, and internet stocks from November 2014 to today, a period in which Margrethe Vestager has led Competition policy for the European Commission with a policy purported to tame big tech companies like Facebook, Apple, Amazon, Netflix, and Google (FANG+), among others.

In its report Understanding the GDPR and Its Unintended Consequences, Strand Consult describes the challenges created by regulation and how the GDPR has had a negative impact on venture investment in the tech sector in Europe (See related research note).  Strand Consult’s many reports on net neutrality compare the policies across countries, the implementation in the EU, and the lack of the policy to produce new European innovation. See Understanding  Net  Neutrality  and Stakeholders’ Arguments and In the Net  Neutrality in EU report after  2 Years:  Why  operators  keep  losing the battle  against  Internet  regulation.

Strand Consult, among other academic and policy observers, notes how the recent period of the purported crackdown on big tech by European authorities correlates with a positive impact to the companies. Across a variety of measures, Google, Facebook, Netflix, Apple, and Amazon have increased revenue, market share, profitability, and share price. Since November 2014, Vestager has taken a fight against big tech, hurling indictments and fines against many companies. Some of those cases ended up in court, with the EU losing its complaint against Apple’s tax scheme in Ireland. The EU has since appealed the case.

How have telecom, media, and big tech’s stocks performed on Vestager’s watch?
An internal joke in Strand Consult is that policymakers who impose regulation on telecom companies should be forced to put their retirement savings into telecom shares.  Consider the results of investments in various industries from November 1, 2014 to today with Vestager at the helm. An investment in the Morgan Stanley Capital International (MSCI) World Telecom Services Index yielded a total return of -6.8 percent (or a loss); the MSCI World Media & Entertainment Index; 72.53 percent; and the NYSE FANG+ Index, 474.32 percent. For all the regulation on big tech and Vestager’s crackdown, her rein has been a gift to the largest internet company shareholders. No one advises selling big tech stocks to buy media and telecom.

When politicians force people to become customers of Netflix
Around the world, public service plays an important role in the media. Danish Radio (DR), Denmark’s answer to the BBC, has been recognized for its outstanding TV dramas like “The Killing” (Forbrydelsen), “The Bridge” (Broen), and “The Castle” (Borgen). Historically DR has partnered with the world’s public service providers to make the content available in more 70 countries. However, with the fourth season of “Borgen”, DR decided to make an exclusive deal with Netflix to stream the series. This means to see Season 4 of Borgen, people must subscribe to Netflix, whereas before they could just tune in to their public service stations like BBC, NRK, or SVT.

In practice, Danish taxpayers are subsidizing Netflix, the global behemoth of video streaming. Netflix should send DR General Director Maria Rørbye Rønn a big bouquet of flowers to thank her for helping to cement Netflix’s dominance around the world. Danes consider themselves nice people, but it isn’t so nice that DR has dropped its partnership with 70 public broadcasters for Borgen to take up with Netflix.

Recall that Netflix started as a DVD-by-mail company. They had no retail stores but conducted a video rental business via the post. By moving distribution to the internet, Netflix has been able to pocket its postage fees. Netflix contributes little to nothing to the cost of the telecommunications infrastructure required to deliver its product. It’s easy to understand why Netflix was an early and vocal advocate for net neutrality; they wanted to make sure someone else pays the “postage”, not them. Now that Netflix has figured how to leverage the telecom industry, it has moved on to broadcasters like DR.

Many European politicians have grandstanded on cutting big tech down to size. The reality has been the opposite.  Big tech shares have greatly outperformed others. The regulatory attack on big tech has been a punishment to taxpayers, the telecom industry, and European entrepreneurs, who are deterred from launching tech startup in the face of mountains of EU regulation. Politicians get elected by saying things that many voters like to hear. Given the results to date, shareholders will likely advocate for even more big tech “regulation”.

For more than 25 years, Strand Consult has held strategic workshops for boards of directors and other leaders in the telecom industry. Its workshop Next gen telecom policy and regulation offers knowledge on global regulatory trends and is packaged it into a workshop for professionals with responsibility for policy, public affairs, regulation, communications, strategy, and related roles.

Learn more Strand Consult workshop “Next gen telecom policy and regulation: Workshop for leaders in the telecommunications industry.” Request more information about the workshop.

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