ACCC inquiry to shed light on Big Tech’s black boxes

The ACCC’s report on the digital platforms inquiry is due to be released by the federal government within the next week. Picture: AFP

The ACCC has used its digital platforms inquiry to urge people to understand what big data is all about and attempt to get in front of its use.

The study, which has been with Treasurer Josh Frydenberg since the end of last month, is due for release within the next week.

Frydenberg is preparing a formal response to the report and endorse the report with any legislative changes to come later.

This comes as the US Justice Department is preparing a major review on the competitive impact of dominant technology companies like Google and Facebook.

The ACCC’s 18-month study was a global first when unveiled but others have since caught up and the Justice Department review is significant because the US has previously attacked European regulators for taking too hard a stand against the big platforms.

Europe is perceived as being at one end of the regulatory spectrum with the US at the other end and Australia in the middle.

The ACCC paper will note that as much as the big platforms are undoubtedly powerful not every move is anti-competitive.

It wants to ensure privacy protection is strong, consumers are not misled and the impact of platforms is considered in wider public policy debates as well as any competition issues.

It will involve the creation of a new division of either the ACCC or ACMA to monitor computer algorithms and their impact to attempt to increase transparency.

Some litigation is also expected, including based on Google’s privacy policy and the fairness of the contract terms demanded, bundling data from different sources from Google searches, to Double Click to Android phones and also whether Google is misleading, whether you really can turn it off.

University of Maryland Professor Frank Pasquale, who is in Australia this week for a University of Melbourne conference, argues Mark Zuckerberg’s Facebook empire should be split up because its control is too big and “it is not a company that has shown itself to be trustworthy”.

“We need bold leadership,” he adds.

He cites a recent Microsoft study examining how people use the mouse on their computer which can predict whether they are likely to suffer from Parkinson’s disease depending on how they handle the mouse.

In the wrong hands that sort of information is potentially diabolical.

Johannes Leak

Professor Pasquale has written a book, The Black Box Society, looking at how data collection has changed the legal debate.

Artificial intelligence is based on the data but the issue relates more to the quality of the data and how it is used, which in turn changes question of legal liability.

If a machine makes a mistake who is responsible?

Pasquale notes the word artificial intelligence has taken on a mythical quality when it is just machines learning based on the data they collect and if they are fed the wrong data it may be trouble.

Others like Oracle have warned of the competitive impact of the fact Google and Facebook have around 85 per cent of the digital advertising market.

The adtech space is a hot issue for the platform inquiry as is its effect on mainstream media given they use content free of charge then raise revenues by selling that information to advertisers.

The media dynamic changes from one based on content quality to a marketplace based on audience identification.

Through your Android phone, web browsing and web searches Google knows what shops you are visiting and having collected this data it auctions the information to the highest bidder to use to advertise to you. Google then earns money by selling your data to enable companies to pitch their products to you.

The US Federal Trade Commission is close to finalising a case against Facebook for privacy breaches which, according to The Wall Street Journal, will involve personal pledges from its chief Zuckerberg and a fine of as much as $US5 billion ($7bn). The way data is collected and used takes place in a black box. More transparency is needed, which is precisely the aim of the ACCC study.

What records tell you

A new record on the All Ordinaries is of some psychological value but, as noted several times from an investment fundamentals perspective, it means zero.

Roughly half the returns from Australian equities come from dividends so the more important index is the accumulation index.

The S&P 200 accumulation index beat the pre-GFC high back in September 2013, and again has set new highs in the last five months. The point is don’t get too excited about the fact the All Ords beat its November 2007 highs, because we have set new records for the last five years or more.

The accumulation index includes share prices and dividends and is the more appropriate one to chart the success of the market, because of dividend imputation companies pay out a higher proportion of returns in dividends than their overseas comrades.

The US market, which is driven more on price, also beat its 2007 high in 2013. But it is worth noting that while Australia rallied hard to get to the 2007 high, the US was really just trading at 2000 year levels.

Record low interest rates should drive equities process higher and Westpac economist Bill Evans hit the tape yesterday saying he expected two more cuts between now and February to take the rate to 0.5 per cent.

The stockmarket is now trading at 16 times forecast earnings, which is a touch on the high side, but, given where bond yields are, not a major cause for worry.

AMP’s Shane Oliver thinks the S&P 200 will finish this calendar year at 6950 or 3 per cent above present levels. Industrial stocks are trading at a hefty 22 times forecast 2020 earnings.

Goldman Sachs figures consensus forecast for market earnings per share is for 4.7 per cent for the 2019 financial year doubling to 9 per cent this year.

Telcos led by Telstra are a big swing factor, tipped to go backwards by 28 per cent in 2019 and up 14 per cent in 2020.

Resources are the strong card, up 23 per cent in 2019 and 19 per cent for 2020. Banks fell by 0.3 per cent in 2019 and will gain 4 per cent this year according to consensus forecasts.

Arnotts buyout

KKR’s purchase of Campbell’s International centred on the Arnotts business in Australia will focus on cost cutting and the conversion of its outdated model to the new retail buzz words of “convenient healthy living”.

IBIS World figures show the biscuit market in Australia has around 57 players who earn $538m on $780m in revenues.

The last few years have seen falling revenues and this is expected to continue with the possible exception of exports.

Just what freedom KKR will have to sell into Asia is not known and typically multinationals like to segment markets for themselves.

The international division was a relatively small part of the Campbells portfolio, but the Australian division will form the bulk of earnings after the earlier sale of the Danish operations.

Tim Tams are the standout product as evidenced by the fact Aldi sells them directly, bypassing its usual home brand strategy.

Campbell’s was advised by Goldman Sachs and KKR by Jeffries. The fact a private equity buyer emerged triumphant from what was a hotly contested tells you the sector is flush for cash with relatively few strong targets like this one.

Separately, why did Coles sign a long-term deal with its existing consultants Accenture? The answer is it wanted to cut annual fees.