John Freeman, the vice president of equity research at CFRA Research, joined Cheddar News to break down what penalties Meta could face if found guilty of EU charges.

Meta 'Breached EU Antitrust Rules' on Facebook Ads

So I want to bring in john Freeman, the vice president over at Equity research at CFR a research john always good to have you here. So before we get into what meta allegedly did here, get us up to speed of what the use Digital Services Act is and what sort of the digital markets Act is as well. So it follows the same principle as the U. S. Which is, you're not allowed to use a monopoly position. I think it's rule 102. Article 2102. You're not allowed to use your monopoly position to unfairly get an advantage in entering or into, you know, abusing that position for for pricing purposes or in, uh, getting into an adjacent, unfairly, getting into an adjacent or dependent market. And that is that unfair point is how you kind of differentiate between what the EU does and what we do. We have a different sort of standard of what unfair is. Um, I thought, I was pretty surprised because marketplace is not a big, you know, it's not a big thing for for facebook, although it has great potential. Um, you know, so I was surprised that you made this aggressive statement basically saying that facebook has already violated you those antitrust principles by, you know, coercing people to use marketplace, which is, you know, because they are members of a social network. I don't know, I find that a little bit of a stretch, but like I said, you definitely has a more aggressive stance on what unfair is. Okay, So you broke down how they claim meta broke the rules here. But if the EU is concerned stand and enough evidence of infringement is produced here, john what could meta face here. So you know, the worst thing would be the, well the worst thing would be to have, you know, a force sort of break up or divisions that gets into their business. I think Facebook Facebook would probably be glad to pay the $12 billion dollar fine because they can preserve their business. But I don't think that's probably gonna happen. Um, and you know, this is, I think, I think meta really needs to take a look at its entire business and maybe proactively look at, you know, I don't know, spinning off instagram or really looking at something more radical internally, you know, a drive that would placate all the regulators and maybe unlock value. You know, that is also possible to, but I don't think Zuckerberg is gonna be doing that anytime soon. I think it's his baby and I think he's very obviously, very emotionally protective of it. And I think that's, that's the crux of the problems that you know why facebook has, has hit so much more scrutiny than say for example Apple or, or even amazon or, or even alphabet has so far. Yeah, I totally agree with you, john and obviously this would be a huge setback for for me to actually another one who is facing tons of pressure right now from investors over there, pivot to the metaverse, meta is one of the worst performers of the S and p it's down over 73% year to date. Can they turn things around next year? Do they even have a pathway to turn things around next year? So I have an idea for I have an idea for meta and I've had it for about two years. They are a hyper scale operator of data centers, massive, massive data centers right there with with with alphabet right there with amazon right there with Microsoft. Why are they the only one of the hyper scale operators that doesn't have a cloud service for enterprises? That doesn't make any sense. That would be something that they could enter and nobody would give them any grief about it because they would be the fourth competitor already. You know, they would be the little guy among the, you know, against Aws Against Azure, right? Against google cloud. That makes perfect sense to me. And wouldn't, you know, get into this problem that they have. It's a pr problem. And the government relations problem because they are manipulating or at least perceived to have manipulated the consumer and consumers vote. Right? So that's that's a lot of the crux of the issue. I think they should, you know, I think the pivot to cloud services at least as as an option. It should be considered. And I'm not sure I understand why they haven't followed google and you know, into the cloud enterprise cloud business. I don't I don't not sure if I understand what what the logic is behind that decision for them. Are there a lot of US companies under review for antitrust by the EU here? Besides just meta? Sure. I mean they're all under scrutiny right now. Right. Even Microsoft, which kind of thought of, you know, they had their their time in the barrel, so to speak, uh many years ago. But once again, no, Microsoft is also under scrutiny. The Activision again, it hits the consumer, the Activision acquisition right directly impact the consumer. The EU and kind of like the U. S. But I think a little bit more because they don't have consumer focused, big tech companies that are you based? They have their most powerful tech companies SML which is very deep into the tech ecosystem, right. A very powerful company that controls, you know, the the key technologies for manufacturing semiconductors and for more law and the increases in processing capacity and all of that stuff, right? But they don't face the consumer. So they're gonna they're not gonna get the kind of scrutiny that the consumer facing guys are and who faces the consumer more than, you know, meta. It's it's pretty hard to argue that that that they are the most purely focused and they have Zuckerberg at its at its helm. And I just don't think he's adjusted well to the game of government relations. No, that that that's a very good point john Freeman, vice president of equity research over at c f r a research, john, always good to have you here have a great holiday.