2020 Election preview: Technology, media and telecom
INSIGHT ARTICLE |
Authored by RSM US LLP
With the election approaching, RSM is looking at the economic stakes and the key issues for various industries and sectors. This is one in our series of election previews.
The top policy issue for TMT
As data becomes increasingly valuable, the race among Big Tech companies to be a market leader will continue to intensify. Antitrust, data protection and security are top concerns for U.S. regulators. The current administration has declared social media platforms TikTok and WeChat as national security concerns due to lingering questions about the security of user data and their connection to the Chinese government. The battle around these platforms comes on the heels of the United States and some of its allies banning the use of Chinese tech giant Huawei’s telecommunications hardware in the build-out of 5G wireless networks, citing security and privacy risks.
If trump wins
We expect pressure on antitrust issues, monopolies, privacy and security if President Trump wins reelection. The current administration has demonstrated its willingness to use technology as its leg up in diplomatic negotiations with China as the two countries compete to be the world’s reigning technology powerhouse. Our expectation is that this type of tit-for-tat approach will continue if Trump wins a second term. This could make for a challenging environment for U.S. technology companies looking to grow in China or seeking Chinese investment, especially in light of recent regulations that allow the U.S. government to block deals involving critical infrastructure, sensitive personal data and technology.
If Biden wins
We expect heightened oversight of anti-competitive behaviors as well as renewed focus on the privacy and security of users’ data if former Vice President Joe Biden is elected. This issue is already top of mind for many lawmakers: An in-depth U.S. House Judiciary Committee report from early October investigated competition in digital markets and gave recommendations for how lawmakers can “address the rise and abuse of market power in the digital economy” and strengthen antitrust laws. Biden has said he would support stricter antitrust oversight and online privacy rules.
Other technology issues include:
Additional government oversight and policies related to tech regulations would contribute to an uncertain environment within the industry for hiring highly skilled workers to meet the growing demand for computer and software engineers and developers. The current administration’s suspension of the H-1B visa process through the end of 2020 has been met with opposition from tech leaders as that process was core to filling high-tech roles in the country’s largest tech companies. According to data compiled by the Department of Labor, over 400,000 H-1B visas were approved in 2019 and approximately two-thirds of those applicants were tech sector workers. The visa suspension policy will continue to present a challenge to tech sector firms that will need to fill roles in the near term.
The Trump administration’s effect on the industry has been:
While some of the current administration’s positions and policies have brought uncertainty to the tech industry, others have resulted in more positive outcomes. Under the 2017 Tax Cuts and Jobs Act, the research and development (R&D) tax credit was left alone and remains a permanent benefit to taxpayers. The administration expanded this tax credit’s availability to startups, allowing young companies with less than $5 million in gross receipts and no more than five years of receipts to offset their payroll taxes by up to $1.25 million, or $250,000 a year for five years. R&D tax credits remain one of the most valuable tax incentives for technology firms, from startups to mature multinational tech giants. This incentive encourages American companies to spend their R&D budgets in the United States, thus driving innovation and employment growth domestically.
By the numbers: $2 trillion
Apple’s market cap has surpassed $2.29 trillion and, for a brief period, exceeded the combined Russell 2000 market cap of $2.25 trillion. The Russell 2000 Index, created in 1984, is an index comprised of 2,000 small-capitalization companies.? It is made up of the bottom two-thirds of the Russell 3000 Index, a larger index of 3,000 publicly traded companies that represents nearly 98% of the U.S. stock market. This comparison highlights the disproportionate share of the global market cap Big Tech makes up.
In preparation for the outcome, TMT companies should consider:
Depending on what happens with antitrust and diplomatic negotiations, tech firms may find themselves in regulatory crosshairs and be required to pivot quickly to remain compliant. Businesses should review their forecast growth plans and data security practices. Executives should speak with their cybersecurity and technology risk consultants to ensure the data they are collecting and storing remains compliant with federal privacy laws. They should also work with an enterprise risk management team to establish a practical, holistic approach for managing risk and enhancing their strategic decision-making ability.
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This article was written by Davis Nordell, Victor Kao, Kurt Shenk, David Stuart and originally appeared on 2020-10-26.
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