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Q&A: What does a deal between TikTok and Oracle mean?

Inside Telecom Staff

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Q&A: What does a deal between TikTok and Oracle mean?

HONG KONG (AP) — ByteDance, the Chinese company that owns the popular video-sharing app TikTok, has chosen Oracle over Microsoft as a new American technology partner to help keep the app operating in the U.S. TikTok confirmed the decision Monday, echoing earlier statements from Oracle and the U.S. treasury secretary.

ByteDance faces a Sept. 20 deadline to sell TikTok to an American company or risk being banned in the U.S. over national security concerns. But a lot remains unclear, including how the social media company would fit inside a business software company like Oracle and whether whatever arrangement the companies reach will be acceptable to the U.S. officials who will need to approve it.

Here are some questions and answers about the deal.

Q. WHAT IS TIKTOK?

A. The app is a home for fun, goofy videos that are easy to make and to watch. That’s made it immensely popular, particularly with young people, and U.S. tech giants like Facebook and Snapchat see it as a competitive threat. TikTok says it has 100 million U.S. users and hundreds of millions globally. It has its own influencer culture, enabling people to make a living from posting videos on the service, and hosts ads from major U.S. companies.

ByteDance Ltd., a Chinese company, launched TikTok in 2017, then bought Musical.ly, a video service popular with teens in the U.S. and Europe, and combined the two. A twin service, Douyin, is available for Chinese users.

Q. WHAT CONCERNS U.S. OFFICIALS ABOUT THE APP?

A. TikTok, like most other social networks, collects user data and moderates what’s posted. It grabs people’s locations and messages they send one another, for example, and tracks what people watch to discern what kinds of videos they like and how best to target ads to them.

Similar concerns apply to American social networks, but Chinese ownership adds an extra wrinkle because the Chinese government could order companies to help it gather intelligence. In TikTok’s case, that’s a hypothetical threat, Samm Sacks, a researcher at Yale Law School’s Paul Tsai China Center has said.

TikTok says it does not store U.S. user data in China and that it would not give user data to the government. But experts say if the Chinese government wants information, it will get it.

There are also concerns about TikTok censoring videos critical of China, which TikTok denies, or pushing propaganda. Some critics say the company is violating children’s privacy laws.

The U.S. has given parent company ByteDance a Sept. 20 deadline to complete a sale of TikTok’s U.S. assets to an American company, or risk being banned in the country.

Q: IS ORACLE BUYING TIKTOK, AND WHAT ASSETS ARE INVOLVED?

Oracle was among the pool of bidders, including Microsoft and Walmart, to buy TikTok’s American operations. Microsoft on Sunday said that ByteDance will not be selling TikTok’s U.S. operations to the company. Oracle, in confirming it was the winning bidder Monday, didn’t refer to the deal as a sale or acquisition, instead saying it was chosen as TikTok’s “trusted technology provider.”

It’s unclear at this point what assets, if any, Oracle would actually acquire.

TikTok has found popularity around the world thanks in part to its content-recommendation algorithm, which suggests videos to users based on their viewing history. But the Hong Kong newspaper South China Morning Post reported Sunday, citing an unnamed person, that ByteDance will not sell the algorithm. China has tightened its controls and requires companies to get permission to export such technologies.

“The Chinese government has implied it may block export of TikTok’s AI systems, so that might complicate a direct sale,” said Tiffany Li, a visiting professor at the Boston University School of Law. “One of TikTok’s competitive advantages is its AI-backed video recommendation system.”

Q: WHAT IS ORACLE’S RELATIONSHIP TO TIKTOK LIKELY TO BE?

Oracle is known for providing enterprise software including cloud computing services. So it could provide cloud services such as storing TikTok’s data in the U.S., or computing services for the app.

“Oracle could be a technology partner, but a sale or divestiture of the US operations for TikTok remains the focus,” Wedbush Securities analysts said in an analyst note.

Q: WILL THE TRUMP ADMINISTRATION GO FOR THE ARRANGEMENT?

A: A TikTok-Oracle deal must be approved by the Committee on Foreign Investment in the United States (CFIUS), which vets deals that may have national security implications. U.S. Treasury Secretary Steven Mnuchin told CNBC on Monday that the group will review the proposal this week and later make a recommendation to President Donald Trump.

CFIUS earlier greenlighted Chinese PC maker Lenovo’s purchase of IBM’s computer server business in 2014, after concluding the deal did not pose significant security risks. It also cleared SoftBank’s acquisition of Sprint in 2013, but only after SoftBank agreed not to use Huawei Technologies and ZTE equipment in the U.S.

If Oracle and TikTok can show they can safeguard user data in the U.S., CFIUS and the Trump administration might accept the arrangement.

TikTok said in a Monday statement that its proposal aims to “resolve the Administration’s security concerns” and emphasized the importance of its app to the 100 million users it claims in the U.S.

A Chinese Foreign Ministry official said Monday that it had no comment on Oracle, but described the situation as a “typical government-coerced transaction.”

Q: HOW MUCH DOES ORACLE’S CLOSENESS TO THE ADMINISTRATION MATTER?

A: Trump hasn’t said if he preferred Oracle or Microsoft but in August described Oracle as “a great company” that could handle the sale.

Oracle co-founder Larry Ellison is unusual among tech executives for his public support of President Donald Trump.

“Oracle’s connections with the Trump administration are interesting. It’s possible they may be able to negotiate an outcome that allows TikTok to continue operating in the U.S. without a full sale, with ByteDance still retaining something,” said Boston University’s Li.

Mnuchin said Monday that “we have a lot of confidence in both Microsoft and Oracle,” but noted that ByteDance has chosen Oracle.

Q: WHAT MIGHT THIS DEAL MEAN FOR USERS?

If it is finalized and approved by CFIUS, TikTok would be allowed to continue operating in the U.S.

“Trump’s executive order that effectively banned TikTok’s U.S. business would likely no longer apply, as TikTok would no longer be owned by Bytedance,” said Li.

“Executive orders can be revoked or modified at any time,” she said.

However, Oracle’s plans remain unclear.

“I doubt we’ll see the creativity and consumer-friendliness that we might expect with a different owner,” Li said.

Paul Haswell, partner at law firm Pinsent Masons, expects Oracle to strive to keep TikTok’s users.

“If the app changes or the user experience changes then the users might abandon the platform which completely undermines the value of TikTok and Oracle’s acquisition,” he said.

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Microsoft will buy video game maker ZeniMax for $7.5 billion

Inside Telecom Staff

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Microsoft will buy video game maker ZeniMax for $7.5 billion

Microsoft is buying the company behind popular video games The Elder Scrolls, Doom and Fallout.

The software giant said Monday that it is paying $7.5 billion for ZeniMax Media, the parent company of video game publisher Bethesda Softworks.

Microsoft said it is buying Bethesda in part to beef up its Xbox Game Pass game subscription service, which it says has over 15 million subscribers.

Bethesda games, such as Starfield, which is currently in development, will launch on Xbox Game Pass the same day they launch on Xbox or computers, Microsoft said.

Microsoft has new consoles debuting on Nov. 10, the Xbox Series X and stripped down Series S version. It will be competing against Sony’s new PlayStation 5 console.

R.W. Baird analyst Colin Sebastian said the deal is part of a wider industry trend of consolidation. Microsoft already owns studios that make popular games including Minecraft and the Halo franchise.

“We believe the deal checks a lot of boxes for Microsoft, such as strengthening the Xbox/Games division product portfolio as competition increases, boosting the profile of Xbox subscription services, and providing more content for the company’s cloud gaming initiatives,” he wrote in an investor note.

Microsoft Corp., which is based in Redmond, Washington, expects the deal to close in the second half of fiscal 2021.

— REDMOND, Wash. (AP)

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Judge agrees to delay US government restrictions on WeChat

Inside Telecom Staff

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Judge agrees to delay US government restrictions on WeChat

A judge has approved a request from a group of U.S. WeChat users to delay looming federal government restrictions that could effectively make the popular app nearly impossible to use.

In a ruling dated Saturday, Magistrate Judge Laurel Beeler in California said the government’s actions would affect users’ First Amendment rights, as an effective ban on the app would remove their platform for communication.

WeChat is a messaging-focused app popular with many Chinese-speaking Americans that serves as a lifeline to friends, family, customers and business contacts in China. It’s owned by Chinese tech giant Tencent.

The group of WeChat users requested an injunction after the U.S. Commerce Department said Friday it would bar WeChat from U.S. app stores and keep it from accessing essential internet services in the country beginning Sunday at 11:59 p.m.

The Trump administration has targeted WeChat and another Chinese-owned app, TikTok, for national security and data privacy concerns, in the latest flashpoint amid rising tensions between Washington and Beijing. The administration contends that the data of U.S. users collected by the two apps could be shared with the Chinese government.

On Saturday, President Donald Trump said he supported a proposed deal that would have TikTok partner with Oracle and WalMart to form a U.S. company. There is still a chance that TikTok could be banned in the U.S. as of Nov. 12 if the deal isn’t completed, under the restrictions put in place by the Commerce Department.

However, a restriction to bar TikTok from app stores in the U.S., similar to what WeChat faced, was pushed back a week to Sept. 27 after Trump backed the latest TikTok deal.

On Sunday, Secretary of State Mike Pompeo told Fox News that the government will ensure that under the TikTok-Oracle-WalMart deal, no American’s data would end up in the possession of the Chinese government.

In the WeChat case, the users argued that the moves targeting the all-in-one app with instant-messaging, social media and other communication tools would restrict free speech.

In her ruling, Beeler found that a WeChat ban “eliminates all meaningful access to communication in the plaintiffs’ community,” and that an injunction would be in the public’s interest. Furthermore, specific evidence about WeChat posing a national security threat was also “modest,” she wrote.

The U.S. government earlier argued that it would not be restricting free speech because WeChat users still “are free to speak on alternative platforms that do not pose a national security threat.”

The White House did not immediately reply to a request for comment on the injunction, but Kerri Kupec, a spokesperson for the Department of Justice, said the department was reviewing the judge’s order.

The dispute over WeChat and TikTok is the latest attempt by the Trump administration to counter the influence of China. Since taking office in 2017, Trump has waged a trade war with China, blocked mergers involving Chinese companies and stifled the business of Chinese firms like Huawei, a maker of phones and telecom equipment.


NEW YORK (AP)
By STAN CHOE AP Business Writer.
AP technology writer Zen Soo in Hong Kong and reporters Michael Balsamo and Martin Crutsinger in Washington contributed to this report.

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Trump backs proposed deal to keep TikTok operating in US

Inside Telecom Staff

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Trump backs proposed deal to keep TikTok operating in US

NEW YORK (AP) — President Donald Trump said Saturday he’s given his “blessing” to a proposed deal that would see the popular video-sharing app TikTok partner with Oracle and Walmart and form a U.S. company.

Trump has targeted Chinese-owned TikTok for national security and data privacy concerns in the latest flashpoint in the rising tensions between Washington and Beijing. The president’s support for a deal comes just a day after the Commerce Department announced restrictions that if put in place could eventually make it nearly impossible for TikTok’s legions of younger fans to use the app.

Trump said if completed the deal would create a new company likely to be based in Texas.

“I have given the deal my blessing,” he said. “If they get it done, that’s great. If they don’t, that’s OK too.”

Trump said the new company will be hiring at least 25,000 people and making a $5 billion contribution to a fund dedicated to education for Americans. “That’s their contribution that I’ve been asking for,” he said.

TikTok said Oracle and Walmart could acquire up to a cumulative 20% stake in the new company in a financing round to be held before an initial public offering of stock, which Walmart said could happen within the next year. Oracle’s stake would be 12.5%, and Walmart’s would be 7.5%, the companies said in separate statements.

The deal will make Oracle responsible for hosting all TikTok’s U.S. user data and securing computer systems to ensure U.S. national security requirements are satisfied. Walmart said it will provide its ecommerce, fulfillment, payments and other services to the new company.

“We are pleased that the proposal by TikTok, Oracle, and Walmart will resolve the security concerns of the U.S. administration and settle questions around TikTok’s future in the U.S.,” TikTok said in a statement.

Trump has been demanding that the U.S. operations of TikTok be sold to a U.S. company or else be shut down. He’s also been targeting WeChat, another Chinese-owned app.

The administration contends that the user data collected by the two apps could be shared with the Chinese government. On Saturday, Trump said the U.S.-based TikTok “will have nothing to do with China.” TikTok says it has 100 million U.S. users.

On Friday, the U.S. Commerce Department said it would bar TikTok from U.S. app stores as of late Sunday. Further restrictions that would prevent TikTok from accessing essential internet services in the country would go into effect on Nov. 12. Commerce said Saturday that it will delay the barring of TikTok from U.S. app stores until Sept. 27 at 11:59 p.m.

Commerce is imposing similar restrictions on WeChat, although all of the restrictions on that app are set to go into effect Sunday night at 11:59 p.m.

Earlier Saturday, WeChat users asked a U.S. judge to block the government’s actions, saying they would restrict free speech. WeChat is an all-in-one app with instant-messaging, social media and other communication tools. The U.S. government argued that it is not restricting free speech because WeChat users still “are free to speak on alternative platforms that do not pose a national security threat.”

U.S. Magistrate Judge Laurel Beeler asked lawyers for the government and WeChat users whether the prohibitions would cripple WeChat as soon as the clock ticked from Sunday night into Monday morning without a resolution. An attorney for the government said they would likely lead to a “degradation” of WeChat over time.

Judge Beeler did not rule immediately on the motion.

WeChat has millions of U.S. users who rely on the app to stay in touch and conduct business with people and companies in China and around the world. In court filings, the founder of the Mental Health Association for Chinese Communities, who is a U.S. citizen in California, said that the group’s primary tool to reach out and provide services to Chinese Americans is WeChat.

“Since many of the Chinese community members we serve are not fluent in English, WeChat is the only online tool that they rely on,” Elaine Peng said.

The Trump administration’s aggressive tactics are part of its latest attempt to counter the influence of China, a rising economic superpower. Since taking office in 2017, Trump has waged a trade war with China, blocked mergers involving Chinese companies and stifled the business of Chinese firms like Huawei, a maker of phones and telecom equipment.

China-backed hackers, meanwhile, have been blamed for data breaches of U.S. federal databases and the credit agency Equifax, and the Chinese government strictly limits what U.S. tech companies can do in China.

China’s ministry of commerce condemned the U.S. moves and urged it to stop what it called bullying behavior. It also said China may take “necessary measures” to protect Chinese companies.

The U.S. Treasury Department said Saturday that TikTok’s deal still needs to close with Oracle and Walmart, and it also needs documentation and conditions to be approved by the Committee on Foreign Investment in the United States.

That, of course, also leaves the potential for more roller coasters of emotion for TikTok users, such as Haley Hoffman Smith, a 24-year-old who moved to Manhattan this year to pursue her dream of becoming a talk-show host. She said she had just hit 100,000 followers on TikTok and was crushed on Friday to hear it may be headed for a shutdown.

“TikTok is an inextricable part of my dream chasing story,” she said, “and to lose it forever would not only be an inconvenient setback, but an absolute heartbreak.”

___

By STAN CHOE AP Business Writer.
AP Business Writers Tali Arbel, Matt O’Brien and Barbara Ortutay contributed.

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