The Economist

The EconomistJuly 21 st 2018 Business 49

1

2 mobile industry. To create more competi-

tion the commission would have to de-

mand tougher more specific remedies. As

it is Google has every incentive to drag out

a cycle involving an insufficient remedy

followed by fines meaning that it will take

years to have a meaningful impact.

Despite the high fines and theatrical

press conferences about antitrustthecom-

mission may end up with not much more

to show for its actions than trustbusters in

America. There despite lots of tech-bash-

ingrhetoric officials have shiedaway from

doing anything of note. That many former

Google employees worked in the adminis-

tration of Barack Obama may have con-

tributedtothisinertiabuttherealreasonis

America’s forbidding jurisprudence says

William Kovacic of George Washington

University a former FTC chairman. It

would be nigh-impossible to get any sub-

stantial measures past the courts which

view antitrust interventions suspiciously.

And the barriers to action are getting

even higher. In June the Supreme Court

backed the policy of American Express a

credit-card issuer of stopping retailers

from nudging customers to use cards with

lower transaction fees. Regulators the ma-

jority of the court argued should look at

such two-sided business models more

broadly: thefirmmaychargeretailers high-

erfees but itprovidescardholderswithlots

of rewards. In other words anti-competi-

tive practices in one market may be accept-

able if they lead to consumer benefits in

another—an argument that Google will

certainly make about Android should it

everend up in an American court. 7

T

HE Nord Stream 2 ( NS 2 ) natural-gas

pipeline from Russia to Germany has

long been dogged by controversy. But de-

spite several years of transatlantic and in-

tra-European feuding over the € 9. 5 bn

($ 11 bn) project it is looking increasingly

likely to go ahead. Offshore dredging to lay

the pipes has already started near Greif-

swald in north-eastern Germany. Within

just a fewweeks workers will begin laying

pipes beneath the BalticSea.

In Brussels meanwhile experts say the

political focus has shifted from preventing

NS 2 to mitigating its impact on Ukraine

which risks losingits lucrative role as a hub

for the transit of Russian gas to Europe.

“There is a sense that it is beyond stoppa-

bility” says Marco Alverà boss of Snam

Europe’s largest pipeline company.

True the threat of American sanctions

still hangsovertheconsortiumbackingthe

project which comprises Gazprom the

Russian energy giant that is NS 2 ’s sole

shareholderandits variousfinancial back-

ers Uniper and Wintershall of Germany

OMV of Austria Engie of France and Royal

Dutch Shell. America has attempted to tar-

get investments in Russian energy to pun-

ish the Kremlin over the conflict in eastern

Ukraine. (The consortium argues that the

project predates the September 2017 start-

ing-point for potential sanctions.)

But President DonaldTrump duringhis

recent visit to Europe has made sanctions

seem less of a worry. Although he initially

lambasted Germany for being “captive” to

Russia as a result of NS 2  Mr Trump later

said in front of Vladimir Putin the Russian

president that he understood where Ger-

many was “coming from”. Indeed he ap-

peared tacitly to accept that NS 2 would go

ahead bysayingthat American companies

would compete with the pipeline to pro-

vide liquefied natural gas ( LNG) to Europe.

From a business perspective this will

be good news for some. Increased quanti-

ties of relatively cheap Russian gas will

help Europe’s energy-hungry industrial

giants such as BASF a German chemical

firm to compete globally with American

rivals that benefit from cheap shale gas.

The doubling of direct pipeline capacity

between Russia and Germany to 11 0bn cu-

bicmetres reducesthe dependence of Ger-

man gas distributors on intermediaries in

eastern Europe and givesthem cheaper gas

to resell themselves.

But the project will make it more diffi-

cult for LNG from America or anywhere

else to extend its footing in Europe be-

cause it is cheaper to pipe natural gas than

to liquefy and ship it. That jeopardises en-

ergy security in a region whose gas sup-

plies from the Netherlands and the North

Sea are dwindling. Russian pipelines sup-

plied 41 %ofEurope’s gas inthefirstquarter

whereas just 12 % came from LNG(ofwhich

America provides just 1 %). It also under-

mines Europe’s push forclean energy.

Kristine Berzina of the German Mar-

shall Fund a think-tank notes that since

the Ostpolitik of the 1970 s when West Ger-

many tooksteps towards normalisingrela-

tions with countries to the east German

firms have felt secure from mischief-mak-

ing in Moscow. But NS 2 will make Europe

more dependent on Russia’s gas and pipe-

lines at a time when its own supplies are

faltering. “This is the better deck of cards

that Russia is arranging for itself” she says.

“Germanyhas not woken up to it.”

In the shorter term NS 2 could squeeze

Ukraine’s Naftogaz which generated

$2.8bn last year from supplying Russian

gas further west but suffers regular bully-

ing by Gazprom. Although talks brokered

by the European Union are taking place

between Gazprom and Naftogaz and their

respective governments some fear that if

NS 2 advances Russia will need to make

fewer assurances of fair play to Ukraine.

NS 2 is controversial fora reason. 7

Nord Stream 2

Putin that in your

pipe

Russia’s pipeline to Germanylooks

unstoppable

Spying a Russian captive

E

VEN the most celebrated firms have

their hiccups. On July 1 6th Netflix an

online-streaming giant presented disap-

pointing news to investors: it had added

just 5.2m new subscribers in the second

quarter of 2018  well below its projected

number of 6. 2 m. Shares plunged by 14 %;

theyhave since recovered some ground.

This most recent bout of volatility may

saymore aboutthe firm’ssoothsayingabil-

ities than the strength of its underlying

business. Although Netflix’s subscriber

growth fell short of its own projections it

was still in line with that of past quarters

(see chart on next page). In percentage

terms Netflix registered a bigger miss

against projected subscriber growth in the

second quarter of 2016  when its shares fell

by 1 3%. The firm has also had much bigger

forecastingmisses on the upside.

When asked this week to explain the

forecasting error Netflix’s chief executive

Reed Hastings responded that the com-

pany never worked out what happened in

2016 either “other than that there is some

lumpiness in the business”. It is possible

Online streaming

Don’t look now

Netflixsuffers a big share-price wobble