The EU's record $5 billion antitrust Android fine will take Google two weeks to pay off

“Google has used Android as a vehicle to cement its dominance as a search engine. These practices have denied rivals a chance to innovate and to compete on the merits."
July 18, 2018, 11:26am
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The European Union handed Google a record €4.3 billion ($5 billion) fine Wednesday for misusing its dominant position in the smartphone market — and now companies and trade groups are calling on U.S. regulators to do the same.

Even more damaging for Google is a ruling making it illegal to force smartphone makers such as Samsung to install Google’s own search app and browser — opening the door for companies including Microsoft to take a larger share of the search market.

Speaking at a press conference in Brussels, Margrethe Vestager, the EU’s competition chief and a woman reviled in Silicon Valley, laid out the bloc’s reasoning for levying such a huge fine.

“Google has used Android as a vehicle to cement its dominance as a search engine. These practices have denied rivals a chance to innovate and to compete on the merits. They have denied European consumers the benefit of effective competition in the very important mobile sphere. And this is illegal under EU antitrust rules.”

Vestager has given the company 90 days to end its “illegal conduct” by ending the restrictions it has imposed on mobile phone makers.

Google immediately said following the ruling that it will appeal the Commission’s decision.

The European Commission has the authority to fine Google up to 10 percent of its global revenue, which in 2017 reached almost $110 billion.

The $5 billion fine is the largest financial penalty ever levied by Europe against a single company, but for Google represents just over two week’s of revenue.

The fine comes amid a brewing trade war between the EU and U.S. with Vestager’s boss, Commission President Jean-Claude Juncker, due in Washington next week to discuss the Trump administration’s threat to impose new tariffs on European cars and the president’s issue with U.S. trade deficits.

Over the course of the last decade, the EU has fined Silicon Valley companies such as Microsoft, Google and Intel more than $12 billion. That is separate from the $13 billion regulators in Europe have told Apple to repay in back taxes to the Irish government.

This is just one of three investigations the EU is currently undertaking against Google. Last year it fined the Silicon Valley giant $2.8 billion in a separate competition case related to online shopping — Google has since made changes to how it displays search results for products. It is also being investigated over its AdSense advertising product.

While Google and others have positioned this as a war on Silicon Valley, many U.S. companies and trade groups have welcomed the news and are urging their own regulators to up their game.

“[We] believe it is time for renewed antitrust scrutiny of Google in jurisdictions beyond the EU, including the United States,” Luther Lowe, head of public policy at Yelp, told VICE News in an emailed statement. “In the months ahead, we will make this case directly to the newly confirmed antitrust authorities at the Federal Trade Commission and Department of Justice.”

What has Google done wrong?

Google’s Android is the dominant mobile operating system globally. While in the U.S. it holds just shy of 60 percent market share, in some markets in Europe it is touching almost 90 percent.

While Android is “free” for any smartphone manufacturer to use, Google does force companies to sign what is known “mobile application distribution agreements” in order to gain access to the Google Play Store, the dominant Android app store.

Without access to the Play Store, smartphones are limited in the number of apps they can offer customers. However, as part of the agreement, Google forces manufacturers to preinstall a Google search bar, the Chrome browser and a number of other apps such as Maps and Gmail — and crucially set them as the default choice.

While most users may download these apps anyway, the EU says that by forcing them to be preinstalled, Google is abusing its market position and denying competition — such as Microsoft’s Bing search engine — the opportunity to compete on a level playing field.

Will the ruling have any impact on Google?

The EU opened its investigation into Android more than three years ago, after it received complaints about Google’s practices some five years ago. In that time Google has cemented Android’s position as the world’s number one mobile platform, and upending that dominance is unlikely.

“The EU has spent so long deliberating that its opportunity to rectify Google’s dominance of Android in Europe has long since passed,” Richard Windsor of Edison Investment Research said.

By unbundling Google apps from Android, the EU is offering smartphone manufacturers an opportunity. They are now free — within the 28 member states of the EU at least — to seek more lucrative partnerships with the likes of Microsoft’s Bing, Here Maps or more country-specific services.

What has Google said?

Google’s CEO was given a heads-up on the ruling Tuesday night in a called with Vestager. On Wednesday morning the company said it will appeal the ruling, adding: “Android has created more choice for everyone, not less. A vibrant ecosystem, rapid innovation and lower prices are classic hallmarks of robust competition.”

The Information Technology and Innovation Foundation, a Washington-based lobbying group of which Google is a member, claims the EU’s ruling will have a negative impact on consumers not a positive one.

“The European Commission’s actions today are misguided and shortsighted. ” Daniel Castro, the group’s vice president, told VICE News, adding that the ruling"merely fills European coffers at the expense of American companies."

What is the reaction of the rest of the tech industry?

Despite many framing this a fight between Silicon Valley’s tech companies and Europe’s regulators, many U.S. companies, consumer groups and trade associations have come out in support of Vestager’s decision.

“Ultimately, Google’s strategy of abusing its dominant position in smartphones is about protecting its dominance in search,” Lowe said. “The EU must ensure complete compliance from a recalcitrant Google and the U.S. must take action to provide American consumers with similar protections.”

Disconnect, a privacy startup based down the road from Google in Silicon Valley, was among the U.S. companies that sought relief in Brussels, because it felt U.S. antitrust enforcement agencies appeared unwilling to take action against Google’s anti-competitive behavior.

“This ruling will not make life more difficult for developers or consumers,” Casey Oppenheim, CEO of Disconnect said in an emailed statement. “On the contrary, other players in the digital ecosystem may finally be able to fairly compete with Google.”

DuckDuckGo, a privacy-focused search engine that is competing with Google, also welcomed the decisions. “It would dramatically help us,” Gabriel Weinberg, CEO and founder of DuckDuckGo told Bloomberg. “It’s clear to me that people would choose other options if the choice was easier to make.”

Many people are also now calling on U.S. regulators to follow Europe’s lead.

“We hope U.S. enforcers of competition law will learn from and follow this example in both of these cases,” Barry Lynn, executive director of the Open Markets Institute, said.

John Simpson, director of Consumer Watchdog, added: “The U.S. Federal Trade Commission or Department of Justice should also act to end Google’s monopolistic abuses, instead of letting the Europeans be the only cop on the antitrust beat.”

Cover image: European competition commissioner Margrethe Vestager speaks on April 15, 2015 in Brussels as the EU formally charged Google with abusing its dominant position as Europe's top search engine, laying the US Internet giant open to a massive fine of more than $6.0 billion. (JOHN THYS/AFP/Getty Images)