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Google Charged With Breaking Europe’s Antitrust Rules E.U. Charges Dispute Google’s Claims That Android Is Open to All
(about 13 hours later)
European officials charged Google on Wednesday with breaking the region’s competition rules by favoring some of its services on the popular Android mobile software over those of its rivals. Google has long stressed that Android, its popular mobile software, is open for anyone to use, including its rivals.
The charges are the latest chapter in Europe’s continuing battle with technology companies that have come to dominate how the region’s 500 million people use digital services including social media, like Facebook, and e-commerce, like Amazon. Google has already been the subject of a series of antitrust and privacy investigations across the 28-member bloc. But the company’s claims are now under threat after Europe’s antitrust authorities on Wednesday charged the company with unfairly using Android to promote its own services — like mobile search — over those of its rivals. In doing so, regulators brought particular scrutiny to Google’s relationships with some of the world’s biggest cellphone makers, which have helped expand the reach of Android.
As part of the latest charges — officially known as a statement of objections — Margrethe Vestager, Europe’s competition chief, said on Wednesday that Google had unfairly promoted its own services, like mobile search and its Chrome web browser, with cellphone manufacturers, limiting how rival companies could operate in the fast-growing smartphone software market. Margrethe Vestager, the European Union’s antitrust chief, said Google had required some of the cellphone manufacturers to preinstall the company’s services, including its Google Play smartphone application store, and had given them unfair financial incentives to favor Google’s services on their mobile devices. Those practices undermined competition and consumer choice, she said.
“Google has abused its dominant position,” Ms. Vestager said on Wednesday. “Google’s behavior has harmed consumers by restricting innovation in the wider mobile space.” “Google has abused its dominant position,” Ms. Vestager said on Wednesday. The company’s “behavior has harmed consumers by restricting innovation in the wider mobile space.”
In a statement, the European Commission, the bloc’s executive arm, said that Google had used its Android software to protect its dominant position in online search, while providing unfair incentives to smartphone manufacturers and telecommunications carriers to favor the company’s mobile services over those of rivals. The company denies it has broken European competition rules, and the charges may not lead to financial or other penalties against Google, which now has three months to respond to the accusations.
Europe’s antitrust charges might not necessarily lead to financial or other penalties against Google, which now has several months to respond to the accusations. If it is found to have broken the region’s rules, though, the company may face fines of up to 10 percent of its global revenue, or roughly $7 billion, the maximum allowable amount. “We take these concerns seriously,” Kent Walker, Google’s general counsel, said in a blog post. “But we also believe that our business model keeps manufacturers’ costs low and their flexibility high, while giving consumers unprecedented control of their mobile devices.”
Google denies that it has broken European competition rules, saying that its dealings with cellphone manufacturers like Samsung and HTC, among others, are voluntary, and that rival mobile services are readily available on its Android software. By taking aim at Android — the mobile software that holds more than 80 percent of the worldwide market share for smartphone operating systems — Europe has opened the latest chapter in its continuing battle with American technology companies.
“We take these concerns seriously,” Kent Walker, Google’s general counsel, said in a statement. “But we also believe that our business model keeps manufacturers’ costs low and their flexibility high, while giving consumers unprecedented control of their mobile devices.” These players, including Amazon and Facebook, dominate how Europe’s 500 million people use digital services, including social media, online movies and e-commerce. Google is facing separate charges, filed last year, in Europe over whether it unfairly favored some of its search services over those of rivals.
Since acquiring the company that created Android in 2005, Google has used the operating system to become the dominant player in the mobile world. Europe’s antitrust claims highlight Google’s increasingly thorny relationships with smartphone manufacturers such as HTC and Samsung, among others. Ms. Vestager said Android’s prominent role in the mobile market was not in question but that she was concerned the contracts the company signed with smartphone manufacturers had made it difficult, if not impossible, for rival search engines and smartphone app stores to compete in the European Union.
While Apple generates the largest share of revenue from smartphone sales, Google, which does not make money from licensing its basic Android software to cellphone manufacturers, now holds more than 80 percent of the smartphone operating system market worldwide, according to the technology research company Gartner. “If a company is dominant, that’s fine,” Ms. Vestager told reporters. “But if that dominance is abused, then we have an issue.” She declined to name which cellphone manufacturers might be affected, citing their right to privacy.
The search giant is expected to earn more than $30 billion in revenue from its mobile activities this year, according to the research group eMarketer. That is because people, particularly in emerging markets, have become reliant on smartphones for surfing the web and are using personal computers less. The device makers, already struggling against cutthroat competition, have become reliant on Google’s digital services available on Android, even as they have tried to persuade consumers to try their own mobile services or those of Google’s competitors. Some, including Samsung, have backed rival operating systems to loosen Android’s grip, but such efforts have so far proved unsuccessful.
While the basic Android software is free, Google earns money through advertising from its mobile search products, as well as from licensing services like Google Maps to cellphone manufacturers. It also takes a cut of the revenue generated from each smartphone app bought on Google Play, its online store. And while global cellphone manufacturers once profited from using Android to expand rapidly, particularly in emerging markets, their growth has since slowed.
As part of the antitrust charges announced on Wednesday, Ms. Vestager said that Google’s agreements with smartphone makers had made it difficult, if not impossible, for rival search engines and smartphone app stores to compete in the European Union. Analysts say these cellphone makers’ inability to wean consumers off Google’s popular mobile mapping, email and other services has potentially shut them out of billions of dollars in extra revenue as people’s digital habits — including online search and e-commerce purchases — shift to mobile devices.
“It may have become too difficult for other search engines or app stores to be available to consumers,” she added. “Their attempts at beating Google’s services haven’t worked,” said Neil Mawston, a mobile analyst at the technology research group Strategy Analytics. “For most companies that want to operate in the smartphone market, there isn’t another option but to use Google.”
This is not the first time that Google has faced competition woes. Last year, European antitrust authorities charged the company with unfairly favoring some of its search services over those of rivals, and a decision on those charges is expected in the coming months. United States officials also continue to investigate Google’s use of Android software to promote some of its products, and regulators in countries as varied as Brazil, India and Russia are looking into the company’s perceived dominance. Representatives from the leading smartphone manufacturers declined to comment on their relationship with Google.
Yet it is in Europe that Google has come under the greatest scrutiny. The dominance of Android, at least in Europe and the United States, is almost absolute.
“The requirement for phone makers and operators to preload a set of Google apps is certainly problematic from the consumers’ point of view,” said Ramon Tremosa and Andreas Schwab, two members of the European Parliament who have been vocal in their criticism of Google’s activities in Europe. “By acting this way, Google is, de facto, giving its own apps unfair advantage.” While the basic Android software can be downloaded and modified free of charge, device makers and telecom operators have to pay licensing fees to Google if they want to use the company’s version of the software on their devices.
They also must sign contracts that place a selection of Google’s services in prime spots on smartphone screens and link to the company’s app store, from which Google takes a cut of each application sold. The search giant also generates income from advertising from mobile search queries, though manufacturers are free to include their own applications as part of the mobile software.
In total, Google’s version of Android powers more than 98 percent of the Android-based smartphones in Europe and the United States, according to Ian Fogg, a senior director at IHS, a technology consultancy in London. That is despite alternatives like a version of Android offered by Cyanogen, a small American software maker.
Only in China, where Google is banned, and Russia, where the local search engine Yandex holds a significant market share, does Google not dominate in mobile.
“If someone buys an Android device in Europe or the U.S., it’s almost certainly Google’s version,” said David McQueen, research director at ABI Research in London.
Google says its relationships with cellphone manufacturers are voluntary and that rival mobile services, including those from the likes of Amazon and Facebook, are readily available on its Android software, which does not restrict people from downloading competitors’ applications.
The search giant has also pointed to smartphones from Amazon and Nokia that are based on the free version of Android and that do not come packaged with Google’s mobile services as signs of healthy competition. Those devices, particularly Amazon’s Fire smartphone, have not proved popular with consumers.
If Google is found to have broken European rules, the company may face fines of as much as 10 percent of its annual revenue. Given the company’s recent annual revenue, that could be roughly $7 billion. Such a high financial penalty is unlikely, however, according to legal experts.
The company could also be forced to alter its Android software to give competitors a greater position in its mobile software or to change its existing contracts with cellphone makers.
That would potentially provide Europeans with a wider choice of mobile services than would be available to their American counterparts. Most people in the 28 member states of the European Union, though, still rely primarily on Google services for many daily activities.
Such remedies, if eventually imposed on Google, would be reminiscent of similar steps taken by Microsoft, which in 2009 agreed to offer consumers a choice of rival web browsers to end a European antitrust investigation into its dominance of Internet browsers at that time.
Paulo Trezentos, chief executive of Aptoide, a rival Portuguese Android app store that is one of the complainants in the European competition case against Google, said his company would welcome greater access to Android users.
“Google makes it difficult for people to install applications from rivals,” Mr. Trezentos said. “It’s actively making it harder to compete.”
In the United States, some lawmakers on Wednesday called on the Federal Trade Commission to more closely scrutinize Google after Europe’s charges. In 2013, the F.T.C. closed a two-year antitrust investigation into Google’s search business, citing a lack of evidence for pursuing a case. The F.T.C. said it did not comment on or confirm investigations.
Senator Richard Blumenthal, Democrat of Connecticut, who is a member of the Judiciary Committee, said regulations and laws differed in Europe and the United States but “the spirit and goal of our laws is very similar.”
“There is now clearly a need for exacting and penetrating scrutiny,” Mr. Blumenthal said in an interview. “Perhaps it is overdue. But it is now clearly necessary.”