Google hit with record EU monopoly fine
Internet giant’s CEO vows to appeal against record penalty and says he may be forced to charge for tech
The EU has fined Google a record amount for breaking monopoly rules. Margrethe Vestager, the European competition chief, ordered the internet giant to pay £3.9billion after finding it had illegally bound smartphone manufacturers to deals forcing them to install Google apps.
THE EU has unleashed its most forceful attack yet in an escalating conflict with Silicon Valley by hitting Google with a record-breaking monopoly abuse fine.
Margrethe Vestager, the European competition chief, ordered the American internet giant to pay a €4.34bn (£3.9bn) penalty after finding it had illegally bound smartphone manufacturers to deals that forced them to install Google apps.
It is the second multi-billion euro fine Brussels has ordered Google to pay in little more than a year, and provoked outrage in the technology industry last night.
Sundar Pichai, Google’s chief executive, warned that the decision “sent a troubling signal” that could lead to the company charging for its Android software.
The Information Technology and Innovation
‘Today’s decision rejects the model that supports Android, which has created more choice for everyone’
Foundation, a Washingtonbased group that represents major technology companies, attacked the fine as “misguided and short-sighted”.
“[The fine] merely fills European coffers at the expense of American companies,” said the ITIF’S Daniel Castro. He added that “it is time for European regulators to reset their approach to competition policy”.
The European Commission has spent three years investigating claims that Android’s dominance helps Google crush rival search engines and competitors to its Chrome web browser.
Almost 80pc of the hundreds of millions of smartphones sold in Europe, which are made by manufacturers including Samsung, LG and Huawei, run on Android. Google develops the software and gives it away for free, but binds phone makers to strict conditions that ensure the vast majority of Android phones come loaded with Google’s own apps including its dominant search service.
Ms Vestager accused Google of using Android as a “vehicle to cement the dominance of its search engine”.
“These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere,” she said.
Ms Vestager, who has also demanded that Amazon, Apple and Facebook pay fines or unpaid taxes in recent years, denied that Brussels was targeting US companies. “I very much like the US,” she insisted. “This has nothing to do with how I feel. Nothing whatsoever.”
But France applauded the fine, calling it an “excellent decision”. A French government spokesman said: “No one is above the laws that have been laid down in common for all.”
The EU has fought an eight-year battle with Google that has resulted in two major fines for the company, with one investigation still open.
Last year it ordered the company to pay €2.4bn for using the dominance of its search engine to promote its internet shopping service. A third case, into the company’s online advertising network, is expected to result in another financial penalty.
As well as yesterday’s fine, Ms Vestager gave Google 90 days to break the contracts that lead phone manufacturers to install its apps. If the company fails to do so, she can continue to impose fines worth 5pc of its daily turnover.
Google vowed to appeal against the ruling. “The commission’s Android decision ignores the new breadth of choice and clear evidence about how people use their phones today,” Mr Pichai said.
“Today’s decision rejects the business model that supports Android, which has created more choice for everyone, not less.”
Google’s mild-mannered chief executive Sundar Pichai is not the type to stoke controversy, so when he called the record EU fine the company received yesterday “troubling”, one imagines a few less measured words were flashing through his head.
The €4.3bn (£3.8bn) the European Commission ordered the American internet giant to pay is not the company’s first multi-billion euro fine for breaking competition law: little more than a year ago Google was hit with a €2.4bn penalty related to its shopping service. But yesterday’s decision was taken more personally by Google’s boss.
Android, the smartphone division responsible for yesterday’s penalty, is Pichai’s baby. He ran the division before stepping up to the chief executive job three years ago, and the Indian-born executive has spoken at great length about the benefits he believes Android’s business model brings in making smartphones affordable.
In exchange for being allowed to install the Google Play app store – the portal through which smartphone owners can download apps such as Facebook, Uber and Whatsapp – Android manufacturers must install a suite of apps such as Google’s search engine and web browser before selling their handsets.
This deal has been a fixture of the smartphone market since the first Android phone was released a decade ago, but Margrethe Vestager, Europe’s competition commissioner, said these deals tighten Google’s grip on the market for search engines, squeezing out competitors, and limiting consumer choice.
As well as the record fine, she ordered Google to break these agreements within 90 days.
Doing so could upend a smartphone market that has come to be dominated by Apple and Google.
In a mark of how damaging the decision could be to the latter, Pichai chose to respond to it personally. In comparison, when Vestager fined it over its shopping service a year ago, it was left to Google’s chief lawyer Kent Walker to respond.
“The free distribution of the Android platform, and of Google’s suite of applications, is not only efficient for phone makers and operators – it’s of huge benefit for developers and consumers,” Pichai said.
Google is perfectly capable of paying the fine. The sum adds up to less than two months of profit and has long been expected. Shares in its parent company Alphabet barely moved yesterday.
But forcing it to break the model that has served the company so well in the mobile era is a different matter altogether.
Android enjoys an 80pc global market share in smartphone software, boosted by the fact that the operating system is given away for free.
Manufacturers find it easier to simply adopt Google’s software than to invest in developing their own. The trade-off is relinquishing control to Google and its dominant search engine.
“There is no such thing as a free search,” Vestager said.
The model has helped Google brilliantly manage the shift from desktop computers to smartphones, in a way that many other technology companies have failed to do.
It is up to Google to figure out how to comply with Vestager’s order, but at face value the decision will allow the thousands of smartphone manufacturers who use Android to seek new avenues.
Instead of Google’s search engine being installed on Android phones, Microsoft could pay manufacturers to carry its rival search engine Bing.
Samsung may also stand to benefit. The Korean giant is the world’s biggest smartphone manufacturer, but its own forays into software, including efforts to develop a rival operating system, have been largely unsuccessful.
Amazon, which has developed a rival version of Android known as a “fork”, may now incentivise phone manufacturers to adopt its version – something currently banned by Google’s exclusivity deals.
“This is a pro-amazon ruling,” said Baird analyst Colin Sebastian. Vestager herself seemed to agree, repeatedly mentioning the company as a victim of Google’s exclusivity arrangements, and a potential beneficiary of her intervention. Vestager promised that the result of her decision would ultimately be more diversity and choice from smartphone companies, in contrast to the identikit handsets consumers are sold today. Google, unsurprisingly, had a different view.
“The commission’s Android decision ignores the new breadth of choice and clear evidence about how people use their phones today,” Pichai said.
He added that if the company can no longer subsidise Android through its search engine, the alternative may be charging for it, a cost that is likely to be passed on to consumers through higher prices. This would make Apple’s iphones, unaffected by yesterday’s decision, cheaper in comparison. Vestager’s decision was presented as a check on Google’s dominance. The irony is that the biggest potential winners may be Apple and Amazon, the only two companies worth more than the Android maker.
‘The Android decision ignores the new breadth of choice and clear evidence about how people use their phones today’