A substantial European Commission’s fine looming over Google
Android’s dominant position on the market helped Google to abuse and to promote their own services and apps, while imposing severe conditions over mobile network operators and manufacturers and thus, brushing aside competitors’ solutions. The EC sees this as an infringement of the EU Competition Law.
After a whole year of investigation, on the 20th of April 2016, the European Commission stated that it is to believe that Google infringes the EU antitrust policy. The competition commissioner Margrethe Vestager explained at a press conference that the American company’s behavior “denies consumers a wider choice of mobile apps and services and stands in the way of innovation by other players. “ The investigation team reached a preliminary conclusion that the Mointain View, California’s firm broke the laws by imposing on smartphone manufacturers to pre-install such services and apps as Chrome browser and to set Google Search as a default service. “Thereby, Google has ensured that Google Search and Google Chrome are pre-installed on the significant majority of devices sold in the EEA.” the fact sheet says. The EC suspects that the same manufacturers and some mobile network operators received financial incentives in case Google Search was pre-installed on the new devices. Last, but not least, the IT giant is charged for obliging through the “Anti-Fragmentation Agreement” tablet and smartphone manufacturers to install only the original version of the Android OS and they cannot sell them with any other, competing Android fork. All those actions are described by the EC as obstacles to the innovation.
The former Danish economy minister Vestager said that it is perfectly fine if a company occupies a dominant position, but if it is abused, then there is an issue. After receiving the charges Google has 3 months to answer them. In case the European Commission finds the American firm culpable, it has the power to impose a fine of up to 10% of their annual global sales and to eventually impose a change of those practices.
Whether a fine of $7,4 billion would be a record breaker, eclipsing both Intel and Microsoft ones, it would not be the worst thing to happen for Google. This official indictment represents a second one for the company, as only a year ago Margrethe Vestager accused Google for abusing its dominance of the search engine market in the European Union. The competition commissioner also stated that the EC is very interested in investigating Google’s tax practices in the United Kingdom. The clouds are clearly gathering for a storm over Mountain View, as if both of the charges become official, the total amount would rise up to nearly $15 billion. However, many legal specialists consider such fines as extreme and that the company would try to reach an agreement with the Commission.
On the other hand, the worst that could happen is, if the Commission decides to impose a change of those practices. According to the charge fact sheet, “Google has market shares of 90% and above” in most EU member states and the Android OS is used on almost all smartphones and tablets, bought by the majority of the customers within the Union. With the rapid emergence of the m-commerce, losing market domination in the European Union would hurt a lot Google’s ambitions. It is well known that Google doesn’t make a profit directly from its operational system, but it is strongly related with the paid services such like PlayStore, GoogleMaps etc, and with the major source of revenue for Google – the advertising. According to eMarketer, this year, more than half of Google’s net revenue from advertising (approximately $43 billion) will come from mobile devices. If the California company loses that advantage on a market, which it dominates, they will also lose that sweet spot they’ve occupied up until now on the global one. This would directly annihilate their current business model in Europe and Google has to come up with a new one, while many others will try to conquer the freed space.
This could be already happening, as through the years Google managed to deteriorate its relationships with many companies, among them manufacturers like HTC and Samsung. While none of the leading smartphone manufacturers commented on their relationships with Google, a group for plaintiffs against the American firm, including Nokia and Tripadvisor “applauded” the accusations.
In the mean time, Google officially responded by stating that Android was “good for completion and good for consumers” and the company is looking forward to work with the European Commission in order to demonstrate this. The IT giant also underlined that all licensing contracts with manufacturers, developers and mobile network operators were signed with their deliberate consent and both sides volunteered to do this. Despite showing high level of composure, there are clear signs that the Mountain View based firm is worried about the number of complaints piling up. Along with the two separate investigations in the European Union, Google already dodged a bullet in Canada within the same week, as the investigation over abuse of dominance in online search advertising was closed by the authorities. Nevertheless, it seems that Google wins some battles and loses others. Yandex won a similar case to the European one and now the US company must rework all contracts with manufacturers in Russia. By the end of July 2016 it will be clear whether the same would happen in the EU.