Google braced for Brussels penalty over abuse of market dominance

Brussels is preparing to hit Google next month for abusing its dominance through the Android mobile operating system, concluding the most important of a trio of EU antitrust investigations into the company.

Margrethe Vestager, the EU’s competition commissioner, is poised to announce the negative finding within weeks, according to people familiar with the case, marking the most significant regulatory intervention made against Google’s business model.

A penalty is expected in the Android case, but its size is unclear. The commission is empowered to impose fines of up to $11 billion (€9.3 billion) - which is 10 per cent of the global turnover of Google’s parent company Alphabet - but typically decisions are at the lower end of the range.

The decision will mark an escalation of the commission’s battle with Google, which began eight years ago with an investigation into comparison shopping, then only a narrow part of online commerce. Though that case concluded with a €2.4 billion fine, it has not led to significant changes to Google’s business.

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A third investigation is under way into whether the company unfairly banned competitors from websites that used its search bar and adverts.

Android dominant

Android is the operating system used in more than 80 per cent of the world’s smartphones and is vital to the group’s future revenues as more users search on their mobile gadgets.

The European Commission investigation concluded that the US group imposed illegal terms on Android device makers, which harmed competition and cut consumer choice.

By contrast with the comparison shopping case, the Android case takes aim at a core part of Google’s strategy over the past decade: using its mobile operating system as a platform to push smartphone adoption of its search engine and smartphone app store.

Google denies wrongdoing but has seen no sign of the commission dropping its concerns or seeking a settlement to the case.

The Android case is the most commercially sensitive of all its battles with the commission, since it touches on business practices that have helped cement its position in the mobile search and advertising market.

When it unveiled its charge sheet against Google in 2016, the commission alleged that Google imposed licensing conditions for Android that favoured Google products and apps, such as Chrome and Google Play.

Competing systems

Phonemakers were also prevented from running competing operating systems based on the Android open-source code, and the company offered financial incentives for exclusively pre-installing Google Search on phones.

The commission argued the behaviour consolidated Google’s dominance in general search, hampered the ability of rival mobile browsers to compete with Chrome and hindered the development of other operating systems, which it worried would reduce consumer choice and stifle innovation.

When she announced the charges in 2016, Ms Vestager said: "We believe that Google's behaviour denies consumers a wider choice of mobile apps and services and stands in the way of innovation by other players, in breach of EU antitrust rules."

In November 2016, the company replied to the accusations and argued that Brussels had misunderstood the market when it did not include Apple as a rival to Android.

"The commission's case is based on the idea that Android doesn't compete with Apple's iOS," Google said in a statement by Kent Walker, its general counsel. "We don't see it that way. We don't think Apple does either. Or phonemakers. Or developers. Or users."

Pre-installed

EU enforcers excluded Apple as a competitor because its iOS operating system is not available to be licensed on rivals’ smartphones.

Google dismissed regulators’ concern that pre-installed and bundled Google apps - such as search and Chrome - lock out rivals, arguing that competition is only a download away. It also said it must control the software and provide basic apps to ensure Android works smoothly on different phones and tablets.

The company unveiled Android in 2007 as an open system to challenge closed systems including iPhone, BlackBerry and Nokia as a way to ensure Google's services and ads did not lose out as internet use went mobile.

The European Commission and Google declined to comment.

Brussels is considering if the changes made to Google Shopping are sufficient to fix its concerns. – Copyright The Financial Times Limited 2018