Apple faces two EU investigations into App Store, Apple Pay

Tech giant Apple is the target of two EU antitrust investigations into its App Store and Apple Pay as regulators said its terms and conditions and restrictions may violate the bloc's competition rules.

But Apple hit back against the accusations, describing the news as “disappointing” and the accusations as “baseless”.

The investigation into the App Store comes after a complaint from Spotify in March 2019 and a subsequent complaint from ereader company Kobo, over how Apple takes a 30 per cent commission on every subscription signed up through its App Store in the first year, and then a 15 per cent cut.

At the same time, the companies complained, Apple has promoted its own music and books services.

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Apple’s global App Store fees are estimated to generate more than $1 billion (€888 million) for the company every month. Apple said in January that consumer spending on the App Store hit a new single-day record of $386 million on January 1st – likely generating $50 million to $100 million for Apple itself.

The EU said that, following a preliminary investigation, “the commission has concerns that Apple’s restrictions may distort competition for music streaming services on Apple’s devices”.

It added that by forcing companies to sell to customers through Apple’s own in-app payments system, Apple seemed to have “full control over the relationship with customers of its competitors”.

The commission said that Apple appeared to cut off its rivals from data about their customers and was able to obtain “valuable data about the activities and offers of its competitors”.

"Apple sets the rules for the distribution of apps to users of iPhones and iPads. It appears that Apple obtained a 'gatekeeper' role when it comes to the distribution of apps and content to users of Apple's popular devices," said Margrethe Vestager, the EU's competition chief.

Interested in other remedies

The EU could theoretically impose a maximum penalty of 10 per cent of Apple’s global revenues for breaching competition rules, but rivals suggested they were more interested in other remedies.

“It has been shown in other fines against Google, for example, that these are merely the cost of doing business and have no meaningful impact in changing long-term business practices. Fines are not in the interest of Apple rivals or consumers,” said one adviser to an Apple rival.

Separately, the EU is launching an investigation into Apple Pay and whether it undermines competition by limiting access to near-field communication for contactless payment in stores.

Ms Vestager added: “It appears that Apple sets the conditions on how Apple Pay should be used in merchants’ apps and websites. It also reserves the ‘tap and go’ functionality of iPhones to Apple Pay.

“It is important that Apple’s measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices.”

The second case focuses on Apple’s terms and conditions on how Apple Pay should be used in merchants’ apps and websites, and also the company’s refusal to allow rivals access to the payment system.

Refuting the accusations, Apple said it the company followed the law and embraced competition. It said the European Commission was "advancing baseless complaints from a handful of companies who simply want a free ride, and don't want to play by the same rules as everyone else".

Great business opportunity

“We developed the App Store with two goals in mind: that it be a safe and trusted place for customers to discover and download apps, and a great business opportunity for entrepreneurs and developers,” the company said in statement. “And as we’ve grown together, we’ve continued to deliver innovative new services – like Apple Pay – that provide the very best customer experience while meeting industry-leading standards for privacy and security.

“At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment. We welcome the opportunity to show the European Commission all we’ve done to make that goal a reality.”

Launched in 2014, Apple Pay marked the company’s diversification from sales of devices like iPhones and iPads. It became available to Irish users in March 2017.

This isn’t the first time Apple has fallen foul of the European authorities. In 2016, the Irish State was ordered to collect €14.3 billion in back taxes , plus interest, from Apple after the European Commission ruled the company had received selective tax treatment over a number of years that had lowered its effective tax rate paid in Ireland. The Government is appealing the commission’s ruling through the European Court of Justice in Luxembourg.– Additional reporting: Financial Times Service/Reuters