Google has been fined €4.3 billion by the European Commission for the abuse of its dominant market position by its Android mobile phone operating systems.
It is the largest EU anti-trust fine ever and represents close to 40 per cent of the company’s 12.6 billion profits last year. The finding by the competition directorate is also likely to strike hard at the company’s business model in the medium term – between 450 and 500 million European mobile owners use the Android operating system.
Last year the commission also fined Google €2.4 billion for abuse of its market position in favouring its shopping services in internet searches.
Google has been given 90 days to rectify the abuse by altering its exclusive licensing arrangements with manufacturers or face daily fines that could amount to 5 per cent of the global turnover of Alphabet which owns it.
Commissioner for competition Margrethe Vestagesr announced the fine, saying that those in a dominant market position must “must compete on their merits....they need to play by EU antitrust rules.”
“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. This is illegal under EU antitrust rules,” she said of Google, which makes the Android mobile operating system used in smartphones, broke antitrust laws by striking deals with handset manufacturers such as HTC, Huawei and Samsung.
The commissioner cited three grounds for its infringement finding: the Google requirement on manufacturers that if they want to use the system they must pre-install it on their phones, that they paid them not to pre-install any other system and to favour Google’s services, such as its search bar and Chrome browser, and the company’s alleged obstruction of the development of alternative search engines.
In doing so Google was abusing its dominant position as a search engine which represent 95 per cent of searches on all android operating phones. The company is expected to lodge the fine into a special fund pending appeal to the court of justice of the EU. If the court eventually upholds the decision the cash will be paid to member states on the basis of a formula related to national budget contributions.
The decision is likely to provoke strong reaction in the US where it will be seen as a continuing evidence of an EU bias against US business. It is likely to complicate the visit next week of commission president Jean Claude Juncker to meet President Trump in Washington over the ongoing trade dispute.
By declaring these methods to be illegal, the commission may also be forcing Google to rethink its business model and may force the company in monetising its open source Android system to start charging for licensing instead of giving it away free. Some observers warn the result may be increased costs of mobiles.
Earlier Google had strongly defended its position denying that Android hinders its rivals, saying that any company has the ability to use the open-source software however they choose "Today's mobile devices show all the signs of fierce competition with a wide range of business models," Kent Walker, Google's general counsel, wrote in a blog post in defence of Android. "The rapid innovation, wide choice, and falling prices we see in smartphones represent the hallmarks of robust competition."
Google’s services remain immensely popular with customers, while its stock price, profits and revenue continue to soar. In the three years that the European Commission was carrying out its investigation, annual revenues for Alphabet have grown to $111 billion, from $75 billion.
Google has also strengthened its dominance in the mobile phone market, with more than 1.25 billion Android handsets sold globally last year, according to IDC, a research firm.