Our rules: European Commission launches competition investigations into Apple
July 7, 2020
3 min read
What's going on here?
The EU’s competition chief, Margrethe Vestager, has announced that the European Commission will carry out two antitrust investigations into Apple Pay and Apple’s iOS App Store.
What does this mean?
The investigations come as a result of complaints by businesses about the anti-competitive nature of Apple’s App Store and Apple Pay.
One investigation will consider allegations that Apple is exploiting its role as a “gatekeeper” on the App Store to give its own apps, such as Apple Music and Apple Books, an unfair advantage over its competitors. The EU’s preliminary investigation points to four key issues:
- IMPOSED IGNORANCE: Apple bans publishers from informing consumers that exactly the same items could be purchased outside of Apple.
- THE APPLE TAX: Apple’s 15-30% commission on purchases made in the App Store can lead to Apple either having an unfair pricing advantage over competitors or reducing their profits.
- DATA CONTROL: Apple seems to deny competitors access to “valuable data” from the app-store, whilst it gains a competitive advantage from the information.
- EXCLUSIVELY APPLE: In order to sell content/subscriptions, app developers must use Apple’s “in-app purchase system”.
Another EU investigation will consider if Apple Pay limits competition in two ways:
- APPLE SAYS NO: Apple restricts iPhone users to Apple Pay “tap and go” services by preventing its near field communication chips from functioning with other providers (like Google Pay or Samsung Pay) in contactless payments.
- ON APPLE’S TERMS: Apple sets narrow terms on the payment system’s use by vendors.
What's the big picture effect?
In March 2019, Spotify’s CEO argued that Apple’s rules “purposely limit choice and stifle innovation”. Apple’s defence is that Spotify and others are only the businesses they are today thanks to the App Store ecosystem that allows developers to reach billions of users and benefit from Apple’s secure payment system. Rather than being anti-competitive, they believe this has enabled innovation and competition. Moreover, in response to Spotify’s 2019 accusations, the company revealed that 84% of apps on the App Store pay nothing to Apple. In light of this, the US tech company has said that the European Commission’s allegations are “baseless” and stem from businesses who just want “a free ride”.
It is clear, however, that the role of tech companies as referees of the same game they play in gives them a lot of control over pricing and innovation. The question is: can they be trusted to be a fair referee if they are also a competing player? Over the past few years, the EU has found various instances where tech companies have failed in this regard and forced the regulator to step in to defend consumers and ensure that businesses can compete fairly. Anti-competitive practices have seen Google amass over €8 bn in fines for anti-competitive practices related to Google Shopping and its Android smartphone system. Vestager now has Amazon in her sights too.
The maximum fine that Apple could face is 10% of the tech firm’s global annual revenues. However, these fines are often just speeding tickets for large firms and do little to change their behaviour. The European Commission is believed therefore to be considering other remedies that aim to change corporate governance. In an unprecedented intervention last year, Vestger imposed interim measures that outlawed Broadcom’s alleged anti-competitive practices whilst they were under investigation.
This all comes at a time when Europe is planning to impose other reforms to better protect and empower consumers. E-commerce firms have reason to worry about tougher regulation and investigations. In Apple’s case, these new investigations target an important part of its business model. The company is becoming increasingly reliant on its services business which is now the company’s second-largest stream of income (revenue worth over $46bn in 2019) after iPhone sale. As other important jurisdictions follow suit, abusing the consumer will be much more of a concern for the likes of Apple.
Report written by Will Holmes
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