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Why are EU regulators going after Android?

Why are EU regulators going after Android?

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It's all about the Play Store

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The European Commission (EC) has this week formalized its antitrust investigation into Google's Android operating system in a set of objections sent to the Mountain View company. At issue is Google's dominance of the European smartphone market and the ways that the company is exploiting that position to promote its services and apps.

This opens up a second major front of contention between Google and the EC, which is already investigating the US company's prioritization of shopping search results.

What is the European Commission objecting to?

The vast majority of Android smartphones sold in the EU ship out with Google's own web search preinstalled, making it the default and often only option. Most also feature a folder of Google apps prominently displayed on the home screen that users first see after setting up a device. Google Maps, YouTube, the Chrome browser, and a variety of other Google services greet almost every European Android neophyte. This is a precondition of the Mobile Application Distribution Agreement (MADA) that Google signs with Android phone manufacturers. It essentially means that those who want to sell a device with access to the Google Play mobile app store and a selection of Google's own apps must do so by prioritizing those apps. The EC deems this an unfair abuse of market power.

But Android is open-source software and phone makers are free to use it even without Google apps, right?

Yes, Android is available for all to do with it as they please. However the things that make Android devices most attractive are not. Google's Play Services and first-party applications like YouTube are integral to Android's appeal, and so is access to the vast library of third-party apps that reside inside Google's Play Store. Only Google holds the golden key to the Play Store, and the company wields it to add another condition to the licensing of its proprietary software. Android manufacturers have to abide by an Anti-Fragmentation Agreement (AFA) — meaning they're not allowed to create their own Android "forks," such as Amazon's Fire Phone — if they ever want to put the Play Store on their devices.

Licensing Google's software is formally voluntary, but practically compulsory

As a practical matter, it is now basically impossible to sell an Android smartphone in Europe without Google Play access — mobile carriers wouldn't bother subsidizing it and phone stores wouldn't care to stock it. With roughly 80 percent of the European smartphone market commanded by Android (and the rest being mostly iPhones), Google has functional, if not explicit, control over the apps preloaded on the majority of new handsets sold across the continent. Participating in Google's licensing program and signing those MADAs and AFAs is formally voluntary, but in practice compulsory.

Sounds like Google is becoming a victim of its own success.

To a great extent, that's exactly what is happening. Back in 2007, Google entered a highly competitive mobile software market, led by established big names like Symbian, BlackBerry OS, and Windows Mobile, and systematically defeated them all by offering better services and greater functionality. From the device manufacturer's perspective, Android offered a free, self-sustaining, modern OS that trimmed their development costs. Google has acted like any responsible profit-maximizing company would be expected to: it has won users on the strength of the quality of its services, and it has endeavored to forge synergies between them to enhance its position. Google promotes Google search on Android because running ads alongside those searches is still its primary source of revenue.

Didn't Microsoft do that by bundling Internet Explorer with Windows?

Indeed it did! The parallels between Microsoft's antitrust issues with European regulators and Google's current situation are readily apparent. Android has become the Windows of the mobile world, serving as the ubiquitous operating system of choice, and Google's software licensing terms are leading device manufacturers to bundle and promote its apps ahead of others. Another commonality is that Google was one of the behind-the-scenes agitators during Microsoft's IE tribulations, and Microsoft returned the favor in 2013 when it petitioned the EC to look into Android app bundling.

Unlike Internet Explorer in Windows, people actually like Google's apps on Android

The big difference between the Internet Explorer bundling in Windows and Google's Android search and app integration is one of quality. Microsoft was evidently suppressing better alternatives by pushing the horrors of IE6 on people who would have been better served by Firefox or Chrome as their web browser. The same situation is less pressing in the Android ecosystem. For most people, the best email client, mapping application, and video service on Android all come from Google, so preloading them on phones helps users rather than hindering them.

Moreover, Google's Play Store is in itself a promotional vehicle for Google's competitors, offering users a way to search for and download alternatives like Here Maps, Vimeo, or Firefox for Android.

Could Google be subjected to the same enforced choice of apps that Microsoft had to provide with browsers in Windows?

It's possible, though unlikely. After many years of investigation, the EC decided in 2009 that Microsoft must provide a browser choice ballot for users setting up new Windows machines, which was deemed to provide effective competition for the bundled IE. The same could theoretically happen with Google and its apps on Android, though such a situation is still a long way away given the early stage of the present inquiry. Google's method for ensuring its apps and search are bundled by Android partners is a lot more complex and nuanced, and the matter is complicated further by the lack of clear competitive alternatives. The EC's ideal outcome would probably be a negotiated agreement with Google that sees the Mountain View company relaxing its licensing rules to allow device manufacturers to also bundle competing software and search services.

If Google already has the best Android apps, what's the problem?

This is one of the big communication challenges for the EC. Most people will interpret its actions as interfering with a system that already works. But what worries the continent's antitrust regulators isn't the current quality of Google's services, it's the opportunity for outsiders to step in and offer something potentially better (or at least competitive). Amazon and Yandex both have Android app stores as well, with the latter also offering a web search engine like Microsoft's Bing. None of those are superior to Google's software today, which makes their absence from most Android phones unproblematic today. The EC is objecting to the anti-competitive practices that Google engages in to ensure that any threat posed by Yandex or Bing is averted before an Android smartphone is even purchased, forestalling any chance of competition in the future.

Google's financial incentives aren't a problem, but the attached conditions are

The EC doesn't dispute the fairness of Google's victories up to this point, or that the company has merited its present leading position. While identifying "significant financial incentives" provided by Google to mobile manufacturers and carriers, the EC also doesn't take issue with these incentives per se. The regulators' quarrel is with the conditions that Google attaches to the financial benefits it offers to its contracting partners. Europe's concern is about the competition-stifling effects of Google being Android's final app arbiter — the whole issue hinges on the Play Store and Google's control of who gets to access it.

Why is Google being investigated about this and not Apple?

There's a question of fairness to be asked when considering Google's nearest mobile competitor. Apple has erected a much more stringent, overtly exclusionary walled garden around its iPhone and iOS software. It too commands a vast and vastly profitable app store, and it too can be said to exercise much of its power to restrict rather than expand the choice of its users.

The whole issue hinges on control of the Play Store

The difference, ultimately, is one of scale. Apple is only dominant over iPhones, and even though the company makes it hard to switch away from iOS and its related services and ecosystem tie-ins, the Android alternative is always there (and getting better all the time). On the other hand, the EC's objections specifically point out that "Android is used on virtually all smartphones and tablets in the lower price range, which are bought by the majority of customers."

If Apple were to sell a truly cheap iPhone, or if all the abortive Android rivals from the likes of Jolla, Firefox OS, or Ubuntu could actually register some meaningful sales, the EC's Android objections would probably dissipate over time. But as things stand, Google is the giant elephant in the mobile ecosystem, suffocating all other competitors.

What happens next?

The European Commission's objections have been directed to both Google and its parent company Alphabet Inc. It's now up to Google to provide a formal response, which is likely to be followed by a fresh round of negotiations and cajoling as both parties try to avoid the necessity for fines. Those could stretch into the billions of dollars, up to 10 percent of Google's annual revenues, but the European authorities tend to prefer using the threat of sanctions over actual impositions.

"We are thankful for Android’s success and we understand that with success comes scrutiny."

Speaking on Google's behalf, Android chief Hiroshi Lockheimer has said, "We are thankful for Android’s success and we understand that with success comes scrutiny. We look forward to discussing these issues in more detail with the European Commission over the months ahead." The likely outcome is that we will indeed see many more months, probably years, of back and forth before a compromise is worked out.

In spite of the typically slow pace of the EC's antitrust investigations, their influence should not be underestimated. Google's European practices are also its global ones, so any concessions made on this continent will have a bearing on how Google conducts its Android business around the world.