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Google hit with record $5 billion EU fine in Android antitrust case

Image Credit: REUTERS/Dado Ruvic
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European Union regulators today slapped Google with a massive $5 billion penalty for abusing the dominant position of its Android mobile operating system.

Antitrust regulators ruled that Google had inappropriately used Android to force handset makers to include the search giant’s own apps, giving it an unfair advantage over competitors in an attempt to extend its search engine dominance from desktop to mobile.

The result of an investigation led by European Commissioner for Competition Margrethe Vestager, the aggressive fine represents a new record for Europe and easily eclipses the $2.72 billion antitrust fine the EU levied against the U.S. search giant last year. More troubling for Google is a ruling that the company must de-couple its apps from Android and can no longer force those apps upon handset makers.

“Google has used Android as a vehicle to cement the dominance of its search engine,” Vestager said in a statement. “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.”

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The ruling comes after years of intense lobbying by Google, which thus far seems to have failed to move the needle in its favor. In addition to antitrust issues, the company also faces a broader backlash in Europe over issues such as taxes, its handling of controversial content online, and potential obligations to compensate publishers for use of their content in its search engine.

That European regulatory sweep extends to many other U.S. tech giants, including Facebook, Amazon, and Apple. The latter is still fighting a ruling requiring it to pay billions in taxes to the Irish government after it was determined Apple had dodged its fair share.

With regard to Android, European regulators announced the probe two years ago. Because smartphone manufacturers that use Android are often required to install Google products — such as its Chrome browser and search feature and apps like YouTube — the EU argued that the company limited competition.

Naturally, Google begs to differ. The company has maintained that the launch of Android in 2007 not only helped numerous handset makers jump into the smartphone revolution, it enabled the creation of those devices at dramatically lower costs and ensured that there would be robust competition against Apple’s iPhone and iOS ecosystem. Plus, there’s nothing stopping users from downloading other apps. As Google likes to say, competition is just a click away.

“Android has created more choice for everyone, not less,” said Google spokesperson Al Verney, in a statement. “A vibrant ecosystem, rapid innovation and lower prices are classic hallmarks of robust competition. We will appeal the Commission’s decision.”

In this case, however, the EU found that the agreements and the financial incentives Google paid to handset makers were too binding, and went too far in inhibiting competition. Six of the top 10 smartphone apps downloaded in Europe’s biggest markets are Google apps. Startups just can’t compete against that kind of dominance and, realistically, consumers passively accept the convenience of the default smartphone apps from Google, EU officials ruled.

The size of the fine is potentially less problematic than the ruling that Google must separate Android from its apps. Though such apps are entrenched in users’ daily habits, separating the apps from future Android smartphones could still diminish their market share. Google is counting on app usage not only for ad sales, but for the continued collection of data that helps improve its overall products and potentially drives future data-related endeavors.

And while handset makers might enjoy more freedom around their use of Android, they may rightfully begin to worry if Google has less financial incentive to continue development of the platform.

News of the fine and the decision caused Google’s competitors to applaud the EU and to call on other regulatory bodies, particularly those in the U.S., to renew their scrutiny of the search giant’s practices.

“The European Commission’s ruling of additional illegal conduct by Google on smartphones is another important step in restoring competition, innovation, and consumer welfare in the digital economy,” wrote Luther Lowe, Yelp’s senior vice president of policy, in a blog post. “The EU must ensure complete compliance from a recalcitrant Google, and the U.S. must take action to provide American consumers with similar protections.”

Google was previously hit with a similar ruling by Russian antitrust officials. In addition to appealing last year’s fine, Google also faces an EU investigation into abuses related to the online advertising market.