Jul 26, 2018

Major Sanctions on Android Are the Latest EU Trade Barrier

Andrea O'Sullivan Feature Writer , Veronique de Rugy Senior Research Fellow

The European Union’s (EU) subtle trade war against foreign technology companies continues apace. Last Wednesday, the European Commission issued a withering antitrust ruling against Google for its popular Android phone software, which includes a record $5 billion dollar fine and an injunction against bundling the free operating system with other Google services like Chrome and search. While EU leaders have claimed that the decision is good for “innovation” and “competition,” the ruling will likely have the opposite effect and hurt consumers along the way.

This decision comes on the heels of the EU’s unprecedented privacy regulations called the General Data Protection Regulation (GDPR) and a proposed copyright rule that would both undermine the openness of the internet as we know it. And this is actually the second major EU antitrust ruling against Google—the first was a $2.7 billion fine for Google’s market dominance in shopping comparison services. There are three more antitrust cases against Google on the EU docket concerning advertising, maps, and web scraping.

When taken as a whole, these European actions against American tech companies look a whole lot more like a clandestine protectionist and revenue-generating gambit than a series of good faith policy responses to privacy and competition issues.

Let’s consider the antitrust case against Android. The popularity of Google’s mobile operating system may be taken for granted today, but when it was introduced in 2008, it was considered a big gamble. Other technology companies at the time closely guarded their source code and applications, taking a tack like Blackberry, Apple, and Microsoft and offering closed systems.

What Google did was downright revolutionary. By buying and developing the open source Android system, Google de-bundled the operating system from any particular device, and thereby catalyzed an explosion in device and application diversity. Google offered this powerful operating system to device and service sellers for free. The result is the competitive phone and service ecosystem that we enjoy today, which offers low prices and considerable choices thanks to the open source innovation of the Android platform.

This is exactly what has so upset the EU. Rather than seeking payment, Google asked that certain Google applications—like Chrome and the Play Store—be available by default. This way, Google would make money by channeling people to its advertising infrastructure. In some cases, Google paid manufacturers and network operators to prioritize their native apps. Additionally, the EU alleges that Google prevented phone makers from running “forked” versions of Android—kind of like an unofficial alternative.

This does not make sense for many reasons. First, users are free to download competing applications on their phones, and they can even remove the default Google apps, as a blog post by CEO Sundar Pichai points out. Even if you’re not a fan of the Chrome and Search apps, alternatives like Brave browser and DuckDuckGo search can easily be installed on your Android device instead. The replacement process is quick and straightforward, and users suffer no loss in speed or quality for their choice. And you can install alternative “Play Stores” like F-Droid to get access to programs that Google’s official outlet does not list. Perhaps the EU would have more of an argument if users were prevented or punished for seeking out these alternatives, but this is simply not the case.

Second, closed source mobile operating systems also come pre-loaded with the maker’s default applications. What’s more, companies like Apple prevent users from removing default applications or installing real alternatives. And these do not even provide the choice of device that Android does. Are these companies also engaging in anti-competitive acts? The EU’s argument that Apple is exempt because it is a vertically integrated endeavor seems merely to beg the question.

Android’s real sin appears to be that it dared to be wildly successful. No one made a fuss about this arrangement when Android constituted a small overall portion of the mobile market, and RIM’s Blackberry ruled the day. There was nothing about the situation itself that caused EU regulators to call foul. After all, Android could have just as easily slid into obscurity forever, and perhaps a different model would dominate the day. It is precisely because Android’s open source business strategy was so successful that antitrust regulators became interested. And Google’s healthy coffers can prove irresistible to nations seeking an infusion of revenue.

Many have raised eyebrows at the record-breaking fine that the EU has imposed on Google. But, to be honest, Google is a wealthy company, and it will be able to withstand the fiscal blow. Ironically, the EU’s previous GDPR regulations boosted Google’s dominance in the ad market, which may help buoy the company’s balance sheet. The real damage may be that Android must now re-engineer its business model to be compliant with the whims of regulators overseas.

Now, the European Commission claims that it does not “question the open source model or the Android operating system as such” in its decision. But it’s hard to see how Android’s open source model can continue if its core monetization mechanisms are considered illegal by the regulators of one of the world’s biggest trade blocks. Google may have to start charging for the Android platform, which will mean higher prices for consumers. So contrary to the EU’s rhetoric, this decision is not exactly pro-consumer.

Nor can it be said that the anti-Android action is necessarily good for innovation. Antitrust commentators have long pointed out that there is a pacing problem with antitrust suits: By the time the lengthy series of appeals and rulings are settled, a new innovator has usually emerged, which had nothing to do with the business model that so frustrated antitrust enforcers. It’s very hard to predict market success, and administratively-minded bureaucrats are perhaps among the least qualified to intuit the trends of tomorrow. Meanwhile, their decisions can impose real costs on consumers and distort business models.

In this case, the EU seems to be set in its hostile ways against American technology companies. Consumers across the world may find their devices to be less useful and their options to be more limited, all because antitrust regulators in Europe decided that they know what’s best for them. To find out who is really limiting innovation and choice, the European Commission may just want to look in the mirror. The lack of good reasons for the fine, along with the unprecedented size of the fine, makes one wonder whether this is simply a money-grab from the EU whose member nations have so far been unwilling to address their rampant overspending problems.

Photo credit: Olivier Matthys/AP/Shutterstock

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