Google poised to emerge unscathed from European
antitrust crackdown
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[April 12, 2018]
By Foo Yun Chee and Paresh Dave
BRUSSELS/SAN FRANCISCO (Reuters) - The
European Union's top antitrust regulator, Margrethe Vestager, has made
it her mission to stem alleged anti-competitive abuses by big American
tech companies, threatening as recently as last month to break up
Alphabet Inc's Google.
But a decision in the most important of three antitrust cases against
Google - this one aimed at loosening its stranglehold over
Android-powered smartphones - is likely to show just how difficult it
is, even for a committed trust-buster like Vestager, to dent the power
of the U.S. giants.
The final ruling, expected within the next few months, will likely
involve a multi-billion-dollar fine and an end to clauses in licensing
agreements that stop smartphone vendors from promoting alternatives to
apps such as Google Search and Maps, people familiar with the European
Commission's thinking say.
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The decision, which is expected to hew closely to recommendations made
in 2016 soon after the probe began, will almost certainly leave Google's
market dominance intact because the incentives to stick with the company
are so strong, say industry executives, analysts and even its foes.
Robert Marcus, a former member of Microsoft's mobile strategy team and
now general partner at investment firm Quantum Wave Capital, said it was
"virtually impossible" that any EU penalty would "change anything
massively for Google."
The case holds lessons for regulators in Europe and elsewhere as they
pursue Google, Apple, Facebook and Amazon over practices including
anti-competitive conduct, tax avoidance and a cavalier approach to user
data and hate speech.
German regulators have shown that targeted measures can force changes in
a company's conduct, such as compelling social media companies to
quickly remove hate speech. Tax authorities can close loopholes and
change laws to collect more money.
But stimulating competition in markets where products and services are
free is a far more difficult undertaking.
"Once someone is entrenched, you can't say, 'stop' and things get
better," said Mark Patterson, a Fordham University law professor who has
researched Google antitrust issues.
The Commission declined to comment on the case. Google did not respond
to a request for comment.
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FEW ALTERNATIVES
Google holds 90 percent of the European search market, meaning there are
few plausible alternatives for handset makers or consumers who might
want to opt out. Phone vendors will be reluctant to dump popular
applications such as Google Maps even if they could do so freely. An
executive at one major smartphone maker said European wireless carriers
have told his company they would refuse to market phones without Google
Search or the Google Play app store.
Alternatives to Android remain scarce. And Google still has the option
of going all-out with its own Pixel phones if new rules make licensing
Android unappealing. Tom Moss, a former Google employee who wrote key
parts of the first Android licensing agreements a decade ago, told
Reuters tight control was necessary at the time, both to assure a
standard platform for third-party software-makers to build Android apps
and to guarantee customers a consistent experience.
Moss, now with the gaming hardware company Razer, acknowledges that at
this stage, however, "keeping all the same policies and approaches can
seem heavy-handed, unfair and anticompetitive".
He added: "It's not the end of the world" for Google that the EU is
reassessing the arrangements.
The EU's Android investigation began in 2015 following a complaint two
years earlier from lobbying group FairSearch, whose members at the time
included competitors like Oracle, Nokia and Microsoft.
Sources said Amazon also complained.
A preliminary document from 2016, seen by Reuters, said regulators
should levy a large fine and that Google should stop giving revenue
sharing payments to smartphone makers to pre-install only Google Search,
as well as stop requiring Google’s Chrome browser and other apps to be
installed alongside Google's Play store.
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![](../images/041218pics/busine31.jpg)
European Competition Commissioner Margrethe Vestager holds a news
conference at the EU Commission's headquarters in Brussels, Belgium,
March 21, 2018. REUTERS/Francois Lenoir
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The EU was not likely to go further than that recommendation, EU sources said.
Ordering the company to divest its Android business altogether, for example,
would be difficult to justify under European law, European Commission sources
said.
Deutsche Bank analyst Lloyd Walmsley said in January the EU "could require more
onerous changes" than it did last year in its inquiry into whether Google was
favoring its own online shopping service in search results.
In that case, Google was fined $2.4 billion euros - a large amount for most
companies, but barely 2 percent of the company’s 2017 sales.
Changes made by Google in response to the EU's order did stoke more competition
for certain ad slots, but because of the way Google's ad auction system works
that resulted in more money for the company without giving competitors enough of
a leg up to gain market share.
There's still a possibility the Commission could compel Google to work with
manufacturing partners that want to use modified versions of Android, allowing
what is known as "forking" of the operating system, EU sources said.
But the ruling almost certainly will not be enough to break Google's
monopolistic hold, FairSearch lawyer Thomas Vinje said.
"The Android case has taken too long, and ... Google has in large measure
achieved the elimination of competition it sought," Vinje said.
Google is appealing the shopping verdict, and could also appeal any ruling in
the Android case.
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RIVALS
The big issue for Google is less what the EU might do than how the strategies of
smartphone makers might evolve. Global leader Samsung Electronics has long
pushed its own apps for messaging, Internet browsing and other functionality.
Samsung could end its relationship with Google if it truly wanted to go in a
different direction, Moss said. So far, however, Samsung has been unwilling to
take that step. Among other things, doing so could drive customers to Google's
own Pixel smartphone because it comes with a full range of Google apps and often
gets first access to new features.
Other challenges could come from Amazon, Alibaba and other companies who might
customize an "open source" version of Android that Google has made freely
available for public use.
There are few signs so far that any major smartphone vendors want to opt for a
different operating system. Amazon tried to build its own phone with a modified
version of Android several years ago, but it was a spectacular flop.
Google's rivals in searches and Internet browsers are holding out hope they'll
be better able to compete under a new EU regulatory regime.
Guillaume Champeau, ethics and public relations officer at French search engine
company Qwant, said an agreement it reached with a phone maker fell through last
year because of Google's rules.
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"We want to have a chance to compete, but we need to be able to have agreements
with phone manufacturers," he said.
Such deals would not be a big threat to Google.
"Android is utterly dominant," said technology analyst Geoff Blaber of CCS
Insight. "Whatever the ruling, manufacturers are heavily reliant [on it] so
nothing is going to change dramatically."
(Additional reporting by Jeffrey Dastin in San Francisco; Editing by Jonathan
Weber and Sonya Hepinstall)
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