The European Commission is right to tackle the tech titans, but its remedies are wanting
HOW high can they go? On July 18th the European Commission hit Google with a record fine of €4.3bn ($5bn) for entrenching its dominance in internet search by illegally tying together this service and other mobile apps with Android, the firm’s mobile operating system. A year ago the commission levied a fine of €2.4bn on Google for using its clout in search to steer users away from rival offerings and towards its own comparison-shopping service. At this rate of inflation, the next fine—there is one other case against Google pending in Brussels, with more expected—could reach the maximum allowed: 10% of the firm’s global revenues, or about €9bn.
The size of the fines hides an inconvenient truth, however. The commission deserves credit for scrutinising the behaviour of dominant online firms—its activism stands in pointed contrast to supine American authorities. However, none of its antitrust actions in recent years has done much to strengthen competition. Depressingly, this outcome may suit everyone. High fines win the commission glowing headlines (and boost the chances of Margrethe Vestager, the competition chief, becoming the commission’s next president). Google, for its part, protests loudly but treats the penalty as a cost of doing business. This week’s fine amounts to only 5% of Google’s current net cash balance. Nothing really changes.
Not that paranoid about Android
If that sounds cynical, look at the Android case more closely. Google requires smartphone-makers and mobile operators to sign strict agreements if they want to use any of its apps. For instance, if device-makers want to install Google’s app store—which in most markets they must in order to make their gadgets attractive to users—they also have to install all of Google’s apps, including the one for its search service. They must give these apps top billing on users’ screens, too. And if they use Google’s apps and its version of Android on any of their models, they have to do so on all of them (see article).
Unsurprisingly, Google argues that these restrictions are for the good of consumers. They ensure, for instance, that people always have a familiar set of apps on their home screen and that Android does not splinter into incompatible versions. Yet what Google calls “fragmentation” is actually competition, as China’s vibrant mobile market shows. Because Google Play is not available there, device-makers that use Android are not compelled to install the firm’s apps but can pick and choose. The web of rules elsewhere is designed above all to protect Google’s search service and its moneymaking advertising business. The commission is right to find Google guilty.
Yet its remedies fall short. The commission wants Google itself to come up with remedies, which in effect means dropping all the restrictions it imposes on device-makers. But that alone is unlikely to be enough to restore competition quickly because of the dominance of Google’s version of Android, which powers 80% of smartphones in Europe. A similar approach in the market for comparison-shopping services has been ineffectual. Rivals still appear in only 6% of the slots available on the European version of Google’s search engine. Tougher remedies would include compelling Google to allow competing app stores to distribute its apps, which would make it easier for other firms to launch competing app stores. Another option would be to give consumers a choice, when they first boot up their phone, over which apps they want to use as defaults (much as the commission once required for browsers on PCs).
If it really wants to merit the accolades it gets for tackling the tech titans, the commission needs not only to be more forceful but also to act more swiftly. The comparison-shopping case was seven years old by the time it was decided; most of Google’s rivals had already succumbed. Gearing up for a set-piece antitrust battle is a mistake in such a fast-moving industry. The commission should instead go for quicker wins, for example by rapidly knocking down any new limitations on rivals’ services and apps.
Europe is a less friendly environment than America for the tech giants. But it has not so far achieved much more in terms of promoting competition than the regulators across the Atlantic. That is a disappointment as big as any fine.