Why Apple and Google Face a U.K. Regulatory Clampdown

(Bloomberg) -- Alphabet Inc.’s Google and Apple Inc. have become embroiled in a pioneering market study by the U.K.’s antitrust agency that will examine their dominance and effective duopoly in mobile systems. The probe will likely have wider implications beyond the two tech giants. It could shape a new regulatory regime that will determine whether companies hold “strategic market status,” a category being introduced to help the watchdog rein in a handful of powerful firms.

1. What’s a market study? 

The U.K.’s Competition and Markets Authority uses the tool to identify whether markets are working for consumers. The results can lead to enforcement action against companies, referring them to an in-depth probe, or recommending policy changes to government.

2. What’s the Google and Apple study about?

The agency opened a 12-month study in June on the wider market in mobile ecosystems, a broad term that takes in mobile devices, operating systems, and apps, saying it feared Google and Apple’s dominance was stifling competition. The investigation will also help gather information for two separate probes into Google’s ad-tracking changes and Apple’s app store.

3. Why is the duopoly a problem? 

In this market consumers often only have two choices: Apple or Google. Such market dominance could give the companies power over smaller services that rely on their platforms, essentially letting them choose winners and losers and potentially curbing emerging rivals. Apple and Google have both argued that they have helped create vast opportunities for others and need to control their platforms to make sure they work effectively.

4. Have any other countries attempted a similar probe?

The CMA is breaking new ground with the scope of this study, but regulators elsewhere, including in the European Union, the U.S., Russia and South Korea, are making their own moves. Frustrated by the limits of antitrust enforcement, the EU and U.S. are also mulling legislation. The EU is close to agreeing a Digital Markets Act that might require Apple or Google to allow other app stores to install apps on devices. The U.S. Senate is considering an overhaul of Apple’s app store, which is also the subject of an influential California court ruling.

5. What else is at stake? 

For Big Tech, the study will be an important look at the future of the regulatory landscape. The results may point to a different approach from regulators, who have in recent years imposed large fines on the biggest tech firms that have had little impact on their dominance and behavior. The study’s findings will contribute to the proposed new regulatory regime for digital markets. The new Digital Markets Unit, which currently sits within the CMA, will be able to enforce a code of conduct and potentially suspend, block and reverse decisions made by the tech giants.

6. Will Apple and Google have to follow new rules?

A new “strategic market status” test is being created. Under the plans, the label will be applied to the most powerful tech companies, who will be held accountable under a code of conduct. If designated, Google and Apple would have to notify the CMA of each of their acquisitions, even small deals that often go under the radar. For the two companies, the regulatory burden risks being heavier than previously.

7. What are they doing about it?

Apple and Google have both slashed fees for developers, a contentious issue that has triggered antitrust complaints about app stores collecting a high slice of subscription revenues. Apple says it uses the revenue it makes to create a safe ecosystem for consumers where many apps are supported and distributed for free. Google points to the innovations its open app store has stoked.

The Reference Shelf

• An article on the CMA emerging as one of the most active regulators.
• An explainer on the CMA emerging from the EU’s shadow after gaining more powers post-Brexit.
• Why Google will face a new regulator in the U.K. with the formation of the Digital Markets Unit.

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