In this latest installment of our summer reading series, we outline the potential remedies proposed by the UK’s Competition and Mergers Authority to address Google and Apple’s dominance in the mobile ecosystem.
The CMA warns:
“..any future proposed interventions to promote greater competition in this sector should not be limited to considerations within a single, narrowly defined product or service market – a holistic approach is needed, including ongoing engagement with ecosystem owners, their competitors and users.”
In other words, there is no single remedy for cutting through the web of demand-side and supply-side technical, business, and behavioral practices that the CMA says enables Apple and Google to dominate the iOS and Android mobile ecosystems.
The CMA rejected more sweeping solutions suggested by some stakeholders, including requiring their app stores or app review processes to be divested or operated under independent governance.
Remedy area 1: Devices and operating systems
CMA offers the following remedies to reduce barriers to moving from iOS to Android:
- Apple providing the necessary APIs to allow iOS users to migrate their apps and data to Android devices; and
- break the “closed loop” of iOS by imposing “interoperability” between Apple’s proprietary applications (eg iMessage) and connected devices (eg Apple Watch) and Android devices.
If Android facilitates the transition of its ecosystem to iOS, Google does not come out unscathed. The CMA is considering solutions to loosen Google’s grip on the “inner circle” of Android (Google Mobile Services) through nested commercial agreements versus the less restrictive “outer circle” of bifurcated versions of Android. For example, making Google’s collection of popular apps and Google’s investment and revenue-sharing agreements associated with its Chrome and Google search products available on forked versions of Android could improve competition between devices using different Android mobile operating systems.
However, reading between the lines, the CMA seems to believe that, even with remedies like this, most of us will still make the “once in a lifetime” decision to live in the iOS world or the iOS world. orbit of Google in the Android Galaxy. Therefore, the CMA is primarily focused on how to loosen third-party competition within the Apple and Google mobile ecosystems.
Remedy Zone 2: Breaking down the gatekeeper role of the App Store and Google Play
Apple prohibits all alternatives to the App Store for distributing native apps on iOS. The CMA offers the following remedies:
- require that certain Android tools currently limited to Google mobile services be made available to third-party developers in the broader Android environment, such as push notifications;
- sever the link between the Google Play Store and payments for Google Search products, which are conditional on the pre-installation and prominence of the Play Store, and which therefore may make it more difficult for users to be attracted by alternative app stores;
- remove access restrictions to third-party app stores through the Google Play Store; and
- making sideloading, which is currently possible on Android, easier for users.
The CMA was skeptical that such remedies would allow third-party developers to take advantage of the substantial investments that Apple and Google have made in their app delivery systems:
“We agree that in principle, free-riding is a legitimate concern. However, our financial analysis of Apple’s App Store suggests that the magnitude of its earnings may leave ample room for competitive entry. In addition, app developers contribute greatly to the attractiveness and value that users attribute to Apple’s ecosystem, which Apple benefits from through the high prices it charges users for its iPhones.
The CMA was more responsive to concerns that sideloading could pose security and data protection risks and invited feedback on mitigations.
Remedy area 3: Operating systems
According to the AMC, the competitive problem is not the lack of browsers – there are plenty of them – but the ties that bind most of us to Safari on iOS and Chrome on Android. The remedies proposed by the CMA are:
- make it easier for users to change the default browser in their device settings;
- requiring that users’ choices for default browsers “be respected in all cases”. Currently, voice assistants from Apple and Google use Safari and Chrome respectively, regardless of the default browser choice the user has made for their device;
- removed Apple’s restriction on third-party browser engines working in iOS. Alternatively, rival browser developers might gain access to specific features for browsers using WebKit on iOS, including basic on-phone functions, such as push notifications, screen rotation, and full-screen capability; and
- opening up API access for competing browsers to ensure that all browsers on iOS or Android have access to directly comparable features and functionality.
The AMC noted that Apple and Google may need to be compensated as certain APIs and other features may be proprietary or increase costs.
AMC avoided what some critics say is the root of the browser competition problem, pre-installing Safari and Chrome on devices:
“There is a fine balance to be struck in ensuring that a screen of choice for browsers is designed in a way – and presented at an appropriate frequency – to ensure that the competitive benefits outweigh the cost of introducing mechanisms, and the possible frictions and burdens so that users are too often confronted with screens of choice.”
Remedies Area 4: Competition in Applications
The CMA acknowledged that undue disruption of Apple and Google’s integration into their mobile ecosystems could prevent these companies “from designing and delivering integrated applications, [and] could dramatically change the user experience of mobile devices. Instead, the CMA’s goal is “to demand fairer interoperability between Apple and Google’s mobile ecosystems and third-party app developers.” Some of his proposed remedies will be familiar to those of us who have lived in the world of telecommunications regulation.
However, the AMC was concerned that their app stores would give Apple and Google unique insight into the innovations of competing app developers. While rejecting structural separation, the CMA is considering versions with less separation:
- Data Separation: Would require Apple and Google to create firewalls to limit the sharing of information by App Store operations personnel (including the app review process and app ranking mechanism). applications on the App Stores), as well as an obligation to treat all application developers in a comparable manner; and
- operational separation: would require Apple and Google’s own app development businesses to operate independently from the rest of their mobile ecosystem – in particular, the parts of Apple’s or Google’s businesses that conduct the app review process or determine which APIs and feature accesses are available to their own and third-party applications.
The CMA also proposes to dilute the requirement for third-party developers to use Apple and Google’s payment systems:
- third-party developers should be able to use third-party payment systems for in-app purchases, which the CMA says will make it easier to offer third-party apps in the iOS and Android ecosystems and make it easier for users to switch between them;
- allow users to use out-of-app payment options for third-party apps: for example, allowing the developer to provide a link to the lowest priced locations on a website. This would involve changes to Apple and Google’s anti-steering rules, which they say ensure third-party app developers are unable to ensure users bypass Apple and Google charges. which they say are essential to fund the app development environment – but the CMA advises that he needs to be convinced of this potential harm; and
- restrictions on self-preference of Apple’s and Google’s own apps by requiring payment of commissions from active third-party apps in industries where Apple and Google also have their own proprietary apps.
Where to go from here?
This is an interim report, and it will no doubt provoke vigorous debate.
This study is also the warm-up act for the new UK digital regulatory framework which provides for ex ante regulation of digital players designated as having Strategic Market Status (SMS). Based on its analysis so far, the CMA indicates that Apple and Google would each have SMS in relation to the supply of mobile operating systems, mobile browsers and browser engines, and the distribution of applications natives. In addition, Apple would have text messages in connection with the devices on which iOS is installed.
Ex ante regulation of SMS operators can take two forms. First, there must be codes that establish legally binding principles derived from the objectives of fair trade, open choice, trust and transparency, and accompanied by guidance from the new CMA Digital Markets Unit on how these legal principles must be applied in practice. Second, there may be pro-competitive interventions (PCIs), essentially binding directives from the DMU.
CMA considers that most of the solutions it proposes could be addressed through codes, recognizing that there needs to be a degree of flexibility in implementation and to adapt to dynamic change. However, the CMA considers that the interoperability requirements, the liberalization of the rules for using the Apple and Google payment systems and the separation of activities should be more prescriptive and should be subject to the PCI.