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Explained | CCI’s ₹1,300 crore fine on Google and how it will change Android smartphones
How does the Alphabet-owned company allegedly violate its position especially with regard to the Android mobile device ecosystem? Is this the first investigation of Google in India?
Story so far: The Competition Commission of India (CCI) has imposed a provisional fine of ₹ 1,337.76 crore on Alphabet-owned Google for “abusing its dominant position” in markets related to the Android mobile device ecosystem.
How did Google Violate the Competition Act in India?
The CCI, the national competition watchdog, has powers under the Competition Act 2002 to check whether companies, especially large technology companies, are eliminating healthy competition in the market and creating a monopoly. CCI recognizes that the disruptive marketing strategies that come with the digital ecosystem often help eliminate inefficiencies in traditional markets and that regulation should not stifle innovation. However, in some recent cases, it has tried to navigate problems in antitrust jurisprudence against the nascent digital industry.
The current CCI case in India identified almost identical abuses of the Android ecosystem by Google as the European Union’s competition watchdog did in 2018. The over $4 billion fine imposed on Google by the EU regulator was upheld by the European Court this year, along with most of the anti-competitive practices found in the investigation.
CCI’s current case against Google began in 2019, and since then the regulator has been investigating the tech giant’s various practices with respect to various relevant markets.
The first concerns the Android operating system (OS). Smartphones need an OS to run apps and programs, and one of the most prominent operating systems is Android, which Google bought in 2005. According to Counterpoint research, 97% of India’s 600 million smartphones are powered by Google’s Android operating system. Google operates and manages the Android operating system and licenses other proprietary Google applications such as Chrome and the Play Store. Original equipment manufacturers (OEMs) or smartphone companies such as Samsung then use this operating system and through it Google applications on their mobile phones.
Now, while the Android source code is open source and covers the basic functions of a smartphone, it does not contain Google’s proprietary apps. In order for manufacturers to access and use these applications on their mobile phones, they must enter into agreements with Google that govern their rights and obligations, such as the Mobile Application Distribution Agreement (MADA), Anti-Fragmentation Agreement (AFA), etc. Agreement on Android Compatibility Obligations (ACC), Revenue Sharing Agreement (RSA) etc.
The CCI held that through these restrictions in the agreements, Google ensured that manufacturers who wanted to use Google’s proprietary apps had to use Google’s version of Android. Thus, developers of Android forks could not find distribution channels for their forks or alternative operating systems because almost all OEMs were associated with Google. More significantly, through the MADA restriction, it ensured that the most important search entry points, i.e. the search app, the widget and the Chrome browser, and the entire Google Mobile Suite (GMS) were compulsorily pre-installed on Android devices with no option to uninstall. same.
Second, Google is the dominant player in the Android OS application market globally (excluding China). According to the EU, the Google Play Store accounts for more than 90% of apps downloaded to Android devices worldwide. The CCI ruled that through the mandatory pre-installation of the Google Suite (which includes the Play Store), consumers are not able to load or download apps outside of the Play Store. Google argued during the CCI investigation, as it did in the EU investigation, that it faces competitive restrictions from Apple in the app store domain. Thus, CCI examined whether there is any substitutability between Apple’s App Store and Google Play Store. He concluded that Apple’s App Store cannot replace the Play Store because Apple is primarily based on a vertically integrated smart device ecosystem that focuses on selling high-end smart devices. CCI further noted that while there may be some degree of competition between the two mobile ecosystems i.e. Android and Apple, it is also limited to the time of deciding which device to buy.
Third is the company’s dominant position in the market for general Internet search and in the market for browsers that are not specific to the operating system (meaning engines like Chrome, Firefox, etc.). As of last year, Google has a 92% share of the global search engine market. Through revenue sharing agreements (RSAs) with mobile device manufacturers, Google was able to “ensure exclusivity” of its search services to the point of “complete exclusion of competitors.” CCI said these deals with OEMs guarantee Google 24/7 access to mobile users’ search queries, helping to not only protect its ad revenue but also benefit from network effects through “continuous improvement of services to the exclusion of competitors”. This has also been boosted by Google becoming the default search browser on Android smartphones.
Thanks to Google’s various agreements with manufacturers, another of its revenue-generating applications – YouTube, CCI said, has gained a significant advantage over competitors in the online video hosting platform market. The mention of Google’s antitrust practices with respect to Youtube was a differentiating factor between the CCI investigation and the EU’s 2018 investigation into Google.
The CCI held that Google was found to be dominant in all the above relevant markets and its practices violated several sub-sections of Section 4 of the Competition Act. Regarding the numerous restrictive agreements that Google entered into with Android smartphone manufacturers, the Commission stated: “With these agreements, competitors never had a chance to compete effectively with Google, and ultimately these agreements led to the foreclosure of the market for them and the elimination of choice.” for users”.
What did CCI tell Google to change in the Android smartphone ecosystem?
Apart from the “cease and desist” order against Google for indulging in anti-competitive practices, the CCI directed it to take certain measures with respect to the Android OS ecosystem. Some of the main directions include:
Smartphone manufacturers should be able to choose which of Google’s proprietary apps they want to install and not be forced to pre-install the entire boquet.
Play Store Licensing for manufacturers should not come with pre-installation requirements for Google Search, Chrome, YouTube, Google Maps, Gmail, or any other Google apps.
Google should allow users to choose their default search engine for all search entry points, etc. during initial device setup.
Google will not deny access to its Play Services APIs (which allow two programs to interact with each other) to disadvantage manufacturers, app developers, and its existing or potential competitors. According to the Commission, this would ensure app interoperability between the Google Android operating system and alternative versions or branches of Android, and based on this remedy, app developers would be able to easily port their apps to Android branches.
Google should not offer any monetary or other incentives to OEMs, such as those found in revenue sharing agreements, to ensure the exclusivity of its search services.
Google will not impose anti-fragmentation obligations on OEMs, meaning that manufacturers using an alternate version of Android should be able to access Google’s proprietary apps and vice versa.
Google will not restrict users from uninstalling its pre-installed apps.
The CCI also noted that there were “obvious inconsistencies” in the revenue figures presented by Google and gave it 30 days to provide the required financial details and supporting documents. He also said the fine of over ₹1,300 was temporary, meaning it could increase.
What are the other antitrust cases against Google in India and internationally?
Google is already facing two other CCI antitrust probes. In June 2021, the Commission ordered an investigation into allegations that Google abused its dominant position with Android in the Indian smart TV market. The CCI said it prima facie believes that certain agreements between Google and smart TV manufacturers constitute an abuse of Google’s dominant position.
In November 2020, the CCI opened an investigation to investigate allegations that Google abused its dominant position to push its payment system. CCI has opened an investigation into the mandatory use of Google’s billing system by app developers to charge their users for app purchases on the Play Store and/or for in-app purchases. CCI concluded its hearing and reserved judgment in this probe this year. In what was seen as a move to soften the blow from the regulator, Google has decided to pilot the option of a third-party billing system on its Play Store. Google has faced three investigations in the US and the European Union into its antitrust practices in search and search-related activities, as well as in advertising markets. EU lawsuits have fined Google a total of around $8 billion.