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European Commission - Statement

Statement by Commissioner Vestager on Commission decision to fine Google €4.34 billion for illegal practices regarding Android mobile devices to strengthen dominance of Google's search engine

Brussels, 18 July 2018

 

"Please check against delivery"

 

Today, the Commission has decided to fine Google 4.34 billion euros for breaching EU antitrust rules. Google has engaged in illegal practices to cement its dominant market position in internet search. It must put an effective end to this conduct within 90 days or face penalty payments.

Google's search engine is its flagship product. Every year, Google generates more than 95 billion US dollars from adverts, such as those shown to and clicked on by users of Google Search. And much of this revenue is thanks to the rise of smart mobile devices, namely smartphones and tablets.

Today, mobile internet makes up more than half of global internet traffic. It has changed the lives of millions of Europeans. No matter if we're waiting for the metro, sitting in a meeting room or discussing with friends at the dinner table – more and more our hands reach for our smartphones and tablets to find the information we are looking for.

Our case is about three types of restrictions that Google has imposed on mobile device manufacturers and network operators to ensure that traffic goes to Google Search:

  •         First, Google has required manufacturers to pre-install the Google search and browser apps on devices running on the Android mobile operating system. Manufacturers had to do this if they wanted to be able to sell devices with the Google app store.
  •         Second, Google paid manufacturers and network operators to make sure that only the Google search app was pre-installed on such devices.
  •         Third, Google has obstructed the development of competing mobile operating systems. These could have provided a platform for rival search engines to gain traffic.

In this way, Google has used Android as a vehicle to cement the dominance of its search engine.

These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.

I would now like to tell you a bit more about four aspects of our case. First, why Google has implemented these practices; second, what practices Google has implemented exactly; third, why these practices are illegal under EU antitrust rules; and finally, how our decision today will affect Google, consumers and the marketplace.

What was Google's strategy?

Google understood early on that the shift from desktop to mobile internet, which started in the mid-2000s, would be a fundamental change for its search engine business. It realised that it was both an opportunity and a risk.

So, Google developed a strategy to anticipate the effects of the shift. This strategy was built on the mobile operating system Android. As Google said in one of its internal documents at the time – "Android is by far the greatest opportunity for Search monetization in mobile over the next years and is very strategic to Google."

Google bought the original developer of the Android operating system in 2005, and has continued to develop Android ever since. It has been very successful – today, around 80% of smart mobile devices in Europe and worldwide run on Android. That's more than 2.2 billion devices in total.

Each time Google releases a new version of Android, it publishes the source code online. This, in principle, allows anyone to access and modify the code to create other versions of Android, so-called "Android forks".

At the same time, this openly accessible Android source code only covers basic functions of mobile devices. It does not include popular Google apps, like the Google Play Store, which enables users to download more than 3.3 million different apps.

If manufacturers want to sell Android devices that have popular Google apps, they need to agree to Google's terms and sign on the dotted line. This includes a requirement not to modify the Android source code without Google's consent. Through this requirement, in practice, Android is locked down in a Google-controlled ecosystem.

What are the illegal restrictions Google put in place?

Our case is about three specific types of restrictions Google has imposed on manufacturers and mobile network operators.

The first practice ensures that Android device manufacturers pre-install the Google Search app and Google's Chrome browser on the devices they sell. Search and browser apps are the most important gateways to reach search engines on mobile devices.

Manufacturers have to pre-install the Google Search and Chrome apps if they want to sell devices that offer users a key feature, namely the possibility to download other apps via the Google Play Store.

As part of our investigation, device manufacturers confirmed that users consider Google's Play Store a 'must-have' app on Android devices. So, the right to pre-install the Play Store on their devices is a very strong incentive for them to agree to Google's demands. Especially, because it is not possible for users to download the Play Store themselves.

Second, Google also wanted Google Search to be the only pre-installed search engine on Android devices. So Google gave some of the largest device manufacturers a share of the pie that is Google's search revenues on their devices, but only on condition of this exclusive status. It also entered into such arrangements with certain mobile network operators, which can also determine what apps are installed on devices they sell to consumers. At its peak, this practice covered more than 80% of Android devices sold in Europe. Google stopped this practice after the Commission started to look into it.

Our investigation has shown that for search apps and mobile browsers, pre-installation on devices is an advantage that can't be matched in any other way. The figures speak for themselves: in 2016, more than 95% of all search queries on Android devices were made via Google Search. These devices had Google Search and Chrome pre-installed. On Windows Mobile devices, on the other hand, Google's search engine is not pre-installed. As a result, less than 25% of all search queries were made via Google Search. More than 75% of search queries happened on Bing, which is the pre-installed search engine on Windows Mobile devices.

 

There is a saying that you don't look a gift horse in the mouth. Well, the evidence shows that when it comes to search apps and mobile browsers, the vast majority of users simply take what comes on their device and do not download competing apps. In fact, these apps are not even for free, since users pay with their data. Or, to slightly paraphrase what also the economist Milton Friedman has said – "there ain't no such thing as a free search".

The third practice Google has put in place, as I already mentioned, prevents device manufacturers from using any alternative version of Android that was not approved by Google. If manufacturers produce even a single device based on an Android fork, they lose the right to sell any devices with the Google Play Store or the Google Search app. And this is how Google restricts the opportunity and incentive for others to develop Android forks – in a way that is not open at all. At the same time, this reduced the opportunity for rival search engines and others to launch apps and services on devices running on Android forks.

This was not just a remote possibility from the theory books: in 2012 and 2013, Amazon tried to license to device manufacturers its Android fork called "Fire OS". It wanted to cooperate with manufacturers to increase its chances of commercial success. And manufacturers were interested. But, due to Google's restrictions, manufacturers could not launch Fire OS on even a single device. They would have lost the right to sell any Android phones with key Google apps. Nowadays, very few devices run on Fire OS – namely, only those manufactured by Amazon itself.

This is not a proportionate outcome. Google is entitled to set technical requirements to ensure that functions and apps within its own Android ecosystem run smoothly. But these technical requirements cannot serve as a smoke-screen to prevent the development of competing Android ecosystems – Google can't have its cake and eat it.

Why are these practices illegal under EU rules?

In Europe, we congratulate all companies for the success they achieve through innovation and developing products that consumers value. That's why market dominance is, as such, not a problem under EU antitrust rules.

But with market dominance comes responsibility – that's because, when one company dominates a marketplace, competition is already weakened. So, EU antitrust rules put special responsibilities on dominant companies. They must not deny other companies the chance to compete on the merits, to the detriment of further innovation and European consumers.

Through its control over Android, Google is dominant in the market for mobile operating systems, which are available for licence to other manufacturers. Google has been dominant in this market since 2011. Our most recent figures show that it holds a market share of more than 95%. The second biggest player in the market, Windows Mobile, was very small in comparison. It had a share of less than 5%, before exiting the market last year.

Other mobile operating systems, like those of Apple and Blackberry, are not available for licence. They do not directly compete with Android at the level of device manufacturers. Of course, Android phones compete with Apple and Blackberry phones for end consumers – but our investigation showed that this doesn't sufficiently constrain Google's power vis-à-vis device manufacturers and network operators.

Our decision also concludes that Google is dominant in two other markets, namely app stores for the Android mobile operating system and in general internet search.

As regards app stores, Google Play Store accounts for more than 90% of app downloads on Android devices.

As regards general internet search, the Google search engine holds very high market shares of over 90% in most European countries. This we already showed in our Google Shopping Decision of last year.

This means that Google must comply with EU antitrust rules for dominant companies. Today's decision concludes that the restrictions Google imposed on manufacturers and network operators using Android have breached these rules since 2011.

First, that's because Google's practices have denied rival search engines the possibility to compete on the merits. They make sure that Google's search engine is pre-installed on practically all Android devices, which is an advantage that cannot be matched. And by making payments to major manufacturers and network operators on condition that no other search engine was pre-installed, rivals were excluded from this opportunity. In this way, Google also denied rivals access to valuable data from increased user traffic, which in turn could have allowed rivals to improve their products.

Furthermore, Google's practices also harmed competition and further innovation in the wider mobile space, beyond just internet search. That's because they prevented other mobile browsers from competing effectively with the pre-installed Google Chrome browser.

And they obstructed the development of Android forks, which could have provided a platform for rival search engines as well as other app developers to thrive.

What are the consequences of this decision?

The fine of 4.34 billion euros reflects the serious and sustained nature of Google's violations of EU antitrust rules. The decision requires Google to bring its illegal conduct to an end within 90 days, in an effective manner.

At a minimum, our decision requires Google to stop and to not re-engage in the three types of restrictions I have described. In other words, our decision stops Google from controlling which search and browser apps manufacturers can pre-install on Android devices, or which Android operating system they can adopt.

But it is Google's sole responsibility to make sure it changes its conduct in a way that brings the infringement to an effective end. We will monitor this very closely. If Google fails to achieve compliance with our decision, it would be subject to penalty payments. That penalty could be up to 5% of the average daily worldwide turnover of Alphabet, Google's parent, for each day of non-compliance. We would have to establish this in a separate Commission decision, with the penalty backdated to when the non-compliance started.

So, our decision requires Google to change the way it operates and face the consequences of its actions.

Other Google cases

About a year ago, I was here in the press room to tell you about a separate decision concerning Google. The Commission fined Google 2.42 billion euros for abusing its dominance as a search engine, by giving an illegal advantage to its own comparison shopping service. We have not yet taken a position on whether Google has complied with that decision. And since we haven't done so, this remains very much an open question.

Furthermore, the Commission also continues to investigate Google's business practices concerning other vertical search services and AdSense. I cannot prejudge the outcome of these ongoing investigations, which continue to be top priorities for us.

Conclusion

What our ongoing work and today's decision have in common is the principle that, in Europe, companies must compete on the merits. Any company is welcome to do business in our Single Market – but they need to play by EU antitrust rules that serve to protect European consumers and effective competition.

This matters, especially in digital markets. Technology companies have enormous potential to do us a lot of good. But establishing people's trust that the technology serves us, and not the other way round, is more important than ever.

Competition enforcement can make a difference here. It can give people confidence that technology companies play fair and do not close off markets to competition. Otherwise, they will be sanctioned – as Google was today.

But we also need effective regulation, including data protection rules that ensure our data is not being misused and rules that make sure online platforms operate in a transparent way.

That's why I work hand in hand with my colleagues Andrus Ansip, Mariya Gabriel and Vĕra Jourová to build the trust we need to make sure digital markets truly serve European consumers.

Thank you.

STATEMENT/18/4584


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