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Apple and Google’s duopoly limits competition and choice, and consumers are missing out, suggests the UK Competition and Markets Authority’s (CMA) interim report into the mobile ecosystem.
Regulators should be able to intervene to enable all apps to give users a choice of how they pay in-app for things such as game credits or subscriptions, rather than being tied to Apple and Google’s payment systems, according to the CMA’s new report.
Earlier this year, the CMA launched a probe over concerns that Apple and Google have too much control over operating systems (iOS and Android), app stores (App Store and Play Store), and web browsers (Safari and Chrome) that together form their "ecosystems".
This has led the CMA to conclude, as with its counterparts in the US, the EU and Australia, that bigtech has been able to maintain a hefty grip on the platforms that they oversee.
The regulatory has provisionally found that both Apple and Google have been able to leverage their market power to create largely self-contained ecosystems. As a result, it is extremely difficult for any other firm to enter and compete meaningfully with a new system.
What is more, app developers have to comply with Apple and Google’s rules for access to their app stores, which some say are overly restrictive. At the moment, developers are required to accept these terms in order to reach users, which can include paying 30 percent commissions to Apple and Google.
In the US, for example, Epic Games brought a lawsuit against Apple for anticompetitive practices, following the decision to block Epic Games’ app after it bypassed the app store’s payment system.
Although the judge ruled in favour of Apple, the company was prohibited from stopping developers from informing users of other payment systems within apps.
Since the ruling, which is now being appealed, another case has been brought against Google for what are perceived to be similar anticompetitive practices.
“Apple and Google have developed a vice-like grip over how we use mobile phones and we’re concerned that it’s causing millions of people across the UK to lose out,” said Andrea Coscelli, chief executive at the CMA.
Most people know that Apple and Google are the main players when it comes to choosing a phone, but it can be easy to forget that they set all the rules too, she said. “From determining which apps are available on their app stores, to making it difficult for us to switch to alternative browsers on our phones. This control can limit innovation and choice, and lead to higher prices, none of which is good news for users.”
New enforcement powers beyond the UK
Going forward, the CMA’s hope is to be able to regulate the bigtech giants via its hotly anticipated Digital Markets Unit.
“Any intervention must tackle the firms’ substantial market power across the key areas of operating systems, app stores and browsers. We think that the best way to do this is through the Digital Markets Unit when it receives powers from the government,” Coscelli said.
Currently, the CMA has concluded that both companies will reach the threshold for Strategic Market Status (SMS) designation for several of their ecosystem activities.
This is in response to the government’s proposals to create a new pro-competition regime for digital markets.
Should these proposals, which are subject to consultation, become law, then the Digital Markets Unit will be responsible for deciding which bigtech firms get SMS status.
This status will lead to these firms facing legally enforceable codes of conduct to govern their behaviour and to prevent them from exploiting their powerful positions.
UK government proposals reflect similar actions in the EU via the Digital Markets Act (DMA).
The DMA aims to rein in large online platforms, and is part of the EU’s ongoing pushback against Silicon Valley, as evidenced by enforcement action against the likes of Google, Facebook and, most significantly for the payments sector, Apple Pay, in recent years.
Similar to the UK’s SMS definition, the EU’s proposed regulation looks to bring so-called gatekeepers under stronger regulation.
Gatekeepers are classified as being a provider of a core platform service, with a significant impact on the market, serving as an important gateway, and enjoying an entrenched and durable position.
Over the course of the year, it has become more evident that it will have an impact on the payments sector, in spite of a belief among payments experts early on that it would not.
As it stands, the proposal specifically mentions payments among services provided by potential gatekeeper platforms.
But as it progresses through the EU’s legislative institutions, members of the European Parliament have pushed for payment services to come under enhanced scrutiny through the act.
National regulators such as the Dutch Authority for Consumers and Markets have also suggested that the DMA could aid antitrust enforcement into issues like Apple’s near field communication not being opened up to competitors in the payments space.
Australia too is looking to hone in on the role of bigtech in the payments sector, with the country’s finance minister warning in a speech recently that: “Given the pace of change and those leading it, if we do not reform the current framework it will be Silicon Valley that determines the future of our payments system.”
This comes after a parliamentary inquiry that investigated how bigtech platforms have affected payments in Australia, with one senior financial industry official having called on parliament to implement competition reforms to reduce Apple’s gatekeeper effect on payments.
