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The UK’s Competition and Markets Authority (CMA) has launched a new investigation into Apple and Google’s dominance of mobile ecosystems, following feedback from app developers and other technology companies.
Launched on November 22, the market investigation will look into Apple and Google’s “effective duopoly” on mobile ecosystems that allows them to exercise a “stranglehold” over app stores, operating systems and mobile web browsers.
Sarah Cardell, interim CEO of the CMA, said the investigation is expected to conclude within 18 months, and could result in restrictions being imposed on Apple and Google’s activities.
It could also lead to recommendations for new legislation or greater self-regulation from industry bodies, in an effort to promote greater competition, user choice and product quality.
“We want to make sure that UK consumers get the best new mobile data services and that UK developers can invest in innovative new apps,” said Cardell.
“Many UK businesses and web developers tell us they feel that they are being held back by restrictions set by Apple and Google.”
Cardell added that when the UK’s new Digital Markets regime is in place, it is likely to address issues related to competition within mobile ecosystems.
“We plan to investigate whether the concerns we have heard are justified and, if so, identify steps to improve competition and innovation in these sectors,” said Cardell.
“In the meantime, we are using our existing powers to tackle problems where we can.”
Industry calls for help
The CMA’s decision to investigate follows a consultation and feedback process that was launched earlier this year.
In June, the CMA published its Mobile Ecosystem Market Study report, which presented qualitative and quantitative evidence of Apple and Google’s dominance of the mobile ecosystem’s market.
Among its findings was that, in 2021, app stores generated net revenues of more than £600m from in-app payments, with more than 95 percent of the total revenue going to the Apple App Store and Google Play Store.
The App Store has a monopoly on app downloads via iOS devices, while the Play Store accounts for more than 90 percent of downloads via Android, Huawei Mobile Services (HMS) and Amazon Fire devices.
For the payments industry, both the App Store and Play Store require app developers to use Apple and Google’s own billing systems for in-app purchases, and both charge a commission of up to 30 percent per transaction.
“[This] contributes to the substantial and growing profits made by Apple and Google in relation to their app stores,” the CMA said in its report.
“If other distribution channels were effective constraints on the App Store and Play Store, we would expect to see lower commission rates or increased quality.”
The App Store had the largest share (60-70 percent) of in-app payments revenue in the UK in 2021, while the Play Store accounted for 30-40 percent of in-app payment revenue.
Moreover, Apple users are more valuable to apps using in-app payment systems. In the UK in 2021, the average App Store user spent £25-50 through Apple in-app billing system, compared with £0-25 for the average Android user, according to the CMA.
In January and October 2021 respectively, both Apple and Google made changes to their in-app payments policies to reduce the commissions paid by smaller app developers.
On the first $1m in revenue earned from in-app transactions, both Apple and Google reduced the in-app commission per transaction from 30 percent to 15 percent.
Additionally, Google announced that it would cap all recurring subscription payment commissions at 15 percent.
However, as the CMA found in its report, these changes are “likely to have a limited effect” on Apple and Google’s overall in-app payment revenues.
This is because the vast majority of revenue-generating apps make more than $1m in a year, and the vast majority of in-app payments are not recurring subscriptions.
At the Play Store, for example, recurring subscriptions account for only 10-20 percent of Google’s total in-app payment revenue.
“Both have made substantial and growing profits (with high margins) from their app stores which have not been competed away by other distribution channels,” said the CMA.
“There is little that app developers can do as they need to be on both app stores to access the different sizable customer base each has.
“This puts Apple and Google in a very powerful position – meaning they can impose terms which developers have no choice but to accept if they want to be on their app stores.”
The CMA added that app developers do not get the benefit of choosing the right payment systems for their app or users, and this breaks the link between developers and their customers.
“Developers should be allowed to handle payments directly and be given a meaningful choice in payment systems,” said the CMA.
Mobile payments overreach
Another section of the CMA’s report focused on mobile payments, and whether Apple and Google’s offerings in this area have negatively impacted competition.
Apple came under heavy criticism in the report from the CMA, tech companies and developers for blocking third-party access to the near-field communication (NFC) chip in its iPhones.
Since it is the NFC chip that enables contactless mobile payments, this means that the Apple Wallet, and the Apple Pay service which sits within it, is the only option for iOS users.
“Apple’s restriction prevents card issuers or alternative mobile wallets from offering NFC mobile payments through their own apps,” said the CMA.
“This gives Apple Pay a decisive advantage over competing mobile wallets”, while “protecting its services from competition and potentially restricting innovation”.
In contrast, the CMA found that the Android ecosystem does not restrict third-party access to NFC chips, therefore allowing third parties to make use of Android devices for contactless mobile payments.
As noted by the CMA, contactless mobile payments is an extremely fast-growing sector in the UK.
By the end of 2020, about a third of the UK’s adult population (17m) were registered to use mobile payments, an increase of more than 75 percent compared with 2019.
The CMA has already committed to finding an alternative approach to tackle Apple’s mobile payments lockout and said it is currently working with other jurisdictions, including the EU, in this area.
In October this year, the EU published a Statement of Objections to Apple’s practices, accusing it of “abusing its dominant position” in the mobile payments market.
