Google hit with record $5 billion EU antitrust fine

A 3D printed Android mascot Bugdroid is seen in front of a Google logo in this illustration taken July 9, 2017. Photo: Reuters

BRUSSELS: EU antitrust regulators hit Google with a record 4.34 billion euro ($5 billion) fine on Wednesday for using its Android mobile operating system to squeeze out rivals.

The penalty is nearly double the previous record of 2.4 billion euros which the U.S. tech company was ordered to pay last year over its online shopping search service.

It represents just over two weeks of revenue for Google parent Alphabet Inc. and would scarcely dent its cash reserves of $102.9 billion. But it could add to a brewing trade war between Brussels and Washington.

EU antitrust chief Margrethe Vestager said she very much liked the United States, countering a reported remark by President Donald Trump that she “hated” the country.

“But the fact is that this has nothing to do with how I feel. Nothing whatsoever. Just as enforcing competition law, we do it in the world, but we do not do it in political context,” she said.

Google said it would appeal the fine.

“We are concerned that today’s decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favour of proprietary systems over open platforms,” Google CEO Sundar Pichai said in a blog.

Vestager’s boss, Commission President Jean-Claude Juncker, is due to meet President Trump at the White House next Wednesday in an effort to avert threatened new tariffs on EU cars amid Trump’s complaints over the U.S. trade deficit.

Vestager also ordered Google to halt anti-competitive practices in contractual deals with smartphone makers and telecoms providers within 90 days or face additional penalties of up to 5 percent of parent Alphabet’s average daily worldwide turnover.

“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,” Vestager said.

Asked on whether breaking up Google would solve the issue, a call made by a number of Google foes, she said she was not sure if that was the solution.

“I don’t know if it will serve the purpose of more competition to have Google broken up. What would serve competition is to have more players,” Vestager told a news conference.

On concerns that Google may subsequently decide to charge for using Android, Vestager said her ruling was not related to the way the company operates.

“This is not a judgment on a business model. There is still a possibility to monetise its operating system. Revenue from its app store is quite substantial,” she said.

Vestager also defended the lengthy investigation which critics say means regulatory action lags behind market developments, saying regulators would never compromise on due process which allow companies to have a chance to defend themselves.

The EU enforcer dismissed Google’s argument of competition from Apple, saying the iPhone maker was not a sufficient constraint because of its higher prices and switching costs for users.

Android, which runs about 80 percent of the world’s smartphones according to market research firm Strategy Analytics, is the most important case out of a trio of antitrust cases against Google.

Some major Android device makers, including Samsung Electronics Co, Sony Corp, Lenovo Group Ltd and TCL Corp, declined to comment on the EU case.

Regulatory action against tech giants like Google and Facebook with their entrenched market power may lack sting, said Polar Capital fund manager Ben Rogoff, who has been holding the stock since its initial public offering and is broadly neutral on Google.

“The reality is that as long as they’re delivering great utility to their consumers, consumers will still use those platforms. If they do, advertisers will be drawn to those platforms, too, because the ROIs (return on investment) are very difficult to replicate anywhere else,” he said.

The EU takedown of Google is six to eight years too late, with users paying the price, said Geoff Blaber of CCS Insight.

“Any action by the EU is akin to shutting the stable door after the horse has bolted,” he said.

“There is a significant danger of unintended consequences that penalizes the consumer. This ranges from increased fragmentation and greater app inconsistency to increases in hardware cost should Google decide to change or adapt the Android business model.”

Lobbying group FairSearch, whose 2013 complaint triggered the EU investigation, welcomed the ruling, saying it could help restore competition in mobile operating systems and apps.

A third EU case, which has not yet concluded, involves Google’s AdSense product. Competition authorities have said Google prevented third parties using its product from displaying search advertisements from Google’s competitors.