The $3 billion bomb: Apple and co are under attack

Apple has become the latest big US technology company to incur a multibillion-dollar fine for breaching the European Union’s tough competition laws. Those laws, however, are about to become even stricter and the penalties even larger.

The tech giant was fined €1.8 billion ($3 billion) by the EU on Monday for allegedly throttling competition from music streaming services that compete with Apple Music. It has said it will appeal against the decision.

Apple received the third-largest fine handed down by the EU, which said it wanted to send a deterrent message to other big companies.Credit: James Alcock

The fine follows a five-year investigation by the European Commission (EC), sparked by a complaint by Spotify that accused Apple of anti-competitive behaviours.

Initially, the investigation was focused on the 30 per cent fee Apple charges for all sales through its app store, but its emphasis shifted subsequently to the restrictions Apple placed on app developers which prevented them from informing their users of cheaper music subscription alternatives.

EU’s competition chief Margrethe Vestager said Apple had broken the EU’s antitrust laws for decades by restricting the developers from informing consumers of alternatives outside the Apple ecosystem, which amounted to abuse of its dominant position.

The EC said it had gone beyond its standard fining procedure to provide a deterrent, not just to Apple, but to other companies of a similar size with similar resources.

That’s a warning that ought to chill the other mega techs like Google, Meta Platforms (Facebook’s parent), Amazon and Microsoft, some of which have already fallen foul of the EU’s competition laws.

Apple’s massive fine is only the third-largest imposed by the EC, with Google having previously been hit with two larger penalties, totalling more than €8 billion ($13.3 billion), which it is also appealing against.

Those fines were imposed under the EU’s existing competition policy laws, where the actions have taken years to reach their conclusion. From Wednesday this week, however, the big tech companies are going to have to deal with an even more intimidating regime.

On Wednesday, the full force of a new set of laws that were enacted in 2022 will apply after the biggest tech companies were designated as “gatekeepers” under the legislation last September and given six months to comply with the new Digital Markets Act (DMA).

EU competition chief Margrethe Vestager said Apple had been in breach of the rules for decades. Credit: AP

The Digital Services Act (DSA), which went live last year, forces tech giants to take responsibility for the content they carry, forces them to moderate their content and be more transparent with users of their platforms and regulators. (Elon Musk’s X is already being investigated for failing to moderate illicit content and disinformation, among other issues).

The DMA deals with anticompetitive behaviours by companies designated as “gatekeepers” – companies with EU revenues of more than €7.5 billion or market capitalisations above €75 billion.

Companies that meet those criteria are prohibited from linking access to one service to purchases from another, giving preferential treatment to their own products or using the data they collect from users for their own advantage. It creates price transparency for advertisers, data portability for users, and will force companies to open up their payments technology to third parties.

It also imposes fines of up to 10 per cent of the infringing company’s global revenues. Apple had total revenues of $US383 billion ($588 billion) last year.

The DMA doesn’t, as the pre-existing legislation did, require a detailed analysis of the consumer harm caused by the offending company.

If the EC can demonstrate that a company has broken one of the DMA rules, that harm is presumed. It will be a more efficient and far quicker way to bring antitrust actions from the EC perspective – and far more intimidating for the companies.

In the Apple case, the EC said a significant proportion of the harm Apple caused to consumers was non-monetary. It said Apple’s terms had resulted in a “degraded user experience” and that the terms amounted to unfair trading conditions.

The EU has historically had far more prescriptive and punitive competition laws than most other jurisdictions and has led the way in responding to the dominance of the big tech platforms.

Where regulators in other jurisdictions have tried to weigh up the balance of the innovation and user benefits the platforms generate against the anti-competitive implications of their dominance and their “walled garden” strategies, the EU is more focused on the implications of anti-competitive business models for consumers and third parties.

It regards them as 21st-century utilities, like banks and telecommunications companies, and its new laws reflect that philosophy.

The size and importance of the European markets means the biggest of the tech companies will have few options but to adapt their businesses to the new legal environment.

Apple has already said it will open its IOS system to other app stores and make it possible for developers to accept payments through alternative payment platforms or direct customers to cheaper ways to sign up for their services.

The new fees and restrictions it has proposed have, however, already been met with a wall of criticism from developers, who argue they have been constructed to technically comply with the new EU environment while making it uneconomic for them to venture outside the Apple ecosystem.

It’s not only the EU that is toughening its competition laws and tailoring new laws to the particular issues raised by the dominant tech platforms.

There has been a series of antitrust cases against the platforms in the US and significant discussion, if little actual legislation, in a US Congress where there is bipartisan concern about the market power and anticompetitive structures and behaviours of the mega techs.

The Biden administration has had some discussions with the Europeans about co-ordinating and harmonising transatlantic regulation of technology companies, albeit nothing has yet come of them.

The EU has historically had far more prescriptive and punitive competition laws than most other jurisdictions and has led the way in responding to the dominance of the big tech platforms.

Unsurprisingly, the big techs (with the notable exception of Facebook) have been lobbying heavily against any such harmonisation, even though (or perhaps because) it would become the global defacto standard and, therefore, would simplify the task and reduce the cost of complying with the raft of different competition laws in other countries.

Regardless, the merging philosophy among regulators and legislators is to shift some market power from the platforms to users and competitors, make the walled garden structures that protect their dominance more porous, and create far greater transparency into what the platforms are doing.

They’ve become too big, too dominant and too aggressive in protecting and exploiting that dominance for regulators and legislators to ignore.

Read more:

Stephen Bartholomeusz: The walls are closing in on Google

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.