On 14 December 2021, the CMA published an interim report in its Mobile Ecosystems Market Study. The market study looks at how the mobile ecosystem market is functioning, in particular in relation to Apple and Google’s mobile operating systems. The report sets out the CMA’s interim findings.
We set out below some commentary on the report. The full report can be found on the CMA’s case page. Please contact Tim Cowen if you have any questions regarding the below.
Supply of mobile devices and operating systems
The CMA has identified strong network effects and positive user experience arising from features, functionality, and performance from Apple and Google’s operating systems. However, the CMA also notes the possibility that this level of innovation could possibly have been higher had there been greater competition in this market (3.92, page 98). Barriers to switching between mobile devices have also been identified (page 100 et seq.), which gives rise to concerns around shared functionality and interoperability between devices and operating systems. Although network effects have been identified as positive, they also pose as a barrier to entry for alternative mobile ecosystems (3.142, page 110 et seq.).
Distribution of native apps through App Store and Play Store
The CMA has found significant reduction in competition in relation to the distribution of native apps through Apple and Google’s app stores. In fact, it found that Apple does not face any competitive constraint, as its mobile operating system does not allow any alternatives, whereas Google allows a limited number of alternatives (4.206, page 177), and anti-steering rules contribute to this (4.209, page 177).
Supply of mobile browsers
The CMA has also found that both Apple and Google have used their market power as the ‘steward of WebKit’ and in browsers, respectively, to reinforce, or leverage, their strong positions and to distort competition (5.204, page 244). Apple’s ITP (Intelligent Tracking Protection) and Google’s Privacy Sandbox have also been highlighted as impacting competition in open display advertising. The CMA notes that Google in particular directly benefits from its distortion of competition in the supply of ad inventory and ad tech services (5.218, page 249).
Significantly, the CMA acknowledges that although Apple’s ITP might improve users’ privacy, it also makes online display advertising less effective and harms online content providers and app developers, leading ITP to harm competition in a number of ways (5.220-225), including harm to consumers.
The CMA notes that the Search agreements between Apple and Google have also posed a major obstruction to competition, given that Apple receives significant consideration from Google Search traffic on Safari.
Apple and Google’s influence over competition between app developers
The report acknowledges that, as a result of their significant control over their own mobile ecosystems, Apple and Google have created a situation whereby they are able to influence competition in downstream app markets throughout app development and distribution, effectively creating the ‘rules of the game’ (6.632, page 355) by either self-preferencing or distorting competition between competitors.
The CMA has also identified a similar issue to that identified in the US case of Epic Games v Apple, where the commission for using Apple or Google’s payment system amounts to 30% on in-app purchases. This has reportedly distorted competition between Apple’s and Google’s apps, which do not pay the same amount of commission, and those of third parties. The CMA considers that there could be viable alternative methods to combat this issue (6.222, page 315).
The CMA’s potential interventions (remedies)
The CMA has confirmed that it is considering a ‘range of interventions aimed at reducing the barriers to effective competition’ identified in its report. The CMA identifies the possibility of imposing:
- interoperability requirements on Apple and Google;
- requirements to enable more choice by amending restrictions from using third-party app stores or payments systems, for example; and
- improving choice architecture to facilitate more informed decision making by consumers themselves.
However, it should be noted that the CMA has more extensive powers than simply imposing obligations on these companies. The Competition Act 1998 makes provision for a decision to be made, either in relation to an ongoing investigation (s 31), or in relation to an infringement of competition law under the Chapter II prohibition (s 33), ‘as it considers appropriate’.
The Guidance on the CMA’s investigation procedures also make clear that structural remedies (aka Break up type remedies) are available to the CMA should it consider them necessary (10.16 and 13.7). Additionally, under the Enterprise Act 2002, where a market investigation report has been published, in which one or more adverse effects on competition have been identified, the CMA is empowered to take such action as it considers ‘reasonable and practicable’ to ‘remedy, mitigate or prevent’ adverse effects on both competition and customers (ss 139(1) and (2)). The CMA is also empowered to make a final order (s 161) in relation to an infringement, which may require a company’s activities to be carried on separately from any other activities (Schedule 8, para 11), or the division of any business (sale) or the division of any group of ‘interconnected bodies corporate’ (Schedule 8, para 13).
The CMA considers ‘the potential role of separation remedies’ in its Interim Report.
It specifically looks at such remedies in relation to the separation of Apple and Google’s own app development from their wider mobile ecosystems. Furthermore, in the Appendix to its Interim Report, the CMA also considers that structural remedies following market investigations seek to ‘increase competition by altering the competitive structure of the market’ (para 42, page A14).
The CMA is inviting comment on its interim report, with a deadline for responses set at 5pm on 7 February 2022.