In this last instalment of our summertime reading series, we outline the potential remedies proposed by the UK’s Competition and Mergers Authority to address Google’s and Apple’s dominance in the mobile ecosystem.

The CMA cautions that:

“..any future proposals for interventions to promote greater competition in this sector should not be limited to considerations within a single narrowly defined product or service market – a holistic approach is needed, including ongoing engagement with the owners of the ecosystems, their competitors and users.”

In other words, there is no single remedy to cut through the web of demand-side and supply-side technical, commercial and behavioural practices which the CMA says allows Apple and Google to dominate the iOS and Android mobile ecosystems.

The CMA did reject more radical solutions suggested by some stakeholders, including requiring their app stores or app review processes either to be divested or to be operated under independent governance.

Remedy area 1: Devices and operating systems

The CMA proposes the following remedies to lower barriers to consumers switching from iOS to Android :

  • Apple providing the necessary APIs to enable iOS users to migrate their apps and data to Android devices; and
  • breaking the iOS ‘closed loop’ by mandating ‘interoperability’ between Apple’s first-party apps (e.g. iMessage) and connected devices (e.g. the Apple Watch) and Android devices.

While Android makes it easier to switch from its ecosystem to iOS, Google does not get off scot-free. The CMA is considering remedies to loosen the hold Google has over the ‘inner circle’ of Android (Google Mobile Services) through interlocking commercial agreements compared to the less restrictive ‘outer circle’ of forked versions of Android. For example, making Google’s collection of popular apps and Google’s placement and revenue sharing agreements associated with its Chrome and Google search products available on forked versions of Android could improve competition between devices using different Android mobile operating systems.

However, reading between the lines, the CMA seems to believe that, even with remedies along these lines, most of us will continue to make a ‘once in a lifetime’ decision to either live in the iOS world or within the Google orbit in the Android galaxy. Therefore, most of the CMA’s focus is on how to loosen up third party competition within the Apple and Google mobile ecosystems.

Remedy area 2: Breaking down the gatekeeper role of the App Store and Google Play

Apple prohibits all alternatives to the App Store for native app distribution on iOS. The CMA is proposing the following remedies:

  • requiring some Android tools currently limited to Google Mobile Services to be made available to third party developers in the wider Android environment, such as push notifications;
  • breaking the link between Google’s Play Store and the payments relating to Google Search products, which are conditional on pre-installation and prominent placement of the Play Store, and which therefore can make it more difficult for alternative app stores to attract users;
  • removing restrictions on accessing third party app stores through Google’s Play Store; and
  • making sideloading, which is currently possible on Android, simpler for users.

The CMA was sceptical that remedies of the kind would allow third party developers to free ride on the substantial investments Apple and Google have made in their app distribution systems:

“We agree that, in principle, free-riding is a legitimate concern. However, our financial analysis of Apple’s App Store suggests that the scale of its profits may allow sufficient room for competitive entry. Furthermore, app developers contribute greatly to the attractiveness and value that users attribute to Apple’s ecosystem, which Apple benefits from through the high prices it charges users for its iPhones.”

The CMA was more sympathetic to concerns that sideloading could pose security and data protection risks and invited feedback on mitigation measures.

Remedy area 3: Operating systems

In the CMA’s view, the competitive problem is not a lack of browsers – there are plenty out there – but the ties that bind most of us to Safari on iOS and Chrome on Android. The remedies proposed by the CMA are:

  • making it more straightforward for users to change the default browser within their device settings;
  • requiring that users’ choices for the default browsers “are respected in all instances”. Currently Apple’s and Google’s voice assistants revert to using Safari and Chrome respectively, regardless of the choice of default browser the user has made for their device;
  • removing Apple’s restriction on third party browser engines operating within iOS. Alternatively, rival browser developers could get access to specific features for browsers using WebKit on iOS, including core functions on the phone, such as push notifications, screen rotation and full screen capability; and
  • opening up API access for rival browsers to ensure that all browsers within either iOS or Android have access to directly comparable features and functionality.

The CMA noted that Apple and Google may need to be compensated to the extent that some of the APIs and other functionality may be proprietary or increase costs.

The CMA shied away from what some critics see as the root of the competitive problem with browsers, the pre-installation of Safari and Chrome on devices:

“There is a fine balance to be struck to ensure that a choice screen for browsers is designed in a way – and presented at an appropriate frequency – to ensure the competitive benefits outweigh the cost of introducing the mechanisms, and the possible frictions and burdens to users from being faced with choice screens too often.”

Remedy area 4: Competition in apps

The CMA accepted that overly disrupting Apple’s and Google’s integration across their mobile ecosystems could result in those companies “being unable to design and offer integrated apps, [and] could significantly change the user experience of mobile devices.” Instead, the CMA’s focus is “on requiring more equitable interoperability between Apple’s and Google’s mobile ecosystems and third party app developers.” Some of its proposed remedies will be familiar to those of us who have lived in the telco regulatory world.

However, the CMA was concerned that their app stores gave Apple and Google a unique insight into the innovations of rival app developers. While rejecting structural separation, the CMA is considering lesser separation versions:

  • data separation: would require Apple and Google to build firewalls to limit sharing of information by personnel running the operation of the app store (including the app review process and mechanism for ranking apps on app stores), together with an obligation to treat all app developers in a comparable way; and
  • operational separation: would require Apple’s and Google’s own app development businesses to operate independently of the rest of their mobile ecosystem – in particular, those parts of Apple’s or Google’s business which conduct the app review process or determine what APIs and access to functionality are available to their own and third-party apps.

The CMA also proposes to dilute the requirement for third party developers to use Apple’s and Google’s payment systems:

  • third party developers should be able to use third party payment systems for in-app purchases, which the CMA says will facilitate third party apps being offered across both the iOS and Android ecosystems and facilitate users switching between them;
  • allowing users to use off-app payment options for third party apps: for example, allowing the developer to provide a link to where prices are lower on a website. This would involve changes to Apple’s and Google’s anti-steering rules, which they say ensure third party app developers are not able to ensure users to circumvent Apple and Google fees which they say are essential to fund the app development environment – but the CMA signals that it needs convincing about this potential harm; and
  • restrictions on self-preferencing of Apple’s and Google’s own apps through requiring the payment of commissions from third party apps active in sectors where Apple and Google also have their own first party apps.

Where to from here?

This is an interim report, and no doubt it will stimulate vigorous debate.

This study is also the warm up act for the new UK digital regulatory framework which provides for ex ante regulation of digital players designated as having Strategic Market Status (SMS). Based on its analysis so far, the CMA says that Apple and Google each would have SMS in relation to the supply of mobile operating systems, mobile browsers and browser engines, and native app distribution. Additionally, Apple would have SMS in relation to devices on which iOS is installed.

Ex ante regulation of SMS operators can take two forms. First, there are to be codes which set out legally binding principles derived from the objectives of fair trading, open choices and trust and transparency, and accompanied by guidance from the new Digital Markets Unit in the CMA about how those legal principles are to be applied in practice. Second, there can be Pro-competitive Interventions (PCIs), essentially binding directions by the DMU.

The CMA considers that most of its proposed remedies could be addressed through codes, recognising that there needs to be some degree of flexibility in implementation and to accommodate dynamic change. However, the CMA considers that requirements for interoperability, liberalising the rules around use of Apple and Google payment systems and business separation needed to be more prescriptive and should be subject to PCIs.

Read more: Mobile ecosystems


Authors: Reuben Challis, Summer Clerk and Peter Waters, Consultant