Explained | CCI’s ₹1,300 crore fine on Google and how that will change Android smartphones

The story so far: The Competition Commission of India (CCI) has imposed a provisional fine of ₹1,337.76 crore on Alphabet-owned Google for “abusing its dominant position” in markets related to the Android mobile device ecosystem.

How did Google violate the competition law in India?

The CCI, the country’s competition watchdog is empowered under the Competition Act, 2002, to check whether companies especially large tech companies are not eliminating healthy competition in the market and creating a monopoly.

The CCI’s current case in India has identified almost identical abuse of the Android ecosystem by Google as the European Union’s Competition watchdog did in 2018. The over $4 billion fine on Google imposed by the EU regulator was confirmed by the European Court this year along with most of the anti-competitive practices identified by the probe.

The current case by CCI against Google started in 2019 and since then the regulator has examined various practices of the tech giant with respect to various relevant markets.

The first is regarding the Android operating system (OS). Smartphones need an OS to run applications and programs and one of the most prominent operating systems is Android which was acquired by Google in 2005. According to Counterpoint research, 97% of India’s 600 million smartphones are powered by Google’s Android OS. Google operates and manages the Android OS and licenses other Google proprietary applications such as Chrome and Play Store through it. Original Equipment Manufacturers (OEMs) or smartphone companies like Samsung then use this OS and through it, Google’s apps on their mobile phones.

Now, while the Android source code is openly accessible and covers the basic features of a smartphone, it does not include Google’s proprietary applications. To access and use these applications in their mobile handsets, manufacturers have to enter into agreements with Google that govern their rights and obligations such as the Mobile Application Distribution Agreement (MADA), Anti-fragmentation Agreement (AFA) etc. Android Compatibility Commitment Agreement (ACC), Revenue Sharing Agreement (RSA), etc.

The CCI held that through these restrictions in agreements Google made sure that the manufacturers who wished to use Google’s proprietary apps had to use Google’s version of Android.

Secondly, Google is the dominant player in the app store market for Android OS worldwide (except China). According to the EU, the Google Play Store accounts for more than 90% of apps downloaded on Android devices globally. The CCI held that through the mandatory pre-installation of the Google Suite (which includes Play Store), consumers did not have the option of side-loading or downloading apps outside of the play store. Google argued during the CCI probe, as it identically did in the EU investigation, that it was facing competitive constraints from Apple in the app store domain. So, the CCI, examined if Apple’s App Store and the Google Play Store had any substitutability between the two. It concluded that Apple’s App Store could not substitute the Play Store, since Apple as a business is primarily based on a vertically integrated smart device ecosystem that focuses on the sale of high-end smart devices. The CCI further noted that while there might be some degree of competition between the two mobile ecosystems i.e., Android and Apple, that was also limited to the time of deciding as to which device to buy.

Third is the company’s dominance in the general internet search market and the non-OS specific browser market (meaning engines like Chrome, Firefox, etc.). As of last year, Google has a 92% share in the global search engine market. Therefore, by having Revenue Sharing Agreements (RSAs) with mobile manufacturers, Google was able to “secure exclusivity” for its search services to the “total exclusion of competitors”. The CCI said that these agreements with OEMs guaranteed Google continuous access to search queries of mobile users, helping not only in protecting its advertisement revenue but also in reaping the network effects through “continuous improvement of services, to the exclusion of competitors”. This was also compounded by making Google the default search browser in Android smartphones.

Due to Google’s various agreements with manufacturers, another one of its revenue-earning apps —Youtube, the CCI said, gained a significant edge over competitors in the online video hosting platforms market. The mention of Google’s antitrust practices with regard to Youtube was the distinguishing factor between the CCI probe and the EU probe of Google in 2018.

The CCI held that Google was found to be dominant in all the above-mentioned relevant markets and through its practices, contravened multiple subsections of Section 4 of the Competition Act. As for the multiple restrictive agreements Google made with Android smartphone manufacturers, the Commission said: “With these agreements in place, competitors never stood a chance to compete effectively with Google and ultimately these agreements resulted in foreclosing the market for them as well as eliminating choice for users”.

What has the CCI told Google to change in the Android smartphones ecosystem?

Apart from the “cease and desist” order against Google for indulging in anti-competitive practices, the CCI has directed it to take certain measures with regard to the Android OS ecosystem. Some of the major directions include:

• Smartphone makers should be allowed to choose which of Google’s proprietary apps they want to install and should not be forced to pre-install the whole boquet.
• The licensing of Play Store to manufacturers should not be linked with requirements to pre-install Google search services, Chrome browser, YouTube, Google Maps, Gmail or any other Google apps
• Google should allow users, during the initial device setup, to choose their default search engine for all search entry points etc.
• Google shall not deny access to its Play Services APIs (which allows two programs to interact with each other) to disadvantage manufacturers, app developers and its existing or potential competitors. This, the Commission said, would ensure interoperability of apps between Google Android OS as well as alternate versions or forks of Android and by virtue of this remedy, the app developers would be able to port their apps easily onto Android forks.
• Google should not offer any monetary/ other incentives to OEMs such as those given in revenue-sharing agreements for ensuring exclusivity for its search services.
• Google shall not impose anti-fragmentation obligations on OEMs, which means those manufacturers using an alternate Android version should be able to get access to Google’s proprietary apps and vice versa.
• Google shall not restrict un-installing of its pre-installed apps by the users.

The CCI also noted that there were “glaring inconsistencies” in the revenue data presented by Google and gave it 30 days to provide the requisite financial details and supporting documents. It also said that the over ₹1,300 penalty was provisional, meaning it could increase.

What are the other antitrust cases against Google in India and internationally?

Google is already facing two other antitrust probes by the CCI. In June 2021, the Commission ordered a probe into allegations that Google had abused its dominant position with Android in India’s smart television market. The CCI had said it prima facie opined that certain agreements between Google and smart TV manufacturers amounted to abuse of the dominant position by Google.

In November 2020, the CCI had initiated a probe to look into allegations that Google abused its dominant position to push its payment system. CCI started the probe in relation to the mandatory use of the Google billing system by app developers for charging their users for purchases of apps on the Play Store and/or for In-App purchases. The CCI concluded its hearing and reserved its judgment in the probe this year. In what was seen as a move to soften the blow from the regulator, Google decided to introduce an option of a third-party billing system on its play store on a pilot basis. Google faced three probes each in the U.S. and the European Union regarding its antitrust practices in search and search-related activities as well as advertising sales markets . The EU suits have altogether imposed fines totalling around $8 billion on Google.