App stores and operating systems are coming under scrutiny from regulators around the world due to increasingly common competition concerns. In Australia for instance, the competition authority has been carrying out a five-year long inquiry into digital platforms services.
For some time now in France, ARCEP has seen devices as the weak link in achieving an open internet, due to the duopoly in operating systems and app stores in the mobile ecosystem. The regulator proposes to introduce an ex-ante framework as part of the upcoming Digital Services Act the European Commission will propose by the end of 2020.
Apple and Google are facing investigations and legal challenges due to alleged anticompetitive conduct. Companies competing with Apple’s vertically integrated services, such as Spotify, are lamenting discriminatory behaviour and claim that the commission they have to pay forces them to charge artificially high prices to consumers.
As part of the monitoring of digital platforms, Australia is now looking at app marketplaces
The Australian Competition and Consumer Commission (ACCC) has been particularly active in scrutinising digital platforms. A first inquiry was completed in 2019, which led to the Government proposing the News Media Bargaining Code to address bargaining power imbalances between platforms and news media businesses. During 2020, the ACCC started two new inquiries - one on digital advertising services, and a 5-year long inquiry on digital platforms services. As part of the latter, the authority started to produce a report on mobile apps marketplaces on 8 September 2020.
The mobile apps marketplace report will examine three key areas – price transparency for consumers and businesses, competition between the major online app stores, and how they compete for app sales with other app providers. While various app stores or marketplaces exist, the market is clearly dominated by the Apple App Store for the users of Apple devices, and by the Google Play Store for those who use devices running Android (the ACCC reports 99% of smartphone users worldwide use either operating system). This can have a significant impact on app developers, which can benefit hugely from being on those platforms, but on the other hand can suffer major setbacks if they fail to secure a spot there. More specifically, the ACCC is seeking views on the ability and incentive for Apple and Google to link or bundle their other goods and services with their app marketplaces, and any effect this has on consumers and businesses. It is also looking at how Apple and Google’s various roles affect the ability of third party app providers to compete, since they are key suppliers of app marketplaces, but also app developers, operators of the mobile licensing operating system, and device manufacturers.
The authority will look at the impact of marketplace fee structures on innovation, and on how marketplaces determine whether an app is allowed – including the effect of this on app providers and consumers. It will also investigate how data is used and shared in the app ecosystem, since some app developers have raised concerns that Apple and Google may be able to use their data to identify and emulate successful ideas, and to respond to emerging competitors through their own apps. There is currently no indication about the outcome of the inquiry, however the ACCC may end up taking action to address any conduct that raises competition concerns, or recommend the Government to legislate to solve systemic issues.
App stores are considered a gatekeeper to an open internet
The Australian competition authority is not the first regulator to express concerns about the role of Big Tech in the functioning of a competitive internet ecosystem. In February 2018, the French communications regulator ARCEP published a report that identified devices as ‘the weak link in achieving an open internet’, and pointed precisely at the duopoly of operating systems and app marketplaces. In the report, ARCEP recommended some measures to make these ecosystems more open and competitive, and to lift restrictions often imposed by the key players in these markets. For example, APIs of operating systems are not always available to third-party developers on both iOS and Android; as a result, these apps may not be able to compete with the functionality of similar, vertically integrated apps. In particular, ARCEP recommends that regulators gather and disseminate information from device manufacturers and OS providers, enable end-user reporting, and promote comparison tools, including crowd-sourced third-party tools. App stores should document technical and editorial principles they apply to indexing and ranking online content and services, so that they are encouraged to treat app developers with fairness. Switching between devices with different OSs should also be made easier, both through software compatibility (e.g. apps and systems allowing to easily port data across devices), and hardware compatibility. Users should also be able to delete pre-installed apps, and to easily access applications offered by alternative app stores, once they have been deemed reliable. All content and service providers should be granted access to the same functions of a device, and ‘alternative rankings’ should be available for content and services offered through app stores.
These considerations have fed into ARCEP’s response to the European Commission’s preliminary consultation on the Digital Services Act (DSA), which will be proposed by the end of 2020. ARCEP is in favour of an ex-ante regulatory framework for digital platforms, including app stores. In its response, ARCEP defines these platforms as ‘structuring’ due to the role they have had in shaping current digital markets, and the fact that they are inevitable gatekeepers in these ecosystems. Self-preferencing (i.e. the preference of vertical integrated products or services), as well as discrimination between third parties should be prohibited ‘by principle’ and not on a case-by-case basis.
The EC is likely to adopt an ex-ante framework due to the recent rise in competition cases
In recent years, several cases of conflict between OS providers and content providers have emerged, raising the problems that regulators are now looking to tackle in a systematic way. Apple’s practices have been repeatedly challenged by service providers. The music streaming service Spotify accused the company of charging an excessive commission for payments through the app store, which results in Spotify having to raise its prices above those charged by Apple Music; and of hindering the availability of the Spotify app. This led the European Commission to launch an investigation into Apple’s conduct in June 2020. More recently, game makers such as Epic, which produces the popular Fortnite game, have voiced similar complaints. Epic started legal action against Apple and Google, after both companies removed Fortnite from the respective app stores because of an unauthorised payment system that circumvented their 30% commission on in-app purchases of digital goods.
The EC is also investigating Amazon for a possible breach of competition rules, since the company allegedly uses sensitive data from independent retailers who sell on its marketplace. The EC is also looking at the role of data in the selection of the winners of the ‘Buy Box’, through which the vast majority of Amazon’s transactions take place, and the impact of Amazon's potential use of competitively sensitive marketplace seller information on that selection. While these cases are still pending resolution, they are likely to have strengthened the EC’s orientation toward the need for ex-ante rules to be proposed through the DSA.
