CMA sets its sights on mobile ecosystems with latest market study

The UK's Competition and Market's Authority has launched a market study into mobile ecosystems, continuing its focus on competition in digital markets, while its new Digital Markets Unit is being set up. The CMA already has live competition investigations into Apple’s App Store and Google’s Privacy Sandbox proposals, but its market study will be much broader in scope and assess the mobile ecosystems operated by Apple and Google.  

The UK regulator has demonstrated an increasing appetite to take on Big Tech, and previously completed a market study into the digital advertising market, which has whetted government’s appetite for more regulatory scrutiny of and powers to intervene in digital markets. Will this latest market study add more fuel to that fire?

What themes is the CMA interested in?

The CMA’s market study will be wide-ranging in scope and the regulator has proposed four key themes, which it says are inter-related:

1. Competition in the supply of mobile devices and operating systems - The CMA will consider whether there is effective competition at the consumer’s point of entry to the mobile ecosystem (i.e. when the consumer purchases a mobile device that uses iOS or Android), with a particular focus on the extent to which different operating systems compete, taking into account network effects, economies of scale, and barriers to switching.
   
   
2. Competition in the distribution of mobile apps - The CMA will examine app store providers’ market power including the extent to which there are suitable alternatives, such as rival app stores or web browsers, to the main app stores, as well as the impact of providers’ behaviour on developers and consumers.
   
   
3. Competition in the supply of mobile browsers and browser engines - The CMA will look at the extent to which Apple and Google have market power in the browser market, as a result of natural entry barriers for competitors, including consumer behaviour, and whether market positions in the supply of browsers can be used to leverage market power into other parts of the mobile ecosystem.
   
   
4. The role of Apple and Google in competition between app developers - The final theme for the CMA’s review is the way in which the conduct of the app store providers affects competition between developers, considering both vertical and horizontal relationships, how these relationships impact competition, and ultimately whether consumers are negatively impacted as a result.

What are the issues the CMA wants to address? 

The CMA has identified three key issues which cut across these four themes, which it wants to explore further in the market study:

1. Barriers to entry and expansion - According to the CMA, there are several types of barriers to entry and expansion which may lead to market power in mobile ecosystems. For example, both operating systems and app stores are multi-sided platforms, which facilitate interactions between consumers and app developers and exhibit indirect network effects. The CMA will explore whether this means that new entrants may find it difficult to enter, as they need to service and attract both sides of the market.
   
   
2. Serving as ‘gateways’ - The CMA says that mobile operating systems, app stores and browsers have a similar role, in that they serve as ‘gateways’ to consumers for many online businesses, providing them with an important route to market. The CMA will explore whether this provides the so-called ‘gatekeepers’ with a source of market power that could allow them to exploit consumers or leverage that power into related activities.
   
   
3. Rule setting - The CMA wants to explore whether the ‘gatekeepers’ are taking on quasi-regulatory functions within their ecosystems and may be setting the rules for matters such as privacy and user security in ways that advantage their ecosystems over their rivals.

Next steps

There is now a window for providing comments to the CMA, which closes on 26 July. The CMA will publish interim conclusions in December 2021, following which it may decide to take action including opening enforcement cases, making further recommendations to government on legislative reform or making a market investigation reference. The CMA will then publish its final report by mid-June 2022.

The CMA’s study forms part of the work being carried out in the UK to establish a new competition regime for digital markets. The CMA’s findings are likely to feed into how the regime will be designed and implemented by the DMU in relation to mobile ecosystems, including which firms will be designated as having Strategic Market Status and what categories of intervention may be required.