Last week, the CMA published its 6 months in Interim Report in relation to its Market Study on Mobile Ecosystems, continuing its focus on competition in digital markets, and gearing up for the new powers expected to be granted to the Digital Markets Unit (DMU) next year. The Interim Report looks in detail at Apple’s and Google’s mobile ecosystems and makes a number of recommendations for potential interventions in these markets, which will likely frame the operation of the regime.
Apple and Google's mobile ecosystem duopoly
The CMA launched its market study in June 2021 and invited representations from interested parties. The CMA already had live competition investigations into Apple’s App Store (concerning the terms and conditions governing app developers’ access) and Google’s Privacy Sandbox proposals (concerning Google’s proposals to remove third party cookies and other functionalities from its Chrome browser) at the time (and these continue, with Google having offered commitments to the CMA to address its concerns). However, the scope of the market study is much broader than the issues examined in those cases.
The CMA says that when consumers purchase a mobile phone, they effectively enter into one of two mobile ‘ecosystems’ – one operated by Apple, powered by the iOS3 operating system; the other operated by Google, powered by Google-compatible versions of the Android operating system. The operating system on a mobile device determines and controls a range of features that are important to users of mobile devices and, the CMA says, Apple and Google also control the key gateways through which (i) users can access content; and (ii) content providers can access customers.
While the CMA found that Apple’s and Google’s control over their mobile ecosystems can give rise to a number of positive outcomes (including a seamless experience for users, innovation, consumer confidence, and funding free services), it also says that “the level of control exerted by Apple and Google in relation to operating systems, app stores and browsers means that it is very difficult for another ecosystem to emerge.”
The CMA believes that weak competition within and between the ecosystems can lead to consumer harm.
The CMA’s concerns: four themes
The CMA has structured its work according to four themes, and the Interim Report sets out the initial findings by those themes:
- Competition in the supply of mobile devices and operating systems: The CMA has been considering issues including the extent of price competition, whether there may be natural barriers to entry and expansion in the supply of mobile operating systems (such as network effects and economies of scale) and whether there are barriers to switching that ‘lock’ consumers into a certain mobile ecosystem. It concludes that Apple and Google face limited competitive constraints from alternative operating systems for mobile devices - there is an effective duopoly.
- Competition in the distribution of mobile apps: The CMA has examined the extent to which Apple and Google, as owners of the main app stores in their respective ecosystems, have market power in the distribution of native apps, and found that the App Store and Play Store account for over 90% of native app downloads in the UK in 2020.
- Competition in the supply of mobile browsers and browser engines: According to the CMA, alongside app stores, mobile browsers are one of two key gateways in the mobile ecosystem between users and content providers. The CMA concludes that Apple and Google have substantial market power in the supply of mobile browsers and browser engines (Apple and Google browsers on mobile devices in the UK amount to around 90%).
- The role of Apple and Google in competition between app developers: Lastly, the CMA considered how Apple’s and Google’s conduct as app store providers affects competition between app developers, including concerns relating to advantaging their own apps and services over those of competitors, distorting competition between third parties and entrenching their control over app distribution. The CMA concludes that Apple and Google are able to use their control over app stores, OS and devices (Apple only) to set the “rules of the game” for competition between app developers.
Impact on the DMU regime
The CMA expects that this second market study it has undertaken in the digital/tech space (the first being into digital advertising) will contribute towards the establishment of the new pro-competition regulatory regime for digital markets. The DMU has been established within the CMA on a non-statutory basis to begin work to operationalise the new regime, and the government intends to introduce legislation to put the regime on a statutory basis when legislative time permits.
The Interim Report concludes that, in the CMA’s view, both Apple and Google would meet the criteria for “Strategic Market Status” (or SMS) in relation to each the activities captured by the scope of the study (for Apple, its iOS operating system and the devices on which it is installed, its app store, and its browser and browser engine, and for Google, the Google-compatible Android operating system, its app store, and its browser and browser engine).
So what’s the fix?
The CMA has formed a preliminary view that a number of possible interventions may make positive differences to businesses that seek to offer products on Apple’s and Google’s platforms, and also to users of mobile devices.
Broadly, the interventions are aimed at (1) taking action to address the sources of market power with a view to opening up markets to great competition; and (2) addressing harm to competition and consumers that may result from market power. The proposals are set out in detail in the Interim Report and include:
- removing barriers for other methods of installing apps on mobile devices, e.g. by allowing alternative or additional app stores
- removing restrictions on offering alternative payment options for in-app purchases for digital apps
- requiring Apple and Google not to restrict unreasonably third-party access to hardware and software necessary to compete in browsers or app development
- restrictions on Apple and Google sharing and using data or insights gained from the operation of their app stores or app review process in developing their own apps.
The CMA considers that the DMU would be best placed to implement any remedies when it receives statutory powers, which is an important factor in the CMA’s decision not to make a market investigation reference in this case (as with the Digital Advertising Market Study of last year).
The deadline for responses to the consultation on the Interim Report is 7 February 2022 and the CMA’s statutory deadline for publication of the Final Report is 14 June 2022. If the new DMU regime has been legislated for at that stage, it is likely that the findings will feed directly into action.
The CMA expects that this market study will contribute towards the establishment of the new pro-competition regulatory regime, in particular by helping to inform the assessment of whether Apple or Google should be designated with SMS in relation to any of the activities captured by the scope of this study.