Competition Commission slaps Rs 1,337.76 crore fine on Google for 'unfair business practices

Brahman

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Aug 22, 2013
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The CCI imposed a penalty of Rs 1,337.76 crore on Google for abusing its dominant position in multiple markets in the android mobile device ecosystem.
The commission also directed Google to "modify its conduct within a defined timeline".

Smart mobile devices need an operating system (OS) to run applications (apps) and programs. Android is one such mobile operating systems which was acquired by Google in 2005.

The commission examined various practices of Google with respect to licensing of this Android mobile operating system and various proprietary mobile applications of Google, such as Play Store, Google Search, Google Chrome, YouTube, etc.

For this purpose, the commission delineated five relevant markets in the present matter. There were market for licensable OS for smart mobile devices in India, for app store for Android smart mobile OS, for general web search services in India, for non-OS specific mobile web browsers in India and for online video hosting platform (OVHP) in India.

During the course of inquiry, Google argued about the competitive constraints being faced from Apple. In relation to understanding the extent of competition between Google’s Android ecosystem and Apple’s iOS ecosystem, the Commission noted the differences in the two business models which affect the underlying incentives of business decisions.

Apple’s business is primarily based on a vertically integrated smart device ecosystem which focuses on sale of high-end smart devices with state of the art software components.

Whereas Google’s business was found to be driven by the ultimate intent of increasing users on its platforms so that they interact with its revenue earning service that is online search which directly affects sale of online advertising services by Google.

Further, in relation to app stores, the Commission noted that the demand for the same, come from three different sets of consumers that is smart device OEMs who wish to install an app store to make their smart devices commercially viable and marketable; app developers, who want to offer their services to the end users; and end users to wish to access app stores to access content or avail other services.

The commission examined the substitutability between Google’s Play Store for Android OS and Apple’s App Sore for iOS from the perspective of all three demand constituents and found that there is that no substitutability between Google’s Play Store and Apple’s App Store.

The commission further noted that there might be some degree of competition between the two mobile ecosystems i.e., Android and Apple, however, that too is also limited at the time of deciding as to which device to buy.

At that stage also, the Commission was of the considered view that the primary and the most significant factor in the mind of an end user is the hardware specification and the device price.

Based on its assessment, the Commission found Google to be dominant in all the above-mentioned relevant markets.

Google operates/ manages the Android OS as well as licences its other proprietary applications and OEMs use this OS & Google’s apps in their smart mobile devices.

"Accordingly, they enter into multiple agreements to govern their rights and obligations viz. Mobile Application Distribution Agreement (MADA), Anti-fragmentation Agreement (AFA), Android Compatibility Commitment Agreement (ACC), Revenue Sharing Agreement (RSA), etc," the commission said.

MADA assured that the most prominent search entry points that is search app, widget and chrome browser are pre-installed on Android devices, which accorded significant competitive edge to Google’s search services over its competitors. Further, Google also secured significant competitive edge over its competitors, in relation to its another revenue earning app that is YouTube in the Android devices.

The competitors of these services could never avail the same level of market access which Google secured and embedded for itself through MADA. Network effects, coupled with status quo bias, create significant entry barriers for competitors of Google to enter or operate in the concerned markets.

"AFA/ ACC guaranteed that distribution channels for competing search services is altogether eliminated by prohibiting OEMs from offering devices based on Android forks. It ensured that OEMs are not able to develop and/ or offer devices based on forks, which are outside the control of Google," the commission said.

In the absence of these restrictions, the competing search services could have availed of sufficient distribution channels in partnership with OEMs, offering devices based on forks. Similarly, the android fork developers also could not find distribution channels for their fork OSs as almost all the OEMs were tied with Google.

The commission opined that the markets should be allowed to compete on merits and the onus is on the dominant players -in the present case, Google - that its conduct does not impinge this competition on merits. By virtue of the agreements discussed above, Google ensured that users continue to use its search services on mobile devices which facilitated un-interrupted growth of advertisement revenue for Google.

Further, it also helped Google to further invest and improve its services to the exclusion of others. Thus, the underlying objective of Google in imposing various restrictions via MADA, AFA/ ACC and RSAs was to protect and strengthen its dominant position in general search services and thus, its revenues via search advertisements.

The commission noted that there were glaring Inconsistencies and wide disclaimers in presenting various revenue data points by Google. "However, in the interest of justice and with an intent of ensuring necessary market correction at the earliest, the Commission quantified the provisional monetary penalties on the basis of the data presented by Google. Accordingly, the Commission Imposed a penalty of Rs. 1337.76 crore upon Google on provisional basis, for violating Section 4 of the Act," the commission said.

Google has been given a time of 30 days to provide the requisite financial details and supporting documents
 

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