Apple Deserves the EU Antitrust Scrutiny It's Getting

(Bloomberg Opinion) -- And it begins. Apple Inc. now officially faces a double threat on the regulatory front.On Tuesday, the European Union announced it has opened two formal antitrust investigations into the tech giant to see if the company has broken competition laws with its App Store and Apple Pay services. Specifically, the regulators plan to investigate Apple’s rules surrounding its in-app purchase system, where its charge developers a 30% cut for digital content or services sold on its platform (the 30% fee is lowered to 15% after the first year for subscriptions), along with the company’s restrictions on developers from informing users of alternative purchasing avenues inside their iOS apps. The EU will also look into how Apple Pay is the only payment solution allowed to use Apple mobile devices’ “tap and go” payment functionality inside physical stores.Of the two, the potential regulation of the App Store is the bigger deal. For years, the digital store’s excessive fee structure has been a main point of contention for app developers. Epic Games Inc. CEO Tim Sweeney has repeatedly said the commission rate was too high given the actual middle-man services Apple provides. Further, in 2019 music-streaming company Spotify Technology SA filed a complaint with the EU, citing Apple’s fees and restrictive rules, which the regulator has now cited as an impetus for the formal investigation.

The detractors have a point — the Apple App Store has attained excessive power in the marketplace. Companies have no choice but to accept Apple’s terms to get access to the more than 1.5 billion iOS devices in active use and the 500 million people who use the App Store on a weekly basis. Antitrust laws were designed to ensure vigorous competition and protect consumers from harmful anti-competitive business practices. And the Apple App Store’s onerous practices fit that bill.

Apple has long argued the App Store has spurred a wave of innovation over the last decade and allowed startups to scale their customer bases rapidly with its “safe, secure” platform. But the company’s user base has grown so large and is too dominant in the market. Outside of Google’s Android there is little to no competition in the smartphone space to reach such a large audience.

Apple also has hurt its standing by relaxing its App Store rules for certain large companies. In April, Bloomberg News reported that the company allowed a handful “premium subscription video” providers — including Amazon.com Inc., Vivendi SA, and Altice USA Inc.’s Altice One — the ability to charge consumers directly using their own payment systems without paying a commission to Apple.Unfortunately, not all companies have the negotiation leverage of Amazon. Regulators should stand up for the smaller companies that frankly need the fee break more. Moreover, the EU should at least mandate Apple to allow developers to inform users they can purchase content outside the app.

At the end of the day, a lower App Store commission rate wouldn’t be the end of the world for Apple. For all the talk about the company’s strategic shift to services, the segment, of which the App Store is only a part, accounted for just 18% of its sales in its most recent fiscal year. But a 50% reduction, for example, would be a tremendous boon for smaller companies — spurring more innovation and lower prices for consumers. That’s an end result regulators should fight for.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.

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