Apple Pay and the iOS App Store are being investigated over potential breaches of European competition rules, the EU’s competition commission announced on Tuesday.
The two investigations come after years of growing criticism of Apple’s business practices from competitors like Spotify and regulators in the US and EU. If the iPhone maker is found to breach EU competetion rules it could face penalties of up to 10% of its global turnover.
The App Store which is the only way that developers can distribute iPhone and iPad apps - is being investigated for two specific restrictions imposed by Apple.The first is the requirement that developers use the company’s own “in-app purchase system” for users to make payments, from which Apple takes a 15-30% cut. The second is the ban on developers telling users of other ways to pay for digital content outside of the in-app system.
Spotify in particular has regularly cited the restrictions as limiting its ability to compete with Apple’s own music service, because Spotify is forced to either pay Apple a large share of its revenue or risk losing customers who can’t work out how to pay. In May 2019, the company filed a formal complaint against Apple.
Apple does not disclose the revenues it generates from its App Store, but earlier this year an analysis by CNBC suggested it was bringing in some $15bn (£11.7bn) a year.
The tech giant has long maintained that the restrictions are crucial for providing security and privacy to its users. “We developed the App Store with two goals in mind,” the company said in a statement: “That it be a safe and trusted place for customers to discover and download apps, and a great business opportunity for entrepreneurs and developers. We’re deeply proud of the countless developers who’ve innovated and found success through our platform.
“And as we’ve grown together, we’ve continued to deliver innovative new services – like Apple Pay – that provide the very best customer experience while meeting industry-leading standards for privacy and security.”
Margrethe Vestager, the EU’s competition chief, said: “Mobile applications have fundamentally changed the way we access content. Apple sets the rules for the distribution of apps to users of iPhones and iPads.
“We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service, Apple Music, or with Apple Books. I have therefore decided to take a close look at Apple’s App Store rules and their compliance with EU competition rules.”
Apple Pay, the company’s contactless and online payment service, is being investigated for a different set of restrictions that ensure the service is the only option for iPhone and iPad users wanting to make contactless payments. Also under investigation is the tight integration with the company’s operating systems, which ensures that Apple Pay can provide a smoother experience for online sales than competing payment platforms.
“It appears that Apple sets the conditions on how Apple Pay should be used in merchants’ apps and websites,” Vestager said. “It also reserves the ‘tap and go’ functionality of iPhones to Apple Pay. It is important that Apple’s measures do not deny consumers the benefits of new payment technologies, including better choice, quality, innovation and competitive prices.”
In a statement, Apple responded: “It’s disappointing the European commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else. We don’t think that’s right – we want to maintain a level playing field where anyone with determination and a great idea can succeed.
“At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment. We welcome the opportunity to show the European commission all we’ve done to make that goal a reality.”
It is the first time Apple has faced a formal investigation by the EU over competition law. Scrutiny of competitor Google, by contrast, has already resulted in more than €8bn (£6.8bn) of fines.
An investigation in 2017 into Google Shopping resulted in a fine of €2.4bn; in 2018, anticompetitive practices involving Google’s Android smartphone operating system were the basis of a €4.3bn fine; and those were followed in 2019 with a €1.5bn fine over advertising violations. Another investigation was opened in December 2019, over data collection practices.
