Google hit with record €4.3bn fine from European regulators over Android operating system

Google has been handed a colossal €4.34 billion (£3.8bn) fine by the European Commission for placing restrictions on how its Android operating system can be used. The fine is the largest ever issued by the European Commission in an antitrust case and will surpass the €2.42bn penalty issued to the Silicon Valley firm last year.

Competition commissioner Margrethe Vestager issued the fine for three "illegal restrictions" on how Android is used. "It has cemented the dominance of its search engine," Vestager tweeted. She continued to say Google has been "denying rivals a chance to innovate and compete on the merits."

The fine is based on the fundamentals of how Google's Android operating system operates. There are more than two billion Android devices – including phones, tablets, and watches – being used around the world every month. Android's code is open-source, meaning it can be tweaked and edited by device manufacturers.

However, it isn't fully open-source: there are some elements that Google remains in control of. Crucially, by default all Android phones use Google as the default search engine and Google Chrome as the default web browser.

Vestager said Google has become dominant across Europe for internet search, licensable smartphone operating systems and for the Google Play app store. "With market dominance comes responsibility," she explained.

The findings

The Commission found that Google had required phone manufacturers to pre-install the Google Search app and Chrome Browser as a condition for using the Play Store. Google has also made payments to large phone manufacturers to ensure they exclusively use the pre-installed Google search app, the Commission said.

Google has also prevented manufacturers from editing and using versions of the Android source code. "Pre-installation on devices is an advantage that cannot be matched in any way," Vestager said.

"Google offers its mobile apps and services to device manufacturers as a bundle, which includes the Google Play Store, the Google Search app and the Google Chrome browser," the Commission said in a statement. Therefore, it is not possible for a phone manufacturer to only install the Play Store and not the Google Search app.

The Commission said pre-installation of apps make it highly unlikely phone users will download other apps if they already have one they can use. In 2016 it found that on Android devices more than 95 per cent of search queries were made through Google.

It didn't say how much Google paid to device manufacturers to ensure its software was bundled on handsets. However, the Commission said payments were "significant" and other search engines wouldn't be able to still make profits if they tried to pay manufacturers.

When it comes to not allowing manufacturers to use non-approved versions of Android, Vestager highlighted Amazon's Fire OS. The online retailer wanted to create and license more devices that used Fire OS but it was prevented from doing so. "The Commission has found evidence that Google's conduct prevented a number of large manufacturers from developing and selling devices based on Amazon's Android fork," it said in a statement.

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Google announced it would appeal the decision. "Android has created more choice for everyone, not less," the company said. This means it is likely the case will drag on for several more years, although Google will have to pay the fine. It will be held in a closed fund until all appeals are exhausted. The Commission's decision says Google has to stop its practices within 90 days.

The Commission opened its investigation into Android following a 2013 complaint from lobbying group Fair Search, which was backed by competitors including Oracle, Nokia and Microsoft. In 2016, Vestager issued a statement of objections against Google and Android.

Google has continually contested it has done anything wrong. "Our business model keeps manufacturers’ costs low and their flexibility high, while giving consumers unprecedented control of their mobile devices," Kent Walker, a Google senior vice president and general counsel, wrote after the Commission's 2016 statement of objections.

In an interview with WIRED in 2016 at the time Hiroshi Lockheimer, the head of Android, said he doesn't make software to help Google. "No one ever told me: 'Please develop an operating system that somehow helps Google' or 'Please develop an OS that encourages search'. That was never my mission."

Vestager said Google's illegal practices had been ongoing 2011 and were very "serious". This justified the level of the fine, she added, though didn't go so far as to say Google should be broken up to increase competition.

Despite the fine, the bigger issue for Google could come with how it may have to change the Android operating system. The company needs to act within three months of the ruling to stop the three practices the Commission outlined. At present, it is not known how Google will change Android.

But, Google isn't the first company to face antitrust scrutiny for software. Back in January 2009, the Commission told Microsoft it needed to offer more choice to European users of Windows when it came to web browsers. Instead of just offering Internet Explorer as a default option, Microsoft was told to offer a "browser choice screen" letting people pick their preferred browser.

Microsoft was fined €561 million in 2013 when it was discovered 15 million people hadn't been given a choice. But the fine was small change. The bigger loss was Microsoft's market dominance. In July 2008, according to analysis firm Statcounter, Internet Explorer had a 68.57 per cent share of the web browser market. By June 2018, it has dropped to 3.12 per cent. In the same time, Google's Chrome has grown from a zero per cent market share to almost 60 per cent.

Another Google fine...

In June 2017, the Commission hit Google with a €2.42 billion (£2.1bn) fine for abusing its market dominance as a search engine. Following a long-running legal complaint from British couple Adam and Shivaun Raff, Vestager concluded Google was giving an unfair advantage to its own comparison shopping service.

Google demoted search results of its competitors in shopping comparison, the Commission said. "It denied other companies the chance to compete on the merits and to innovate," Vestager said at the time. "And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation."

Vestager's team found the number of people using Google's comparison shopping service had increased 45-fold in the UK, 35-fold in Germany, 19-fold in France, and 29-fold in the Netherlands, 17-fold in Spain and 14-fold in Italy. At the same time, rivals lost 85 per cent of their traffic in the UK and similar amounts across Europe.

Google denied it had done anything wrong – and is appealing the decision – but has since made changes to how it shows search results across Europe. The company is now letting anyone bid for the ads it displays at the top of product searches.

"There are no reserved slots for Google Shopping" or other comparison services Google wrote in a tweet. In a blog post Google said it had created a "new opportunity" for companies to buy shopping ads. These changes were first seen in search results at the end of February 2018.

During the Android announcement, Vestager said her team hasn't decided whether Google has met the obligations of its previous ruling and was still looking at the case.