Mint Explainer: Why Alphabet, Apple and Meta are in EU’s crosshairs

The European Commission's Digital Markets Act demands that popular social networks and websites police content online more aggressively and protect consumers while they shop. (AFP)
The European Commission's Digital Markets Act demands that popular social networks and websites police content online more aggressively and protect consumers while they shop. (AFP)

Summary

The European Commission suspects that the measures put in place by big tech companies fall short of effective compliance with their obligations under the European Union’s Digital Markets Act

Alphabet, Apple and Meta might be in deep trouble for suspected breaches of the European Union’s Digital Markets Act (DMA) if it is proven that they used their dominant position to impose unfair conditions on users and to restrict choices. If these companies are found to be in breach of the Act, they could face heavy penalties, amounting to as much as 10% of their global turnover.

On Monday, March 25, the European Commission announced that it had started investigating the three big tech companies for what it suspects are part non-compliance with their obligations as “gatekeepers" under the recently enforced DMA. The investigations need to be completed within 12 months. The DMA aims to increase online choices for consumers by reining in corporate behaviour that amounts to abuse of dominance, or is unfair to businesses and users of the platform, or restrictive.

The European Commission is investigating Alphabet’s rules on steering in Google Play and self-preferencing on Google Search, Apple’s rules on steering in the App Store and the choice screen for its Safari browser, and Meta’s “pay or consent model" for Facebook and Instagram. The commission suspects that the measures put in place by these companies fall short of effective compliance with their obligations under the DMA. (Both steering and self-preferencing are explained below,)

The commission will also look into Apple’s new fee structure of alternative app stores and Amazon’s ranking practices on its marketplace. Mint explains the implications of the European Commission’s investigations for the big tech companies and their users.

What is expected of big tech companies under the DMA?

The European Commission notified six online platforms as gatekeepers in September 2023 and required them to fully comply with the DMA obligations by March 7, 2024. Other than Alphabet, Apple and Meta, Amazon, ByteDance (the owner of TikTok) and Microsoft were designated as gatekeepers. 

A platform is designated as a gatekeeper under the DMA if it is an important gateway between businesses and consumers in relation to core platform services. The European Commission also identified 22 services including Facebook, Instagram, LinkedIn, TikTok, WhatsApp, YouTube, Chrome and Safari as core platform services provided by the gatekeepers. A company can be designated as the gatekeeper for several core platform services concurrently.

These six companies had six months until 7 March to comply with the full list of do’s and don’ts under the DMA, and that included offering more choice and more freedom to end users and business users of the gatekeepers’ services. The onus of demonstrating effective compliance lies with the gatekeepers.

What are the criteria for designating a company as a gatekeeper?

There are two quantitative criteria for designating a digital company as a gatekeeper under the DMA—turnover and active users. The six companies were notified as gatekeepers because they had a certain annual turnover in the European Economic Area and they were providing a core platform service in at least three EU member states, and the core platform service was being provided to more than 45 million monthly active end users and more than 10,000 yearly active business users in the EU.

What were the concerns of the European Commission that prompted the investigations?

Following the designation of the six companies as gatekeepers in September, the commission has been in regular conversation with them to help them adapt to the requirements under the DMA. However, it was not convinced that Alphabet, Apple and Meta had done enough by 7 March to ensure a fairer and more open digital space for European citizens and businesses. It is, therefore, investigating the following lapses:

  • On steering: The DMA requires gatekeepers to allow app developers to steer consumers to offers outside the app stores, free of charge. The objective is to promote competition between alternative sales channels in the app economy. The commission felt that Alphabet and Apple may not be fully compliant as they impose various charges and restrictions and limitations, which constrain developers’ ability to freely communicate and promote offers and directly conclude contracts, including by imposing various charges.
  • On self-preferencing:  The European Commission suspected that Alphabet’s Google search results were leading to self-preferencing of its vertical search services such as Google Shopping and Google Flights over similar rival services. This goes against DMA’s requirement of fair and non-discriminatory treatment of third-party services featuring on Google’s search results page.
  • On user choice obligations: The commission suspected that Apple had not done enough to enable end users to easily uninstall any software applications on iOS, easily change default settings on iOS and prompt users with choice screens which must effectively and easily allow them to select an alternative default service such as a browser or search engine on their iPhones.
  • On pay or consent model: This is about the collection of personal data by gatekeepers. The commission was concerned that Meta’s recently introduced pay or consent model which requires gatekeepers to obtain consent from users when they intend to combine or cross-use their personal data across different core platform services may not provide a real alternative in case users do not consent. To put it simply, Meta offered Facebook and Instagram users ad-free experience if they paid for a subscription. If they gave consent, instead of paying for subscription, Meta could use data collected on one of its platforms to target ads on another.

What happens next?

The European Commission intends to conclude the investigation within 12 months. It has said that if warranted following the investigation, it will inform the concerned gatekeepers of its preliminary findings and explain the measures it is considering taking or the gatekeeper should take to effectively address its concerns.

The commission also said in its statement that it can impose fines up to 10% of the company’s total worldwide turnover in case of an infringement, which can go up to 20% in case of repeated infringement. In case of systematic infringements, the Commission can ask a gatekeeper to sell a business or parts of it or ban the gatekeeper from acquisitions of additional services related to the systemic non-compliance.

The European Commission’s investigations are not limited to just these concerns. It is actively looking at other instances where it suspects potential breaches with the DMA, meaning that investigations can expand in the coming weeks and months to other companies. Most of these companies have faced anti-trust actions by competition regulators in the pre-DMA days. 

The coming into force of the DMA in the European Union and anticipated implementation of similar laws in other countries, including in India, will require big tech companies to adopt fairer practices and actively address concerns across jurisdictions.

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