The story so far: In a comprehensive slew of measures to ensure “contestable and fair markets in the digital sector” in line with the provisions of the Digital Markets Act (DMA), the European Commission on March 25 initiated ‘non-compliance investigations’ against Apple, Meta and Google’s parent Alphabet. It will also investigate Amazon’s ranking practices on its marketplace.

The Commission reportedly intends to conclude the investigation in 12 months.  

Where is the context of these non-compliance investigations?  

The non-compliance investigations concern Alphabet’s alleged rules on steering or directing its customers to its in-house services over those of its competitors in Google Play, and self-preferencing on Google Search. Apple will be investigated for allegedly similar practices in its App Store, as well as the way it positions its Safari browser. Lastly, Meta will be investigated for its “pay or consent model” — a subscription service that lets a user get rid of personalised advertising.  

The investigations fall in with the primary objective of the DMA to better regulate ‘gatekeepers’ and ensure fairer competitive practices in the digital market space. The idea is to mitigate paradigms that may create a “bottleneck” in the digital economy and fairness in competition and consumer access. For clarity, the Act designates companies with dominance in any of the ‘core platform services,’ such as app stores, online search engines, social networking services, web browsers and operating systems, among other things, as ‘gatekeepers’.  

The Digital Markets Act came into force on November 1, 2022. Alphabet, Amazon, Apple, TikTok’s parent company ByteDance, and Microsoft were designated as ‘gatekeepers’ in September 2023. They were expected to fully comply with obligations under the DMA by March 7 this year. 

The Commission assessed the mandatory compliance reports submitted by these companies setting out compliance measures, and gathered feedback from stakeholders, including in the context of workshops, before launching the investigation.

“We have been in discussions with gatekeepers for months to help them adapt, and we can already see changes happening in the market,” Margrethe Vestager, Executive Vice-President of the European Commission in charge of competition policy, said in a press statement, adding, “But we are not convinced that the solutions by Alphabet, Apple and Meta respect their obligations for a fairer and more open digital space for European citizens and businesses”.

How are the steering rules non-compliant?  

DMA provisions stipulate that app developers be allowed to steer consumers to offers (and services) outside the gatekeeper’s app store, free of charge. This would eliminate exclusivity and dependence on a particular mode of payment, or enable access to an online game with an outside gaming account, among other such services.  

The Commission aired its concerns about Alphabet and Apple not being fully compliant “as they impose various restrictions and limitations.” It stated, “These constrain, among other things, developers’ ability to freely communicate and promote offers and directly conclude contracts, including by various charges.”  

Apple has maintained that the tight integration associated with its App Store is essential to provide a “uniquely secure and seamless user experience.” In their initial comments in January 2020, the iPhone maker said that the DMA is “too blunt a tool.”  

“It equates size with harm, and then imposes a one-list-fits-all set of regulatory obligations without providing an opportunity for the platform to explain, and the regulator to assess, whether – on balance – there are broader benefits to consumers or businesses,” Apple said. 

In a blog published this January, Spotify, however, had the following to say: “For years, even in our own app, Apple had these rules where we couldn’t tell you about offers, how much something costs, or even where to buy it.” It added that with the DMA, it would be able to share details about Spotify promotions, deals and better-value payment options with consumers in the EU.  

Additionally, Spotify said this would come without the “burden” of the mandatory 30% tax imposed by Apple on in-app purchases. 

Back home, the Competition Commission of India (CCI) on March 15 ordered a detailed probe against Google for alleged discriminatory practices on its Play Store pricing policy after having discovered a prima facie violation of competition law. The petitioners had argued that Google’s updated payment policies for their proprietary app store was “impacting several stakeholders, including app developers, payments processors and users alike.”  

What about Alphabet engaging in self-preferencing?  

The Commission wants to determine whether Google search results are discriminatory; in other words, whether the search giant engages in self-preferencing for its verticals (such as Google Shopping, Google Flights, and Google Hotels) over rival services. It has stated that Alphabet’s measures to comply with the DMA may not have ensured that third-party services featuring on Google’s search results page are treated in a “fair and non-discriminatory manner” in comparison to their own services.

Alphabet has found itself responding to similar allegations in the past as well. In October 2020, the U.S. Department of Justice (DoJ) accused Google of “unlawfully maintaining monopolies through anti-competitive and exclusionary practices in the search and search advertising markets” and directed it “to remedy the competitive harms.” According to the DoJ, the conduct harmed consumers by reducing the quality of their search (including on dimensions such as privacy, data, protection and user of consumer data), lowering choices, and impeding innovation. The case is ongoing.

Amazon too is facing heat for similarly tailoring the listings on its marketplace.  

What are the concerns about user choice obligations?  

Ecosystem captivity is the main concern. The Commission is looking to assess if Apple enables users to easily uninstall any pre-installed or presently default software applications on iOS, change default settings, and if it prompts users with choice screens that allow them to effectively and easily select alternatives to the default service, such as a browser or search engine on their iPhones. 

The investigation emanates from the Commission’s concern that Apple’s measures, including the design of the web browser choice screen, may be preventing users from “truly exercising their choice of services with the Apple ecosystem.” In other words, concerns over ecosystem captivity.  

As providers of both app storefronts and browsers, Google and Apple’s ‘walled garden’ ecosystems have also been hit with lawsuits across the Atlantic. 

What are the concerns about Meta’s “pay or consent model”? 

To align with the DMA provisions, Meta in December last year introduced a subscription model that offered people in countries of the EU, European Economic Area (EEA), and Switzerland the choice to use Facebook and Instagram without any ads. Alternatively, they could continue using these services for free while seeing ads relevant to them; in other words, consenting to personalised advertising.    

Meta had argued that the subscription for no ads was the “best compliance solution.” According to them, this was a solution to comply with a “unique combination of connected and sometimes overlapping EU regulatory obligations with differing compliance deadlines.” It added that the option offered its users a “clear choice.”

The model, however, did not convince the Commission. It held that the model’s “binary choice” may not provide “a real alternative in case users do not consent, thereby not attaining the objective of preventing the accumulation of personal data by gatekeepers.”    

How will non-compliant companies be penalised? 

The companies face the prospect of being fined up to 10% of their global turnover or 20% in case of repeated infringement(s). Additionally, should the investigation come across any “systematic infringement,” the companies may be asked to sell a business or parts of it. A ban from acquiring additional services related to the systemic non-compliance could also be possible.

What were the reactions to the European Commission investigation? 

The announcement of the investigation has evidently not enthused participants or stakeholders in the ecosystem. Concerns continue to exist if overlapping prerogatives across the aisle can be addressed.  

Daniel Friedlander, Senior Vice President and Head of the Computer & Communications Industry Association (CCIA Europe), stated, “Last week’s DMA workshops highlighted many areas of uncertainty linked to DMA implementation, where different sectors and groups of access seekers expressed diametrically opposed requests that won’t be easily solved.” According to him, with many risks and opportunities still being reviewed, launching an investigation appears “premature.”  

An Amazon spokesperson told Reuters that the company was compliant with the DMA and has engaged constructively with the Commission on their plans since the designation of two of their services. “We continue to work hard every day to meet all of our customers’ high standards within Europe’s changing regulatory environment,” the spokesperson said.   

Europeans scrolling their phones and computers this week will get new choices for default browsers and search engines, where to download iPhone apps and how their personal online data is used.

They’re a part of changes required under the Digital Markets Act, a set of European Union regulations that six tech companies classed as “gatekeepers” — Amazon, Apple, Google parent Alphabet, Meta, Microsoft and TikTok owner ByteDance — will have to start following by midnight Wednesday.

The DMA is the latest in a series of regulations that Europe has passed as a global leader in reining in the dominance of large tech firms. Tech giants have responded by changing some of their long-held ways of doing business — such as Apple allowing people to install smartphone apps outside of its App Store.

The rules have broad but vague goals of making digital markets “fairer” and “more contestable.” They are kicking in as efforts around the world to crack down on the tech industry are picking up pace.

Here’s a look at how the Act will work:

Some 22 services, from operating systems to messenger apps and social media platforms, will be in the DMA’s crosshairs.

They include Google services like Maps, YouTube, the Chrome browser and Android operating system, plus Amazon’s Marketplace and Apple’s Safari Browser and iOS. Meta’s Facebook, Instagram and WhatsApp are included as well as Microsoft’s Windows and LinkedIn.

Threat of fines

The companies face the threat of hefty fines worth up to 20% of their annual global revenue for repeated violations — which could amount to billions of dollars — or even a breakup of their businesses for “systematic infringements.”

The DMA is a fresh milestone for the 27-nation European Union in its longstanding role as a worldwide trendsetter in clamping down on the tech industry. The bloc has previously hit Google with whopping fines in antitrust cases, rolled out tough rules to clean up social media and is bringing in world-first artificial intelligence regulations.

Now, places like Japan, Britain, Mexico, South Korea, Australia, Brazil and India are drawing up their own versions of DMA-like rules aimed at preventing tech companies from dominating digital markets.

“We’re seeing copycats around the world already,” said Bill Echikson, senior fellow at the Center for European Policy Analysis, a Washington-based think tank. The DMA “will become the defacto standard” for digital regulation in the democratic world.”

Officials will be looking to Brussels for guidance, said Zach Meyers, Assistant director at the Center for European Reform, a think tank in London.

“If it works, many Western countries will probably try to follow the DMA to avoid fragmentation and the risk of taking a different approach that fails.”

In one of the biggest changes, Apple said it will let European iPhone users download apps outside its App Store, which comes installed on its mobile devices. The firm long resisted such a move, with a big chunk of its revenue coming from the 30% fee it charges for payments — such as for Disney+ subscriptions — made via iOS apps. Apple warned “sideloading” apps will come with added security risks.

Apple cutting fee

Now, Apple is cutting those fees it collects from app developers in Europe that opt to stay within the company’s payment-processing system. But it’s adding a 50-euro cent fee for each iOS app installed through third-party app stores, which critics say will deter the many existing free apps — whose developers currently don’t pay any fee — from jumping ship.

“Why would they possibly opt into a world where they have to pay a 50 cent per-user fee?” said Avery Gardiner, Spotify’s Global Director of competition policy. “So those alternative app stores will never get traction, because they’ll be missing this huge chunk of apps that would need to be there in order for customers to find the store attractive.”

“That is utterly at odds with the very purpose of the DMA,” Ms. Gardiner added. Brussels will be closely scrutinising whether tech firms are complying.

EU competition chief Margrethe Vestager said after 10 years in the job, “I have seen quite a number of antitrust cases and quite a lot of creativity built into how to work around the rules that we have.”

Consumers won’t be forced into default choices for key services. Android users can pick which search engine to use by default, while iPhone users will get to choose which browser will be their go-to. Europeans will see choice screens on their devices. Microsoft, meanwhile, will stop forcing people to use its Edge browser.

The idea is to stop people from being nudged into using Apple’s Safari browser or Google’s Search app. But smaller players still worry that they might end up worse off than before.

Users might just stick with what they recognise because they don’t know anything about the other options, said Christian Kroll, CEO of Berlin-based search engine Ecosia.

Ecosia has been pushing for Apple and Google to include more information about rival services in the choice screens. “If people don’t know what the alternatives are, it’s unlikely many of them will select an alternative,” Mr. Kroll said.