Fu Yun Chi and Supanta Mukherjee
BRUSSELS/STOCKHOLM (Reuters) – Big tech companies face their biggest challenge in decades as antitrust regulators on both sides of the Atlantic crack down on alleged anti-competitive practices that could see Apple (NASDAQ:) and Alphabet (NASDAQ:) order scuttled from Google, an industry first.
This, in turn, could encourage regulators around the world to step up their efforts, as evidenced by the growing number of antitrust investigations in various countries following the opening of EU and US cases. Since AT&T (NYSE:) broke up exactly 40 years ago, no company in the United States has yet faced the possibility of a regulatory breakup.
Google said it disagreed with the EU’s allegations, while Apple said the US lawsuit was flawed as a matter of fact and law.
In 1984, AT&T, also known as Ma Bell, was split into seven independent companies called Baby Bells, forming one of the most powerful monopolies of the 20th century. AT&T, Verizon (NYSE:) and Lumen are currently the only surviving companies.
Regulators now argue that companies like Apple and Google have created impenetrable ecosystems around their products, making it difficult for customers to switch to competing services, giving rise to the term “walled gardens.”
The US Justice Department on Wednesday warned Apple, a $2.7 trillion company, that a breakup order is not out of the question as a means of restoring competition after the company joined 15 states to sue the iPhone maker for monopolizing the smartphone market, hampering rivals. . and price gouging.
Even so, it will likely take years to resolve the case that Apple has vowed to fight.
The US action follows other growing threats in Europe this week.
Big tech companies will soon face more scrutiny: Apple, Meta Platforms (NASDAQ:) and Alphabet are likely to be investigated for potential violations of the Digital Markets Act (DMA), which could lead to hefty fines and even termination of orders for repeated violations. Reuters reported on Thursday on condition of anonymity.
EU competition chief Margrethe Vestager helped pave the way for sweeping measures last year when she accused Google of anti-competitive practices in its lucrative ad tech business and that the company may have to give up its sales tools.
She said requiring Google to sell some of its assets appears to be the only way to avoid a conflict of interest, since it would prevent Google from allegedly favoring its own online digital advertising technology services over advertisers and online publishers.
Vestager is expected to make a final decision by the end of the year.
European Parliament member Andreas Schwab, who was closely involved in crafting the EU’s landmark DMA technology rules that came into force this month, said lawmakers want decisive action against big tech companies that flout the rules.
“If they don’t comply with the DMA, you can imagine what Parliament will demand. Divisions. The ultimate goal is to make markets open, fair and allow more innovation,” he said on Friday.
BREAKING UP IS HARD
It is far from certain that regulators will issue a separation order as they weigh their options and any action may simply result in a fine. Legal experts have also suggested that the case against Apple, which builds on the 1998 case against Microsoft (NASDAQ:), could be more complicated this time.
“There is less of a tradition in the European Union where breaking up a company is seen as a last resort. This has never happened before,” said a Commission official, speaking on condition of anonymity.
Apple’s highly integrated system will also make it harder to break up than Google, said lawyer Damien Geradin of Geradin Partners, who is advising several app developers in other cases against Apple.
“I think it’s much more difficult. You’re talking about something integrated, like you can’t force Apple to sell its App Store. It doesn’t make sense,” he said.
He said it would be better to impose behavioral measures on Apple requiring it to do certain things, whereas in Google’s case, a breakup order could simply target acquisitions made to strengthen its core services.
“It’s more likely that they (the Justice Department) will resort to measures such as opening up hardware functionality or ensuring that developers are not discriminated against in terms of prices,” said Max von Thun, director of the advocacy group Open Markets.
“I think what they’re saying is that everything is on the table, but that doesn’t necessarily mean they’ll take that route,” he said.
Apple gets most of its nearly $400 billion a year in revenue from hardware sales – iPhones, Macs, iPads and watches – followed by a services business that will bring in roughly $100 billion a year.
Structural remedies, such as breaking up the relationship, will eventually be tried in the courts, said Assimakis Komninos, a partner at law firm White & Case.
“I would say there is not a lot of experience with structural measures such as decoupling, but the limited past experience shows that it is very difficult, barring huge legal challenges,” he said.