Italian watchdog bares its gums in Apple and Samsung planned obsolescence case

Italian regulator AGCM has shown its bite is particularly toothless after fining Apple and Samsung €10 million and €5 million respectively over planned obsolescence.

Following a ten-month investigation for unfair commercial practices, the watchdog found the pair guilty, though after months of barking the bite has proven to be as gummy as a 70 year-old Welwyn Garden City pensioner. For many companies the fines would be considered monstrous, but for these two, it will barely register a blip on the financials.

The statement from the AGCM reads as follows:

“As a result of two complex investigations, the AGCM has ascertained that the companies of the Apple group and of the Samsung group have realized unfair commercial practices in violation of the articles. 20, 21, 22 and 24 of the Consumer Code in relation to the release of some firmware updates of mobile phones that have caused serious malfunctions and significantly reduced performance, thereby accelerating the process of replacing them.”

In Samsung’s case, the watchdog believes the company insisted users who had purchased a Note 4 to install the new Android firmware called Marshmallow, which was designed for the Note 7, but failed to inform of serious malfunctions due to the greater stress on the device.

Apple told the owners of various models of iPhone 6 to install the new iOS 10, which was developed for the iPhone7, without informing the greater energy demands of the new operating system and the possible inconveniences, such as sudden shutdowns. To counter these issues, a new update was released without warning that its installation could reduce the speed of response and functionality of the devices.

In a second investigation of Apple, AGCM found the iLeader did not provide consumers with adequate information about some characteristics of the batteries, such as their average life and deterioration, nor the correct procedures to maintain, verify and replace the batteries to preserve the full functionality of the devices.

Just to put the fines into some perspective, it would take Apple approximately 20 minutes to pay off the €10 million fine, while Samsung would take around 16 minutes to pay off its €5 million penalty.

The issue with these fines is the severity. Apple and Samsung have failed in their responsibilities to their customers, and should be punished. However, these are monstrous companies with unthinkably large bank accounts. Fines should be proportional to the size of the company, otherwise fear will not be instilled.

Fines are supposed to act as a deterrent for any wrong-doing in the future. Considering how minor these penalties are in comparison to the annual turnover of Apple and Samsung, what is to stop them from continuing to edge along the line of right and wrong.

Unfortunately this is the current state of play. Regulators can try to protect the consumer, but until they are given the power to effectively and proportionally punish wrong-doers, nothing will change. This is not the last time Apple and Samsung will be caught doing something wrong, and it’s because they are effectively being allowed to get away with it.

 

Europe hits Google with €4.3bn fine for Android antitrust violations

Google has been handed a record €4.3 billion by the European Commission, with the bureaucrats claiming the search giant abused the dominant position of Android to bully consumers into using its search engine.

The European Commission, hereafter known as the Gaggle of Red-tapers, has given Google 90 days to end the activities, or face non-compliance payments of up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company. Google has been bundling its search engine and Chrome apps into the operating system, with the Gaggle also claiming it blocked manufacturers from creating devices that run forked versions of Android, and also making payments to manufacturers and telcos to ensure exclusivity on devices.

“Today, mobile internet makes up more than half of global internet traffic,” said Chief Competition Gaggler, Commissioner Margrethe Vestager. “It has changed the lives of millions of Europeans.

“Our case is about three types of restrictions that Google has imposed on Android device manufacturers and network operators to ensure that traffic on Android devices goes to the Google search engine. In this way, Google has used Android as a vehicle to cement the dominance of its search engine. These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.”

The three issues here are as follows:

  • Manufacturers are required to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store, which manufacturers confirmed was a ‘must have’ feature as part of the investigation
  • Payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices
  • Prevented manufacturers wishing to pre-install Google apps from selling devices running on alternative versions of Android that were not approved by Google, known as Android Forks

EC Google antitrust diagram

Google will of course appeal the fine, and will likely use its own legal might to tie the Gaggle up in more red-tape than the boresome bureaucrats ever thought possible, but this is a notable decision. Not only has the European Commission come to the conclusion Android has a dominant position in the European market, some 80% of smartphone run on the OS, but it has determined Google actively sought to inhibit competition, and therefore negatively impact the experience and choice of the consumer.

One of the conclusions Google has found issue with is the competition between Android and Apple’s iOS. The Gaggle has decided the two are not competing with each other, due to the fact Apple devices are not tailored towards the low-end of the market, therefore Android maintains a monopoly over poorer demographics and regions. The Gaggle also notes there is a ‘cost’ to switching to iOS, including loss of data, contacts, and having to learn how to use a new OS, which counts against the search giant. Google disagrees with this point, even quoting the Gaggle’s own research that suggests 89% of respondents believe the two OS’ compete.

Another important aspect to note is the openness of Android. This is an additional bugbear of the Gaggle, pointing towards the limited opensource nature of the OS as a negative, though Google contends this point. Should Android be make more open to developers and users, the fragmentation in the ecosystem could be boggling. Google argue it needs to maintain control to ensure consistency and experience. This argument is less clear cut, as there are positives and negative outcomes on both sides.

“To be successful, open-source platforms have to painstakingly balance the needs of everyone that uses them. History shows that without rules around baseline compatibility, open-source platforms fragment, which hurts users, developers and phone makers,” Google CEO Sundar Pichai said in a blog post. “Android’s compatibility rules avoid this, and help make it an attractive long-term proposition for everyone.”

Overall, this is of course not a new argument. The European Commission found fault with Microsoft bundling Internet Explorer with its Window OS in years gone, while Google has constantly been under the microscope in Belgium. The Gaggle does not seem comfortable with the idea of relaying revenues to other aspects of the ecosystem, a business model which is becoming more common in the digital era.

For a service to be free, there has to be a value exchange. As it stands, device manufacturers get an Android licence for free under the condition Google products are set as default. Google spends an unknown amount every year to ensure Android is the best OS on the market, and monetizes the experience through its search engine. Should it be proven Google is operating illegally, the practise should be adjusted, but we would argue there would be detrimental impact to the consumer should it be stopped completely.

The only other alternative is to charge the device manufacturers for the right to use Android. We suspect this will never happen, but we have no doubt this expense would be passed onto the consumer, who will probably end up using Google anyway as the search engine is arguably the best on the market.

The payments to manufacturers and telcos is not the most above-board business we’ve ever come across, and perhaps preventing the development of Forks is suspect, though this point is much more nuanced; Google is rightly claiming fragmentation of the OS and applications would impact experience. That said, we don’t have too much of an issue with the conditional bundling of other services with the Play Store and Android OS; Google has to make money after all; it doesn’t offer software as a charity.

The European Commission will continue to argue the dominant position of Google will impact innovation, though the Google party line can be summed up pretty simply; its helping develop the ecosystem:

“The free distribution of the Android platform, and of Google’s suite of applications, is not only efficient for phone makers and operators – it’s of huge benefit for developers and consumers,” said Pichai. “If phone makers and mobile network operators couldn’t include our apps on their wide range of devices, it would upset the balance of the Android ecosystem. So far, the Android business model has meant that we haven’t had to charge phone makers for our technology, or depend on a tightly controlled distribution model.”

The outcome of this saga is unlikely to be known for months. Google’s lawyers will do everything possible to complicate the situation, lobbyists will be charged and the PR machine will start cranking, but there is the potential to have a very fundamental impact on the industry. Will Google bow to demands and lose its grip on search? Could it start charging a license fee Android? Or might it just say screw everyone else and keep Android exclusively for its own Pixel devices in Apple-esque style?

Apple faces Korea fine for abusing telco neediness

Korea’s Fair Trade Commission has said it has launched an investigation into whether Apple is abusing its market position in the market, overcharging customers and exploiting the tired telcos.

According to the Korean Times, the investigation could take up to two months and other local sources has said the fine could exceed 100 trillion won, approximately $93 million. Should Koreans find the iLeader guilty, it could make for worrying precedent for a company which has a strangle hold on its ecosystem and go-to-market strategy.

This is not the first time Apple has been under the microscope in Korea for the way it deals with telcos. The first iPhone was sold in Korea in 2009, and since that point there have been numerous claims of unfair practises, such as shifting advertising costs to the telcos or dictating how the products should be sold.

It should not be viewed as uncommon for a brand to get involved with how a product is displayed in store or through advertising, especially for Apple which is heavily reliant on the brand and consumer loyalty for the incredible sales, however should the Korean FTC unveil any dodgy conditions or criteria, there might be a bit of trouble. One of the areas which will also be included in the investigation is the pricing of the handsets themselves.

Consumers in Korea have been forced to pay 200,000 won (roughly $187) more than those in Japan and the US, which might be an issue if Apple is found to be too heavily involved. Should domestic and local telcos/outlets decide the Koreans should pay more, the FTC could say nothing as this is simply local market forces. If Apple is forcing the price up, this treated as abusing a dominant market position and unfairly exploiting the consumer.

Apple is a company which likes to maintain a level of control over its products. This is part of the reason the brand is so strong and reliable; it has a specific message and image which is communicated very consistently throughout the world. Should Korean authorities look to drive a wedge in-between Apple and the telcos because of unfair practises, the control over how the brand is presented and communicated would loosen. This would certainly be a worrying development for the iChief which has almost cult-like control over its legions of iFollowers; variances in the brand would weaken the marionette strings.

This is of course not the first time Apple has faced criticism over unfair practises. In 2013, Taiwan fined Apple for controlling prices and in 2016 France dished out a €48.5 million fine for forcing telcos to pay for advertising. It did an effective job of damage limitation there, and will be looking to do the same here.

Google fined for search engine bias in India, but probably doesn’t care

Google has been fined roughly $21 million by the Competition Commission of India (CCI) for search engine bias; on most recent financial results, it would take Google around 90 minutes to work off the fine.

The investigation into Google initially began in 2012, following a complaint from dating website  Matrimony.com and social justice group Consumer Unity & Trust Society. The investigation ruled that Google abused its dominant market position around the design of Search Engine Result Page, with the team favouring commercial relationships.

“The CCI in its order noted that the allegations against Google in respect of search results essentially centred around design of Search Engine Result Page (SERP),” the CCI said in a statement.

“Exhibiting a self-imposed regulatory forbearance from scrutinizing product designs in ascertaining anti-trust violations, CCI noted in its order that product design is an important and integral dimension of competition, undue intervention in designs of SERP can affect legitimate product improvements.

“CCI further observed in its order that Google, being the gateway to the internet for a vast majority of internet users due to its dominance in the online web search market, is under an obligation to discharge its special responsibility.”

This is of course not the first time Google has found itself on the wrong side of right when it comes to antitrust watchdogs. Back in June it was fined €2.42 billion by the European Commission for bias on its comparison shopping service, Android got put in the naughty corner by authorities in Turkey in March, while it has also been under investigation in South Korea. These are only a couple of examples; Google is no stranger to the courtroom.

While action from the regulatory authorities is a positive sign, the time it took to make this decision and the amount which Google is being fined are the issue.

Firstly, five years to come to a decision is way too long. During this time Google would most likely have carried on with (now found) dodgy activities, profiting considerably off them. Google is an incredibly profitable machine and would have made hundreds of millions, if not billions, across this period. If a business practise is wrong it needs to be identified and stopped quickly. Five years is abysmal.

Secondly, the fine; it is nowhere near high enough. As mentioned before, using a crude calculation based on the total revenues brought in over the last quarter ($32.323 billion) it would take Google approximately 90 minutes to pay off the fine. If authorities want to be taken seriously they need to impose fines which are taken seriously by the guilty. $21 million is nothing to Google and is hardly going to be considered a deterrent. Right now, the CCI is looking like a very toothless watchdog.

Europe slaps Qualcomm with €1 billion fine for abusing dominance in LTE basebands

Mobile chip giant Qualcomm has been fined yet again for abusing its dominant market position, this time by the European Commission.

The precise amount of the fine is €997 million, but what’s €3 million between friends? As we have come to expect from the EC, this decision took 2.5 years to make. The investigation opened in July 2015, then escalated at the end of that year. An intriguing twist to this decision is the EC’s finding that Qualcomm directly bribed Apple, with which it is currently involved in bitter litigation, to stay loyal.

“Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance,” said Commissioner Margrethe Vestager. “Qualcomm paid billions of US dollars to a key customer, Apple, so that it would not buy from rivals. These payments were not just reductions in price – they were made on the condition that Apple would exclusively use Qualcomm’s baseband chipsets in all its iPhones and iPads.

“This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. Qualcomm’s behaviour denied consumers and other companies more choice and innovation – and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today’s decision.”

Maybe all the aggro between Qualcomm and Apple came about because Qualcomm stopped paying up. Who knows? Qualcomm has been quick to issue a public response, referring to the Apple things as “…an expired agreement between Qualcomm and Apple, which was in effect from 2011 through 2016, for the pricing of modem chips.” The litigation between the two companies kicked off in January 2017.

Qualcomm will, of course, appeal. “We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers,” said Don Rosenberg, Qualcomm General Counsel. “We have a strong case for judicial review and we will immediately commence that process.”

The other thing Qualcomm was keen to stress is that this has nothing to do with its licensing business, which is what Apple is objecting to, and has no impact on ongoing operations. That may be true but it’s hard to ignore the constant stream of negative judgements being made about Qualcomm’s business practices around the world. Investors don’t seem too bothered, with Qualcomm shares only down a percentage point on the news.

Taiwan fines Qualcomm $773 million for antitrust violations

US mobile chip giant Qualcomm has been the recipient of yet another fine for claimed anticompetitive business practices.

This time it’s Taiwan, where its Fair Trade Commission has concluded that Qualcomm abused its dominant position in the mobile chip market for at least seven years by refusing to provide products to companies that didn’t agree with its conditions. The ruling itself is currently only published in Taiwanese, so the specifics are sketchy, but it looks like Qualcomm’s dominance is being used against it.

This is part of a growing number of legal actions against Qualcomm for similar reasons. At the end of last year Korea fined Qualcomm $850 million for very similar reasons. Europe is still in the process of investigating the company, the implications of which could be far greater, and Apple is putting its considerable resources into attacking the entire premise behind Qualcomm’s licensing business model.

As with many tech-related antitrust actions, it’s clear that once a company achieves a certain level of market dominance a different set of rules apply to its behaviour. Terms and conditions that would be considered acceptable in a more competitive environment are considered illegal when used by a company that is considered to be dictating the market.

Qualcomm hadn’t returned a request for comment at time of writing but it’s reasonable to assume it will appeal. The even bigger issue at stake for Qualcomm is not just the growing cost of these fines but its very way of doing business. The licensing model means that Qualcomm doesn’t just get revenue from selling its chips (mainly modems), but also a fee for every product sold that contains them. There is a growing movement opposing that model which must have Qualcomm very concerned.

Vivendi to be fined for sneaky Italian job – report

Vivendi’s reputation as the bad boy of telecoms is set to continue as rumours emerge of a potential $300 million fine from the Italian government over the prolonged TIM saga.

It would appear the pleas from Vivendi desperately claiming innocence have not been bought by officials. According to Reuters, the Italian government will be fining the French media giant up to €300 million due to its effective control of Telecom Italia (TIM).

It was only a couple of weeks ago Consob, the Italian securities regulator, deemed the French had been stepping a bit close to the line, which some might have assumed already. Vivendi CEO Arnaud de Puyfontaine has been playing the part of the good guy more recently, but not even the French charm could win out here.

It is a slightly suspect position. Vivendi controls just under 25% of shares at TIM, but has a board full of friendlies, its own CEO currently in charge and a number of other execs holding key positions. Some might have questioned the logic of TIM’s independence considering the French influence, but this might not be a bad outcome for Vivendi.

Should the proportion of shares increase above 25%, Vivendi would have been forced to acquire the operator. However, the 24.9% position is alright for some, most notably the European Commission. With this fine, de Puyfontaine might be giving himself a little pat on the back. Business can continue as usual, and €300 million is considerably less than buying the rest of TIM. Assuming of course the rumours of the fine turn out to be true.

TIM’s market capitalization is currently $19.1 billion (according to Google Finance at the time of writing), with Vivendi owning 24.9%. Some might argue that logically for de Puyfontaine to wield his influence, assuming he is of course, at the telco he should have to acquire it. This would mean an acquisition in excess of $15 billion, even without the premium on top which you see in many such examples. Suddenly €300 million doesn’t look too bad.

Elsewhere in the big wide world of Vivendi, the bad boy of telecoms is proving to be a thorn in the side of games publisher Ubisoft. The French has chosen to abstain from voting on any resolutions at the shareholder meeting, despite pleas from the management team for support for key initiatives.

One of the issues at the centre of the storm is surrounding a compensation plan for staff including the firm giving free shares to its employees. This is not an unusual initiative for large companies to run, and is used by many to incentivise employees, though opposition from Vivendi might not be a surprise as it would dilute the stake in Ubisoft. The measure failed.

It is a different industry, but it another example of Vivendi battling for control of the boardroom. Vivendi has defended its position stating “the Ubisoft Board of Directors has completely intermingled the interests of employees with those of senior management,” while also highlighting it has not yet been invited to the boardroom despite it being the largest shareholder.

Ubisoft CEO Yves Guillemot has continually resisted the charms of Vivendi, stating Ubisoft ambitions would be better served by remaining independent of the media giant. According to Bloomberg, Guillemot believes Ubisoft can grow 15-20% a year for the foreseeable future, though this trajectory would be blighted by Vivendi, which does not understand the games publishing space.

Despite resisting the Vivendi gaze for the moment, it might not be too long before it has no choice. Vivendi’s current stake stands at 26%, though in French law, a 30% stake would force an acquisition of the company. Despite the conflict with the largest shareholder, Guillemot has proved he can do it on his own. Share price has increased more than 70% over the last 12 months, though de Puyfontaine seems to have quite a bullish nature to him. It might not be too long before this is another notch on the Vivendi bed post.