08 May The Digital Adventure of Competition Law: Mobile Ecosystems Sector Inquiry Dated 13.04.2023
İçindekiler
With the announcement published on the Turkish Competition Authority's (“TCA”) website on 12.04.2023, it was announced that an sector inquiry was initiated for mobile ecosystems. Within the scope of the said inquiry; all kinds of components that make up the mobile ecosystem, such as operating systems, mobile apps and app stores, will be scrutinized and competitive concerns that may arise in each level of the relevant market will be evaluated. As stated in the announcement; as well as service providers, app developers, end consumers and device manufacturers who are users of the service will also be consulted.
Mobile Ecosystems and Competition Law
What is meant by the term mobile ecosystem is the entire chain that enables a user to receive services with internet access via their mobile smart device. This chain; starts with the mobile smart device and includes mobile operating systems, internet browser engines, internet browsers, mobile app stores and mobile apps. In this chain, which creates a vertical market structure when viewed from a competition law perspective in the classical sense, each step constitutes a separate downstream market.
With mobile technologies getting more widespread and the effects of developments that require social change at a global level, such as the Covid-19 epidemic, the share of digital services in daily life has been increasing. Naturally, the TCA has turned its focus towards digital markets. As a matter of fact, a sector inquiry regarding E-Marketplace Platforms was concluded in 2022, and a Preliminary Report was published last month in a separate inquiry with respect to the Online Advertising industry. As can be seen, the TCA is getting more acquainted with digital markets day by day and forming an opinion on the failures that occur in these markets. Indeed, the TCA, which concluded the investigation into Meta Platfoms' online advertising activities, launched a new investigation into Alphabet and Google's online advertising activities.
The Competition Authority is not the only competition authority that directs its attention to digital markets. This issue is being examined by competition authorities in many parts of the world, and sector inquiries carried out have important consequences for market players. The TCA considers that any market failure in the functioning of mobile ecosystems will have a direct impact on consumer welfare due to the important role that mobile smart devices play in internet access. Acting with this foresight, the competition authorities of many different countries have also carried out various examinations on mobile ecosystems and related sectors.
Japan Fair Trade Commission's Evaluations On Mobile Ecosystems
Japan Fair Trade Commission (“JFTC”), who conducted a sector inquiry on mobile operating systems and mobile application distribution markets, published its report on 09.02.2023[1]. Examining the stages of mobile ecosystems, JFTC included interesting data in its report. Stating that 95.3% of the population, including all age groups, use mobile smart devices daily, JFTC underlined that mobile smart devices have become a necessity for consumers.
JFTC has determined the levels of mobile ecosystems as follows:
- Native Apps: Mobile apps that can only be used on one operating system. App developers at this level are providers, while consumers are customers.
- App Stores: Platforms where native apps are offered to consumers. Those who operate app stores (predominantly Google and Apple) are providers, while consumers and app developers using these stores are customers.
- Mobile Operating Systems: These are operating systems that are developed for mobile smart devices and enable the operation of these devices. Those who provide mobile operating systems (Google and Apple) are considered as providers, while consumers and app developers using these operating systems are customers.
- Mobile Smart Devices: These are devices that have advanced information processing capability and standard phone functions as well as various functions. At this level, manufacturers, including Google and Apple, are providers, while consumers using these devices are customers.
JFTC, while examining mobile ecosystems especially focusing on Apple and Google due to their strong position in the market; has prepared specific ecosystem structures for these two digital giants in the light of the services and terms of use they offer. When Apple's mobile ecosystem is examined; it is seen that the products and services offered by Apple have been interlocked at different levels, and Apple requires the use of its own operating system (İOS) and app store (App Store) with its mobile devices (iPhone). An Apple device user can only use the iOS operating system and an iOS user can only download their apps from the App Store. In Google's ecosystem, the situation is slightly different. While the Android mobile operating system can be used in Google Pixel (a mobile smart device produced by Google), it is also used in devices of other mobile device manufacturers. An Android user can download their apps from the Google Play Store as well as benefit from third-party application stores. However, although it does not oblige users to their own products, Google ensures that its own apps and app store are pre-installed on the devices through agreements with mobile smart device manufacturers regarding the use of the Android operating system.
As can be seen, Apple and Google have key positions at different levels of the market. As a matter of fact, JFTC also conducted a market share review for mobile operating systems and app stores. In this context, apart from iOS and Android, who found to be dominating the market with market shares close to each other (Android with 53.4% in 2022 and iOS with 46.6%), competing operating systems such as Windows and BlackBerry OS have negligibly low shares. When it comes to app stores; Considering that iOS users are restricted from using an application store other than the App Store, it is seen that Apple has created a monopoly between the App Store and iOS users. From the perspective of Google Play; Although Android users are free to use third-party app stores, Google Play's market share among Android users is 82.7%.
In this context, the report by JFTC revealed that Google and Apple are in an oligopolistic structure due to their key positions and high market shares at different levels of mobile ecosystems, and therefore, there are concerns regarding competition as well as personal data security. It was emphasized that Google and Apple did not face a sufficient level of competitive pressure due to their market power. Thanks to the ecosystems they have created, the duo caused disruptions in the consumer welfare such as excessive pricing, delaying innovations and closing the market for competitors via benefiting from market failures as; (i) indirect network effects (the number of consumers using an operating system/app store increases with the number of app developers producing applications for that operating system/app store and vice versa), (ii) economies of scope (the cost of various products and services decreases when they are produced together), (iii) economies of scale (the average cost of a product falls as production increases) and the lock-in effect (lock -in effect, consumers want to stop using a product or service but are unable to do so due to switching costs and network effects). The solution proposal of JFTC to this situation was to prevent these competitive concerns by introducing new legal regulations.
UK Competition and Markets Authority's Work
The UK Competition and Markets Authority ("CMA”) has carried out a similar inquiry. CMA, who published the final version of their report on 10.07.2022[2] within mobile ecosystems, has focused on the dynamics of competition between native mobile apps (i.e. apps that can only be run by one operating system), browser engines, and app developers. In this context, it is stated that Apple and Google utilize their power and “gatekeeper” positions in these ecosystems in order to enter other related markets and restrict competition in the relevant markets. As a matter of fact, in parallel with JFTC, CMA has also emphasized that an oligopolistic ecosystem was created by Apple (offering its own services as the only option on mobile devices) and Google (preloading it products and services on mobile devices using Android).
Stating that these two big players use the advantages they have over the functionality of the devices and the app stores, especially on their own mobile devices, CMA said; it has been determined that competition is restricted via actions such as delaying innovations, imposing high commissions and closing the market. As a matter of fact, particularly in Apple’s case; it has been seen that Apple's App Store has a monopoly in native app distribution for iOS mobile devices. The same is true for internet browsers. All internet browsers for iOS mobile devices must be established on Apple's WebKit browser engine only. In addition, it has been determined that certain functions on Apple’s mobile devices are only available for its native apps. For instance, payments via the Near Field Communication (“NFC”) feature can only be done by the Apple Wallet app. As it can be seen, artificial barriers to entry are created by Apple at every stage of the mobile ecosystem.
In addition to the aforementioned barriers to entry, Google and Apple apply self-preferencing conditions for their products and services. Coercive conditions are put forward for an app developer in order to enter the app stores, which is the only way to deliver apps to the users, and in this way, the choices of the consumer are limited. At the same time, in the inquiry conducted by the CMA, it was determined that the scoring and evaluation systems for the apps in the app stores were not transparent enough, were biased, and therefore a self-preferencing was created for the native apps offered by Apple and Google. In addition, the imposition of high commission fees on third-party apps offered in Apple and Google's app stores also increases the effect of this self-preferencing.
CMA, which offers various solutions to this situation, as well as new legal regulation drafts; has also initiated investigations into the relevant sectors. As a matter of fact, two separate investigations were launched into the cloud gaming and browser engines markets and the app store payment systems markets .
German Federal Competition Authority's Examination Regarding Mobile Apps
Likewise, the German Federal Competition Authority (“Bundeskartellamt”) published its sector inquiry report for mobile apps in 2021[3]. In the said inquiry, the activities of Google and Apple, which have great power in the market with the operating systems and app stores they offer, were emphasized. In its inquiry, Bundeskartellamt focused on the data collected from users and the security of this data, but not only evaluated the control of personal data as a competitive parameter, but also made an evaluation in terms of the protection of personal data. Bundeskartellamt evaluated that Google and Apple, which have key positions in the market with their Android, iOS, Play Store and App Store services and the applications they offer, dominate most of the personal data flow thanks to these positions. In this context , Bundeskartellamt, which has identified existing and potential problems from both the GDPR (General Data Protection Regulation) and competition law perspectives, has proposed many measures in order for users to have more control over their data and to prevent the deterioration of competition in the market. These measures mainly focus around the introduction of new legal regulations.
Conclusion
As known, sector inquiries play a decisive role in the TCA’s approach towards the relevant market. As a matter of fact, investigations can be initiated based on the opinions and information collected during the examination, or new legal regulations may be created in order to eliminate the disruptions detected in the market as a result of the inquiry. For this reason, as legal advisors, we believe that it would be beneficial for undertakings if the market players cooperate with the TCA during these inquiries. In this way, players have the chance to convey the problems they experience in the market and their own solution suggestions directly to the authorities.
If you would like to receive more detailed information on this subject, we would be happy to answer your questions.
You can reach our İzmir Personal Data Lawyers to get expert legal support on the protection of your personal data or your company's personal data law compliance.
[1] https://www.jftc.go.jp/en/pressreleases/yearly-2023/February/230209.html
[2] https://www.gov.uk/cma-cases/mobile-ecosystems-market-study#final-report
[3]https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Sector%20Inquiries/Sector_Inquiry_Mobile_Apps.html?nn=11656406
