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| 18 July, 2018

Google, hit with record $5bln EU antitrust fine, to appeal

Ordered to halt anti-competitive practices within 90 days

The Google logo is pictured atop an office building in Irvine, California, U.S. August 7, 2017.

The Google logo is pictured atop an office building in Irvine, California, U.S. August 7, 2017.

REUTERS/Mike Blake

BRUSSELS: EU antitrust regulators hit Google with a record 4.34 billion euro ($5 billion) fine on Wednesday and ordered it to stop using its Android mobile operating system to block rivals, a ruling which the U.S. tech company said it would appeal.

The penalty is nearly double the previous record of 2.4 billion euros which the company was ordered to pay last year over its online shopping search service.

It represents just over two weeks of revenue for Google parent Alphabet Inc and would scarcely dent its cash reserves of $102.9 billion. But it could add to a brewing trade war between Brussels and Washington.

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Alphabet said in a regulatory filing it would accrue the fine in the second quarter of 2018. 

Google Chief Executive Sundar Pichai warned that the Android business model of not charging for use of the technology or having a tightly controlled distribution model like rival Apple Inc may change as a result of the EU ruling.

"We are concerned that today's decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favour of proprietary systems over open platforms," Pichai said in a blog.

EU antitrust chief Margrethe Vestager's boss, Commission President Jean-Claude Juncker, is due to meet Trump at the White House next Wednesday in an effort to avert threatened new tariffs on EU cars amid Trump's complaints over the U.S. trade deficit.

"MORE PLAYERS"

Vestager also ordered Google to halt anti-competitive practices with smartphone makers and telecoms providers within 90 days or face additional penalties of up to 5 percent of parent Alphabet's average daily worldwide turnover.

The illegal behaviour dating back to 2011 includes forcing manufacturers to pre-install Google Search and its Chrome browser together with its Play Store of apps on their devices, paying them to pre-install only Google Search and blocking them from using rival Android systems.

"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," Vestager said.

Asked whether breaking up Google would solve the issue, a call made by a number of Google foes, she said she was not sure that was the solution.

"I don't know if it will serve the purpose of more competition to have Google broken up. What would serve competition is to have more players," Vestager told a news conference.

On concerns that Google may subsequently decide to charge for using Android, Vestager said her ruling was not related to the way the company operates.

"This is not a judgment on a business model. There is still a possibility to monetise its operating system. Revenue from its app store is quite substantial," she said.

The EU enforcer dismissed Google's argument of competition from Apple, saying the iPhone maker was not a sufficient constraint because of its higher prices and switching costs for users.

"STABLE DOOR"

Android, which runs about 80 percent of the world's smartphones according to market research firm Strategy Analytics, is the most important of a trio of antitrust cases against Google.

Some major Android device makers, including Samsung Electronics Co, Sony Corp, Lenovo Group Ltd and TCL Corp, declined to comment on the EU case.

GSMA, the global mobile operators body, welcomed the ruling, saying companies can now compete in the data economy without being constrained by platform-related bottlenecks.

Regulatory action against tech giants such as Google and Facebook, with their entrenched market power, may lack sting, said Polar Capital fund manager Ben Rogoff, who has been holding the stock since its initial public offering and is broadly neutral on Google.

"The reality is that as long as they're delivering great utility to their consumers, consumers will still use those platforms. If they do, advertisers will be drawn to those platforms, too, because the ROIs (return on investment) are very difficult to replicate anywhere else," he said.

The EU takedown of Google is six to eight years too late, with users paying the price, said Geoff Blaber of CCS Insight.

"Any action by the EU is akin to shutting the stable door after the horse has bolted," he said.

"There is a significant danger of unintended consequences that penalises the consumer. This ranges from increased fragmentation and greater app inconsistency to increases in hardware cost should Google decide to change or adapt the Android business model."

Lobbying group FairSearch, whose 2013 complaint triggered the EU investigation and whose members at the time included competitors like Oracle Corp, Nokia Oyj and Microsoft Corp, welcomed the ruling, saying it could help restore competition in mobile operating systems and apps.

A third EU case, which has not yet concluded, involves Google's AdSense product, with the company accused of blocking third parties using its product from displaying search advertisements from Google's competitors. Google denies this.

(Additional reporting by Robert-Jan Bartunek in Brussels, Eric Auchard and Simon Jessop in London, Jonathan Weber in Singapore, Paresh Dave in San Francisco and Shubham Kalia in Bengaluru; writing by Alastair Macdonald; editing by Jon Boyle and Adrian Croft) ((foo.yunchee@thomsonreuters.com; +32 2 287 6844; Reuters Messaging: foo.yunchee.thomsonreuters.com@reuters.net))