Google Fine to Escalate US-EU Tension?

Google Fine to Escalate US-EU Tension?
Google has been fined with a record €4.34 billion ($5 billion) by the European Union antitrust regulators over “serious illegal behaviour” to secure the dominance of its search engine on mobile phones. Google’s Android system runs about 80% of the world’s smartphones.

Google has been fined with a record €4.34 billion ($5 billion) by the European Union antitrust regulators over “serious illegal behaviour” to secure the dominance of its search engine on mobile phones. Google’s Android system runs about 80% of the world’s smartphones.

The record breaking fine would redirect precious US balance of payments in favour of EU which President Trump has recently referred to as a “foe.”

Background

Google LLC is an American multinational technology company that was founded in 1998 by Larry Page and Sergey Brin while they were Ph.D. students at Stanford University, in California. Google was initially funded by a contribution of $100,000 from Andy Bechtolsheim, co-founder of Sun Microsystems. They later received money from three other angel investors: Jeff Bezos, David Cheriton, and Ram Shriram.

At IPO, the company offered 19,605,052 shares at a price of $85 per share. There were concerns that Google's IPO would lead to changes in company culture. The stock performed well after the IPO, with shares hitting $350 for the first time in October 2007, primarily because of strong sales and earnings from online advertising. In 2015, Google announced plans to reorganize various interests under a conglomerate called Alphabet Inc. Upon completion, Sundar Pichai became CEO of Google, replacing Larry Page, who became CEO of Alphabet.

Alphabet declared that it made $3.5 billion in net income and saw sales of $26 billion in the second quarter of 2017.The company's rapid growth since incorporation has triggered a chain of products, acquisitions, and partnerships beyond Google's core search engine.

Google was the most valuable brand in the world in 2017, but has received significant criticism involving issues such as privacy concerns, tax avoidance, antitrust, censorship, and search neutrality. Staff members recently protested against Google’s partnership with the US Department of Defence to improve accuracy of drones.

Analysis

Google has been bundling its search engine and Chrome apps into the operating system. They have also blocked phone makers from creating devices that run forked versions, where program source code differs from a main body of code, of Android. Google also “made payments to certain large manufacturers and mobile network operators” to exclusively bundle the Google search app on handsets, according to a report.

Google’s illegal payments for app bundling ceased in 2014 after the EU began investigations. The European Commission has now pressed Google to bring its “illegal conduct to an end in an effective manner within 90 days of the decision.”

The penalty is nearly double the previous record of $2.7 billion which Google was ordered to pay in 2017 after violating the EU’s competition laws. However, with Google’s productivity and revenue generation rapidly increasing, the $5 billion fine would hardly dent the company’s cash reserves of over $100 billion.

The ruling will open the EU market for phone makers, like Samsung and Lenovo, that were earlier selling devices full of Google applications. They can now start using alternative software from the likes of Microsoft and Amazon without the device losing consumer appeal.

“Android has created more choice for everyone, not less. A vibrant ecosystem, rapid innovation, and lower prices are classic hallmarks of robust competition,” said a Google spokesperson. “We will appeal the Commission’s decision.” Google has warned that the EU’s decision may affect the free business model of Android in the future.

“Google has used Android as a vehicle to cement the dominance of its search engine” over rivals, said EU antitrust chief Margrethe Vestager. In the past, she had also ordered Apple to pay $14 billion in back taxes to Ireland, thus inciting US fury.

US duties on European automobile exports has escalated an on-going trade war. The $5 billion fine on US would redirect revenues from the US company to Europe’s treasuries. Provoked by an increasingly unstable eurozone, many lenders have sought to limit problems within national boundaries, creating a fragmented financial sector. Such measures since the 2008 financial crisis have hurt foreign firms while protecting European enterprises. As a result, accord between regulators in Europe and the US has fizzled away.

Trade history between the US and Europe is freckled with disagreements regarding the regulation of tech giants. Since the Clinton administration, US politicians have criticised the EU’s heavy-handed approach. However, EU investigations into tech company dominance arise not from US aggression, but instead from their inaction.

Counterpoint

Smartphone makers are hesitant to promote inferior alternatives. Smaller hardware firms lack the market share to significantly affect Google’s business. However, they can develop phones based on Fire OS, a version of Android customized and distributed by Amazon. Nevertheless, most heavy-weight tech enterprises are headquartered in the US, retaining the American edge over tech markets.

Assessment

Our assessment is that the record-breaking fine will adversely affect US balance of payments. We believe that this might influence negotiations concerning US duties on European automobile parts. We feel that this might provide an opportunity for Chinese mobile companies to enter European markets with “forked” Android software.

Comments