With all the renewed talk of a Sprint-T-Mobile merger in recent months, one big assumption has been that the Trump administration would view it much more favorably than the Obama administration did, and that it wouldn’t therefore be shot down this time as it was last time. However, Bloomberg reports today that the staff lawyers at the Department of Justice are mostly the same as under the previous administration, even if the leadership and presidency has changed in the interim, and that the lawyers themselves are likely to reach much the same conclusion today as then. In other words, if the deal is to be approved by the DoJ, it will likely happen over the objections and recommendations of the staff rather than with their support. That’s certainly not a deal-killer – SoftBank Chairman Masa Son has cozied up to the Trump administration on issues like job creation, and would presumably curry some favor on that basis. But this does make it more challenging for the deal to go through than many might have assumed. Last time around, the deal was called off before it even formally went through regulatory approval on the basis that it wouldn’t succeed, so I would guess that Son and others would be feeling out the regulatory authorities quietly behind the scenes again this time around to ensure smoother passage.
Qualcomm Fined $773m by Taiwan for Antitrust Violations (Oct 11, 2017)
Following existing investigations and/or action over antitrust issues against Qualcomm in the US, South Korea, and China, Taiwanese authorities have issued a $773m fine against the company over the same issues. The government’s Fair Trade Commission found that Qualcomm acted anticompetitively when it forced licensees for its standards-essential patterns to accept onerous terms as a condition of licensing. The fine relates to a 7-year period in which the FTC says Qualcomm was paid around $13 billion by Taiwanese manufacturers (presumably HTC and contract manufacturers like Foxconn). This antitrust situation is going more and more badly for Qualcomm, but the biggest outstanding case is of course its fight with Apple, which is withholding its own and contractors’ royalties from the company pending the outcome of various lawsuits. It’s hard to see this all going Qualcomm’s way at this point, and it feels like it’s mostly a question of how much the royalty rate will end up being reduced, and therefore what the financial hit will be.
This is just a quick follow-up on yesterday’s item on Google’s second proposed remedy to the finding that its Shopping search feature violates the EU’s competition laws. Google has now begun rolling out the changes that were reported but not officially confirmed by the company, and the EU’s stance is still that it will have to wait and see how the changes pan out before it rules on whether the fix is acceptable. The separation and opening up of bidding to other companies certainly leaves the door open to similar remedies in the other cases pending at the European Commission as well as other areas it may choose to investigate, including Maps, News, and so on, which would create much more far-reaching effects for Google than this change alone. It’s going to be a tough few years for Google in Europe.
After its initial proposal to address the European Commission’s concerns over its Shopping search feature apparently failed to pass muster, it appears Google is now offering to separate its Shopping search business from its core search business in the EU, and force it to bid for ten slots above the regular search results alongside other comparison shopping services. The reporting here from Bloomberg makes it sound like Google might still get more formal approval of its proposal, despite the EU Competition Commissioner’s remarks to Bloomberg last week which suggested that it would have to play things by ear. This solution will certainly seem less fishy than the first proposal, which I said had significant issues, but it’s still not clear whether it will meet the approval of either the EU or Google’s competitors. Certainly, Google is now going to have to bid for slots it previously received for free, which will dramatically change the economics of the Shopping search in the EU. But as long as Google has exclusive rights to its past data about the results from those links in the past, it will continue to have something of an unfair advantage over competitors in knowing what to bid for them in future.
Apple Wins First Small Battles in Court Against Qualcomm (Sep 22, 2017)
I haven’t seen much coverage of this today, but it appears that Apple won a first couple of small battles in its various lawsuits with Qualcomm. A California judge ruled that Apple’s supply chain partners don’t have to pay the royalties they’re currently withholding until such a time as the proper amounts to be paid have been determined, and Qualcomm was also denied its request to end the litigation being pursued separately by Apple in other countries. These are initial steps in what’s going to be a potentially long and complex set of court cases between the companies, but it’s possible that the companies will end up settling once it becomes clearer which way the legal wind is blowing, and they would then likely drop all outstanding litigation. By themselves, these first decisions aren’t indicative of which way things are going to go, but they do put increased financial pressure on Qualcomm, which has seen reported revenues drop as Apple’s partners withhold royalties, which will likely push it to move to settlement sooner rather than later, something that’s probably good news for Apple.
via Apple Insider
This seems like a totally bizarre stance from the EU’s Competition Commissioner in response to Google’s proposed remedy to its alleged abuse of its dominant market position. Google is reported to have offered an auction to fill the Shopping slot it previously occupied exclusively, and Margrethe Vestager says her office won’t approve the remedy as such, but will wait to see whether it works in the market. That’s enormously unfair as an approach because it means Google could act in good faith, believing it’s proposed an adequate remedy, only to find out much later than it hasn’t and is subject to back-dated fines. Given that the European Commission found that Google violated its rules, it should surely also be the arbiter of whether the proposed remedy fixed things or not. And allowing the comparison shopping services that prompted the investigation in the first place to be the judges instead seems particularly unreasonable given that they have a vested interest in continuing to extract concessions from Google. I said when the proposed remedy was reported last week that I thought it unlikely to be sufficient, but to leave Google in legal limbo on this point just isn’t reasonable. It gives the impression that the EU has an axe to grind with Google and wants it to suffer rather than simply providing the legal clarity it should be entitled to.
A few weeks back, when Google filed its proposed response to the European Commission’s investigation into its Shopping feature, I suggested that there were only a few ways in which it might comply with the Commission’s requirements: “kill its Shopping product entirely in the EU; relegate it to either the organic or paid slots on a page rather than giving it the current prominent placement it enjoys; or create a broader “comparison shopping” section above the regular search results featuring both its own and competing services.” In the end, it sounds like what Google has proposed is a combination of those things – allowing other comparison shopping sites to bid to appear in the Shopping section where its own results currently appear exclusively, while placing an artificial cap on its own maximum bids to avoid dominating the results after the change.
The latter highlights the unlikelihood that the solution will be palatable to Google’s competitors or the EU – either it forces itself to sit out entirely from the bidding process, or it will regularly beat out competitors. Google knows better than anyone else what placement in that slot is currently worth, because it’s the only company that’s ever occupied it, and it therefore enjoys an unfair advantage. It could therefore set arbitrary caps in line with what it thinks those slots are worth, allowing competing companies to take the slots it doesn’t want to and reserving the best for itself. Either this has to be an open marketplace, in which case Google’s massive scale will likely allow it to beat out competitors for every slot it actually wants (as the WSJ points out it already does in many cases), or Google has to be excluded. This is where I go back to the solutions I proposed – either open up the Shopping slot in a similar fashion to Microsoft’s Windows browser choice options, or do away with the feature entirely. This proposed solution seems unlikely to pass muster with the EC.
★ Google Formally Appeals EU Ruling on Shopping Search (Sep 11, 2017)
Qualcomm reported its results for the June 2017 quarter today, and revenues and profits were both down, in large part because of the various antitrust and other disputes and legal proceedings in which it’s involved. Shortfalls in revenue from Apple, several of its suppliers, and a Chinese customer each caused problems, but it also had to pay out to both BlackBerry and the Korean government over separate disputes. It’s impossible to look at Qualcomm today without noticing the massive cloud of uncertainty and potential financial liability associated with these various cases. On a non-GAAP basis, the company’s results are holding up rather better, though still not stellar. As with Samsung, its semiconductor business was an area of strength, but its core MSM chip sales continue to decline over time as the smartphone market matures, while the broader opportunity it has in CDMA and related technologies continues to grow. Meanwhile, Apple, its suppliers, and Qualcomm all filed new suits over the last couple of days in relation to their dispute, even as Qualcomm’s CEO was quoted earlier this week as saying he expected the case eventually to end in a settlement.
via Financial Times
The News Media Alliance, an industry group representing major newspapers, is beginning a push, launched with an op-ed in the Wall Street Journal from its president, to get permission from Congress to act collectively in negotiating with Facebook and Google. I’m linking here to a piece in the New York Times on the topic, but it’s from the media columnist and therefore almost as much opinion as reporting, something I’ve found with most of the stories on this, which feels a little ironic. But the thrust of both the op-ed and the opinion side of the New York Times piece is that the news industry is being lorded over by the digital giants, and that single publications or even media groups are powerless to negotiate better relationships without being able to bargain collectively. That, in turn, would be a violation of antitrust rules unless Congress were to pass legislation providing legal cover, something it seems rather unlikely to do, especially in the current political climate. The op-ed is disingenuous to say the least – this is the money quote, in my opinion: “But the two digital giants don’t employ reporters: They don’t dig through public records to uncover corruption, send correspondents into war zones, or attend last night’s game to get the highlights. They expect an economically squeezed news industry to do that costly work for them.” That feels like a distortion of the true relationship here, which is that Google and Facebook both point people to the content those people find interesting, including content from major newspapers. If those newspapers decide to make that content available for free either on their sites or through Instant Articles or AMP, that’s their decision. But that’s not nearly the same as those companies doing that work “for” Google or Facebook. While the idea that the newspapers face an imbalance of power in negotiating individually with Facebook and Google has more merit, it’s also disingenuous to argue that these two companies are somehow singlehandedly responsible for the inequitable distribution of advertising revenue between them, given their respective audience sizes and all else that ails newspapers and their business models. At the same time, it’s worth noting that Facebook is pushing ahead with its plans for subscriptions and other improvements to how it works with publishers, but publications including the New York Times continue to be skeptical of those changes, which makes one wonder just what these papers would kind of relationship with these companies the papers would find acceptable. All of this merely reinforces my sense that the companies don’t really have any solutions to propose, but in fact are angling for some kind of punitive regulatory action against these companies on the basis of their size and influence.
The EU has three open antitrust cases against Google, and has just announced its final decision in one of those cases, which concerns Google Shopping. Very briefly, EU law doesn’t punish dominance in a market per se, but does place limits on certain behavior by dominant companies, specifically those which give their other products and services an unfair advantage. The EU has concluded firstly that Google search is dominant in the EU, and secondly that Google abused that dominance by favoring its Google Shopping feature over other “comparison shopping services”. It has therefore set a €2.4 billion ($2.7bn) fine based on revenue from Google Shopping in 13 countries where it’s available since as long ago as 2008, with a threat to levy an additional 5% of Alphabet’s total revenue going forward if Google doesn’t comply with its directives within 90 days. Other than the fine, the directive says Google has to stop favoring Google Shopping over other comparison shopping services, presumably either by eliminating the Shopping box that appears at the top and merely allowing Google Shopping results to appear with the other blue links below, or by featuring every available comparison shopping service in that box at the top and letting users choose. Predictably, Google has said it feels the decision is wrong and may appeal.
On, then, to what this all means. Firstly, this is just the first in three separate cases, and I’ve previously written in depth about the one that concerns Android here and here. In its decision, the EU explicitly says that this case sets a precedent, which certainly suggests it’s likely to find and act similarly in the other two cases. Secondly, the fine is substantial, but ultimately not the biggest punishment for Google here. Rather, the most significant outcome is restrictions on promoting other Google services in search, which applies for today onto to Shopping but by implication would also affect other linked products that get prominent promotion in search results, whether Maps, News, or potentially other categories too. Put that together with the precedent point, and we’re very likely to see similar restrictions on bundling and promoting other services in Android and possibly other areas too. Thirdly, the decision is notable for a very European approach to defining markets, which I mentioned in one of those earlier pieces on Android: the EU tends to define markets in ways normal people probably wouldn’t, because that allows it to make findings that otherwise couldn’t be made. In this case, it’s defining Google Shopping as a comparison shopping service rather than just a more useful way to present shopping-related search results and/or ads, which is how Google sees them. Once you define Google Shopping in that way, then of course Google is unfairly promoting Google Shopping over other comparison shopping services – can you even name any others? Google’s own algorithm, which benefits only from being as good as possible, rarely ranks any others above the fourth page of organic search results, suggesting their limited relevance. But as long as the EU is determined to take that approach, I see very little Google can do to fight against this decision, because it’s based on a market definition the EU gets to decide on, and which Google is essentially powerless to change. Overall, this feels like something of a watershed moment in Google’s relationship with the EU – I think any appeal is very unlikely to succeed, and at most will push back the implementation of the decision and the forced unbending of Shopping from search. But there’s lots more to come here, and Google is going to end up operating very differently in the EU from the rest of the world as a result. See a recent case in Russia for a small sense of some of the possible implications of the Android case.
One quick note: I’ve used the term “EU” throughout for simplicity’s sake, but it’s worth noting that technically it’s a specific part of the EU organization, the European Commission, which is taking this action.