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Apple said the latest investigation by the European Commission is “advancing baseless complaints from a handful of companies” in the EU. Photo: Agence France-Presse

Apple faces twin attack as EU probes App Store and Apple Pay

  • The investigation is the latest in a growing list of EU inquiries into Silicon Valley’s major technology companies
  • In 2016, the EU’s antitrust regulators ruled that Apple pay US$14.7 billion in back taxes in Ireland

Apple faces a two-pronged attack from European Union antitrust chief Margrethe Vestager amid concerns the US technology giant’s App Store and Apple Pay services squeeze developers and potential rivals.

Just four years after hitting Apple with a record-breaking tax bill, Vestager has switched her attention to the iPhone maker’s market power.

The EU will review whether Apple’s App Store violates competition law by requiring developers to accept a 30 per cent commission for every sale on the company’s platform. Watchdogs will also examine how Apple limits “tap-and-go” functionality to its own Apple Pay product.

“It appears that Apple obtained a ‘gatekeeper’ role when it comes to the distribution of apps and content to users of Apple’s popular devices,” Vestager said in a statement on Tuesday. “We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books.”

European Commission antitrust chief Margrethe Vestager says the investigation seeks to ensure Apple’s rules does not distort competition in the EU. Photo: Reuters

The investigation is the latest in a growing list of EU inquiries into Silicon Valley, which have led to criticism from US President Donald Trump. The EU last year wrapped up nearly a decade of inquiries into Google that racked up some US$9 billion in fines. An investigation into is set to escalate in the coming weeks.

Apple said that the EU is responding to complaints from rivals that “simply want a free ride, and don’t want to play by the same rules as everyone else”.

“It’s disappointing the European Commission is advancing baseless complaints from a handful of companies,” Apple said in a statement. “At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment.”

Apple-supported study says App Store spurs US$519 billion in sales

Apple is already fighting Vestager’s 2016 order to repay Ireland 13 billion euros (US$14.7 billion) in unpaid taxes. Chief executive Tim Cook called Vestager’s decision “political crap” in a longer battle over how digital giants should be taxed in Europe.

The latest EU inquiry targets a strategic area for company, which has gradually shifted focus from hardware to subscription-based services like Apple TV and Apple Music in search for other revenue streams. For the 2019 financial year ending September 28, 2019, revenues for Apple’s services grew 16 per cent to US$46.3 billion, but these were still a fraction of its overall sales of US$260.2 billion.

Apple said it welcomes competition on its App Store. The company said other apps it competes with, including on television and podcasts, are also available on its platform. The iPhone giant said developers have earned more than US$120 billion around the world from selling digital goods and services in apps distributed by Apple’s online store.

EU plans tech reboot to help it bounce back from coronavirus crisis, compete better with US and China

Regulators are separately wrestling with how to act against online giants that critics say run a rigged game when they set the rules for platforms that also host their rivals. New laws on how online platforms should treat the companies they host will enter into force on July 1.

Spotify Technology last year complained that Apple unfairly squeezes its music streaming service with ever-changing rules and a large cut of sales on the App Store. Such behaviour gives an unfair advantage to Apple’s own service Apple Music, it alleged.

Spotify said the EU announcement made it “a good day for consumers” and called on the EU “to act with urgency to ensure fair competition on the iOS platform for all participants in the digital economy”, according to an emailed statement from Spotify’s top lawyer, Horacio Gutierrez, referring to Apple’s operating system for mobile devices.

An Apple iPhone is shown with the Apple Pay app displayed on its screen. Photo: Reuters

The EU said it was also acting on a complaint filed in March from an e-book and audiobook provider it did not name. The Financial Times reported earlier on Tuesday that Rakuten’s Kobo unit complained to the EU.

The App Store investigation will also examine Apple’s curbs on developers telling users of other payment methods which may be cheaper, the EU said. Apple and Google also face a growing backlash against the toll they charge outside developers for using their app stores.

The Apple Pay investigation will scrutinise Apple’s terms and conditions for how Apple Pay is integrated into merchant apps and websites that run on the company’s smartphones and tablets, saying these might distort competition and reduce choice and innovation. Apple Pay is the only mobile payment solution that can use so-called near-field communication technology for contactless payments in stores, it said.