This Is How the European Union Declared War on Apple

Apple faces a potentially hefty fine and may have to open up its mobile payments system to competitors after EU antitrust regulators accused the iPhone maker of restricting competitors' access to its technology used in mobile wallets.

It is the latest development in a long-running saga between the European Union and the iPhone maker that began shortly after music streaming giant Spotify filed a complaint with the European Commission in 2019, accusing Apple of enforcing App Store rules and violating competition rules.

Last April, the European Union dealt a severe blow to Apple, after members of the European Parliament voted by a majority to enact new legislation to require all electronic device companies, including Apple, to use a USB-C charging port.

The European Commission has long been a thorn in the side of big tech companies, with Silicon Valley companies accused on several occasions of antitrust violations and fined billions of dollars.

 

Antitrust

After nearly a year of investigations, the European Commission concluded in a preliminary report published on May 02, 2022, that the tech company Apple has exploited its dominant position in the mobile payment market and deprived its competitors of using its ‘pay and go’ payment system.

According to Bloomberg, no deadline has been set for the investigation process, but if Apple is found guilty of anti-competition in the European Union, it will have to correct its practices or face fines of up to 10% of its annual revenue, which amounted to about $365 billion in 2021, that is, the fine may reach approximately $36.6 billion.

The Commission said Apple's anti-competitive practices date back to 2015 when Apple Pay was launched.

Apple Pay is the only mobile payment method that can access NFC (Near Field Communication) technology built into iPhones or iPads to exchange data needed for contactless payments in stores or online, according to the Commission.

Apple only allows its payment system to use the NFC-enabled chip in iPhone devices, which hinders the use of the tech by many applications such as PayPal and Cash App, and payment services from Samsung and Google.

The Commission stressed that Apple's behavior has an exclusionary effect on competitors and stifles innovation, leaving consumers who use a cell phone wallet on iPhones, which represent a third of smartphones used in Europe, with few options.

On its part, EU antitrust chief Margrethe Vestager said in a statement on May 02 that “Apple has built a closed system around its hardware and its iOS operating system, controls the gates of that system, and sets the rules of the game for anyone who wants to reach consumers using Apple devices.”

“We have evidence that Apple has unfairly restricted third-party access to key tech needed to develop competing mobile wallet solutions on Apple devices,” she said.

 

Apple Pay

In a statement to Reuters, Apple justified the access restrictions it imposes out of its keenness to ensure the security of its customers.

However, EU antitrust chief Margrethe Vestager stressed that the Commission's investigation did not reveal evidence that security risks would increase if access was granted to third parties.

Apple also said her approach to mobile wallets could anger major banks in Europe, some of which have sought better deals to access Apple Pay.

The US company emphasized that it gives all banks equal access to the payment system, with 2,500 banks in Europe connected to it, as well as smaller fintech companies and rival banks.

Apple disclosed that it designed Apple Pay to provide an easy and secure way for users to make their payments digitally, and to allow banks and other financial institutions to offer contactless payments to their customers.

It announced that it will continue to cooperate with the Commission to ensure that European consumers have access to the payment option of their choice within a secure environment.

The NFC payment service has been a great success, especially during the spread of the Covid-19 epidemic, as it ensures that nothing is touched.

According to some analysts, the great demand for the Apple Store and the services available in it gave the US company an edge over competitors.

But Apple set certain prices for the use of its tech by third parties, and it also contributed to forcing third parties to use its tech, according to Reuters, which put the company under a microscope.

It is noteworthy that, four decades after its initial public offering, the value of Apple in the market reached $1 trillion in 2018, but the value of the company is now three times that.

In the same context, Apple announced its intention to make its iPhone a direct machine for financial payments, as the company's interest in this sector comes at a time when the total global mobile payments market is expected to reach $6.3 billion by 2028.

According to a study by Vantage Market Research, a leading US market research and business consultancy, published on May 03, the global mobile payments market reached $1.7 billion in 2021.

It is noteworthy that the size of the electronic wallets market on the mobile phone is growing annually by 20%, and it is expected to reach $400 billion in 2027.

 

Big Tech's Dominance

The Apple Pay investigation was one of two cases the European Commission opened in June 2020 against Apple.

However, the decision to step up investigations comes weeks after the European Union approved sweeping new rules to rein in how US tech giants operate in the region.

The measures are aimed at tackling abusive business practices by big tech companies that use their dominance in one region to dominate neighboring markets, in addition to addressing weak policies in removing illegal content from the websites and services of Internet companies and social media.

Last year, antitrust charges were brought against Apple in response to complaints from Spotify and others about a 30 percent commission charged by the US company on in-app purchases, a case still under review.

It comes on the heels of the European Union's 2016 decision to burden Apple with a record $13.7 billion tax bill, which is the subject of a pending lawsuit after the company's successful appeal in a different court in the European Union.

Google has also been fined billions of dollars for using its search engine dominance, Android mobile operating system, and ad services to outsmart competitors.

Amazon is under investigation over allegations that it is violating the dominance of its shopping service to harm merchants who rely on its website to reach customers.

Facebook is also under investigation, accused of anti-competitive practices related to its control of the social media market.

 

Severe Blow

According to a statement posted on the EU website on April 20, 2022, a majority of MEPs supported a decision to enact new legislation requiring all manufacturers of electronic devices, including Apple, to use a USB-C charging port.

The electronics intended in the European decision include digital cameras, smartphones, tablets, personal computers, headphones, gaming consoles, and portable speakers, regardless of the manufacturer.

However, the European Parliament excluded products that are small in size and cannot use a USB-C charging port, such as smartwatches and fitness equipment.

The new bill will reduce e-waste, address product sustainability, and make the use of various devices more convenient, according to the statement.

The initial approval of the new European decision is a severe blow to Apple, which uses a different Lightning Port charging port on a number of its portable smart devices such as the iPhone and iPad.

Apple had expressly objected to this decision at the beginning, in early January 2020, the US company said that “the European Parliament's effort to unify the charging output between all electronics will hinder creativity and innovation.”

According to a study by Copenhagen Economics, the decision to switch to a shared charger will cause harm to consumers and cost them at least 1.5 billion euros, which outweighs the 13 million euros in environmental benefits associated with it.