On Monday, the European Union imposed its first antitrust fine on Apple, amounting to nearly €1.84 billion ($2 billion). Apple received its first-ever penalty from the EU for violating competition rules by unfairly favouring its own music streaming service.
Apple also limited rivals like Spotify’s access to its App Store and informing users about alternative, cheaper subscription methods outside of iPhone apps.
The fine consisted of a base amount of 40 million euros, along with an additional 1.8 billion euros imposed as a deterrent. The European Commission justified augmenting the basic fine with a lump sum of €1.8 billion ($1.95 billion) to deter future antitrust law violations by Apple and other prominent tech companies.
"If you are a dominant company and engage in illegal activities, there will be consequences," stated European Competition Commissioner Margrethe Vestager, highlighting that the basic fine alone was a mere "parking ticket" for Apple. Vestager emphasised that the total fine of 1.84 billion euros equates to 0.5% of Apple's worldwide revenue.
Margrethe Vestager said “ European Users were Left in dark”
In a News Conference in Brussels, Margrethe Vestager, the EU’s competition commissioner, said, “This is illegal. And it has impacted millions of European consumers who were not able to make a free choice as to where, how and at what price to buy music streaming subscriptions.”
"Millions of European music streaming users were left in the dark about all available options," Vestager told a press conference.
For a decade, Apple's conduct led to "millions of people paying two, three euros more per month for their music streaming service than they would have otherwise," she noted.
"And Apple's anti-steering rules also made consumers pay more for such services because of the high commission fee imposed on developers and passed on to consumers."
The 1.8 billion-euro ($1.95 billion) fine marks the climax of a protracted and acrimonious rivalry between Apple and Spotify for dominance in the music streaming industry.
Apple’s Response
Apple responded that the European Commission’s decision had been reached despite “its failure to uncover any credible evidence of consumer harm, and ignores the realities of a market that is thriving, competitive, and growing fast.”
Apple said, "The primary advocate for this decision, and the biggest beneficiary, is Spotify, a company based in Stockholm, Sweden. Spotify has the largest music streaming app in the world, and has met with the European Commission more than 65 times during this investigation.”
“Ironically, in the name of competition, today’s decision just cements the dominant position of a successful European company that is the digital music market’s runaway leader,” Apple said.
The company stated it would challenge the decision, and a verdict from the Luxembourg-based General Court, Europe's second-highest judicial body, is expected to be delivered in several years.
During this period, Apple is obliged to pay the fine and adhere to the EU directive. Apple shares were down 3.2% at $173.88 on Monday afternoon.
Spotify Praised the ruling
Spotify welcomed the EU fine but didn't address Apple's accusations.
Spotify said, "And while we are pleased that this case delivers some justice, it does not solve Apple's bad behaviour towards developers beyond music streaming in other markets around the world.”
Spotify states that Apple is "among the largest vendors of smartphones" and highlights that its smartphone operating system is "the sole means to provide our app to iPhone users."
The Company added, “This decision sends a powerful message — no company, not even a monopoly like Apple, can wield power abusively to control how other companies interact with their customers.”
EU Commission’s’ Investigation
The dispute began five years ago when the Swedish streaming service filed a complaint, sparking the investigation that ultimately resulted in the hefty penalty.
Initially, the commission's investigation focused on two main concerns. One was Apple's practice of compelling app developers selling digital content to utilize its in-house payment system, which imposes a 30% commission on all subscriptions. These fees have become a significant revenue stream for Apple's services division, contributing to its $85 billion revenue in the company's last fiscal year ending in September.
Ongoing legal and regulatory developments in both the U.S. and Europe, which threaten to diminish Apple's App Store commissions, have been exerting pressure on the company's stock. So far this year, Apple's shares have declined by 9%, contrasting with the 8% gain seen in the tech-driven Nasdaq composite index. In Monday's U.S. trading session, Apple's shares fell by 2.5%.
However, the EU later shifted its focus to examine how Apple restricts app makers from informing their users about cheaper payment options for subscriptions that bypass the app.
The investigation revealed that Apple prohibited streaming services from informing users about alternative subscription costs outside of their apps, preventing them from including links within their apps to pay for subscriptions elsewhere or even emailing users about different pricing options.
The fine coincides with the impending implementation of new EU regulations aimed at preventing tech giants from monopolizing digital markets. The Digital Markets Act, scheduled to come into force on Thursday, imposes a series of obligations and restrictions on "gatekeeper" companies like Apple, Meta, Google parent Alphabet, and TikTok parent ByteDance, with the threat of substantial fines.
The EU has been at the forefront of global initiatives to rein in Big Tech, with Google facing fines exceeding 8 billion euros and Meta being charged with distorting the online classified ad sector. Additionally, Amazon was compelled to alter its business practices.
This isn't the only repercussion Apple may encounter; it is currently working to resolve a separate EU antitrust inquiry into its mobile payments service by committing to opening up its tap-and-go mobile payment system to competitors.
Apple has already outlined its plans for compliance, which include allowing iPhone users in Europe to access app stores other than its own and permitting developers to offer alternative payment systems.
Vestager cautioned that the commission would closely monitor Apple's adherence to the new regulations, emphasizing the need for Apple to open up its ecosystem to enable users to easily discover, pay for, and use apps on any device they choose.
(Inputs from other Agencies)
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