EU digital and competition chief Margrethe Vestager is homing in on one of Apple’s growing sources of revenue: the App Store.
The European Commission on Friday denounced how Apple’s rules for app developers give Apple Music an unfair advantage over rival music streaming services, in an assault on the iPhone maker’s business model. The case started after a complaint from Spotify.
Apple “abused its dominant position for the distribution of music streaming apps through its App Store,” the Commission concluded in its preliminary view after its 10-month investigation.
“Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store,” Vestager said. “Apple deprives users of cheaper music-streaming choices and distorts competition.”
It is Vestager’s second big battle with the Silicon Valley giant. In a landmark state-aid case, the EU General Court last year overruled an EU order for Ireland to recover over €13 billion in unpaid taxes from Apple. Vestager has appealed that ruling to Europe’s highest court.
Apple’s disputed practices include charging high commission fees on each transaction of rivals in the App Store and preventing rivals from informing customers of alternative subscription options.
“Apple’s devices and software form a ‘closed ecosystem’ in which Apple controls every aspect of the user experience for iPhones and iPads,” the commission said. The App Store is “the sole gateway” to iPhone or iPad users, it said.
The “statement of objections” from the Commission is the next procedural step in a case that started with a 2019 complaint from music streaming service Spotify. Apple now has the opportunity to respond to the charges, which could lead to settlement negotiations or the Commission pushing ahead with a fine and an order to change practices.
There is a lot at stake for Apple as the case could impact what it earns on thousands of other apps. Apple this week announced record services revenue, a category that includes App Store fees and has in the past decade become the company’s No. 2 source of income, after iPhones.
Apple denies any wrongdoing and argues that Spotify’s claim that it was harmed by the App Store policies is hard to square with its success. “At the core of this case is Spotify’s demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows,” an Apple spokesperson said.
Spotify Chief Legal Officer Horacio Gutierrez called the Commission’s charges “a critical step toward holding Apple accountable for its anticompetitive behavior, ensuring meaningful choice for all consumers and a level playing field for app developers.”
Vestager’s proposed fixes will be under particular scrutiny, after previous cases against Google failed to bring back competition in the markets, despite more than €8 billion in penalties. Spotify’s success suggests a bigger chance to maintain some competition in the music streaming market, but the case also applies to more vulnerable rivals such as Deezer and Soundcloud.
If Apple ends up using the playbook Google used in its response to the Commission’s decision about its shopping service, it will be careful not to make any concessions beyond the narrow market of music streaming services.
The Commission last year simultaneously started two other investigations into Apple’s App Store, one concerning e-books and audiobooks, and the other on competing apps in Games and iCloud. It also opened a separate investigation into Apple Pay.
“This is not the last case that we will have when it comes to the App Store,” Vestager told reporters on Friday.
EU lawmakers criticized the slow pace of the Apple investigation, saying it demonstrated the need to push ahead with new rules on gatekeepers.
“It took years for EU competition authorities to get their act together in the first place,” MEP Markus Ferber said in a statement. “Apple’s competitors have had to take the hit in the meantime.”
The Commission’s proposal for a Digital Markets Act is currently being reviewed by the European Parliament and EU countries. Evidence gathered in probes like the one on Apple could inform the EU on how exactly to word the new rules and how to enforce them.
This article has been updated.
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