Report: Justice Department weighs Apple antitrust probe

Brief:

• Apple faces greater regulatory scrutiny as details emerge about talks among the federal government’s top antitrust authorities regarding probing the possibly anti-competitive behavior among the biggest U.S. tech companies. The U.S. Justice Department agreed to handle potential investigations into Apple and Google, while the Federal Trade Commission will scrutinize Facebook and Amazon, Reuters reported.
• It’s not clear how Apple may be targeted in an antitrust investigation, although competitors have complained about its management of the App Store. The mobile store is the sole gateway between Apple’s 900 million iPhones in current operation and the 1.8 million apps created by software developers.
• Meanwhile, the House Judiciary Committee on Monday announced a separate investigation into competition in digital markets, with plans to conduct multiple hearings and to demand more information from major tech businesses, the panel said. The committee also will consider whether current antitrust laws and enforcement efforts have kept pace with technology, per an announcement.

Insight:

Reports that the Department of Justice is considering an antitrust investigation of Apple were a surprise, given that the iPhone maker faces dozens of competitors and doesn’t have monopolistic control of the markets for smartphones, computers, tablets, smart speakers or any other hardware category. Alphabet’s Android operating system runs more than half of the smartphones in the United States, Microsoft’s Windows operating system is found on almost 90% of desktop computers and Amazon and Alphabet’s Google are stronger in the budding market for smart speakers.

However, Apple’s 47% share of the U.S. smartphone market, as measured by Counterpoint Research, gives the company a strong platform for a growing services business that threatens rivals in music and video streaming, gaming and other kinds of app development. Apple maintains a closed environment for its products as the gatekeeper of the App Store, where it can give special preference to its proprietary services while taking a cut of the revenue from competitors. Apple also can add new features to its iOS mobile operating system that eliminate the need for third-party apps like screen-time trackers.

As Apple copes with declining sales of iPhones, which make up about two-thirds of its sales, the company has ramped up its services business to generate more revenue from each iPhone owner. Those services include the App Store, Apple Pay, Apple Music, iCloud data storage and hardware warranties. But that strategy will align the company against a broader group of competitors that may complain about restrictions on access to its platforms. That group of competitors is set to grow, as Apple in March announced plans to expand its range of services with the launch of Apple TV Plus for premium video streaming, the Apple Arcade game platform and its Apple News Plus digital newsstand.

Apple’s prioritization of its own services is at the heart of an antitrust complaint by Spotify, the streaming music company that in March accused Apple of not providing a level playing field for competitors. Apple charges a 30% fee on paid app downloads and a 15% fee on subscriptions after the first year, leading several app developers and publishers to urge their customers to sign up for subscriptions outside of the App Store. Netflix last year stopped paying the so-called “Apple tax” for subscriptions to its video-streaming platform, while Epic Games is working on developing its own app store to avoid paying fees on its popular games like “Fortnite.”

Spotify faces a particular threat as Apple shifts focus to streaming music services like Apple Music, which this year overtook Spotify as the most popular streaming music platform in the United States. Apple Music charges a flat fee of $9.99 for unlimited, ad-free music streaming, the same price as Spotify’s premium plan. Both companies have benefited from the always-on accessibility of smartphones, which makes individual music purchases and downloads less of a necessity for many consumers. The growth of streaming is leading Apple to change its content-marketing strategy. While Apple has provided separate iPhone and iPad apps for music, video and podcasts for years, the company this week announced plans to split up the desktop version of iTunes into separate apps. ITunes will disappear in the next Mac operating system, but customers can still buy and download songs through the iTunes’ Music store within the Music app, CNN reported.

A possible investigation of Apple comes as the federal government scrutinizes the growing power of tech companies to influence society, including people’s voting patterns, political discussions and choices of where to shop. Dividing up antitrust responsibilities and assigning the Justice Department to an investigation of Apple makes sense, given its history with the company. The department previously won a civil case against Apple that accused the company of conspiring to fix prices on e-books. Apple had to pay $400 million to consumers. The department in 2010 reached a settlement with Apple, Google and other tech companies to resolve allegations they had agreed not to compete for each other’s employees.

The outcome of any investigations remains to be seen, and big U.S. tech companies have vast financial resources to mount vigorous defenses to protect their businesses. The industry boosted its spending on lobbying to $77.9 million last year from $16.4 million a decade earlier, according to the nonpartisan Center for Responsive Politics (CRP). Some of the spending is related to winning lucrative government contracts for cloud computing services or defense applications for artificial intelligence (AI), but tech companies also are working to shape federal policy on consumer privacy, election security and antitrust. Google parent Alphabet spent $21.7 million in 2018, while Amazon forked out $14.4 million and Facebook spent $12.6 million, per the CRP. Google and Amazon also fund nonprofit groups that participate in the public debate over antitrust, The Wall Street Journal reported.