Apple is challenging new European Union rules that would require the company to open up the iPhone’s operating system to alternative app stores and payment platforms. The tech giant argues the rules unfairly target its business model.
EU Passed New Digital Markets Act Last Year
The conflict stems from the EU’s Digital Markets Act (DMA), sweeping new regulations passed last March aimed at curbing anti-competitive behavior by large technology platforms. The rules categorize companies like Apple and Google as “gatekeepers” that control access to key platforms.
The legislation imposes various obligations on gatekeepers to ensure fair competition. One requirement is that gatekeepers allow users to easily uninstall any pre-installed software or apps if they wish. Another rule mandates that gatekeepers refrain from using data from business users to compete against them.
Additionally, the DMA requires gatekeepers to allow app developers the choice to use alternative in-app payment systems. This poses a direct threat to Apple’s practice of forcing developers to use its proprietary payment platform for sales and subscriptions inside iOS apps.
| Key Provisions of EU’s Digital Markets Act |
|---|
| – Designates Apple, Google, Meta, and others as “gatekeepers” with significant market power that must be regulated |
| – Prohibits gatekeepers from self-preferencing their own services on platforms |
| – Requires gatekeepers to allow users to easily uninstall pre-installed software |
| – Mandates that gatekeepers enable third-party app stores and payment platforms on their operating systems |
The rules are scheduled to take effect starting in spring 2024, with violations punishable by fines of up to 10% of a company’s annual revenue.
Apple Claims Rules Unjustly Single Out Its Business
Apple contends key parts of the legislation unfairly target its hardware-operating system business model.
The company argues that the iPhone should not be classified as a “core platform service” under the DMA. Instead, Apple asserts that each individual app it offers – such as Apple Music, Apple TV, the App Store, and more – should be considered separate digital services that compete fairly against rival offerings.
Under this reasoning, Apple says mandates around third-party app stores and payment platforms are unjustified and only serve to benefit freeriding competitors.
In a September 2022 impact assessment submitted to the EU, Apple wrote:
“Targeting major platforms rather than individual apps assumes that the iPhone itself constitutes a bottleneck for app developers. However, this approach ignores the realities that the iPhone competes with many other smartphones offered by a variety of strong market players, uses an operating system that competes vigorously with Android, and the App Store faces intense competition from multiple rivals like Google Play and Amazon.”
Battle With EU Regulators Years in the Making
The fight over the DMA rules has been simmering since EU regulators first announced investigations into Apple’s App Store business model in 2020.
Competition authorities examined allegations that Apple unfairly blocks rivals by only allowing installation of software from its official iOS App Store. Critics have argued such exclusive control allows Apple to charge high commissions on app sales and subscriptions – up to 30% in some cases – with developers having no alternative platforms to turn to.
Apple has maintained that its commissions and policies are fair, and that the App Store provides developers easy access to an audience of over 1 billion iPhone and iPad users. But the company nevertheless slashed commissions to 15% for smaller developers last year in a move seen aimed at addressing EU antitrust concerns.
According to unnamed officials quoted by the MacRumors tech news site, Apple is also working on plans to potentially split the App Store into two separate apps – one focused on games, and another for all other apps. This could allow alternative payment platforms for certain app categories while preserving Apple’s commissions for others.
| Timeline of EU Investigations Into Apple App Store |
|-|
|June 2020|EU opens antitrust investigations into App Store rules|
|July 2020|Complaints filed against Apple App Store by Spotify and Match dating app owner|
|October 2022|EU tentatively approves DMA requiring third-party payment platforms|
|January 2023| Apple cuts App Store commissions for small developers|
|March 2023|EU formally passes finalized Digital Markets Act|
Nonetheless, Apple is now making a last ditch legal stand against being forced to allow alternative iOS app stores, which it argues would compromise consumer security and privacy.
The tech giant is joined in opposition against parts of the DMA by other designated gatekeepers like Facebook, Google, Amazon and Microsoft. But Apple faces some of the biggest potential impacts given the rules pose a substantial challenge to key elements of its services strategy.
Next Steps: Legal Appeal and Implementation Grind
Apple said it plans to formally ask the EU to repeal mandated interoperability requirements, such as app store choice rules, arguing they are unlawful specifically toward its business model. If its legal appeal fails, Apple is expected to pursue a drawn-out war of attrition against EU authorities on technical implementation details of the new regulations.
By taking a recalcitrant position, the iPhone maker likely hopes it can water down enforcement of some provisions or delay their rollout long enough for a friendlier legislature to eventually amend the laws.
However, EU competition czar Margrethe Vestager has shown unrelenting zeal in her years-long battle to rein in the power of Big Tech gatekeepers. She recently rejected Google’s argument that the DMA should not apply to its Play app store business model on Android phones.
With Vestager maintaining pressure, if Apple fails to succeed in repealing major facets requiring interoperability, analysts expect the company will ultimately make some concessions around App Store commissions and third-party payment systems to remain compliant. However, Apple will aim to do this in ways that minimally impact its services revenue streams, predicts Apple news site AppleInsider.
For example, Apple may try to creatively subvert the DMA’s intent by technically complying with rules about allowing third-party app stores on iOS, while making the process overly cumbersome so few developers actually go that route. The coming years promise tense legal and regulatory jousting that will shape whether Apple can preserve its lucrative App Store monopoly – or if Vestager’s war against gatekeepers finally forces the fortress walls to come down.
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