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Android phones may become much more expensive thanks to Google's $5 billion fine from the EU

July 19,2018 17:10

There's a strong chance that Android phones are about to become more expensive. That's because Google was fined $5 billion by the European Union and told to stop bundling its Search and Chrome apps on Android. Google offers Android free and ...


One of the main reasons Android fans really love their phones is that they are cheap.
A host of flagship phones are on offer from well-known phone makers, such as Samsung, and most are cheaper than the newest iPhone.
That may be about to change, however, thanks to the European Union's competition watchdog's decision to fine Google $5 billion for abusing its dominance in mobile. The European Commission said Google had to stop its practices found to be anticompetitive within 90 days or face more fines.
"It's possible this might actually make phones more expensive, depending on how Google decides to comply with the decision," the University of Leeds law professor Pinar Akman said.
Akman has been involved in a previous case involving Google and the EU, conducting some research commissioned by Google, but was not involved in the Android case.
The potential impact of the commission's fine on Android boils down to two issues: the fact that Google offers Android free and the fact it makes most of its money through search advertising. It also hinges on the fact that Android is the dominant mobile software, with more than 2 billion active devices.
Phone makers can license Android free, reducing software costs and passing those savings on to consumers with cheaper phones. But a key problem, according to the EU, is that Google also requires manufacturers to preinstall Google apps such as Search and the Chrome browser to access the Play app store, which is essential to the Android ecosystem.
Google's Play app store is essential for Android.
GoogleThe commission noted that Google made most of its money from search ads, so forcing phone makers to preinstall its search app is one way to ensure it keeps making money from an operating system that is freely available.
"Because Google provides Android for free," Akman said, it must "make money from somewhere else. One of the main ways Google makes money out of Android is from traffic from Google Search."
Search is indeed crucial to Google's profitability. According to the company's earnings for the first three months of 2018, Google made $31 billion in revenue. Some $27 billion of that came from ads.
Google/SECNow the commission has ruled Google has to alter or end its contracts with phone makers that require bundling its apps. That should leave manufacturers free to ditch Google's search app in favor of their own products or rival offerings.
Google couldn't ever guarantee that Android users would use its app as their search service of choice. But now that looks even more uncertain, and one way to make up for lost revenue would be to charge for its hugely popular operating system.
Akman said doing that would "increase costs for manufacturers, and then lead to an increase in price for handsets."
But she added that Google "may find different ways of complying." She didn't elaborate, saying it was difficult to guess the different outcomes because the European Commission hadn't yet published its full decision, which would lay out its legal position and remedies.
Google CEO Sundar Pichai said the company had spent billions developing and maintaining Android.
Kim White/MSNBCGoogle CEO Sundar Pichai hinted at the possibility of charging phone makers for Android.
In a blog post contesting the commission's fine, he pointedly wrote that Google had chosen to offer Android free but that there were "costs" involved in maintaining the software.
"Google has invested billions of dollars over the last decade to make Android what it is today," he wrote. "This investment makes sense for us because we can offer phone makers the option of pre-loading a suite of popular Google apps (such as Search, Chrome, Play, Maps and Gmail), some of which generate revenue for us."
He added: "This means that we earn revenue only if our apps are installed, and if people choose to use our apps instead of the rival apps."
It isn't clear what the outcome will be. Google has said it will fight the commission's decision, but if it doesn't comply within 90 days, it faces considerable ongoing penalties.

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