Apple, Google mobile dominance faces tough test in South Korea

A man uses his phone along a pedestrianised shopping area of Seoul. The Telecommunications Business Act would mandate giving users a free choice of app payment providers. — AFP

South Korea is expected to become the first country to pass a law ending Apple and Google’s domination of payments on their mobile platforms, setting a potentially radical precedent for their lucrative app store operations everywhere from India to the US.

Apple Inc and Alphabet Inc’s Google, the effective duopoly controlling most of the world’s smartphones, face a raft of legislative measures in the US rebuking their “gatekeeper control” and urging a curb on their power to dictate terms on app marketplaces. Both charge a fee of typically 30% on purchases made through their stores and exclude alternative payment handlers, arguing this protects users from fraud and privacy invasion.

Now, South Korea’s government is taking direct action to end that dominance. The Telecommunications Business Act would mandate giving users a free choice of app payment providers. The bill, which is almost certain to pass an assembly vote Monday given the ruling party’s super-majority, opens the door for companies like Fortnite maker Epic Games Inc to transact directly with users and bypass the platform owner’s charges. Epic has taken the iOS and Android owners to court in various jurisdictions arguing their fees are unfair.

“This could presage similar actions elsewhere,” said Omdia analyst Guillermo Escofet, who specialises in digital consumer platforms. “Regulators, lawmakers and litigators in North America and Europe are also scrutinising app-store billing rules, and the overriding political mood has become hostile to the enormous amount of power concentrated in the hands of the tech giants.”

Korean lawmakers are making their move ahead of plans by Google to introduce its 30% commission fee in October, reversing a years-long exemption for the country. Its announcement last year it would make its payment system mandatory for non-gaming apps is widely seen as the trigger for the new legislation – dubbed locally the anti-Google law.

The controversy over commissions goes to the heart of how Apple and Google sustain a dominance that’s endured since the start of the global smartphone era over a decade ago. Apple settled a wide-ranging class-action lawsuit with US app makers Thursday, but without agreeing to major changes to its policies.

The revenue streams in question are central to profit growth for both Apple and Google. The iPhone maker’s App Store feeds broader efforts to grow income from services and subscriptions, producing around US$20bil (RM83.41bil) annually, according to Sensor Tower. Google’s Android is booming in user numbers as India’s population gets online with the help of mobile devices, and app fees are a key way the company monetises its otherwise free software.

The ramifications extend beyond just the US$142bil (RM592.21bil) world of apps. The confrontation strikes at the fundamental role played not only by Apple and Google but also Inc and Facebook Inc as the new gatekeepers of the digital economy. Over a decade, all four companies have built up vast online marketplaces on which their rivals do business.

Korea remains one of the few arenas where local players such as Naver Corp and Kakao Corp hold sway, though they’re under threat: YouTube this year became the nation’s top video service, for instance, edging out Naver.

Lawmakers now echo their US counterparts in saying the absence of competition exposes consumers and developers to the whims of the duo. In India, startup founders have been especially vocal about getting shut out.

“The mood has changed over the past couple of years,” said Kim Dohyeon, business professor at Kookmin University and director at Korea’s Startup Alliance. “The in-app billing system creates a big barrier to entry for startups that are not generating profits.”

Developers in the country have earned more than 8.55 trillion won (RM30.62bil) to date on the App Store, Apple said. Sales of mobile apps and content were around 7.5 trillion won (RM26.86bil) last year and are projected to increase by 21% to 9.1 trillion won (RM34.38bil) this year, according to the Korea Mobile Internet Business Association. Google handled about 67% of those through its Android operating system, Apple did 22% across its iPhones and iPads and the rest came via local operator SK Telecom Co’s One Store.

Google has described the legislative process in South Korea as rushed, while Apple has said the provisions will undermine parental controls, privacy and trust. It’s unclear how the White House will respond, given efforts back home to curb the sprawling influence of tech companies.

Apple and Google have been lobbying politicians to block its passage in South Korea, which is an American ally and trading partner. But some officials have sought to play down concerns.

“Adjustments can be made in executing the policy,” Korea Communications Commission Chairman Han Sang-hyuk told reporters Thursday. “We are fully aware of the concerns of Apple and Google, so we will implement them in consideration of both industry stakeholders and users.” – Bloomberg

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