FTC starts probe on Google’s OS maneuvers

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FTC starts probe on Google’s OS maneuvers

Korea’s antitrust agency is investigating whether Google blocked Samsung from developing its own mobile operating system, reigniting an issue that first surfaced six years ago.

The investigation is expected to have a global impact considering that other smartphone manufacturers here and abroad, including LG Electronics, have made similar agreements with Google as Samsung did.

In a recent report submitted to the National Assembly, the Fair Trade Commission said it is currently investigating whether Google limited competition of the mobile OS market in light of new facts that have emerged and a changed market situation since its last decision.

In 2011, Google and Samsung Electronics signed a mobile application distribution agreement (MADA). That same year, the two leading Korean Web portals Naver and Daum (which was later acquired by Kakao) filed a complaint with the FTC claiming that Google forced smartphone manufacturers to pre-load its apps on the home screen of phones, including a default search engine, in exchange for use of the Android OS system for free. The Korean companies claimed that was meant to limit competition.

After investigating for two years, the FTC cleared Google on grounds that the manufacturers installed Google apps out of necessity and that there was no evidence of Google enforcing its powers to limit competition. Additionally, the FTC said it saw no major impact on the market as Naver dominated the local search engine market with a market share of 70 percent at the time.

However, that situation changed in May after the Mobile Application Distribution Agreement between Google and Samsung was disclosed. In the contract, the Korean smartphone maker agreed to load Google’s software package consisting of 12 apps, including its search engine, YouTube and Gmail on the main screen.

It also showed that Samsung signed a so-called anti-fragmentation agreement that prohibited it from developing a new operating system using Android’s algorithm.

During a National Assembly audit, an opposition lawmaker from the Democratic Party, Jeon Hae-cheol, said the Korean antitrust agency should reinvestigate if this was bullying by Google.

“Because of the contract Google’s mobile search engine market share has risen, exceeding that of Daum Kakao,” Jeon said during the audit. “It shows the connection between Google’s mobile market share and competition limitation.”

FTC commissioner Chung Jae-chan responded that the antitrust agency will review the case. He added that Google was cleared in its last decision because the investigators found it difficult to prove that the contract was forced on the smartphone manufacturers.

If the Korean antitrust agency concludes that Google forced the contract on the manufacturer to ensure its dominance of the mobile market and therefore unfairly limit competition, the FTC could force Google to change its business practices or levy a fine.

In December, the Korean FTC slapped its heaviest fine ever on San Diego-based smartphone chip developer Qualcomm, amounting to over 1 trillion won ($851 million), for violating antitrust laws.

Google has been under investigation by antitrust agencies in other countries. The European Commission in a preliminary decision in April concluded that Google abused its market dominance by imposing terms on smartphone manufacturers. Russia slapped a $6.8 million fine on the company in August for violating its antitrust laws and adversely affected its local technology company Yandex.

Google made an agreement with the U.S. FTC to change its business practices in 2013.

However, some market analysts said it won’t be easy for the FTC to penalize Google if the contract was signed with the consent of both parties.

“In the case of the U.S., even if there’s an agreement made between the two parties that have signed the agreement, [the U.S. authority] could still regulate the action when it considers it an act of monopoly,” said Lee Joon-gil, a senior adviser at the law firm Jipyong.

“In the case of Korea, even if the contract is deemed unfair, it is difficult to regulate if the two parties have consented to the terms.”

According to an IT industry official who requested anonymity, Samsung started to develop its own operating system based on Android 10 years ago but stopped development since it signed the contract with Google.

Industry sources say it is difficult for smartphone manufacturers to deny Google’s request considering the dominance of the Android OS on smartphones.

As of January, Google’s operating system has an 81.5 percent share of the local mobile market.

Google’s market share in the local search engine market has been rising rapidly in recent years, threatening the dominance of Naver.

Google’s search engine market share, which was under 10 percent a couple of years ago, has surged to 37 percent largely on the use of smartphones that runs on Android OS. That knocking Daum from second place and reduced Naver’s market share to 50 percent, according to a recent report by Search Monitor.

Samsung has been trying to develop its own OS system Tizen and has implemented it in some of its smartphones including the Z1, which was introduced in January 2015 and follow up model Z3. Samsung is reportedly preparing for the launch of Tizen 4.0, whose beta version will be introduced in June. The official version is scheduled to be introduced in September.

BY LEE HO-JEONG, KIM DO-NYUN [lee.hojeong@joongang.co.kr]
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