Google could face Android antitrust investigation in Europe, after Microsoft complains

Google(s goog) may find itself in trouble for bundling key applications in its lineup with the Android operating system, after a lobbying group including Microsoft(s msft), Nokia(s nok) and others complained to the European Commission over the practice.

The Microsoft-led group, called FairSearch, was already behind a previous (and as yet unresolved) complaint to the Commission over Google’s search practices, in particular its alleged tendency to rank Google services higher than those of rivals. However, Nokia (the handset maker) and Oracle(s orcl) (the anti-Android litigator) joined FairSearch last September, indicating that the fight would be further extended to the mobile sphere.

That has now happened. According to a FairSearch statement on Tuesday, “Google uses deceptive conduct to lock out competition in mobile”. The main issue at play here is the way in which Google bundles its suite of services with Android: if a phone manufacturer wants to build an Android phone that includes consumer favorites such as Maps or YouTube, the manufacturer is then also obliged to “pre-load an entire suite of Google mobile services and to give them prominent default placement on the phone”, the complaint states.

The other issue is that of Google’s distribution method. FairSearch characterizes the giving-away of Android as “predatory” and “below-cost”, arguing that it “makes it difficult for other providers of operating systems to recoup investments in competing with Google’s dominant mobile platform”.

According to FairSearch counsel Thomas Vinje:

“Google is using its Android mobile operating system as a ‘Trojan Horse’ to deceive partners, monopolize the mobile marketplace, and control consumer data. We are asking the Commission to move quickly and decisively to protect competition and innovation in this critical market. Failure to act will only embolden Google to repeat its desktop abuses of dominance as consumers increasingly turn to a mobile platform dominated by Google’s Android operating system.”

So far, Google’s only response has been to say: “We continue to work cooperatively with the European Commission.” Meanwhile, a New York Times interview with EU Competition Commissioner Joaquín Almunia suggests that European antitrust officials had already been looking into Android separately from their long-running Google desktop search investigation.

Is there a case here?

The fundamental concept in antitrust regulation is that of market dominance – if the target of the regulation doesn’t dominate the market in a way that potentially lets them stunt competition, regulators can’t hold them back, as that would mean distorting the market unnecessarily. That’s why I don’t believe anything will come of complaints made over Apple(s aapl)’s carrier contract terms, for example – iOS devices don’t actually dominate their market.

The case for Android dominating the smartphone market, though, is much stronger. We’re not talking about the levels of dominance Google enjoys in desktop search – there, it owns just under 90 percent of the market – but, as FairSearch has noted, around 70 percent of smartphones shipped worldwide at the end of 2012 carried Android. That is a lot, but does it amount to market dominance?

There are three main problems with this theory. The first is that iOS, while not dominant, is very strong; much stronger than OS X was as a rival to Windows when Microsoft (oh, the irony) got hit with a $794 million EU antitrust fine for bundling Windows Media Player with its OS. Indeed, in the EU, iOS has a market share of around 25 percent, and Android has a market share of just over 60 percent (the 70 percent figure quoted by FairSearch is weighted somewhat by the high numbers of Android phones being shipped to developing countries).

Secondly, it is viable to fork Android and forego the standard Google suite. Amazon(s amzn) has done just that with its Kindle Fire range of tablets, which is doing just fine. In China, Baidu has done the same, replacing the Google suite with its own services. In Russia, Yandex is also developing its own set of rivals to Google’s services, although its strategy is more a case of piggybacking on standard Android than of rip-out-and-replace – in itself, this demonstrates that rival services can get a chance on Android, particularly if the operator rolling out the phone is keen.

Finally, this is a market in constant flux. Android’s rise has certainly been meteoric, but there is a chance that some alternative, whether it be Firefox OS or a Kindle phone or a de-Googlified Samsung OS, will stop it in its tracks. Microsoft and Nokia would certainly have something to gain from straitjacketing Google in the near future, as they want Windows Phone to succeed, but the regulators may be queasy at the thought of interfering in an already tumultuous scene.

In short, this one is complicated. Whatever happens, though, it’s a formal complaint, so the EU will be forced to acknowledge it and decide whether or not to launch a formal investigation.

Anything else?

Glad you asked! Almunia also dropped a few interesting tidbits in that NYT interview about the Google search case. He insisted that the Commission wouldn’t require Google to change its ranking algorithms, but he did say Google would need to start more clearly identifying results that link to its own services.

“Maybe we will ask Google to signal what are the relevant options, alternative options, in the way they present the results,” he suggested.

According to Almunia, Google will submit proposals this week about settling the investigation. In the U.S., the Federal Trade Commission (FTC) has already concluded a similar investigation without any major crackdown on Google, but that will not necessarily influence the Commission’s thinking, particularly as Google has a greater share of the European search market than it does in the U.S.