Meta accused of failing to comply with EU antitrust rules

Investors remain on the sidelines amid a broad sell-off in tech stocks this year. Shares of Facebook’s parent company Meta have fallen more than 30% this year amid a troubling macroeconomic environment and weaker-than-expected results.

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Facebook’s parent company Meta was accused by EU regulators on Monday of failing to comply with landmark antitrust rules over its recently launched ad-supported social networking site.

The Commission has described the ad-supported subscription option as a “pay or consent” model – meaning users must either pay to use Meta’s ad-free platforms or consent to the processing of their data to personalize ads. The service was launched for Facebook and Instagram in Europe last year.

“The Commission’s preliminary position is that this binary choice forces users to consent to the combination of their personal data and does not provide them with a less personalized but equivalent version of Meta’s social networks,” regulators said in a statement on Monday.

A Meta spokesperson told CNBC in a statement that its ad-supported subscription model “follows the guidance of Europe’s highest court and is compliant with the DMA.”

“We look forward to continuing constructive dialogue with the European Commission to conclude this investigation,” the spokesman added.

Meta introduced the new model in response to a ruling last year by the European Court of Justice, the EU’s highest court, that the company can offer an “alternative” version of its service that does not involve collecting data for advertising.

Meta has previously cited this ruling as the reason for introducing a subscription offer.

In its statement on Monday, the Commission said Meta’s ad-supported offering does not comply with the DMA for two key reasons. First, it does not allow users to choose a service that uses less personal data but is still equivalent to a service based on “personalized ads.”

Regulators said users should still have the right to “access an equivalent service that uses less of their personal data, in this case to personalize ads.”

Another reason given by the EU is that Meta’s ad-supported service does not allow users to exercise their right to “consent” to the use of their personal data to target them with online advertising.

The EU’s Digital Markets Act, or DMA, officially became enforceable in March of this year. The law aims to clamp down on anti-competitive practices by big digital companies, as well as forcing them to open up some of their services to competitors.

Companies can face potentially huge fines under the DMA, potentially costing as much as 10% of their annual global revenue. This figure can rise to 20% for repeat violations.

In Meta’s case, if the Commission’s final findings found it had violated the DMA, it could face penalties of up to $13.4 billion, based on the company’s 2023 annual profits.

After receiving the EU’s preliminary findings, Meta now has a chance to defend itself in writing.

The Commission’s inquiry, which was launched in March along with two other investigations into tech giants Apple and Alphabet, will end within 12 months of its initiation.