Apple becomes the first target of new EU digital competition rules targeting big tech

The Rulebook, also known as the DMA, is a sweeping set of rules designed to prevent technology gatekeepers from cornering digital markets under the threat of heavy financial penalties. The commission launched its first round of investigations after the law went into effect in March, including a separate ongoing investigation into whether Apple is doing enough to allow iPhone users to easily change their web browsers, as well as other matters involving Google and Meta.

Apple is under pressure on both sides of the Atlantic to remove some of the competitive barriers surrounding its lucrative iPhone franchise.

The US Department of Justice filed a wide-ranging antitrust lawsuit against Apple this year, accusing it of illegally monopolizing the smartphone market and eliminating competitors, stifling innovation and artificially maintaining high prices. By the time this case was filed, Apple had already started complying with a US court order allowing links to alternative payment systems in iPhone apps, but the judge expressed frustration with the company’s approach and indicated that changes might be required.

App developers like Spotify have for years complained about Apple’s requirement that subscriptions can only be purchased through iOS apps, which allows the company to collect a commission of up to 30%. These complaints culminated in European regulators fining Apple $2 billion for unfairly favoring its music streaming service over Spotify and other competitors.

Under DMA regulations, app developers must be able to inform customers about cheaper purchasing options and direct them to these offers.

The commission, the bloc’s executive arm, said App Store rules “prevent app developers from freely directing consumers to alternative channels for offers and content.”

Apple now has a chance to respond to the findings. The Commission must make a final decision on Apple’s compliance by March 2025. The company could face penalties of up to 10% of its global revenues, which could amount to billions of euros, or daily fines.

Regulatory tensions led Apple to recently raise the specter of excluding the European market from a suite of new artificial intelligence features coming to iPhones because the company believes the new rules in the region are too burdensome.

However, the European Commission is putting pressure on Apple, while launching a new investigation into the contractual terms offered to app developers.

Regulators focused on the 50 euro cents (54 cents) “core technology fee” that Apple currently charges developers whenever their apps are downloaded and installed from outside the Apple App Store. The DMA rules pave the way for alternative app stores to provide consumers with more choice.

The commission said the new terms constitute “a condition of access to certain new features made available by the DMA.” Rivals have criticized the fee, saying it will discourage many existing free apps that pay no fees from switching providers.

“We are concerned that Apple’s new business model makes it too difficult for app developers to operate in alternative markets and reach end users with iOS,” European Competition Commissioner Margrethe Vestager said on social media.

Apple Inc. said it had “made a number of changes to comply with DMA requirements over the past few months in response to feedback from developers and the European Commission.”

“We are confident that our plan is legal and estimate that more than 99% of developers would pay Apple the same or lower fees under the new business terms we have created,” the company said in a statement. “All developers doing business in the EU on the App Store have the opportunity to take advantage of the features we have introduced, including the ability to direct app users online to make purchases at very competitive prices.”

The company said it “will continue to listen to and cooperate with the committee.”

Since 2020, the EU has conducted a similar investigation into whether Apple’s in-app purchase system and restrictions violate Brussels antitrust rules. However, “to avoid multiple investigations into the same conduct,” the inquiry will end and focus on a DMA investigation that clearly outlines what Apple cannot do, the commission said Monday.