Blue bubbles feature in Apple US antitrust case

Bill Bennett -

Earlier this month the European Commission fined Apple €1.8 billion over the way the company's App Store deals with music streaming service providers, which in practice boils down to Spotify.

Last week the US Justice Department piled on. It says Apple illegally exploits its monopoly in the phone market.

The assumption here is odd.

A questionable monopoly

Apple is arguably the world's most important phone maker. It is huge. But it is not a monopoly.

It accounts for more than half of all phones sold in the US. Depending on how you view figures it has a 55 to 60 per cent market share. Apple's installed base is a similar number.

While the Department of Justice is concerned with what goes on in the US, Apple accounts for about a third of the worldwide phone market. To put the 'monopoly' claim in perspective; Apple sells fewer phones than Samsung.

Phone market after Huawei

Ironically, the only other brand to pose a serious threat to Apple in recent years was Huawei. The US government neutered that rival. Apple didn't pass the 50 per cent market share until security fears pushed Huawei out of the picture.

In order for its action to make logical sense, the Justice Department had to jump through hoops to come up with a fresh definition of monopoly. It says Apple has 70 per cent of the US premium phone market, which is a purely arbitrary distinction. There are not two distinct phone markets.

Apple's lawyers will have fun with that one in the courtroom.

Call that a monopoly?

A generation ago the US too.antitrust action against Microsoft. At the time the company accounted for well over 90 per cent of desktop operating systems.

Microsoft's dominance was global. No one could dispute that it was a monopoly. There was no sophistic talk of 'premium desktop operating systems'.

What Microsoft did to abuse its monopoly was different too. But that's another story. Let's not get distracted.

Apple's ecosystem

The key argument against Apple is that the ecosystem that has grown up around the iPhone harms completion and innovation.

There's no question that Apple dominates and controls this ecosystem. After all, it is Apple's creation. It is how Apple competes and innovates in the phone market.

The Department of Justice points out five areas it says show how Apple stifles competition with its ecosystem. None of them are killer arguments in their own right:

  • There are no 'super-apps' like the Chinese WeChat in the Apple ecosystem.
  • Game streaming apps are restricted.
  • Non-Apple smartwatches don't integrate smoothly with the iPhone.
  • Apple's digital wallet locks out third parties.
  • Apple treats incoming text messages differently depending on whether they come from an iPhone or elsewhere.

This last issue, the green versus blue bubble debate, is surreal. The Department of Justice says Apple sells more iPhones than it otherwise might because consumers don't want the social stigma of sending messages in the wrong colour bubble.

Apple is not perfect

The Justice Department move isn't without merit.

There are issues. Apple may not have a monopoly but it certainly dominates the handset space. It also has close control over app stores and how other companies can sell products or services on the iPhone.

Apple's rival, Samsung, depends on Google for its services. That's the same Google that has a monopoly on search.

Samsung's Android-based world is hardly the epitome of openness.

Safety first

Apple’s counter argument is that its high level of control keeps consumers safe from malware and scams.

It may be true, but it is not a strong argument.

Apple's best argument is that its customers appear to be happy with the way Apple does business. Despite the red herring about the 'premium phone market' and the elimination of Huawei, Apple's customers can shop elsewhere for phones and services. Nothing forces them into Apple's walled garden.

Indeed, the things the Department of Justice.frets about, the high level of integration and Apple's control of the entire iPhone ecosystem, is a major reason why many customers choose iPhones.

Back to the Wild West?

It’s worth remembering that before Apple and the iPhone, there was a Wild West feel to large parts of the personal computing world. Malware was rife. Apple may have a huge share of the phone market, but, in general Apple users continue to face fewer of these problems than Android phone users.

Apple's customers appear to love the fact there is a benign dictatorship acting as a gatekeeper.

It’s going to be hard to prove that Apple’s way of running its.phone business is bad for consumers.

An easier line of attack is that Apple’s grip hurts many of the companies that would like to have more control over how they sell services, software, games and other things on iPhones.

And for sure, there are issues to be concerned about. But this is much trickier than when Microsoft abused its Windows monopoly.

If history is any guide, the case will drag on for years and the underlying market landscape will change significantly between now and any resolution. More to the point, the Department of Justice case doesn't appear to hold the promise of any benefits for consumers. If anything, it will make owning and using a modern smartphone worse.