Compatible iPhones

US govt lawsuit can open up the ecosystem

The US Department of Justice (DoJ) has just filed an antitrust lawsuit targeting Apple and more specifically the iPhone and Apple’s marketing practices centred on that iconic device. Around 58 per cent of Apple’s revenues is contributed by the iPhone.

The lawsuit follows on the heels of antitrust action taken against the consumer electronics giant’s app store in the European Union (EU). If it succeeds, it could fundamentally alter practices in the smartphone market. The DoJ was joined by 16 state attorneys general in a lawsuit filed in New Jersey last Thursday. The suit accuses Apple of maintaining a monopoly. The iPhone holds a 65 per cent share in the US smartphone market by revenue and around 20 per cent in the global smartphone market. The DoJ alleges Apple deliberately avoided making the iPhone and the iOS ecosystem compatible with third-party apps, products, and services that would make it easier for users to switch from the iPhone to other smartphones, or to integrate other devices with Apple devices, thus leading to lower costs for consumers and developers.

The DoJ estimates “Apple’s anticompetitive conduct has benefited its shareholders — to over $77 billion in stock buybacks in its 2023 financial year alone — at a great cost to consumers”. The European Commission had earlier acted on a complaint by music-streamer Spotify and forced Apple to allow third-party app stores in the EU.
 

But this lawsuit is broader. It cites many examples of how Apple has allegedly blocked competition. It has restricted “super apps” with multi-functionalities across e-commerce, food delivery, financial services, and social networking. It has limited the availability of Cloud-gaming apps that can be played without expensive hardware, it has prevented third-party smartwatches from accessing key iPhone functions, and it has denied access to digital wallets that work across smartphone platforms.

The suit cites internal communications to buttress claims the company was aware its policies would discourage competition. The DoJ says this has especially harmed the market for other “performance” smartphones, defined as those with “higher quality cameras, better battery life, wireless charging, and advanced biometrics such as face scanning”. The suit also says Apple’s much-touted focus on privacy is selective, and claims it “selectively compromises privacy and security interests when doing so is in Apple’s own financial interest”. For example, text messages from iPhones to Androids are unencrypted despite the fact that these could easily be encrypted.
 

One major challenge for the DoJ is that it is hard to tell what alternative products and services may have developed if Apple’s policies had been less restrictive. However, it may be able to compare relative consumer experience from other markets where iPhones are not so dominant. If the DoJ wins what is likely to be a bitterly contested lawsuit, remedial actions could have a wide range. The most drastic would be breaking up Apple’s business verticals into different companies.

More likely, it would force policy changes regarding the listing of super apps and Cloud-streaming gaming apps on its app store, as well as allowing third-party messaging, smartwatches, and digital wallets to work unencumbered with Apple devices. This would put competitors on a par, potentially reducing the popularity of Facetime, or impacting the sales of the premium Apple Watch. It may also spark innovation and bring down costs. Consumers would certainly benefit in the long run from a more competitive environment and ecosystem.