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[Rick VanMeter] Pro-competitive laws to benefit app consumers

By Korea Herald

Published : Oct. 27, 2022 - 16:35

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In September 2021, South Korea became the first country to pass legislation seeking to address the harmful, monopolistic app-store practices of two of the world’s most powerful companies: Apple and Google.

Fast forward just one short year, and Apple’s anti-competitive behavior appears unchanged.

Last month, Apple announced it will force developers to increase prices for applications and in-app purchases made by consumers on mobile devices in 28 countries. Of the countries affected, South Korea faces among the steepest price increases. Apple’s price increase will apply to consumers purchasing new apps, and those making in-app purchases like payments for games and new subscriptions for dating, news, music, and video streaming services. As people around the world struggle with double digit inflation and rising costs of living, Apple is adding insult to injury by arbitrarily raising prices.

These price increases were made without the input or consent of app developers, which highlights the extent of Apple’s market power. In no other industry can a business single-handedly increase the prices of another business’s products. Further, Apple’s price increase is likely to negatively affect sales for app developers who should always have the freedom to price their products and services as they see fit.

Apple maintains its dominant market power through top-down control of the mobile application ecosystem. The Apple App Store is the only way for consumers to download apps on their iOS devices -- period. That means Apple can impose terms and conditions that directly benefit the company at the expense of app developers and their customers. App developers are left with no alternatives for reaching iOS users around the world, and are therefore forced to live with Apple as a regulator and price setter.

Apple’s justification for these recent price increases is vague at best. The company’s announcement obliquely referenced a new five percent value-added tax in Vietnam, but that hardly explains a 20 percent price increase in Vietnam, let alone massive price increases in South Korea and 26 other countries.

These price increases certainly cannot be explained by competitive forces. Apple reported a record $19.6 billion in service revenue -- including App Store earnings -- during the second quarter of this year, which is a 12 percent year-to-year increase. Ultimately, this recent unilateral money grab is only possible because of the company’s unchecked monopoly power.

Without real competition in the app marketplace, Apple will continue to act with impunity, imposing terms, conditions, and prices on app developers that hurt consumers and hinder smaller companies trying to innovate and bring new products to market.

Thankfully, lawmakers and regulators around the world have taken notice and are working to stop the anti-competitive practices of tech gatekeepers – and that is particularly true in the Republic of Korea.

The Korean National Assembly led the way by amending the Telecommunications Business Act to prevent companies who dominate the app store marketplace, like Apple and Google, from forcing payment systems on app developers. Unfortunately, both companies are attempting to undermine the intention of South Korean law by imposing high fees on app developers who decide to use alternative payment solutions. It is important that Korean officials preserve the intention of their law by prohibiting this type of anticompetitive behavior.

Recent reports also indicate that Apple has been extracting excessive app store fees from developers. According to a formal complaint submitted to the Korea Fair Trade Commission by a group of Korean developers, app store operators have been imposing fees without first deducting the necessary 10 percent value-added tax from the total paid by consumers. If proven true, this would mean developers have been paying a rate of 33 percent -- three percent more than app store operators claim they charge.

Apple’s recent actions in Korea are that of a monopolistic entity which views itself as above the law.

It is imperative that Korea and governments around the world act now to stop these practices by passing and enforcing pro-competition laws on app store gatekeepers. Only then will the functioning mobile app marketplace truly benefit consumers.

Otherwise, a monopolist will always act in its own interests, even when it hurts those already suffering.

Rick VanMeter

Rick VanMeter is executive director of the Coalition for App Fairness. -- Ed.