Photo/Illutration A sign at the headquarters of Apple Inc. in California (Daisuke Igarashi)

Japan’s Fair Trade Commission on Feb. 9 called for more competition to cut into virtual monopolies of U.S. technology giants Apple Inc. and Google LLC in operating systems (OS) and application market for smartphones.

In a report the FTC issued that day, it pointed out that there is “not enough competition” in both markets. 

It proposed that the government introduce new legislative measures to encourage competitors to enter the markets.

According to the report, Google’s Android and Apple’s iOS combined hold more than 90 percent of the market share of smartphone OS.

FTC officials also found in their study that most Android users utilize Google’s app store and all users of iOS use Apple’s app store, the report said.

The report said that once consumers started using smartphones equipped with either of the Android or iOS, they didn't switch to smartphones employing a different OS.

Therefore, what is created is the so-called “locking-in effect”--consumers are tied to the OS they currently use, the report said.

It said that financial and technological capabilities are hurdles for OS operated by companies other than Apple or Google to enter the market.

There is “not enough competitive pressure” in the market, the FTC said.

The report also said that because the two companies dominate the app store market, there is little advantage for app developers to choose app stores operated by companies other than Apple or Google.

Hence, there is not enough competition in the app store market as in the OS market, the report concluded.

The report added, “It is important to create a healthy competitive environment.”

It called on Apple and Google to allow users to download apps from app stores run by other companies or make it easier for users to switch to other OS, so that other companies will be encouraged to enter the markets.

The FTC started its study in October 2021 driven by the concern that Apple and Google were exploiting their market dominance by demanding that app developers accept unfair transactions.

The FTC conducted surveys and interviews with Google, Apple, app developers that supply their products for the two companies, and smartphone users as part of the study.

In addition to the FTC recommendations, the report listed examples of cases where Apple or Google could be in violation of the antimonopoly law.

For example, they could be violating the law if they exploit their positions as app store operators by listing their own apps as popular ones in the rankings of best-selling apps shown in their app stores, or by widely using data obtained from other companies’ apps, the report said.

However, the report pointed out that it takes time to prove that a company has breached the antimonopoly law.

Therefore, it proposed that to prevent Apple and Google from behaving so as to benefit their respective companies, the government should introduce new legislative measures, including designating what behaviors constitute a violation of the antimonopoly law.

The FTC will cooperate with the Headquarters for Digital Market Competition, which has been established within the Cabinet Secretariat, to consider how to strengthen laws, the report said.

Japan trails other countries in regulating Apple and Google.

For example, the European Union’s Digital Services Act (DSA) that the EU agreed on last year has banned technology companies from restricting the payment method for users in app stores.

The FTC intends to create a healthy competitive environment in these areas by cooperating with U.S. and European authorities.

(This article was written by Takumi Wakai and Yoshikatsu Nakajima.)

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