GOOG Alphabet Inc

By Sam Schechner 

The European Union's $5 billion antitrust action against Alphabet Inc.'s Google, while historic, ultimately may not prove too onerous.

The reason: Even if Google loses its appeals, novel antitrust cases in the tech sector can take so long that by the time they are decided, the alleged monopolist may already be entrenched, or the entire market has already moved on.

"There is no way antitrust can keep up with technology," said Randal C. Picker, an antitrust expert at the University of Chicago Law School. "Neither private firms nor the government know what's going to be the next great thing."

The EU's executive arm on Wednesday ruled Google for years abused the dominance of its Android operating system for mobile devices to help expand its dominant -- and lucrative -- search business from desktops onto smartphones. Google denied the EU's contentions.

The EU ordered Google to rip up agreements with phone makers and telecom firms that Brussels said gave them little choice but to pre-install Google's Chrome web browser and search engine. Those charges and changes take aim at the fastest-growing part of Google's online-advertising business: search ads on mobile phones.

Rivals hope that the decision will help level the playing field for competitors. Antitrust experts and economists, on the other hand, say it will likely prove of limited help to upstart search engines and web browsers, mainly because of the popularity and dominance of Google products.

"The main flaw of this decision is that it's so many years late. It has allowed Google to use an illegal practice to become dominant," said Nicholas Economides, an economics professor at New York University Stern School of Business.

The EU decision will likely hurt Alphabet's earnings. Analysts for JPMorgan predicted Wednesday that Alphabet will take a charge related to the fine, which will drag down its second-quarter earnings per share by 75%.

But the bank is shrugging that off as in line with expectations. It said the EU's remedies should have a limited impact on market share and revenue going forward.

There is precedent for the ambivalence.

Microsoft Corp., for instance, wrangled with the EU for the better part of a decade. While some experts say the battle changed Microsoft's corporate culture to make it too cautious, others say the EU's remedies in themselves didn't have much direct impact. In one case, the EU ordered Microsoft to sell a version of its Windows operating system for desktops without Microsoft's own media player bundled in. What slammed Microsoft, though, was the mobile revolution that shifted internet usage to mobile phones.

Intel Corp. for its part was fined EUR1.06 billion ($1.2 billion) in 2009 for seeking to squeeze out a rival, Advanced Micro Devices Inc., from the market for computer chips. But by the time Intel was forced to implement remedies -- which the EU's top court has since said should be reviewed -- it was too late for AMD, which had moved in 2008 to divest its chip-manufacturing arm.

More recently, the EU fined Google EUR2.4 billion for abusing the dominance of its search engine to favor its own product-advertising service. Google is appealing but still had to implement the EU's order to treat rival product-ad services "no less favorably" than its own. It created an auction mechanism for them to bid against Google for spots on top of search pages.

Despite that ruling, rivals, including Kelkoo Group Ltd. and Compare Group BV, have said they still struggle to get products listed on the first page of Google's search results and get little traffic from Google to their own sites. Google says it has followed letter and spirit of the EU decision.

EU competition chief Margrethe Vestager last month defended the remedy before the European Parliament, saying rival price-comparison sites were appearing in one in three product-search results on Google, compared with 15% back in March. "It is still not many, but it is many more," she said.

There is anecdotal evidence that antitrust remedies can have an impact -- if they are harsher. In Russia, for instance, search firm Yandex complained to the country's competition regulator about similar Android practices to those in the EU case. Last spring, Google agreed to ask all Android users to select a default search engine from a rotating list -- which Yandex says boosted its share of mobile searches in Russia by about 10 percentage points to 49%.

But the EU didn't make any similarly specific stipulation about how Google must comply with its order. And it has so far resisted calls from some of Google's most strident critics that the company should be broken up.

Rival search engines and browser companies were supportive of the ruling on Wednesday but not necessarily bullish on the idea that much would change for them when it comes to competing with Google.

Casey Oppenheim, co-founder of privacy firm Disconnect, which was a complainant in the EU case, said it might be too late for the remedies to make much difference. "Changing search and browsing behavior is very difficult," he said.

Write to Sam Schechner at sam.schechner@wsj.com

(END) Dow Jones Newswires

July 18, 2018 19:37 ET (23:37 GMT)

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