European Union regulators have slapped Alphabet-owned Google with a record 4.34 billion euro ($5 billion) antitrust fine for abusing the dominance of its Android mobile operating system, which is by far the most popular smartphone OS in the world.
Google said in a statement that it would appeal the ruling, arguing against the EU's view that its software is restrictive of fair competition.
European officials say Google's parent company has unfairly favored its own services by forcing smartphone makers to pre-install Google apps Chrome and Search in a bundle with its app store, Play. It also said Google violated competition rules by paying phone makers to exclusively pre-install Google search on their devices and preventing them from selling phones that run other modified, or "forked," versions of Android.
The European Commission, the EU's executive body, ordered the company to put an end to illegal conduct within 90 days, or else face additional charges of up to 5 percent of Alphabet's average daily worldwide revenue. The EU fine is the largest ever issued to Google, which last year was served with a $2.7 billion penalty for favoring its shopping service over competitors.
In its decision, the EU pointed to Apple, Google's fiercest competitor in the smartphone market, saying the smartphone maker did "not sufficiently constrain" Google. Apple also pre-installs a number of apps on its iPhone models.
The ruling was issued to protect European consumers, EU Commissioner for competition Margrethe Vestager told CNBC. “They have products that we all like and like to use,” she said. “The only thing we don’t like is when they get to misuse their success and put in place illegal restrictions.”
Following the fine, "the thing that Google has to do now is, of course, to stop,” Vestager said.
In a blog post, Google's CEO, Sundar Pichai, wrote that the commission ignored "the fact that Android phones compete with iOS phones," adding that the decision did not consider the choice Android offers to phone makers, mobile network operators, app developers and consumers.
He also defended the company's app bundling, arguing it's easy for users to install alternatives if they don't want to use Google's pre-installed options. The EU decision, he said, could "upset the careful balance" Google has with Android. The company lets phone makers use the open source software for free, but generates advertising revenue when consumers use its apps.
Google's advertising business is growing much faster on mobile than desktop, and by bundling its apps together, Google has more real estate to sells its ads as well as more data about users for targeting those ads.
Alphabet shares were down less than 1 percent midmorning Wednesday amid news of the fine, which could have been as high as $11 billion, or 10 percent of Alphabet's annual global revenue, according to EU regulation guidelines. The EU first opened its investigation into Android in 2015, two years after receiving a complaint from FairSearch, which, at the time, included the likes of Microsoft and Nokia.
In a news conference on Wednesday, Margrethe Vestager, the EU's competition commissioner, reiterated the argument presented in the decision.
“Our decision stops Google from controlling which search and browser apps manufacturers can pre-install on Android devices or which Android operating system they can adopt,” she said.
The commission is still investigating a third antitrust case against Google's search advertising service, AdSense.