Google faces stiff fines over conduct in Russia

By bne IntelliNews September 15, 2015

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Russia's Federal Anti-Monopoly Service (FAS) has found Google guilty of violating anti-monopoly legislation by pre-installing its applications on mobile devices, and will impose a stiff penalty on the company, the watchdog said. The news triggered a stock value surge for rival Russian search engine Yandex, which had complained about the US internet giant.

The FAS ruled that Google breached laws on protection of competition, Vladimir Kudryavtsev, head of the FAS information technologies department, told RIA Novosti news agency on September 14.

Google's anticompetitive practices on the Russian market can cost the company 1-15% of its 2014 revenues from its Russia business, FAS said. The company earned $66bn in total last year, including RUB18bn ($270mn) by its Russian division, which means the fines may exceed the equivalent of $40mn.

The FAS will determine the exact amount and what additional actions Google will have to take within the next 10 days. The judgement could also mean that Yandex will be able to bite off a significant share of Google's business in Russia, especially in the local mobile search sector.

The Russian company complained to the FAS in February about Google's requirement to pre-install its search engine as the default one on Android mobile devices, and the way it gave Google application icons preferential placement on smartphone screens. According to Yandex, that made it impossible for the three smartphone vendors in Russia - Fly, Explay and Prestige - to pre-install the Yandex search engine on their devices.

Scrutiny growing internationally

Meanwhile, fines incurred by Google stand to be still greater in India, where the company came under investigation earlier in September over alleged meddling with search results. According to a report by the Competition Commission of India (CCI), Google unfairly ranked its own websites above its rivals and placed the more generously sponsored links above other websites being searched. 

So far 30 internet majors, including Facebook and Flipkart, Nokia's maps division, joined the complaint and are ready to testify against Google India. If found guilty, Google will reportedly face penalties equal to 10% of its total revenues for 2014. This would potentially lump another $6bn on top of the anticipated heavy fines Google faces under an ongoing antitrust investigation in Europe.

The US company has been under scrutiny of EU watchdogs since 2013 for allegedly abusing its dominance in the European market and squeezing out smaller players. Microsoft, TripAdvisor, Streetmap and others have all made antitrust allegations against Google.

Google loss is Yandex's theoretical gain

The combined broadside of fines by international anti-monopoly watchdogs could cost the company a significant market share in Russia, where Yandex is ready to take up any sudden slack.  

Google enjoys a 90% market share in Europe, according to data from StatCenter, while it is second in Russia to Yandex, which holds a 57% share of the search market. However, the dynamics of recent months show that Google is hot on the leader's heels and gaining: Yandex has been steadily losing customers since its user base peaked in October 2014, while Google's share grew from 29.9% in late 2014 to 35.2% in August 2015, according to Liveinternet.

Yandex is also losing ground on the browser front, as Chrome is the most popular browser in Russia and in the mobile search segment. Yandex's search share on Android devices has been in free fall since the end of last year, when Google amended the terms of its mobile services license for producers of mobile devices.

The intervention of the FAS has so far been good news for the Russian company, which surged 12% in its NASDAQ stock value during September 14 trading, though it corrected by 0.8% on MICEX.

According to the Svyaznoi mobile retailer, the share of Android devices on the Russian market is 85%, which means the Russian mobile sector is heavily dominated by Google. However, in January-May 2015, the share of Windows Phone OS doubled y/y and reached 8%, becoming the second most popular mobile platform on the local market - another promising sign for Yandex as Nokia smartphones in Russia come with a pre-installed Yandex search engine. Additionally, in July, Microsoft and Yandex agreed the pre-installment of app on all Lumia smartphones.

Theoretically, if Google's pressure on phone producers is lifted, Yandex will be able to again strike deals with manufacturers to pre-install its search apps and boost its search share on Android devices, Sberbank CIB analysts said in a note. "However, it will be important to see what exactly the FAS will require from Google, as this will determine the ultimate impact on Yandex's search share and valuation," the note said.

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