Google to charge smartphone makers for Google Play in Europe

BRUSSELS/SAN FRANCISCO (Reuters) - Alphabet Inc's GOOGL.O Google on Tuesday revamped how it distributes its mobile apps in the European Union, introducing a licensing fee for device makers to access its app marketplace in a response to regulators' findings that it had broken antitrust law.

The new arrangement opens doors for Google's web search and browser rivals such as Microsoft Corp MSFT.O but essentially leaves the U.S. tech giant's lucrative mobile business intact, analysts said.

The European Commission in July fined Google a record 4.34 billion euro ($5 billion) for using the market dominance of its mobile software to hinder rivals in areas such as internet search.

Google is appealing the ruling but said it is complying in the meantime with the new licensing scheme for devices launched after Oct. 29 in the European Economic Area, which comprises the 28 EU countries plus Iceland, Liechtenstein and Norway.

Samsung Electronics Co 005930.KS, Huawei Technologies Co[HWT.UL] and other device makers will have to pay Google an undisclosed amount for access to the Google Play app store. In exchange, the hardware companies no longer have to install Google search and the Google Chrome browser, though they can do so for free if they want to.

Android smartphone makers will have increased flexibility to distribute search and browser apps from Google's rivals such as Microsoft, Opera Ltd OPRA.O and Mozilla to develop devices with the operating system heavily customized.

“The new arrangement simply changes the implicit exchange of value - access to the Play store in return for preinstaling Google Search and Chrome - into an explicit one,” of license fees, said James Cordwell, a financial analyst at Atlantic Equities.

Geoff Blaber, a technology analyst at CCS Insight, said that “Google has found a way to make sure Android continues to work in its favor.”

Shares of Alphabet closed up 2.9 percent on Tuesday.

Mobile industry executives have generally thought that Europeans have little interest in devices without Google apps. But data breaches and privacy scandals involving U.S. tech companies such as Google and Facebook Inc FB.O have prompted some users to seek alternatives.

Android device makers could turn to other search engines, including lesser-known ones such as Qwant and DuckDuckGo, which tout their strict privacy practices. Both have said they were prevented from signing distribution deals with smartphone vendors in recent years because of Google’s restrictions.

Google's hardware partners also will be free to market devices in Europe that run rival versions of Android, including Inc's AMZN.O Fire OS. Such devices will not have access to the Play store though.

“We’ll be working closely with our Android partners in the coming weeks and months to transition to the new agreements,” Hiroshi Lockheimer, Google senior vice president, said in a blog post.

Amazon, Samsung and Huawei did not respond to requests to comment.

The European Commission said it is up to Google to decide how to comply with the July ruling and that the regulator will closely monitor the changes.

The commission typically lets companies tweak compliance efforts as feedback comes in from customers and rivals. Failure to end the illegal business practices can result in additional fines.

Reporting by Foo Yun Chee in Brussels and Paresh Dave in San Francisco; editing by David Goodman and Peter Henderson