By Foo Yun Chee
BRUSSELS (Reuters) - European antitrust regulators fined Google a record 4.34 billion euro ($5 billion) on Wednesday and ordered it to stop using its popular Android mobile operating system to block rivals, a ruling which the U.S. tech company said it would appeal.
The penalty is nearly double the previous record of 2.4 billion euros which Google was ordered to pay last year after its online shopping search service was deemed to be unfair to competitors.
It represents just over two weeks of revenue for Google parent Alphabet (NASDAQ:GOOGL) Inc and would scarcely dent the company's cash reserves of $102.9 billion. But it could add to trade tensions between Brussels and Washington.
European Commission President Jean-Claude Juncker is due to meet U.S. President Donald Trump at the White House next Wednesday in an effort to avert Trump's threatened new tariffs on cars made in the European Union as the president looks to reduce the U.S. trade deficit.
Alphabet, which is scheduled to report financial results on Monday, said it would set aside money to pay the fine which would cut its second-quarter profit by about $5 billion. Wall Street analysts were expecting $6.8 billion in quarterly profit on average before the fine, according to Thomson Reuters data.
Alphabet shares closed flat on Wednesday after technology analysts said the EU order would do little damage to the company's long-term prospects.
CEMENTING DOMINANCE
Google's Android system, which Google lets device makers use for free, runs about 80 percent of the world's smartphones, according to market research firm Strategy Analytics.
According to the EU, Google's illegal behavior dates back to 2011 and includes forcing manufacturers to pre-install Google Search and its Chrome browser together with its Google Play app store on their Android devices, paying them to pre-install only Google Search and blocking them from using rival Android systems.
"Google has used Android as a vehicle to cement the dominance of its search engine" over rivals, EU antitrust chief Margrethe Vestager told reporters.
Google has 90 days to either halt such anti-competitive practices with smartphone makers and telecoms providers or seek a delay of the order while it appeals. Alphabet risks additional penalties of up to 5 percent of average daily global revenue for non-compliance.
Major Android smartphone makers including Samsung Electronics (KS:005930) Co, Sony Corp (T:6758), Lenovo Group Ltd and TCL Corp declined to comment on the EU case.
Google Chief Executive Sundar Pichai warned that Android may not remain free as a result of the EU ruling or it may shift to a tightly controlled distribution model like rival Apple Inc (NASDAQ:AAPL).
"We are concerned that today's decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favor of proprietary systems over open platforms," Pichai said in a blog.
The head of the U.S. Federal Trade Commission said on Wednesday he would closely review the European decision.
'STABLE DOOR'
Vestager dismissed Google's argument that it had competition from Apple, saying iPhones were not a sufficient check on Google's dominance because they cost more and require users to exert significant effort to adopt.
"What would serve competition is to have more players," she said.
Breaking up Google, a demand made by a number of Google foes, would not address the core problems, she told reporters.
GSMA, the global wireless carriers' trade body, welcomed the ruling, saying services developed by its members can now better compete with software vendors.
Small Google search competitors such as Qwant and DuckDuckGo said they now stand better chance of getting promoted by device makers.
Lobbying group FairSearch, whose 2013 complaint triggered the EU investigation and whose members at the time included competitors like Oracle Corp (NYSE:ORCL), Nokia Oyj (HE:NOKIA) and Microsoft Corp (NASDAQ:MSFT), also welcomed the ruling, saying it could help restore competition in mobile operating systems and apps.
Industry analysts described the EU order as too late to reshape the industry.
"Any action by the EU is akin to shutting the stable door after the horse has bolted," said Geoff Blaber of CCS Insight.
Polar Capital fund manager Ben Rogoff said: "The reality is that as long as they're delivering great utility to their consumers, consumers will still use those platforms," he said.
A third EU case against Google, which has not yet concluded, involves its AdSense advertising service which is accused of blocking users from displaying search advertisements from Google's competitors. Google denies this.