For Apple, the EU is a cash sinkhole

The European Union is now a costly headache for Apple.

Just this week, the world’s largest company lost its appeal over a €13 billion tax bill. It was fined €1.8 billion in March over app store rules. And it’s got three investigations that could see it fined for not complying with the EU’s Digital Markets Act (DMA) requirements.

Apple’s main focus this week was the launch of its splashy new iPhone “built for Apple Intelligence,” which promises to use AI to write messages, create a movie and make restaurant bookings.

But not in the European Union, where “regulatory uncertainties” mean the company won’t roll out the feature.

One high-profile iPhone user, Competition Commissioner Margrethe Vestager, wasn’t disappointed, saying in June that she was “quite relieved that I would not get an AI-updated service on my iPhone.”

Apple fans see it differently: “Should we buy the device out of the EU?” asked one on X. That won’t work; Apple said the AI features won’t function in the EU or if your phone is set to an EU country.

Making concessions

Apple was one tech giant that used to play the Brussels game smoothly, skirting the antitrust and regulatory trouble that plagued other Big Tech firms. It made concessions to calm probes over music downloads and e-books.

And although Apple did settle an antitrust probe into its phone payments earlier this year and last year added an EU-mandated charging port it had previously opposed, those were only one part of what Vestager this week called a “mixed bag.” She had previously criticized the company for leaving a “sad aftertaste of illegal behavior.”

Apple’s biggest regulatory woes focus on its app store. It has morphed from a device manufacturer into an app platform that generated $383 billion in revenue in its fiscal year ending September 2023. It draws about a quarter of its massive revenue from Europe.

It now sells services and takes a cut of services offered by other developers that sell their apps on Apple’s store. Apple argues that it guarantees the security and functionality of those apps; some developers call this fee an unfair “Apple tax,” which they want regulators and courts to curb.

The EU is one of several enforcers that have scrutinized how Apple sets rules for app developers that sell on its platform. But it has moved further in outlawing some practices via the DMA.

Apple lobbied hard and unsuccessfully against a DMA provision that banned side-loading, the practice of adding a new app store to a device to let customers install software that wasn’t on Apple’s own store. It argued that this would make iPhones less safe by making it easier for cybercriminals to sneak their programs onto phones.

Under pressure

The company has nevertheless moved to comply with the new EU rules. It drafted a compliance plan earlier this year, hitting back at criticism of that in March by explaining that its engineers “were basically forced to kind of draw on a blank slate” when coming up with new business terms.

Relentless criticism from developers that Apple may not have gone far enough has since pushed the company to make several tweaks to its terms and conditions in recent months.

“They’re definitely under pressure, otherwise they wouldn’t be making those changes,” said Francisco Jeronimo, vice president of devices in Europe, the Middle East and Africa at market research group IDC.

Apple spokesperson Julien Trosdorf said the company will “continue to constructively engage with the European Commission.”

“Throughout the past months, we’ve demonstrated flexibility and responsiveness to the European Commission and developers, listening and incorporating their feedback,” he said.

Vestager, triumphant over a surprise win over Apple’s tax affairs, could afford to be conciliatory this week: “We work with companies in order for them to be compliant. We don’t work against a company.”

There’s still plenty of friction possible ahead with Apple challenging the Commission’s fine and DMA enforcement in the courts even as it wrangles with regulators over how to comply with the law and how its services can meet the new legal standard.

“There will be a balance between what EU wants and what Apple believes to be the best experience and the safest experience to end users,” Jeronimo said.

“The question is, will it get to a point where Apple will say, ‘We will not launch it in EU because the requirements from the European Commission are unreasonable?'”