South Korea set to impose bars on Apple and Alphabet app stores

South Korea is poised to become the first country to impose curbs on the lucrative app stores run by Apple and Alphabet’s Google, risking a showdown with the Biden administration.

President Moon Jae-in’s Democratic Party used its big parliamentary majority to push out of committee a bill that would ban companies from forcing developers to use their online payment systems. The ruling party’s heft in the National Assembly suggests the Telecommunications Business Act is highly likely to pass on Monday, the next full session. 

The legislation threatens to undercut a lucrative revenue stream for two of  the largest US groups, which between them control downloads and payments for most smartphone apps. That dominance has drawn lawsuits from developers such as Epic Games, who accuse Apple and Google of charging unfairly high commissions and blocking competing services.

Apple and Google have been fighting the bill and lobbying politicians to block its passage in South Korea, which is a close US security and trading partner. It is not clear how the White House will respond, given broad efforts back home to curb the growing influence of tech companies that in past years have grown to dominate a plethora of arenas from media to commerce.

Apple and Google expressed concern over the bill on Wednesday, saying it risks limiting local developers’ business opportunities on their platforms. Apple said in a statement the proposed changes will expose users to fraud, undermine their privacy and hinder parental controls.

Global backlash

“While the law has not yet been passed, we worry that the rushed process hasn’t allowed for enough analysis of the negative affect of this legislation on Korean consumers and app developers,” said Wilson White, Google’s senior director of public policy. 

The bill was submitted last year, after Google said it would require all apps to use its payment system, charging up to a 30% commission on in-app purchases. That is a model common in other parts of the world and employed by Apple. Earlier this year, the search giant lowered commissions to 15% for the first $1m of revenue earned by developers, partly due to a global backlash.

Under the latest version, companies that operate app stores must let their users pay through a variety of systems. It stipulates that tech giants must not “abuse their status to force their users to only use specific payment methods”.

If tech giants raise their commission fees, “content companies would have no choice but to raise their prices, which will ultimately damage consumers’ interests”, the Democratic Party said. “The burden of fees would also make it more difficult for our start-ups to grow.”

The bill will prevent companies from securing a monopoly over user data, said Park Seong-ho, chair of Korea Internet Corporations Association. The legislation does not violate the US-Korea Free Trade Agreement because it does not mention specific companies, said Park, whose organisation represents local social media firms including Naver and Kakao. 

“South Korea is one of a few countries where Google, Apple and Facebook haven’t been able to fully conquer the market,” he said. “We’d be proud if this bill could affect the policies of Google and Apple.”

Bloomberg News. More stories like this are available on bloomberg.com