Clock ticking on Google as $2.7 billion fine takes bite out of earnings

Parent company Alphabet has yet to lodge an appeal against the EU’s penalty.

Kelly Fiveash – Jul 25, 2017 8:43 am | 74

Credit: Gerard Julien/AFP/Getty Images

Google’s parent company Alphabet has—with relative ease—gulped down the record €2.4 billion ($2.7 billion) fine slapped on the ad giant by the antitrust wing of the European Commission in June, following a long-running probe of Google’s abuse of dominance in Europe’s search market.

On Monday, Alphabet reported second quarter net income of $3.52 billion—down 28 percent from the same period a year ago—due to what it said was “the impact of the $2.7 billion European Commission (EC) fine.” Alphabet shares barely wobbled, however, following the Q2 results, which saw sales climb to $26 billion, up 21 percent year-on-year, while earnings per share stood at $5.01.

Google is yet to confirm whether it plans to appeal against the penalty, which Brussels’ competition chief, Margrethe Vestager, meted out to the company after she concluded that it had breached EU rules “by promoting its own comparison shopping service in its search results, and demoting those of competitors.”

Ars understands that, prior to Google being lumped with the fine—which it was privately expecting—the ad giant had weakened its rhetoric about appealing against the commission’s decision. And it’s still not clear which way Google will jump.

Notably, the case isn’t bubble wrapped away from the rest of Google’s vast online estate. Besides from the “illegal” price comparison conduct, Google faces two preliminary charges of abuse from the commission relating to its Android operating system and AdSense, both of which are still being investigated by Brussels’ competition officials. In its prohibition decision in June, the commission said that each case has “specific characteristics” that need to be examined.

But it’s possible that Google could be attempting to table a remedy offer that addresses all of the cases currently on Vestager’s desk. Whichever move the company makes next, it is subject to tight time constraints.

On the day of the €2.42 billion fine, it was given just 90 days to end its strategy of—as the commission described it—“systematically” applying “prominent placement to its own comparison shopping services” over those of its rivals in that market, such as British vertical search price comparison site Foundem—the firm that first brought its complaint to Brussels in 2009.

Foundem co-founders Adam and Shivaun Raff.

That standoff period expires on September 28, but a threatened fine—on top of the €2.42 billion penalty—of up to 5 percent of the average daily worldwide turnover of Alphabet “for each day of non-compliance” won’t immediately be slapped on Google.

“If Google doesn’t comply with its obligations under the decision, it would be subject to a penalty. That would have to be established in a separate commission decision,” Vestager’s office said. Such fines would be “backdated from the date of that decision to when the non-compliance started.”

Google didn’t respond to our request for comment at time of publication. Vestager’s spokesperson told Ars: “We have nothing new to report” when quizzed on the status of the Android and AdSense investigations.

Now read our long explainer on the lengthy Google versus Europe anti-monopoly battle, and why it will run and run.