Federal Report Criticizes Mobile App Ecosystem and Calls for New Regulation

On February 1, 2023, the Department of Commerce released a report, Competition in the Mobile App Ecosystem, which follows a lengthy inquiry kicked off by President Biden’s 2021 Executive Order on Promoting Competition in the American Economy. The Executive Order called for a study of the mobile app ecosystem and made recommendations for improving competition, reducing barriers to entry, and maximizing the benefits for consumers. The National Telecommunications and Information Administration (NTIA) led the work on this report, starting with a request for comment in April 2022.

The report is one piece of a broader government effort to examine digital platforms and competition online. NTIA’s report expresses skepticism about competition in the mobile app ecosystem, and provides several recommendations for policymakers to consider that would address application management by digital platforms, operating system providers, and phone manufacturers.

First, the report focuses primarily on the Apple and Google app ecosystems, finding that competition is inherently limited in several key attributes of app store functionality. The report discusses the significant barriers that exist to creating alternative methods of application distribution, outside of the Apple and Google mobile app stores. The report also cites various restrictions placed on apps by Apple and Google that create barriers for developers. This includes the lack of interoperability between Apple and Google’s main operating systems and how pre-installation leads to extremely limited options for distribution outside the default apps and proprietary mobile app stores.

Second, the report is generally skeptical of the claimed benefit of functionality requirements and curated app stores. The report discusses how a mobile environment open to more developers and innovations may foster more competition among apps along multiple areas of quality, including privacy and security. At the same time, the report is somewhat skeptical of “sideloading”—which allows a user to install an app and bypass the app store—and asserts that the practice creates security risk. The report seems to endorse previous draft legislation that would address competition in the mobile app market, expressing optimism that the legislation could “improve both openness and security, while compromising neither.”

Third, the report addresses a variety of issues around payment structures and anti-steering provisions or commission fees, citing the various burdens associated with in-app purchase requirements. This includes allegations about the collection of “sensitive commercial data” that curators purportedly can use to develop their own apps to compete with services being offered in the app store. The report also laments the inability of developers to create competitive digital wallets or other contactless payment solutions for iOS.

Finally, the report offers various recommendations to increase competition and innovation. The report urges Congress to increase resources to support the work of antitrust enforcement by the Department of Justice and the Federal Trade Commission, but the report also recommends that Congress take the following measures to promote competition:

• Limit pre-installed, default options and anticompetitive self-preferencing;
• Limit or prohibit anticompetitive restrictions and conditions on sideloading, alternative mobile app stores, browsers, and web apps;
• Address limits on in-app purchasing;
• Improve transparency and fairness for app developers in the mobile app store screening and review processes; and
• Encourage tools and standards to increase interoperability and reduce developer costs.

Despite these calls for Congress and relevant agencies to take steps to increase competition, the report highlights that “the need for security is obvious and pressing, and it is clear that maintaining acceptable levels of security on mobile devices operating systems is not a small or simple task.”

Though the report may be unlikely to spur legislation, the report seems intended to impact ongoing policy debates, regulatory and enforcement action, and perhaps even pending litigation involving the app developers, curators of app stores, and others. The mobile application ecosystem may want to heed some of the report’s comments about security, and pay particular attention to any efforts to reduce security protections around app stores.