FOCUS: Truce with antitrust shows Google’s interest in Russia, inspires Yandex

By Yekaterina Yezhova

MOSCOW, May 2 (PRIME) -- Google has smoked the peace pipe with the Russian antitrust watchdog to end a two-year court haggling by pledging to mend all breaches and pay all the fines. The agreement, sounding more disciplinary than amicable, still proves the U.S. company’s intention to thrive on the local turf, analysts said, with its archrival Yandex likely to see fruit no sooner than in several months.

“We managed to find a balance between the necessity to develop the Android ecosystem and interests of third party developers to promote their mobile applications and services on Android-based devices. The settlement will have a positive effect on the market as a whole, while giving developers additional options to promote their products,” head of the antimonopoly authority Igor Artemyev said in a statement after the deal on April 17.

Following an investigation initiated by Yandex, the Federal Antimonopoly Service found Google guilty in September 2015 of abusing its dominance by banning device manufacturers from preinstalling similar applications by other developers. As a result, preinstallation, the most effective channel to distribute applications, was fully reserved by Google.

The U.S. giant also imposed certain conditions on manufacturers to install its Google Play application store together with its other programs with the Google search engine set as a default one.

The antimonopoly service issued a warrant ordering Google to exclude anticompetitive clauses from contracts with manufacturers and fined the U.S. company with 438 million rubles and its two units with 1 million rubles more. Two courts sided with the authority in response to Google’s protest.

The company offered the antimonopoly service to settle the matter amicably, and the authority signed the deal for six years and nine months, obliging Google to abandon exclusivity of its applications on Android devices in Russia, to agree not to limit preinstallation of other competing search services and applications, including on the main screen by default, not to stimulate preinstallation of Google as the only search engine and to respect third party’s rights to offer their search engines.

For the devices already in use, Google will create an active “window of choice” for Chrome, which will show a list of available search engines by default after an upgrade. For new devices, Google will create a new Chrome widget with the “window of choice”.

“This makes the application preinstallation channel on mobile devices open for application developers who will get equal rights and opportunities to access the devices on the territory of the Russian Federation… Users will be able to change settings at any time and choose the default search engine which suits their needs,” the antimonopoly service said in the statement.

Search engines can initiate talks with Google to be added to the “window of choice” in 2018 within 60 days after the deal. Local Internet giant Mail.Ru Group has already offered its search engine.

Alpari senior analyst Roman Tkachuk thinks Google made the right decision with the truce from the point of view of government relations, because further harassing could have added fines and worsened the authorities’ attitude.

“Over the last three years, Google has raised its share on the Russian market by 50% amid expansion of smartphones with Google as a default search engine,” he said.

VTB Capital’s analysts believe the agreement would allow Yandex to step up its distribution efforts, including through signing new deals with original equipment manufacturers.

“According to LiveInternet, Yandex’s market share in search was relatively stable at over 55% in November–March, but it began to slide again in April. We also believe that it will take at least several months before we see any potential impact from the deal on Yandex’s market share,” they said in a research note.

Tkachuk at Alpari said the deal will allow Yandex to expand its share on the search market thanks to Android smartphones, which were earlier dominated by Google. “It means Yandex could earn on contextual advertisements, which will have a positive impact on financial results. Yandex could even start paying some dividends,” the analyst told PRIME.

Yandex’s common shares on the Moscow Exchange rose 21.8% since the beginning of the year, closing at 1,520 rubles on April 27, and its ADRs on the Nasdaq spiked 34.6% to U.S. $27.40.

VTB Capital thinks that competitive environment will remain tight. “We also believe that Google’s decision to give up its litigations with the antimonopoly service and sign an amicable deal points to its strong commitment to developing its business in Russia,” the analysts said.

Google has no need to worry about a possible decrease of the market share in Russia, since its key battlefields are Europe and the U.S., contributing 75% of the company’s revenue, and its footing there is quite firm, Tkachuk said.

“Yandex’s core markets are Russia, Ukraine, Belarus, Kazakhstan and Turkey. It’s interesting to know what decision the Turkish antimonopoly service will make on a similar claim also filed by Yandex. Since the Russian-Turkish relations have warmed recently, the authority could side with the Russian company,” the analyst said.

Yandex filed the complaint to the Turkish antitrust in 2015, but the investigation was halted in 2016 amid a spat between the countries after Turkey’s downing of a Russian warplane.

(56.9838 rubles – U.S. $1)

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