Google and Apple face potential breakups as global regulators target Big Tech following AT&T’s breakup 40 years ago.

Big Tech is currently experiencing its most significant challenge in years as antitrust regulators in both the US and Europe are taking action against suspected anti-competitive behavior. This could potentially lead to orders for the breakup of Apple and Google, marking a historic moment for the industry.

This, in turn, can inspire watchdogs around the world to rally, as evidenced by the increase in antitrust investigations in various countries since the opening of the EU and US cases. Since AT&T broke up exactly 40 years ago, no company has yet faced the prospect of a regulator-led breakup in the United States.

Google has said it disagrees with the EU’s accusations, while Apple said the US lawsuit is wrong in fact and law.

In 1984, AT&T, also known as Ma Bell, was broken up into seven independent companies called “Baby Bells” to open one of the most powerful monopolies of the 20th century. AT&T, Verizon and Lumen are currently the only surviving entities.

Regulators now argue that companies like Apple and Google have built impenetrable ecosystems around their products, making it difficult for customers to switch to competing services, leading to the coining of the term walled garden.

The US Justice Department warned Apple, a $2.7 trillion company, on Wednesday that a break-up order is not out of the question as a way to restore competition after it joined 15 states in suing the iPhone maker for monopolizing the smartphone market, stifling competitors. and raise prices.

Regardless, the case will likely take years to resolve, and Apple has vowed to fight.

The US actions this week come on the heels of other mounting threats across Europe.

Big tech will soon face closer scrutiny of Apple, Meta Platforms and Alphabet, which are likely to be investigated for possible violations of the Digital Markets Act (DMA), which could lead to huge fines and even disbandment orders for repeated violations, people with direct knowledge of the matter told Reuters on Thursday on condition of anonymity.

EU antitrust chief Margrethe Vestager helped pave the way for the sweeping measures last year when she accused Google of anti-competitive practices in its money-making adtech business and that it might have to ditch its sell-side tools.

He said requiring Google to sell some of its assets appeared to be the only way to avoid conflicts of interest, as it would prevent Google from favoring its own digital online advertising technology services over advertisers and online publishers.

Vestager is expected to make a final decision by the end of the year.

European Parliament lawmaker Andreas Schwab, who was heavily involved in drafting the EU’s landmark DMA technology rules that came into effect this month, said lawmakers want bold action against rule-breaking Big Tech.

“If they don’t comply with the DMA, you can imagine what Parliament is asking for. Disintegration. The ultimate goal is to make the market open, fair and allow for more innovation,” he said on Friday.

LEAVING IS HARD TO DO

It is far from certain that regulators will issue a break-up order as they consider options, and any action can only result in a fine. Legal experts also suggested that the case against Apple could be more difficult this time, based on the 1998 case against Microsoft.

“There is less of a tradition in the European Union where the dissolution of a company is seen as a last resort. This has never happened before,” said a commission official who spoke on condition of anonymity.

Apple’s highly integrated system would also make it difficult to stand out compared to Google, said Damien Geradin, a lawyer at Geradin Partners, which advises several app developers in other cases against Apple.

“It seems a lot more complicated to me. You’re talking about something that’s integrated, like you can’t force Apple to give up the App Store. It doesn’t make sense,” he said.

He said it would be better to impose behavioral remedies on Apple that compel it to do certain things, while in Google’s case a break-up order could simply target acquisitions made to strengthen its key services.

“It’s more likely that they (DOJ) will look for remedies such as opening up hardware functionality or making sure that developers are not discriminated against in terms of pricing,” said Max von Thun, head of Open Markets.

“I think what they want to say is that everything is on the table, but that doesn’t necessarily mean they’re going to go that route,” he said.

Apple gets most of its nearly $400 billion in annual revenue from hardware sales — iPhones, Macs, iPads and watches — followed by its services business, which brings in about $100 billion a year.

Structural remedies such as divorces are ultimately tested in the courts, said Assimakis Komninos, a partner at the law firm White & Case.

“I would say that there is not a lot of experience with imposed structural measures such as dissolution, but the little past experience shows that this is very difficult, apart from huge legal challenges,” he said.