Ruling by South Korean agency will allow phone makers in the country to customize Android

Google has been fined 207 billion won ($176.64 million) by South Korea's antitrust regulator for not allowing manufacturers to include customized versions of Android to be installed on handsets. The Wall Street Journal reports that on Tuesday, the Korea Fair Trade Commission (KFTC) said that Google abused Android's dominant market position in the country by including certain terms in the contract it demands that phone makers sign.

In a statement, KFTC Chairperson Joh Sung-wook said, "The Korea Fair Trade Commission's decision is meaningful in a way that it provides an opportunity to restore future competitive pressure in the mobile OS and app market markets." The regulatory agency says that Google blocks competition by having device manufacturers agree to an "anti-fragmentation agreement (AFA)" when signing contracts that force Android devices to include the Google Play Store and the latest version of Android.

This AFA prevents manufacturers from providing consumers with a "forked" version of Android. In other words, device makers cannot modify or customize Android. The KFTC says that this portion of the contract that Google makes manufacturers sign has helped Google's Android operating system dominate the market. Under the regulatory agency's ruling, Google can no longer force phone makers to sign the AFA which will allow them to install "forked" versions of Android on their phones.

For example, Amazon used a so-called "forked" version of Android with its Fire Phone, introduced in July 2014. While the phone ran on Android, which is open source after all, it could not use the Google Mobile Services (GMS) version of the software. So instead of running Google apps like the Play Store, YouTube, Gmail, Google Search, Google Maps and Drive to name a few, the Fire Phone was loaded with the Amazon Appstore, Amazon Video, Amazon Music, the Amazon Silk browser, and Audible Audiobooks.

The KFTC states that Amazon tried to recruit two other Android phone manufacturers, LG and Samsung, to use the "forked" version of Android that it created. But both manufacturers declined to follow Amazon. The Fire Phone turned out to be a flop. After writing off $170 million of unsold units, Amazon turned an aptly named "fire sale" in an effort to dispose of the remaining units.

In its ruling, the Korean antitrust agency mentioned LG, Samsung, and Alibaba Group Holding Ltd. as companies that were blocked from releasing new devices in South Korea because of Google's restrictions. KFTC's Sung-wook said at a briefing that "Google’s anti-fragmentation agreement blocked the entry of competitors to the mobile operating system space and obstructed business innovation by device manufacturers."

Going back to 2013 to provide an example, the KFTC said that Samsung was forced to switch the customized operating system on one of its smartwatches after Google accused the South Korean manufacturer of an AFA violation.

Google says that it will appeal the decision and notes that the KFTC decision ignores the compatibility that Android offers and will eliminate some benefits of Android that consumers enjoy. The decision forces Google to rewrite current agreements that are still in force.

Tom Kang, a Seoul-based research director at Counterpoint Research, says that the decision will result in more phone manufacturers changing Android and offering custom versions of the software. Kang adds that Google might have to offer incentives to manufacturers in order to get them to stick to the company's unified version of Android.

And the KFTC is not done with Google. The agency continues to investigate the Play Store, in-app purchases, and advertising.