Meta accused of failing to comply with EU antitrust rules

Investors are staying on the sidelines amid a broad selloff in tech stocks this year. Shares of Facebook parent Meta are down more than 30% this year amid a troubling macro environment and weaker-than-expected results.

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Facebook parent company Meta was on Monday accused by EU regulators of failing to comply with the bloc’s landmark antitrust rules over its recently introduced ad-supported social networking service.

The Commission labelled the ad-supported subscription option a “pay or consent” model — which means users have to either pay to use Meta’s platforms ad-free, or consent to their data being processed for personalized advertising. The service was introduced for Facebook and Instagram in Europe last year.

“In the Commission’s preliminary view, this binary choice forces users to consent to the combination of their personal data and fails to provide them a less personalised but equivalent version of Meta’s social networks,” regulators said in a statement Monday.

A Meta spokesperson told CNBC in a statement that its ad-supported subscription model “follows the direction of the highest court in Europe and complies with the DMA.”

“We look forward to further constructive dialogue with the European Commission to bring this investigation to a close,” the spokesperson added.

Meta introduced the new model in response to a ruling from the European Court of Justice, the EU’s top court, last year that a company may offer an “alternative” version of its service that does not rely on data collection for ads.

Meta has previously pointed to this ruling as a reason for introducing the subscription offer.

In its statement Monday, the Commission said that Meta’s ad-supported offering failed to comply with the DMA for two key reasons: one is that it doesn’t let users opt for a service that uses less personal data but is still equivalent to the “personalized ads”-based service.

Regulators said users should still be entitled to “get access to an equivalent service which uses less of their personal data, in this case for the personalization of advertising.”

The other reason cited by the EU is that the Meta ad-supported service doesn’t allow users to exercise their right to “freely consent” for their personal data to be used to target them with online ads.

Hefty fines at stake

The EU’s Digital Markets Act, or DMA, officially became enforceable in March this year. The law aims to clamp down on anti-competitive practices from large digital companies, as well as to force them to open up some of their services to rivals.

Companies can face potentially massive fines under the DMA and can end up paying as much as 10% of their global annual revenue. For repeated breaches, that figure could rise to 20%.

In Meta’s case, if it were to be found in breach of the DMA in the Commission’s final findings, it could be slapped with a penalty as high as $13.4 billion, based on the company’s 2023 annual earnings numbers.

After receiving the EU’s preliminary findings, Meta now has a chance to defend itself in writing.

The Commission’s investigation, which was launched in March in tandem with two other probes into tech giants Apple and Alphabet, will conclude within 12 months from the opening proceedings.

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