Dear Rep. Andrade,

I’m the Western region director for the R Street Institute, which is a nonprofit public policy research organization that promotes freer markets and limited, effective government in many areas, including the technology and innovation sector. I’m writing to oppose Arizona’s House Bill 2005, which would force smartphone app stores to accept third-party payments.

R Street is concerned that HB 2005 would fundamentally reshape the market for applications downloaded to smartphones in ways that harm consumers. Frankly, this legislation reflects a brazen form of “rent seeking,” as one group of companies tries to use government to force other companies to adopt business terms more to their liking.

This legislation would undermine one of the most widely used – and secure – business models for the distribution and purchase of apps. Apple pioneered this approach through the creation of its App Store in 2008. One reason for such phenomenal growth – and for Americans’ increasing reliance on smartphones for everything from banking to social media – is that we can trust that the apps we download and the payment systems we use to buy them are secure.

The App Store offers even the smallest developers a global reach. In exchange, it collects a service fee of 15-percent to 30-percent of sales revenue as well as a service fee on micro-transactions within an app. In fact, 83 percent of app developers don’t pay any charges. HB 2005 would disrupt this innovative and consumer-friendly ecosystem by allowing alternative payment systems that would enable developers to sidestep this contractual fee-sharing system.

HB 2005 only applies to payment systems, but private businesses should have every right to insist that customers use payment systems they’ve designed to avoid fraud and that protect consumers’ privacy. They should have every right to enter into contracts that assure the profitability of their business.

As others have noted, the app store is like a giant shopping mall. If a company builds and maintains the mall, why should the government force that company to allow others to sell their products there for free? HB 2005 will therefore result in unforeseen consequences. Consumers may face higher prices as the distribution platforms attempt to recoup these government-mandated losses.

The internet is inherently global in scope. Imposing myriad state level regulations on a business model that operates at a much larger scale will only increase compliance costs – and harm businesses and their customers. Should there be legitimate concerns over app-based distribution platforms, they should be addressed at the federal level.

R Street urges a “no” vote on HB 2005.

Thank you for your time and consideration.

Best regards,

Steven Greenhut
Western Region Director
R Street Institute
Arizona lobbyist number: 3612711