The Australian Competition and Consumer Commission revealed on Tuesday Google had struck deals with Telstra and Optus, which had been in place since at least 2017.
Under the agreements, the telecommunications firms ensured Google was the default search engine on all Android phones they sold in exchange for a share of Google's advertising revenue.
Telstra got a share of advertising revenue by making Google the default search engine on its phones. (Bianca De Marchi/AAP PHOTOS)
The commission warned both companies the deals were potentially anti-competitive and could restrict the use of alternative search services.
But, in a statement, Google said it was "surprised" by the announcement and would continue to work to resolve any issues.
The telco deals were discovered during the watchdog's investigation into Google's search services in Australia that stemmed from its Digital Platform Services Inquiry.
Commissioner Liza Carver said Telstra and Optus had both signed court-enforceable undertakings not to sign further contacts with Google over pre-installed or default phone services, or to promote one search service over another.
"In our view, these undertakings from Telstra and Optus are an important step in providing Australian consumers with more choice about the digital platforms and services they use and encouraging more competition," she said.
"The undertakings will allow alternative search engines to be able to compete to be a default search engine on the Android devices these companies supply."
Previous deals with Telstra and Optus expired on June 30.
Optus won't be able to sign a contact with Google to promote its search service over a competitor. (Con Chronis/AAP PHOTOS)
Google dominates web searches in Australia with a 93.6 per cent share of the market over the past year, according to Statcounter, followed by Bing with 4.46 per cent, and Yahoo and DuckDuckGo with less than one per cent each.
Ms Carver said fostering competition in the digital economy was vital and may require changes to Australian competition and consumer laws.
"Practices such as entering into agreements to ensure exclusivity can limit consumer choice or deter innovation," she said.
"We are continuing our investigation into Google's conduct in entering into such agreements more broadly as we consider this raises potential competition concerns."
A Google spokesman said the company did not consider the deals anti-competitive.
"We've been engaging with the ACCC on these issues and were surprised to see today's media release," he said.
"We disagree with the ACCC's characterisation of our commercial agreements, which we believe increase competition and benefit Australian consumers."
Recommendations from the commission's Digital Platform Services Inquiry include restrictions on pre-installation agreements, greater transparency, fair treatment of business customers, and better protection from online scams, including the introduction of a digital ombudsman scheme.
The commission is expected to release its ninth interim report in the inquiry in September, and its final report in March.
