The FAQ answers that already. It will choose randomly from among the search engines that register and don't offer a bid (and charge them nothing). That would be a really surprising outcome, as it would suggest that no one other than Google derives any economic value from being the search engine on an Android device.
FWIW, I have trouble imagining that this process was designed without consulting with the EU to ensure it would comply. If Google did indeed design this without ensuring that it is in compliance, that would imply that whoever they have working on this is colossally stupid.
