For sure it's bluster. Even putting a 1 penny fee would cut their userbase significantly.
How?
It opens up the perfect opportunity for some competitor burning VC cash to swoop in and grab a ton of market share in a hurry, with a free iOS app.
FB knows this, so yeah, it's a completely hollow threat. But, just the idea that one of the tech giants has been backed into a corner by the risk of competition from paying-for-marketshare VCs or operating-in-the-red-on-purpose other tech giants, is really, really funny to me. No fun, eh Facebook? Hahahaha.
Google had the search and moved upstream to own the OS and protect his search. But still has to beg Apple for 25% of its users (and 40% of its revenue, if I understand).
Content (films, instagram personalities) are at the mercy of apps; Apps, even on Heroku or Atlassian platforms, are at the mercy of the platforms; Platforms are at the mercy of cloud platforms (AWS, etc) who own the hardware.
The only counter-example is telecoms, who owned the hardware but became dumb pipes, after 20 years of extremely bad behavior (including modifying HTTP pages on the go and injecting JS to insert ads, for Verizon).
I won't be surprised if Facebook starts shopping for a phone manufacturer and spins their own Facebook mobile distro in the future.
Facebook could enter the actor/actress recruitment market, own contracts and manage their Instagram along all their artists’ public reputation and persona. It’s not hardware but at least it’s real-world assets that reinforce their network’s desirability.
Facebook could buy Homebrew or IntelliJ and become a tool that every developer for most languages need to use, and it would give it more leverage in negotiating with AWS/Azure (Oh, the SDK has bugs with GCP? too bad!)
Those are just examples that have not been implemented because they are half-ideas, but it’s the idea of attacking really sideways.