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© tom schmucker dreamstime.com Components | January 24, 2018

EU issues EUR 997 million ticket to Qualcomm

The European Commission has fined Qualcomm EUR 997 million for abusing its market dominance in LTE baseband chipsets.
Qualcomm 'prevented rivals from competing in the market by making significant payments to a key customer on condition it would not buy from rivals' a press release states. This is illegal under EU antitrust rules.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Qualcomm illegally shut out rivals from the market for LTE baseband chipsets for over five years, thereby cementing its market dominance. Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals. These payments were not just reductions in price – they were made on the condition that Apple would exclusively use Qualcomm's baseband chipsets in all its iPhones and iPads. This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were. Qualcomm's behaviour denied consumers and other companies more choice and innovation – and this in a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and why we have taken today's decision."

Baseband chipsets enable smartphones and tablets to connect to cellular networks and are used both for voice and data transmission. LTE baseband chipsets comply with the 4G Long-Term Evolution (LTE) standard. Qualcomm is by far the world's largest supplier of LTE baseband chipsets. But there are other chip manufacturers active in this market – Intel (the largest supplier for chipsets used in computers), in particular, has tried to challenge and compete with Qualcomm for customers.

Then as today, Apple was a key customer for LTE baseband chipsets, being an important maker of smartphones and tablets. In 2011, Qualcomm signed an agreement with Apple, committing to make significant payments to Apple on condition that the company would exclusively use Qualcomm chipsets in its iPhone and iPad devices. In 2013, the term of the agreement was extended to the end of 2016.

The agreement made clear that Qualcomm would cease these payments, if Apple commercially launched a device with a chipset supplied by a rival. Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers. This meant that Qualcomm's rivals were denied the possibility to compete effectively for Apple's significant business. They were also denied business opportunities with other customers that could have followed from securing Apple as a customer.

In fact, internal documents show that Apple gave serious consideration to switching part of its baseband chipset requirements to Intel. Qualcomm's exclusivity condition was a material factor why Apple decided against doing so, until the agreement came to an end. Then, in September 2016, when the agreement was about to expire and the cost of switching under its terms was limited, Apple started to source part of its baseband chipset requirements from Intel.

Qualcomm's practices amount to an abuse of Qualcomm's dominant position in LTE baseband chipsets by preventing competition on the merits.

Market dominance is, as such, not illegal under EU antitrust rules. However, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets.

The EC's decision concludes that Qualcomm held a dominant position in the global market for LTE baseband chipsets over the period investigated (i.e. between at least 2011 and 2016). This is based in particular on its very high market shares, amounting to more than 90% for the majority of the period. The market is also characterised by high barriers to entry. These include the research and development expenditure required before a supplier can launch an LTE chipset and various barriers related to Qualcomm's intellectual property rights.

Qualcomm has abused this market dominance by preventing rivals from competing in the market. It did so by making significant payments to a key customer on condition that it would exclusively use Qualcomm chipsets. The issue with such an arrangement is not that the customer receives a short-term price reduction, but that the exclusivity condition denies rivals the possibility to compete.

Based on a variety of qualitative and quantitative evidence, the Commission found that both consumers and competition have suffered as a result of Qualcomm's conduct.

The fine in this case of EUR 997'439'000 takes account of the duration and gravity of the infringement, and is aimed at deterring market players from engaging in such anti-competitive practices in the future. The fine represents 4.9 percent of Qualcomm's turnover in 2017.

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February 08 2018 5:15 pm V9.2.4-2