EU Antitrust: Commission fines Qualcomm €997 million

[TOMPPIX]

 

The European Commission has fined Qualcomm €997m 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.

 

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."

 

Qualcomm's practices and the market for LTE baseband chipsets

Spoiler

 

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 with a premium brand image worldwide. 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, no matter how good their products were. 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. But until then, Qualcomm's practices denied consumers and other companies the benefits of effective competition, namely more choice and innovation.

 

 

 

 

Breach of EU antitrust rules

Spoiler

 

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.

Today'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. This assessment took into account, among other things:

• the extent of Qualcomm's dominant position;
• the significant amounts paid by Qualcomm in exchange for exclusivity;
• a broad range of contemporaneous evidence (including Apple's internal documents) that Qualcomm's payments reduced Apple's incentives to switch to rivals;
• the importance of Apple as a customer in the market for LTE baseband chipset suppliers: Apple accounts for a significant share  of LTE chipset demand (on average one third). Apple is also a leading smartphone and tablet manufacturer, which can influence other customers' and manufacturers' procurement and design choices. By making sure that rivals had no chance to compete for any of Apple's important business, Qualcomm's conduct had an effect on the LTE baseband chipset market as a whole; and
• that Qualcomm did not demonstrate that the exclusivity condition created any efficiencies, which could have justified Qualcomm's practices.

The Commission also assessed and rejected a "price-cost" test submitted by Qualcomm. The Commission concluded that the results of this test failed to support Qualcomm's claim that its exclusivity payments were not capable of having anti-competitive effects.

On this basis, the Commission concluded that Qualcomm's illegal practice had a significant detrimental impact on competition. It excluded rivals from the market and deprived European consumers of genuine choice and innovation.

 

 

Consequences of the Decision

Spoiler

 

The fine in this case of € 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% of Qualcomm's turnover in 2017.

In accordance with the Commission's 2006 Guidelines on fines (see press release and MEMO) the fine has been calculated on the basis of the value of Qualcomm's direct and indirect sales of LTE baseband chipset in the European Economic Area (EEA). The duration of the infringement established in the decision is five years, six months and 23 days.

The Commission has also ordered Qualcomm to not engage in such practices or practices with an equivalent object or effect in the future.

 

 

so remember kids, the key to success is to break the rules.

 

http://europa.eu/rapid/press-release_IP-18-421_en.htm

[ItsMitch]

Lmao enjoy paying Qualcomm

[Sakkura]

Made billions, fined millions. Typical.

[schwellmo92]

I swear the European Union is staying afloat off the billions of dollars of fines it’s issuinf to tech companies.

[Trixanity]

7 minutes ago, schwellmo92 said:

I swear the European Union is staying afloat off the billions of dollars of fines it’s issuinf to tech companies.

Right. $20 trillion GDP and it relies on a few billion here and there to stay afloat.

[SpaceGhostC2C]

The essence of the case is the same as the old case against Intel (which they are still appealing like 10 years later), so I'm not surprised by the outcome.

[Doobeedoo]

Hmm this reminded me, imagine Samsung just putting Exynos chips in their phones, like in US where they can't. Specially when looking at Exynos 9810 improvement ipc wise. 

[Sakkura]

7 minutes ago, Doobeedoo said:

Hmm this reminded me, imagine Samsung just putting Exynos chips in their phones, like in US where they can't. Specially when looking at Exynos 9810 improvement ipc wise. 

Putting only your own components in your own products is fine.

 

But requiring or paying your customers to only put your component in their products, excluding competing components, is illegal.

 

Same way it's illegal to pay a retailer to only carry your product and not competing products; but you can run your own stores and only feature your own products there.

[Doobeedoo]

12 minutes ago, Sakkura said:

Putting only your own components in your own products is fine.

 

But requiring or paying your customers to only put your component in their products, excluding competing components, is illegal.

 

Same way it's illegal to pay a retailer to only carry your product and not competing products; but you can run your own stores and only feature your own products there.

Yeah for sure. I just meant to say that it sucks they can't use Exynos in US and have parity globally as far as chip in their phones. 

[Mihle]

Fine should have been bigger.

 

 

Intel have gotten fines for doing the exact same before just with CPUs multiple times.

[mr moose]

5 hours ago, Trixanity said:

Right. $20 trillion GDP and it relies on a few billion here and there to stay afloat.

GDP has little to do with the EU's income.  Their income primarily comes from contributions, import duties and fines.  

 

I am not personally a fan of the EU (I think some of their actions are more dictatorial than open) however having said that, fines probably only make up a rather small percentage of their income.

[mr moose]

1 hour ago, Mihle said:

Fine should have been bigger.

 

 

Intel have gotten fines for doing the exact same before just with CPUs multiple times.

The Eu have fined many large companies for this that or the other thing, sometimes they are on reasonable grounds and other times they are questionable (IMO).  I think their attack on apple has been amusing as they don't seem to have managed to get as far as a fine, but they certainly have tried.

 

 

[Trixanity]

1 hour ago, mr moose said:

GDP has little to do with the EU's income.  Their income primarily comes from contributions, import duties and fines.  

 

I am not personally a fan of the EU (I think some of their actions are more dictatorial than open) however having said that, fines probably only make up a rather small percentage of their income.

I know that but it's the most accessable data point to determine wealth and no it's not perfect for that either but we'll manage with GDP.

[TheOriginalHero]

1 hour ago, mr moose said:

GDP has little to do with the EU's income.  Their income primarily comes from contributions, import duties and fines.  

 

I am not personally a fan of the EU (I think some of their actions are more dictatorial than open) however having said that, fines probably only make up a rather small percentage of their income.

GDP has alot to do with the EU's income. Countries that are part of the EU are required to contribute a sum of money based on their GDP. So naturally a higher GDP means the EU is receiving more money.

[mr moose]

49 minutes ago, TheOriginalHero said:

GDP has alot to do with the EU's income. Countries that are part of the EU are required to contribute a sum of money based on their GDP. So naturally a higher GDP means the EU is receiving more money.

What a country contributes is based on GNI not GDP.  

 

EDIT: I should clarify that GDP is only a part of the equation.  And in context of this discussion it is important to not simply treat all conditions and part conditions as equal.

[Sakkura]

3 hours ago, mr moose said:

GDP has little to do with the EU's income.  Their income primarily comes from contributions, import duties and fines.  

 

I am not personally a fan of the EU (I think some of their actions are more dictatorial than open) however having said that, fines probably only make up a rather small percentage of their income.

From 1990 through June 2017, the EU handed out antitrust fines totalling 26.75 billion Euros.

 

https://www.cnbc.com/2017/06/27/the-largest-fines-dished-out-by-the-eu-commission-facebook-google.html

 

The EU budget for 2017 alone was 157.86 billion Euros.

 

http://ec.europa.eu/budget/annual/index_en.cfm?year=2017

 

Fines are indeed only a very small portion of the funds available to the EU organization, and as the sum varies dramatically from year to year they cannot rely on it anyway. There's really no reason to believe they're handing out fines just as a money grab.

[mr moose]

2 minutes ago, Sakkura said:

From 1990 through June 2017, the EU handed out antitrust fines totalling 26.75 billion Euros.

 

https://www.cnbc.com/2017/06/27/the-largest-fines-dished-out-by-the-eu-commission-facebook-google.html

 

The EU budget for 2017 alone was 157.86 billion Euros.

 

http://ec.europa.eu/budget/annual/index_en.cfm?year=2017

 

Fines are indeed only a very small portion of the funds available to the EU organization, and as the sum varies dramatically from year to year they cannot rely on it anyway. There's really no reason to believe they're handing out fines just as a money grab.

I would hardly call 16% very small, but I agree it is by no means enough to justify such an accusation.  

[Sakkura]

2 minutes ago, mr moose said:

I would hardly call 16% very small, but I agree it is by no means enough to justify such an accusation.  

It took them 27 years to accrue 16% of one year's spending.

[mr moose]

Just now, Sakkura said:

It took them 27 years to accrue 16% of one year's spending.

True, very true.  I should not be mathing right now.

[Brooksie359]

On 1/24/2018 at 11:18 AM, Doobeedoo said:

Yeah for sure. I just meant to say that it sucks they can't use Exynos in US and have parity globally as far as chip in their phones. 

What makes you say that? They have in the past.

[Doobeedoo]

48 minutes ago, Brooksie359 said:

What makes you say that? They have in the past.

They can't due to differences difference in radio modem part as related to US standards and legacy frequency support. Also patent stuff and all. 

[Brooksie359]

1 hour ago, Doobeedoo said:

They can't due to differences difference in radio modem part as related to US standards and legacy frequency support. Also patent stuff and all. 

Then how did they do it the past?

[Bit_Guardian]

Thank God. One lawsuit down, 4 to go between Chinese, South Korean, and U.S. regulators alongside the combined Intel, Apple, Samsung lawsuit against Qualcomm in the E.U. over anti-competitive practices.

 

People keep saying Intel's still bad (and based on what happened in the mid-2000s under management long gone), but everyone seems to forget Qualcomm's been led by the same corrupt chief executives for nearly fifteen years.

[Bit_Guardian]

On 25/01/2018 at 5:25 AM, Mihle said:

Fine should have been bigger.

 

 

Intel have gotten fines for doing the exact same before just with CPUs multiple times.

Doing the same thing ONCE, from actions in the mid 2000s under leadership long gone. And Qualcomm's got 4 more lawsuits to contend with, 3 being regulatory in other major markets and a class-action by Intel, Apple, and Samsung I believe out of the E.U. asking for close to 6 billion in damages.

[Bit_Guardian]

On 25/01/2018 at 10:13 AM, Sakkura said:

From 1990 through June 2017, the EU handed out antitrust fines totalling 26.75 billion Euros.

 

https://www.cnbc.com/2017/06/27/the-largest-fines-dished-out-by-the-eu-commission-facebook-google.html

 

The EU budget for 2017 alone was 157.86 billion Euros.

 

http://ec.europa.eu/budget/annual/index_en.cfm?year=2017

 

Fines are indeed only a very small portion of the funds available to the EU organization, and as the sum varies dramatically from year to year they cannot rely on it anyway. There's really no reason to believe they're handing out fines just as a money grab.

Eh, you can make a solid argument for their push to shove Boeing out of European airline markets via absolutely ridiculous lawsuits and fines as a money grab, but most of their stuff has been pretty reasonable. I still find the fine over the Intel compiler in Cinebench to be ridiculous since no one ever provided a shred of evidence that Intel at all incentivised Maxon to use ICC as the core compiler of their software, but that's a separate rant.

 

2 hours ago, Brooksie359 said:

Then how did they do it the past?

By having legacy support on SOCs from 4-5 years ago. Legacy gets abandoned over time. It's just how software and hardware work. You don't expect new Java apps to be developed based on the Java 1.6 standard, do you? No, legacy is Java 7, mainstream production is 8, and really new apps should be developed on Java 9. We shouldn't be catering for the ultra low frequency bands outside of very remote areas with specialised devices. For instance, we still have satellite phones as the recommendation for the Australian outback and certain regions of New Zealand. There are parts of the U.S. (Death Valley for example) so remote that even the 400MHz range isn't tenable, and why should it be forced into new products when its usefulness is practically gone?

 

Essentially, governments are awful about stifling technological progress in the name of legacy support.