Qualcomm incurs €977m EU fine: How did it break antitrust rules?

24 Jan 2018344 Views

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Qualcomm logo at Qualcomm Stadium in San Diego. Image: Katherine Welles/Shutterstock

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The European Commission has come down hard on Qualcomm for shutting down market rivals for more than five years.

US chipset maker Qualcomm was slapped with a €977m fine from the European Commission (EC) today (24 January) for throttling market competition.

The EC said Qualcomm illegally shut out rival companies from the LTE baseband chipset market for more than five years.

Throttling competition

EU competition commissioner Margrethe Vestager explained that Qualcomm paid billions of dollars to Apple so that it would not buy chipsets from other manufacturers for its smartphones. These payments were made in order to ensure that Apple would only use Qualcomm’s chipsets in its iPhones and iPads.

Baseband chipsets enable tablets and smartphones to connect to cellular networks and are used for the transmission of both voice and data.

Qualcomm is already the largest supplier of LTE baseband chipsets, which allow for speedy 4G connections.

An agreement spanning five years

The agreement with Apple was signed in 2011, with the terms of the agreement extended in 2013 to the end of 2016.

Within the agreement itself, it clearly stated that Qualcomm would cease making the payments to Apple if it launched a device with a rival chipset. Apple would also have had to return large quantities of the payments it had received in the past if it did decide to go with another chipmaker while the agreement was in place.

Vestager explained that the Apple and Qualcomm deal meant bad news for other manufacturers, such as Intel. “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 … 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.”

This move meant rivals were denied the ability to compete effectively for a partnership with a massive company such as Apple, along with other deals the brand association would have sparked.

According to internal documents, Apple had given serious thought to switching part of its chipset requirements to Intel but decided to wait until September 2016 (three months prior to the end of its Qualcomm agreement) to begin working with Qualcomm’s rival.

Qualcomm’s deal with Apple didn’t create any efficiencies to make such a deal justifiable. The fact that the deal was with a major smartphone player played a massive role in the hindering of competition within the chipset market.

Breaking antitrust rules

Market dominance in and of itself is not illegal under EU antitrust regulations. However, dominant firms do have a responsibility not to abuse their powerful position by restricting competition in the market they are dominant in, or indeed any other markets.

The company was found to be in violation of Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the European Economic Area (EEA) Agreement.

The €977m fine represents 4.9pc of Qualcomm’s 2017 turnover and it was calculated on the basis of the value of its LTE baseband chipsets in the EEA.

This is a culmination of an investigation that began on 8 December 2015.

Updated, 4.20pm, 26 January 2018: This story was updated to reflect that Apple’s decision to source materials from Intel occurred three months prior to the expiration of its business agreement with Qualcomm. 

Qualcomm logo at Qualcomm Stadium in San Diego. Image: Katherine Welles/Shutterstock

Ellen Tannam is a writer covering all manner of business and tech subjects

editorial@siliconrepublic.com