The EU Commission has fined Qualcomm €997m for anti-competitive
behaviour which protected its sales of LTE baseband chipsets. Qualcomm
prevented rivals from competing in the market by making significant payments to
Apple on condition it would not buy from rivals.
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.’
Qualcomm’s practices
and the market for LTE baseband chipsets
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.
Apple was and remains a key customer for LTE baseband
chipsets. 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.
Finding of breach
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.
This decision concludes that Qualcomm held a
dominant position in the global market for LTE baseband chipsets over the
period investigated (ie 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.
The Commission has found that Qualcomm has abused this
market dominance by preventing rivals from competing in the market.
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; 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
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 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 not to engage in
such practices or practices with an equivalent object or effect in the future.
Separately, on 8 December 2015, the Commission also sent Qualcomm
a Statement of Objections concerning potential predatory pricing. This
investigation is ongoing.
There is more on the history of this case here.
