Qualcomm Fined for Abuse of Market Position

The European Commission has fined Qualcomm €997 million for abuse of a dominant market position

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.

Published: 2018-01-24T12:00:00

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