The European Commission has fined Qualcomm €242 million for abusing its market dominance in 3G baseband chipsets, where they sold below cost forcing Icera out of the market. Qualcomm calls the decision unsupported by the law, economic principles or market facts.
The EU investigation, which took place over four years, found that Qualcomm abused this dominance between mid-2009 and mid-2011 by engaging in “predatory pricing”. Qualcomm sold certain quantities of three of its UMTS chipsets below cost to Huawei and ZTE, two strategically important customers, with the intention of eliminating Icera, its main rival at the time in the market segment offering advanced data rate performance.
The fine represents 1.27% of Qualcomm’s turnover in 2018 and is also aimed at deterring market players from engaging in such anti-competitive practices in the future. In accordance with the Commission’s 2006 Guidelines on fines, it has been calculated on the basis of the value of Qualcomm’s direct and indirect sales of UMTS chipsets in the European Economic Area (EEA).
In the press release from EU, Commissioner Margrethe Vestager, who is in charge of competition policy stated, “Baseband chipsets are key components so mobile devices can connect to the Internet. Qualcomm sold these products at a price below cost to key customers with the intention of eliminating a competitor. Qualcomm‘s strategic behaviour prevented competition and innovation in this market, and limited the choice available to consumers in a sector with a huge demand and potential for innovative technologies. Since this is illegal under EU antitrust rules, we have today fined Qualcomm €242 million.”
Baseband chipsets enable smartphones and tablets to connect to cellular networks and are used both for voice and data transmission. This case concerns chipsets complying with the Universal Mobile Telecommunications System (“UMTS”), the third generation (“3G”) standard.
The decision concluded that Qualcomm held a dominant position in the global market for UMTS baseband chipset between 2009 and 2011. This is based in particular on Qualcomm’s high market shares of approximately 60%, which is almost three times the market share of its biggest competitor, and the high barriers to entry to this market. These attempts included significant initial investments in R&D to design UMTS chipsets as well as various barriers related to Qualcomm’s intellectual property rights.
In reply to the judgement, Qualcomm also released a press note stating that this decision is unsupported by the law, economic principles or market facts, and that they look forward to a reversal on appeal. Don Rosenberg, executive vice president and general counsel of Qualcomm that mentioned, “The Commission spent years investigating sales to two customers, each of whom said that they favoured Qualcomm chips not because of price but because rival chipsets were technologically inferior.”
The investigation that the government body carried was based on a price-cost test for the three Qualcomm chipsets concerned; and a broad range of qualitative evidence demonstrating the anti-competitive rationale behind Qualcomm’s conduct, intended to prevent Icera from expanding and building market presence.
Experts believe that unlike previous antitrust rulings, Qualcomm’s fine is not likely to have an on-going impact on Qualcomm’s business. The predatory pricing that EU says Qualcomm engaged ended in 2011. As per this ruling, the EU Commission has not criticized any of the current practices by the company, or the amounts it charges for its licenses and patents.
For Icera, unfortunately the fine has come too late. In May 2011, Icera was acquired by US tech company Nvidia, which decided to wind down its baseband chipset business line in 2015.
Rosenberg added, “Contrary to the Commission’s findings, Qualcomm’s alleged conduct did not cause anticompetitive harm to Icera, the company that filed the complaint. Icera was later acquired by Nvidia for hundreds of millions of dollars and continued to compete in the relevant market for several years after the end of the alleged conduct.”
According to EU antitrust rules, market dominance is not illegal, but dominant companies have a special responsibility to not abuse their market position by restricting competition.