Europe takes another chunk out of Qualcomm profits

The European Commission has announced it will once again fine Qualcomm for market abuse, with the investigation this time focusing on 3G baseband chipsets.

It seems time does not heal all wounds as this investigation focused on market abuse between 2009 and 2011, and a concept known as ‘predatory pricing’. In short, Qualcomm used its dominant market position to sell products to strategically important customers, below cost price, to effectively kill off any competition before it had a chance to gain momentum.

“Baseband chipsets are key components so mobile devices can connect to the Internet,” said Margrethe Vestager, the Commissioner in charge of competition policy. “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.”

Although the European Commission affords the opportunity for companies to use market advantages to seek profits, but when it becomes anti-competitive the bureaucrats draw a line. This is what has happened in this instance.

At the time, Qualcomm controlled roughly 60% market share of the UMTS baseband chipset segment, three times as great as the nearest competitor, though this position was used to kill competition before it had a chance to emerge. Using its relationships with Huawei and ZTE, Qualcomm sold products at low enough prices no-one could compete.

This is the challenge with segments which have such high-barriers to entry, key customer accounts are critically important, such are the investments which need to be made in R&D. Qualcomm effectively created a loss leader of these products to stem the critical flow of funds into any competition which could develop from the smallest glimmer of hope. In this case, the firm in question was Icera, which was eventually acquired by Nvidia.

The fine in this case represents 1.27% of Qualcomm’s turnover in 2018 and will hopefully deter companies from engaging in anticompetitive activity in the future.

For Vestager, this is another parting shot as she wraps up her tenure in the competition policy office, a position she has held since 2014.

The Commissioner has built a reputation of taking on big tech who make a habit of practising in anti-competitive activities. Qualcomm has been a frequent combatant of Vestager, though she has got plenty of experience dealing with the likes of Google and Amazon also, the latter of which is the subject of the latest probe.

Assuming the tech giants will be happy to see the back of her would be very reasonable, though it remains to be seen who will replace the feisty and combative Vestager.