Qualcomm faces investigation into its European business practices

US mobile chip maker Qualcomm is the subject of two antitrust investigations by the European Commission that will look into possible abusive behaviour in the way it sells its baseband chips.

The first will look into whether Qualcomm has been abusing its dominant market position by offering financial incentives to customers on the condition they don’t buy any baseband chips from Qualcomm competitors.

This is reminiscent of Europe’s investigation into Intel back in 2009 that ended up with it being fined a billion euros for giving hidden rebates and direct payments to computer manufacturers to buy their CPU loyalty. Intel may now be reflecting on the irony of this latest EC action as it is the owner of European baseband maker Infineon, which stands to benefit if this investigation results in punitive action.

A typical way for a supplier to financially induce loyalty from its customers is to offer marketing development funds (MDF), which are positioned as their contribution to a joint marketing effort. Companies with deeper pockets have the ability to out-spend their competitors in this regard, which can be viewed as anti-competitive behaviour.

The second investigation will look into whether Qualcomm has also been using its financial muscle to sell 3G chipsets at below cost in order to price its competition out of the market, a practice it refers to as ‘predatory pricing’.

“We are launching these investigations because we want to be sure that high tech suppliers can compete on the merits of their products,” said EU competition commissioner Margrethe Vestager. “Many customers use electronic devices such as a mobile phone or a tablet and we want to ensure that they ultimately get value for money. Effective competition is the best way to stimulate innovation.”

Qualcomm issued the following statement on the matter: “We were informed that the European Commission has taken the procedural step of ‘initiating proceedings’ against Qualcomm with regard to the two ongoing investigations into Qualcomm’s sale of chipsets for mobile devices. This step allows investigators to gather additional facts, but it represents neither an expression by the Commission on the merits of the case nor an accusation against the Company.  While we were disappointed to hear this, we have been cooperating and will continue to cooperate with the Commission, and we continue to believe that any concerns are without merit.”

Just as with the Intel case the danger to Qualcomm here is more to do with PR and its competitive position than the potential fine. Earlier this year the company was stung close to a billion dollars for violating Chinese anti-monopoly law, although that was to do with patents rather than business practice. While this will be ringing alarm bells within Qualcomm, EC investigations typically take years to play out, so there’s no need to push the panic button just yet.