Qualcomm, The world’s largest supplier of baseband chipsets (used for voice and data in mobile devices) has been slapped with a $1.5 billion fine by the European Union Commission for Competition.
The commission deemed that Qualcomm had,
“…illegally shut out rivals from the market for baseband chipsets for over five years, thereby cementing market dominance. Qualcomm paid billions of US Dollars to a key customer, Apple, so that it would not buy from rivals.”
Here is what happened.
In 2011, Qualcomm was supplying chips to Apple. At the time, Intel was attempting to sell its basically identical product to Apple, and Qualcomm heard about it. So, Qualcomm offered what has been described as, “generous rebates,” if Apple agreed to purchase chips exclusively from Qualcomm until 2016.
Apple said yes, and didn’t start purchasing chips from Intel until the end of the deal in 2016.
That is genuinely the end of the story – it hardly seems scandalous or worth billions of dollars, but that is it. A formal agreement between two large corporate entities to shut out – for the profitability of the customer – another vendor who is also a major multinational business.
The commission said,
“Qualcomm’s behaviour denied consumers and other companies more choice and innovation, and this is a sector with a huge demand and potential for innovative technologies. This is illegal under EU antitrust rules and it’s why we have taken today’s decision.”
The timing couldn’t be worse for Qualcomm, who was fending off litigation from Apple and a takeover attempt from competitor Broadcom, in what would be the largest technology business acquisition in history.
Qualcomm said they will appeal the fine, which equates to almost 5% of its annual turnover.
While the decision stated that the reason Qualcomm was guilty was its position in the market – as the largest supplier of baseband chipsets, it was deemed that the business had obligations to allow its competitors to attempt to take pieces of the pie.
But where does this leave Apple?
If Qualcomm has been determined as being anti-competitive, isn’t Apple at least complicit? As a global leader do they have an obligation to not agree to exclusive arrangements with large vendors? if the nature of the “payments,” from Qualcomm are deemed to be illegal – what form do they take, are they bribes?
No doubt as the legal war between Apple and Qualcomm continues, these questions and more will be answered.