Will Qualcomm avoid Broadcom’s hostile takeover post the 1 bn euro EU antitrust fine?

Press conference by Margrethe Vestager, Member of the EC: EC fines Qualcomm €997 million for abuse of dominant market position
Date: 24/01/2018. Location: Brussels – EC/Berlaymont
© European Union , 2018. Source: EC – Audiovisual Service. Photo: Mauro Bottaro

The EU antitrust fine to Qualcomm comes as the latter attempts to avoid the 105 billion dollar hostile takeover by competitor Broadcom which keeps on biding higher and higher. Qualcomm seems to be in serious pressure as several fines have been imposed on the company for market dominance abuse and there are plenty of cases in court with Apple over patent licensing.

It was last week when the European Commission fined the US tech giant Qualcomm with almost one billion euros for abusing its dominant market position. The EU watchdog shows its teeth once more against large companies, and now it is Qualcomm’s turn. Commissioner Margrethe Vestager accused the chipmaker of having “illegally shut out rivals from the market for LTE baseband chipsets for over five years paying billions of US Dollars to Apple so that it would not buy from rivals”.

However, Qualcomm insists that there is no bridge of the EU antitrust rules and regulations and will appeal to the General Court of the European Union. At the same time, the U.S. firm has agreed to pay fines imposed by regulators due to anti-trust violations in Taiwan.

Background

The case between the EU and Qualcomm began in 2015. On July 16, the Commission opened two formal investigations in baseband chipsets used in consumer electronic devices covering a period from 2011 to 2016. After a five month period, the EU executive body informed the chipmaker that they have illegally paid Apple for using its chipsets exclusively and lowered their prices in order to knock competitors out of the market.

The EC finally concluded on one of the Statements of Objection two and a half years post the initial investigation. The decision was to fine Qualcomm with 997 million euros for abusing its market dominance in LTE baseband chipsets. The second Statement of Objections, which refers to the period from 2009 to 2011 when Qualcomm was accused to have engaged in “predatory pricing by selling certain baseband chipsets at prices below costs, with the intention of hindering competition in the market”, is still ongoing.

Qualcomm on Vestager’s plate

Commissioner Vestager , in charge of competition policy, continues following the EU law on antitrust cases trying to impose fairness upon the world. It is Qualcomm which is facing a huge fine which aims at preventing market players from implementing similar anti-competitive practices in the future.

More specifically, Margrethe Vestager mentioned on the issue: “For millennia, rulers have seen it as part of their job to make sure that markets work fairly for everyone. They’ve known it was dangerous to fail in that responsibility. Because when people feel cheated by the market, they very easily lose trust in their whole society. 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 and why we have taken today’s decision.”

Qualcomm’s response

The U.S. chipmaker has denied the allegations and fines by the European Commission and is going to address the case to the General Court of the European Union. Don Rosenberg, Executive Vice President and general counsel of Qualcomm, said last week:  “We are confident this agreement did not violate EU competition rules or adversely affect market competition or European consumers. We have a strong case for judicial review and we will immediately commence that process.”

Qualcomm against global regulators

However, it is not the first time that the large tech corporation is being fined. Qualcomm has been investigated several times by different regulators for abusing its market dominance and charging unjustified and unfair high fees to manufacturers.

First, it was China back in 2015 that imposed a 975 million dollar fine after two years of anti-monopoly investigations. In late 2016, South Korea’s antitrust regulator took the turn fining the U.S. company with 854 million dollars for unfair business practices in patent licensing and modem chip sales. Last but not least, the Taiwan Fair Trade Commission imposed a 774.14 million dollar fine to Qualcomm for anti-trust violations of its chip technology ; a fine that the tech firm has started paying with its first out of the sixty monthly installments.

Therefore, the tech giant has been fined with almost 4 billion dollars (including EU fine) in the last three years which could cause serious problems to the company as it accounts for almost 6% of the 71 billion dollar revenues generated over the last three fiscal years. Furthermore, Qualcomm could be fined by the US Federal Trade Commission which has commenced antitrust investigation regarding the firm’s dominance on the baseband modem market last year.

Will the EU fine make Qualcomm more vulnerable?

It seems that regulators are focusing on Qualcomm as there are several infringements taking place indicating that competition laws are breached by charging unfair licensing fees and dominating the baseband modem market.

Thus, if the company continues the same business model, more fines are going to be imposed and its profits will be heavily affected. The latter will result in making the firm more incompetent to possible hostile takeovers, while Broadcom already attempts to take over Qualcomm offering sizeable bids.

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