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EU Commission To Investigate Qualcomm's Chip Exclusivity Deals, 'Predatory Pricing'

The EU Commission launched two antitrust investigations into possible abuse of market dominance by Qualcomm. One of the issues concerns whether Qualcomm offered financial incentives to the company's customers to buy its Snapdragon chips exclusively, while the other is about whether Qualcomm sold its chips below the manufacturing cost to drive competition out of the market. Although both are serious accusations, the investigations could take years to resolve.

EU Commissioner in charge of competition policy Margrethe Vestager said, "We are launching these investigations because we want to be sure that high tech suppliers can compete on the merits of their products. 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."

Ever since it launched the Snapdragon S4 on the 28nm process with an integrated LTE modem, Qualcomm began rising rapidly in the mobile chip market, and many device makers preferred its chips over the competition. Many consumers also wanted to see Qualcomm's high-performance, battery-friendly chips in their devices, as they tended to do better in reviews and benchmarks.

However, the above feature set doesn't necessarily mean that Qualcomm's success was purely defined by demand, and that the company didn't also use exclusivity deals and bundling to lock in its customers. At least the EU Commission doesn't seem to think so, which is why it started the two antitrust investigations.

Qualcomm doesn't believe it has done anything wrong, but it will cooperate with the Commission.

“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," said the company in an email statement.

The Chinese government already fined Qualcomm $975 million in a settlement after it said the company was abusing its market position to overcharge for its wireless technologies. As part of the settlement, Qualcomm also agreed to offer licenses for its 3G and 4G basebands to other companies at a sharp discount.

The EU Commission previously investigated the company over FRAND patents abuses, but it wasn't found guilty. Qualcomm announced last November that the U.S. FTC has also started an antitrust investigation into its practices.

After losing the Snapdragon 810 contract with Samsung and therefore millions in potential sales, topped with all of these antitrust investigations, it looks like 2015 isn't Qualcomm's best year.

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  • blazorthon
    Wait- So the Chinese burned them for overcharging and now the EU is burning them for charging too little? Whether or not Qualcomm is using unfair methods, that doesn't look right.
    Reply
  • jaber2
    Did Qualcomm do what they say they did? most likely Yes, would it ultimately effect Qualcomms bottom line? most likely No, company's don't advance because they play nice, its a cut throat market and each will eventually pay a small fine, in the meanwhile all competing companies are out of business.
    Reply
  • photonboy
    blazorthon,
    Different charges. One is for overcharging on wireless, and one is for reducing chip cost to encourage adoption.
    Reply
  • RazberyBandit
    If a company wants to sell a bunch of stuff at a loss with the intention that future sales will make up for it, so what? US companies do it every day. Supermarkets and appliance stores are notorious for selling "leader" products at or under cost to bring in foot traffic. They make up for such losses through the sale of additional products, services, and continued future business.

    Example 1: A $3 12-pack of soda purchased 4th of July weekend sold for nearly $5 a few days beforehand and a few days later.

    Example 2: Brick'n'Mortar Buy has a $199 32" LCD TV advertised. You go in and see it's 720p @ 60Hz, then take a look at the 1080p competitor w/ its higher quality picture, universal remote, and internet apps right next to it for $249 and decide to buy it instead. Or, you buy the cheap one and they try to sell you a universal remote for $30. Regardless which TV you buy, they try to sell you a MONSTER CABLE for $100.

    This happens every day.
    Reply
  • falchard
    EU is different, they are socialists. Capitalism must be controlled under EU doctrine and foreign companies must be pushed out of the market in favor of domestic companies. Predatory pricing is one of those contrived socialist ideas that doesn't actually work in capitalism as evident through 200 years of history.
    Reply
  • photonboy
    16266689 said:
    If a company wants to sell a bunch of stuff at a loss with the intention that future sales will make up for it, so what? US companies do it every day. Supermarkets and appliance stores are notorious for selling "leader" products at or under cost to bring in foot traffic. They make up for such losses through the sale of additional products, services, and continued future business.

    Example 1: A $3 12-pack of soda purchased 4th of July weekend sold for nearly $5 a few days beforehand and a few days later.

    Example 2: Brick'n'Mortar Buy has a $199 32" LCD TV advertised. You go in and see it's 720p @ 60Hz, then take a look at the 1080p competitor w/ its higher quality picture, universal remote, and internet apps right next to it for $249 and decide to buy it instead. Or, you buy the cheap one and they try to sell you a universal remote for $30. Regardless which TV you buy, they try to sell you a MONSTER CABLE for $100.

    This happens every day.

    Umm... no.

    Selling below cost is NOT the same as specifying you must buy a product EXCLUSIVELY from one company to get it at a discount. I'm pretty sure that's also against the law in North America as well.

    AMD was trying to slander NVidia for this very thing (without proof).
    Reply
  • mitch074
    EU is different, they are socialists. Capitalism must be controlled under EU doctrine and foreign companies must be pushed out of the market in favor of domestic companies. Predatory pricing is one of those contrived socialist ideas that doesn't actually work in capitalism as evident through 200 years of history.
    Errr... No. Big, BIG no.

    Selling below price to drive competition out of a market and thus create a monopoly, or temporarily reducing prices on exclusivity deals (again, creating a monopoly, and different from scale economies), is not encouraged in a fully capitalistic market either : a monopoly is the antithesis of a free market.

    Communism is a state monopoly while socialism is completely different as it is capitalistic: the State does oversee the market rules and takes part as an actor on regal businesses (businesses that by definition perform at a loss but benefit all of society, such as education, army or health) but doesn't actually control it.

    While socialism opposes the ideal of liberalism of a self-controlled market, it also avoids or reduces the impact of crises like those of Wall Street in 1929, the oil crisis in the 1970s, the 1997 Asian crisis or the subprime mess in 2007 - note that all of these were started due to a lack of regulation, made people that were insanely rich even richer and all the poor even poorer, leading to destroyed businesses, unemployment, civil unrest etc. And strangely, they almost all started in the US and spread (thank you for that, by the way).

    To top it off, try telling Angela Merkel that she and her government are socialist, then see your teeth flying.
    Reply
  • RazberyBandit
    photonboy

    I think what you mean to say is that Qualcomm told buyers that they must buy the type(s) of product(s) desired solely from Qualcomm, and in doing so would receive them at a certain discounted price. Some might argue such deals are simply volume discounts. There's not a company out there that doesn't want all of every other company's business if it is capable of providing the desired volume. Now, if the EU can show evidence that Qualcomm would cease business with these companies products or that Qualcomm would overcharge these companies for not choosing to do business exclusively with it, then there's a case. Without that, there's not much to build a case around.

    Let's get a few facts straight. Qualcomm sells chips and communications-related patents and services, not any physical phones or devices. If it sold chips to phone makers at a discount, what does the EU have to complain about? The fact that the phones people purchased in Europe were likely slightly less expensive due to a reduced cost in major components used to create them?

    China and Korea already handed Qualcomm some hefty penalties and/or exclusion for practices those countries deemed unfair toward businesses operating within them. I'd like to know why the EU is even getting involved in matters where the affected companies that exist within those two nations and Qualcomm have already settled these matters. Is someone at Nokia still mad it paid out $2.2 billion in patent-related fees to Qualcomm? Maybe Vodafone's upset because its customers desire highest-quality services only Qualcomm's patented technologies can provide? I know predatory pricing is illegal in the EU, but did Qualcomm actually do so within the EU itself? Its primary buyers of chips Asian companies based in Asia, not Europe.

    And to answer your question, exclusive deals are not entirely against the law in NA. Vendor-exclusive manufactured goods, rebates, and free phones with multi-year agreements via an exclusive carrier are just three examples right off the top of my head that are common practice. I think what you may have been citing was AMD's complaints about Intel packaging its chipsets along with its CPUs at a steep discount (or even for free) to major PC OEMs so as to offset the CPU cost. That was real, and Intel agreed to pay AMD $1.25 billion to settle that dispute back in '09. (AMD also won an anti-trust suit against Intel in the early 90's.) ATI (and later AMD after the ATI acquisition) and nVIDIA were involved in a class-action suit wherein both were accused of cooperative GPU price-fixing, but that was settled out of court with both parties sharing the settlement payment equally.

    Business is cutthroat. While everyone should have a right to do business, no one has a guaranteed right to survive in their business of choice. When someone comes along and makes something as good or better than your product, and is able to sell it for equal or less than you sell yours, people are going to buy it and your business will have to either adapt or die. That's capitalism.

    But no... The EU wants everyone to have a share of the pie.

    EU Commissioner Margrethe Vestager said, "We are launching these investigations because we want to be sure that high tech suppliers can compete on the merits of their products." To me, that sounds like the EU wants to dictate what the fair price of competing products should be based its own valuation of products. If that's the case, it wouldn't matter how much it cost to develop and deliver a product because some 3rd-party is going to arbitrarily determine its value and final selling price. Further, if Qualcomm has a better product and can produce and sell it for equal or lesser cost than a competitor, then that competitor is simply doomed. I equate that to the theory of evolution in the business world.

    Article 102 Treaty on the Functioning of the European Union prohibits the abuse of a dominant market position which may affect trade between EU Member States. Please explain how exactly Qualcomm's selling of chips to Asia-based cellular phone manufacturers that sell phones around the world possibly affects trade between two European countries.

    I don't like the fact that some companies earn more money than the annual GDP and/or GNP of some modern nations. Yet that is our reality, and people must accept it. Monopolies have and will continue to occur.
    Reply
  • falchard
    16268690 said:
    EU is different, they are socialists. Capitalism must be controlled under EU doctrine and foreign companies must be pushed out of the market in favor of domestic companies. Predatory pricing is one of those contrived socialist ideas that doesn't actually work in capitalism as evident through 200 years of history.
    Errr... No. Big, BIG no.

    Selling below price to drive competition out of a market and thus create a monopoly, or temporarily reducing prices on exclusivity deals (again, creating a monopoly, and different from scale economies), is not encouraged in a fully capitalistic market either : a monopoly is the antithesis of a free market.

    Communism is a state monopoly while socialism is completely different as it is capitalistic: the State does oversee the market rules and takes part as an actor on regal businesses (businesses that by definition perform at a loss but benefit all of society, such as education, army or health) but doesn't actually control it.

    While socialism opposes the ideal of liberalism of a self-controlled market, it also avoids or reduces the impact of crises like those of Wall Street in 1929, the oil crisis in the 1970s, the 1997 Asian crisis or the subprime mess in 2007 - note that all of these were started due to a lack of regulation, made people that were insanely rich even richer and all the poor even poorer, leading to destroyed businesses, unemployment, civil unrest etc. And strangely, they almost all started in the US and spread (thank you for that, by the way).

    To top it off, try telling Angela Merkel that she and her government are socialist, then see your teeth flying.

    Monopolies are only allowed to exist by the force of government. When you have a monopoly in a free society, whats to stop someone from stepping in as a competitor? Nothing. Now if a company wants to sell at a loss for a couple years in order to lose competition, thats fine and dandy for the consumers who get a hold of the lower prices. As soon as they jack prices up, then it opens the door for competition to enter again. This was one of the main problems Owl Barons faced in the 19th century when they tried predatory pricing. They lowered the price and where never able to raise them beyond a nominal price value because competition always entered the market when they did. Some completely gave up on even selling things for money and made their revenue in other ways. Such as free rail travel with the hopes you buy food offered on the train.

    I think every single instance of an economic crisis you put up shows a complete misunderstanding of history. Stock market crash of 1929. Lower in scale than in 1922. Within a year the economy was already recovering. Then the "relief" hit and we went into a decade long depression.
    1970's oil embargo. I don't see how you can go look at this oil embargo and think, its caused by deregulation. I simply can't because its too stupid an argument.
    2007 subprime mortgage mess. Yes regulation forcing banks to lend to high risk applicants is deregulation. Just like unusually low interest rates governed by the Federal Reserve in order to get out of the Dot Com bust was totally the free markets doing. I am sorry, this reeks of regulation and government intervention.

    The other interesting tid-bit about all those messes started in the US is that the US tried to use Keynesian economics to correct the issue and they were usually the cause of the next economic crisis later.
    Reply
  • toadhammer
    Qualcom has a monopoly on LTE-capable chips because they own the patent for some of the core algorithms. They also have a monopoly on CDMA, but few outside of the US care about that. The nature of the beast makes it almost impossible for a competitor to step in and start selling compatible-but-alternative chips.
    Reply