American multinational semiconductor and telecommunications equipment company, Qualcomm has been slapped with a fine of $1.23 billion by the European Union for paying Apple to use Qualcomm chips and ignore that of rivals like Intel.
Qualcomm had hit a deal with Apple in 2011 that vowed massive payments if Apple only used Qualcomm chipsets for the iPhone and iPad devices. That pact was renewed in 2013 until 2016.
As part of the pact, Qualcomm had warned it would stop these payments if Apple sold another product with a rival chip. This effectively shut out competitors such as Intel Corp. from the market for LTE baseband chipsets used in the 4G mobile phone standard for five years.
The European Commission said its investigation, launched in 2015, covered the period from 2011 to 2016 and took into account Qualcomm’s market dominance in LTE baseband chipsets, which enable rapid mobile broadband connections.
According to European Competition Commissioner Margrethe Vestager in a statement, “Qualcomm paid billions of U.S. dollars to a key customer, Apple, so that it would not buy from rivals. These payments were not just reductions in price – they were made on the condition that Apple would exclusively use Qualcomm’s baseband chipsets in all its iPhones and iPads.
This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were,” she said.
“Apple was seriously thinking of switching” from Qualcomm to Intel chips “which would have made a big difference to Intel,” Vestager told reporters at a Brussels press conference.
“It would have cost Apple a lot of money” if it switched chips while the deal was in place and it only started to source from Intel when the agreement was about to expire in September 2016.
“The outcome is that rivals are prevented from challenging dominant companies with more innovative products,” Vestager said. The fine represents 4.9 percent of Qualcomm’s revenue in 2017, the EU said.
When asked whether Apple also bears any responsibility for the practice, Vestager told a news conference there would be no repercussions for Apple in the case.
It is worth knowing that in 2009 U.S Chipmaker Intel was fined 1 billion Euros for paying computer makers to buy most of their chips from them. This precedence had put pressure on the EU antitrust regulators to act on the Qualcomm case.
This is the Commission’s first decision on market abuse since the Intel ruling last September. Vestager said the ruling had given guidance on how to prove its case.
“We have carefully examined the ruling and the evidence in our case to make sure that our decision fully complies with the guidance given by the court,” she said.
