A long-running European antitrust investigation into whether Qualcomm used predatory pricing when selling UMTS baseband chips about a decade ago has landed the chipmaker with a fine of €242 million (~$271M) — aka, 1.27% of its global revenue for 2018.

The EU regulator concluded Qualcomm used abusive pricing to force its main rival at the time, UK-based company Icera, out of the market — by selling certain quantities of three of its UMTS chipsets below cost to two strategically important customers: Chinese tech companies Huawei and ZTE.

.@Qualcomm sold baseband chipsets (for mobile devices to connect to the Internet) at a price below cost to key customers. Intention: To eliminate a competitor. This is illegal under EU antitrust rules, so today we have fined @Qualcomm €242 million. https://t.co/VNn9bGJi3u — Margrethe Vestager (@vestager) July 18, 2019

Commenting on the decision in a statement, competition commissioner Margrethe Vestager, said: “Baseband chipsets are key components so mobile devices can connect to the Internet. Qualcomm sold these products at a price below cost to key customers with the intention of eliminating a competitor. Qualcomm’s strategic behaviour prevented competition and innovation in this market, and limited the choice available to consumers in a sector with a huge demand and potential for innovative technologies. Since this is illegal under EU antitrust rules, we have today fined Qualcomm €242M.“

Qualcomm has come out fighting in response — dismissing what it dubs as the Commission’s “novel theory” and saying it plans to appeal.

It also says it will provide a financial guarantee in lieu of paying the fine while this appeal is pending.

The case — which was triggered by a complaint filed by Icera — dates back to 2015, and relates to Qualcomm business practices between 2009 and 2011. The baseband chipsets in question were used over the period for connecting smartphones and tablets to cellular networks, including 3G networks, and for both for voice and data transmission.

The Commission says Icera had been offering advanced data rate performance vs Qualcomm’s chipsets, thereby posing a threat to the latter’s business.

The EU regulator found Qualcomm held a dominant position in the global market for UMTS baseband chipset between 2009 and 2011 — when it had a marketshare of around 60% (almost 3x that of its biggest competitor), as well as on the high barriers to entry to the market — such as significant initial investments in R&D for designing such chipsets and IP barriers given the volume of related patents Qualcomm holds.

European competition rules mean those holding a dominant position in a market have a special responsibility not to abuse their powerful position by restricting competition.

The Commission says its conclusion that Qualcomm engaged in predatory pricing during the probe period is based on a price-cost test for the three Qualcomm chipsets concerned; and “a broad range of qualitative evidence demonstrating the anti-competitive rationale behind Qualcomm’s conduct, intended to prevent Icera from expanding and building market presence”.

“The results of the price-cost test are consistent with the contemporaneous evidence gathered by the Commission in this case,” it writes. “The targeted nature of the price concessions made by Qualcomm allowed it to maximise the negative impact on Icera’s business, while minimising the effect on Qualcomm’s own overall revenues from the sale of UMTS chipsets. There was also no evidence that Qualcomm’s conduct created any efficiencies that would justify its practice.

“On this basis, the Commission concluded that Qualcomm’s conduct had a significant detrimental impact on competition. It prevented Icera from competing in the market, stifled innovation and ultimately reduced choice for consumers.”

In May 2011 Icera was acquired for $367M by US tech company Nvidia — which the Commission notes then decided to wind down the baseband chipset business line in 2015.

In its press release responding to the decision, Qualcomm’s Don Rosenberg, executive vice president and general counsel, comes out throwing punches — claiming the Commission’s theory is without precedent and “inconsistent”.

“The Commission spent years investigating sales to two customers, each of whom said that they favored Qualcomm chips not because of price but because rival chipsets were technologically inferior. This decision is unsupported by the law, economic principles or market facts, and we look forward to a reversal on appeal,” he writes. “The Commission’s decision is based on a novel theory of alleged below-cost pricing over a very short time period and for a very small volume of chips. There is no precedent for this theory, which is inconsistent with well-developed economic analysis of cost recovery, as well as Commission practice.

“Contrary to the Commission’s findings, Qualcomm’s alleged conduct did not cause anticompetitive harm to Icera, the company that filed the complaint. Icera was later acquired by Nvidia for hundreds of millions of dollars and continued to compete in the relevant market for several years after the end of the alleged conduct. We cooperated with Commission officials every step of the way throughout the protracted investigation, confident that the Commission would recognize that there were no facts supporting a finding of anti-competitive conduct. On appeal we will expose the meritless nature of this decision.”

The size of the fine being issued to Qualcomm — which is dwarfed by the $1.23BN fine also handed out to the company by EU regulators a year ago (for iPhone LTE chipset related market abuse) — has been calculated on the basis of the value of its direct and indirect sales of UMTS chipsets in the European Economic Area, with the Commission also factoring in the duration of the infringement it found to have taken place.

In addition to being fined, the Commission decision orders Qualcomm not to engage in the same or equivalent practices in the future.