EU opens two antitrust investigations into Qualcomm

The investigations will determine whether Qualcomm was in violation of antitrust regulations in the European Union, and could mean significant fines for the company, if it's found guilty.

Don Reisinger
CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
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Qualcomm finds itself in some trouble in the European Union over deals with mobile vendors. Sarah Tew / CNET

The European Union has launched antitrust investigations into yet another US-based company, the eurozone's competition commissioner announced on Thursday.

The European Union's competition watchdog, the European Commission (EC), has launched two antitrust investigations into chipmaker Qualcomm over claims that it may be abusing its position as a market leader in mobile device processors. The first antitrust investigation will determine whether Qualcomm breached EU antitrust regulations by offering "financial incentives" to companies that would exclusively buy its own chips. A second investigation will center on the company's alleged practice of charging prices below cost on its processors to hurt competitors.

Qualcomm is the world's market leader in processors for a host of mobile devices, including smartphones and tablets. The company's line of smartphone and tablet processors, called Snapdragon, are found in devices from the most popular smartphone and tablet makers, including Samsung, LG, HTC, and others. Qualcomm also makes chips that handle voice and data transmission over cellular networks. The company's competitors include several prominent names in the technology industry, including Samsung and Intel.

The San Diego, California-based Qualcomm has benefited greatly from the booming demand of mobile devices, and has watched its revenue soar from nearly $15 billion in its fiscal year ended September 2011 to $26.5 billion in the fiscal year ended September 2014. Profit over that span has nearly doubled from $4.3 billion to $8 billion.

Qualcomm is the latest in a growing line of US tech companies to come under scrutiny in the European Union. The EC, led by Margrethe Vestager, accused Google in April of antitrust violations by abusing its search dominance in the European Union. The EC Commissioner also said that she would launch an investigation into Google's Android operating system to determine whether the company's dominance in mobile operating systems is hurting competitors, like Microsoft and Apple.

In June, the EC followed with the announcement of an antitrust investigation into Amazon's e-books business. Vestager's office is particularly interested in determining whether Amazon's contracts with e-book publishers violate competition rules by requiring book publishers to disclose more favorable terms in deals they may have signed with competitors, like Apple.

The EU is also investigating tax practices by several US companies, including Amazon, Apple, and even coffee maker Starbucks.

The cases against Qualcomm center mainly on the company's negotiations with vendors. The first investigation will look at whether mobile device vendors buying a range of cellular-connectivity chips from Qualcomm received cash payments or rebates from the company to use its processors exclusively or nearly exclusively. The second investigation will determine whether Qualcomm, in an effort to win business and keep competing chip suppliers at bay, sold processors below its own cost -- a practice called "predatory pricing."

"We are launching these investigations because we want to be sure that high tech suppliers can compete on the merits of their products," Vestager said in a statement on Thursday. "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."

Qualcomm was quick to rebuff the investigations, saying that they have no merit.

"We were informed that the European Commission has taken the procedural step of 'initiating proceedings' against Qualcomm with regard to the two ongoing investigations into Qualcomm's sale of chipsets for mobile devices," the company said in a prepared statement. "This step allows investigators to gather additional facts, but it represents neither an expression by the Commission on the merits of the case nor an accusation against the Company. 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."

For its part, the EC clarified that an investigation does not necessarily mean a formal complaint and that "it does not prejudge the outcome of the investigations." The EC has not placed a deadline on when it will complete its investigation.

Despite the investigations, shareholders seem unconcerned: The company's shares are up 40 cents, or .6 percent to $64.28 in early trading on Thursday.