FTC slaps Qualcomm with $208 million fair-trade fine

Korea’s antitrust watchdog yesterday slapped Qualcomm Inc., the world’s biggest maker of mobile phone chips, with the agency’s highest-ever penalty of 260 billion won ($208 million) for unfair trade practices. Qualcomm said it would legally contest the ruling.

The Fair Trade Commission said in a statement that Qualcomm charged higher royalties for its code division multiple access (CDMA) technologies on handset makers if they bought modem chips made by Qualcomm’s competitors. By so doing, the United States company limited market competition through monopolistic tactics, the FTC said.

Qualcomm has been receiving 5 percent of handset prices in royalties for CDMA technologies from handset makers such as Samsung Electronics and LG Electronics, if the makers buy modem chips made by Qualcomm.

But the U.S. company has been receiving 5.75 percent royalties when handset makers purchase modem chips made by rivals, such as Taiwan’s VIA and Korea’s EoNex. A modem chip, which converts the human voice into digital signals, is the essential part for a mobile phone handset, just as a central processing unit is the heart of a personal computer.

Through use of such practices since 2004, Qualcomm’s share in the local modem chip market climbed from 98.6 percent in 2004 to 100 percent in 2006 and 2007, the antitrust agency said.

Qualcomm also offered rebates to handset makers, on the condition that they purchase most modem and radio frequency chips from the U.S. company, according to the FTC. The agency ordered Qualcomm to quit the practices and fined it 260 billion won, equivalent to 2.2 percent of the company’s related sales. Korea is Qualcomm’s largest market, representing 35 percent of its revenues. The penalty amount is 10 times higher than the 26.6 billion won that the agency fined Intel Corp., another multinational IT industry leader, last year.

“Discriminative discounts and conditional rebates have effects of excluding competitors, so they are unfair practices,” said Suh Dong-won, vice chairman of the FTC. “The ruling will help handset makers buy parts at lower prices from various suppliers and it could have good effects on consumer prices of handsets in the long run.”

The ruling came after more than three years of investigation since four companies, including chipmakers Texas Instruments and Broadcom Corp., filed a complaint with the FTC.

Qualcomm held a press conference late yesterday saying the discounts and rebates helped handset makers achieve price competitiveness.

“Qualcomm and Korean handset makers such as Samsung and LG have cooperated closely with each other so that the handset makers using CDMA standards emerge as major players,” said Cha Young-koo, president of Qualcomm Korea. “The decision will damage Korean handset makers’ global competitiveness. We will defend our position by going through legal procedures after we receive the written final ruling.”

The Korean antitrust agency’s ruling could influence the European Union’s ongoing investigation into Qualcomm’s alleged abuse of its market dominance.

EU authorities launched a probe in 2007 after Broadcom, Nokia and others filed a complaint.

It is not the first time that the Korean antitrust agency has hit multinational industry leaders with hefty fines for abuse of market dominance.

Last year, the FTC fined the U.S.-based Intel Corp., the world’s biggest chipmaker, 26 billion won for offering rebates to Korea’s major personal computer makers on condition that they not purchase CPUs from Intel’s rival, Advanced Micro Devices. Microsoft, the world’s biggest software maker, was also fined 32.5 billion won in late 2005 by the Korean agency for bundling its Windows operating system with other products.

By Moon So-young [symoon@joongang.co.kr]