FTC, Broadcom agree to settlement around illegal monopoly charges

The Federal Trade Commission and Broadcom Inc. AVGO -0.31% have agreed to settle charges that the company used its dominance in some chip markets to squeeze out potential rivals.

The FTC on Friday said that under a proposed consent order, Broadcom must stop requiring its customers to source three types of chips from the company on an exclusive or near-exclusive basis. The chips are used in certain television and broadband internet services equipment

Broadcom, the FTC said, maintained its power in those markets by entering long-term agreements with both original equipment manufacturers and service providers that prevented these customers from purchasing chips from Broadcom’s competitors. The FTC’s investigation dates back several years.

Broadcom is a leading supplier of communications chips that go into consumer devices, including set-top boxes and cable modems where its hardware is ubiquitous. Cable service providers ink deals with manufacturers to produce set-top boxes and modems for their customers; those manufacturers propose designs and coordinate with the service providers on which chips they will use.

“While we disagree that our actions violated the law and disagree with the FTC’s characterizations of our business, we look forward to putting this matter behind us and continuing to focus on supporting our customers through an environment of accelerated digital transformation,” Broadcom said in a statement. “We are equally pleased that the FTC investigation into our other businesses has been closed without action,” it added.

Shares fell less than 1% in afternoon trading.

The FTC’s case against Broadcom has echoes of the regulator’s ill-fated complaint against Qualcomm Inc.[QCOM] in 2017. That case challenged Qualcomm’s alleged monopoly in communications chips that are essential for cellphones. The FTC alleged that Qualcomm had engaged in exclusionary conduct, a charge that Qualcomm disputed. A federal district judge agreed with the FTC, but the Ninth Circuit U.S. Court of Appeals sided with Qualcomm.

The FTC said Broadcom entered exclusive or near-exclusive deals with at least 10 of the manufacturers that hold a majority of the global market for set-top boxes and broadband devices. The behavior, the FTC alleges, began as early as 2016, when the company faced competitive threats from “low-priced, nascent rivals.”

In one example of Broadcom’s allegedly anticompetitive behavior, the FTC said the company threatened that if a service provider didn’t limit purchases from its rivals, Broadcom would raise the price it charges the customer for software services. The FTC also alleged that the company gave better pricing terms to manufacturers that “broadly committed” to using Broadcom products.

The company, the FTC alleged, told customers that disloyalty in even a single bid that involved using a rival’s products could lead to the loss of favorable pricing terms.

Under the proposed consent order, which is subject to a public-comment period and a final commission review, Broadcom will be prohibited from entering into certain types of exclusivity or loyalty agreements with its customers for key chips for traditional broadcast and some internet service gear, the FTC said. The commission said Broadcom also must stop conditioning access to or requiring favorable supply terms for these chips on customers committing to exclusivity or loyalty for the supply of related chips.

The proposed order prohibits Broadcom from retaliating against customers for doing business with its competitors, the FTC said.

The deal with the U.S. government comes after the company ended a similar antitrust dispute with the European Union, after EU officials ordered the company to stop allegedly anticompetitive contract terms with its customers. At the time, the European Commission said it accepted Broadcom’s legally binding commitments to refrain from any exclusivity arrangements for chips used in television set-top boxes and internet modems.

Broadcom said the terms of the two settlements were similar.

Source: wsj