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“Broadcom is a monopolist”: FTC orders chipmaker to stop illegal tactics

A Broadcom sign outside one of its offices.
Enlarge / A sign in front of a Broadcom office on June 03, 2021, in San Jose, California.

The Federal Trade Commission on Friday said it charged Broadcom “with illegally monopolizing markets for semiconductor components used to deliver television and broadband Internet services” by preventing customers from purchasing from other vendors. The FTC simultaneously announced that it reached a settlement with Broadcom that requires the company to “stop requiring its customers to source components from Broadcom on an exclusive or near-exclusive basis.”

The FTC said that “Broadcom is a monopolist in the sale of three types of semiconductor components, or chips, used in devices that deliver television and broadband Internet services” and that “Broadcom illegally maintained its power in the three monopolized markets by entering long-term agreements with both OEMs and service providers that prevented these customers from purchasing chips from Broadcom’s competitors.” The contracts required customers to purchase and use “Broadcom’s chips on an exclusive or near-exclusive basis,” the FTC said. “Broadcom entered these exclusivity and loyalty agreements with at least ten OEMs, including those with the most extensive engineering and design capabilities and the strongest ties to service providers.”

Broadcom imposed similar contract requirements on TV and broadband providers, the FTC said. “By entering exclusivity and loyalty agreements with key customers at two levels of the supply chain [device makers and service providers], Broadcom created insurmountable barriers for companies trying to compete with Broadcom,” the FTC said. The service providers that use devices with Broadcom chips include AT&T, Charter, Comcast, Dish, and Verizon, the FTC said.

Broadcom issued a statement saying, “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,” according to Reuters.

Broadcom tried to squash low-priced rivals

Broadcom’s direct customers in the monopolized markets include OEMs that build TV equipment and Internet modems or gateways that combine modem and router functionality into one device, the FTC said. The OEMs that build products using Broadcom chips sell those devices to TV and broadband providers that then sell or rent them to residential customers.

Some of the Broadcom products targeted in the FTC complaint are installed in video set-top boxes, including both the traditional kind used with cable or satellite TV providers and set-top boxes used for online streaming. The FTC said it also objected to Broadcom’s tactics in selling Wi-Fi chips and “‘front-end’ chips for both set-top boxes and broadband devices… [that] convert incoming analog signals to digital signals.”

The FTC complaint said that, by 2016, “Broadcom recognized that it faced competitive threats to its monopoly power as to the Monopolized Products from low-priced, nascent rivals.” Broadcom “sought to maintain its monopoly positions by implementing a wide-ranging exclusivity program covering Monopolized Products,” the FTC said.

The complaint continued:

Broadcom also conditioned customers’ access to Monopolized Products on commitments to purchase, use, or bid Related Products from Broadcom on an exclusive or near-exclusive basis. Through a series of long-term contracts entered with both OEMs and Service Providers, and through an accompanying campaign of threats and retaliation, Broadcom induced customers to purchase or use Broadcom’s Relevant Products on an exclusive or near-exclusive basis. As a result, sales opportunities for Broadcom rivals were severely restricted.

The FTC also objected to Broadcom’s dealings with the TV and broadband service providers, which rely on Broadcom “for ongoing ESS [engineering and software support] Services, including software support and maintenance, troubleshooting, bug fixes, software updates and upgrades, and testing,” the complaint said.

Broadcom in 2016 “began seeking exclusivity and high share commitments from major Service Providers” and “threatened that if a Service Provider did not limit its purchases from Broadcom’s rivals, Broadcom would implement large increases in the fees it charged for ESS Services on devices containing Broadcom Monopolized Products, including Broadcast STB SOCs, that were already deployed on the Service Providers’ networks,” the FTC complaint said.

Residential customers still get hosed

TV and broadband providers generally charge monthly rental fees for these devices. This results in residential customers paying far more than what the set-top box or gateway actually costs unless they buy a device outright. The FTC/Broadcom settlement won’t do anything to change the practices of broadband providers that face little pressure to lower prices because of a lack of competition, but the FTC says it plans to tackle monopolies in other markets, too.

“America has a monopoly problem. Today’s action is a step toward addressing that problem by pushing back against strong-arm tactics by a monopolist in important markets for key broadband components,” FTC Competition Bureau acting Director Holly Vedova said.

The FTC vote on the Broadcom complaint and settlement was 4-0. FTC Chair Lina Khan did not participate in the vote, which occurred about two weeks after she joined the commission. But Khan signaled that more aggressive antitrust action is coming under her leadership on Thursday as she led votes to rescind a 2015 policy that limited the FTC’s enforcement ability, update the commission’s rule-making procedures to set the stage for “stronger deterrence of corporate misconduct,” authorize investigations into tech companies, and boost “enforcement against illegal mergers.”

Settlement forbids exclusivity agreements

The FTC order prohibits Broadcom “from entering into certain types of exclusivity or loyalty agreements with its customers for the supply of key chips for traditional broadcast set top boxes and DSL and fiber broadband Internet devices,” the FTC 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. And the proposed order prohibits Broadcom from retaliating against customers for doing business with Broadcom’s competitors.”

The FTC is requiring Broadcom to file compliance reports within 60 days of the order being finalized and annually for the next 10 years. The FTC is settling the Broadcom case administratively, which means the complaint was not filed in court. The FTC said it will post the consent order and related materials in the Federal Register soon and then take comments from the public for 30 days. After that, one more commission vote is needed to finalize the settlement.

Broadcom agreed to a similar settlement with the European Commission in October 2020.

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