In Pavlovian fashion, the sight of Broadcom and the FTC in a headline set our saliva glands surging. Unfortunately, our appetite for drama and carnage has been baited and switched, as Broadcom has already settled the monopolist charges with the US Fair Trade Commission (FTC) – and apparently suffered no consequences from its position.
The first sight of the charges was on July 2nd, but Broadcom had settled just four days later. The initial charges were that Broadcom was abusing a monopoly position on semiconductor components for set tops and broadband CPE – threatening to withhold support if customers used other suppliers, or to increase prices, or cut off sales entirely.
The charges dated back to 2016, where the FTC alleged that Broadcom struck the first of at least 10 “exclusive or near-exclusive” deals with companies. Such “strategic partners” were allegedly required to use Broadcom technologies, even if they were not the best option in terms of price or performance. If you were not such an exclusive partner, Broadcom allegedly charged higher prices, and provided slower product delivery and support services.
The FTC alleged that Broadcom was monitoring operator RFPs, and the resulting bids from CPE manufacturers. If these manufacturers included parts from Broadcom’s rivals, “Broadcom communicated to customers that disloyalty as to even a single bid involving a single relevant product could mean loss of strategic partner terms.”
It wasn’t just empty threats, alleged the FTC, saying that Broadcom retaliated against a company that had not yet agreed to the exclusivity deal, but cutting off supply and support, after that company had submitted a bid that upset Broadcom. This forced the company to withdraw its bid, and sign up.
“In all, Broadcom entered exclusive or near-exclusive agreements with at least ten OEMs, which collectively are responsible for a majority of set top and broadband device sales worldwide, and even higher percentages of set top and broadband device sales in the US. Through these contracts and coercive tactics, Broadcom foreclosed rivals from a substantial share of the relevant product markets and harmed competition in these markets,” concluded the FTC.
This all feels pretty greasy, and the question of legality is whether Broadcom held a monopoly position. If Broadcom was a minnow, such practices would not be anticompetitive – just shady, and likely enough to discourage anyone from doing business with it. Unfortunately, Broadcom is a giant, and such threats would likely actively harm companies from doing business with operators, without Broadcom forcibly inserting itself into the deals.
But Broadcom has a history here, and was suspiciously quick to settle. In a statement, Broadcom said that it disagreed with the FTC’s assertion that it had broken the law, but “we are pleased to move toward resolving this broadband matter with the FTC on terms that are substantially similar to our previous settlement with the EC (European Commission) involving the same products.” Broadcom added, “We are equally pleased that the FTC investigation into our other businesses has been closed without action.”
Nonetheless, Broadcom has now agreed to a settlement that sees it barred from striking some of these exclusivity deals and retaliatory measures. As Broadcom mentioned, it’s a similar deal to the one settled in October 2020, with the EC, which suspended all existing agreements containing exclusivity or quasi-exclusivity arrangements.
Looking forward, the FTC might be ramping things up, under the new administration. A new head, Lina Khan, has proved controversial, with the usual tech lobbyists getting rather sweaty at the thought of the axe being swung.
Amazon was the first to show signs of cracking. In its defense, the unusual move for the FTC to head up an investigation into its $8.5 billion acquisition of MGM instead of the DoJ is definitely cause for concern. Khan’s Amazon’s Antitrust Paradox, published in the Yale Law Journal in 2018, is evidence, Amazon’s lobbyists claim, that she has it in for Amazon – but it seems that Khan is pretty opposed to the influence that Silicon Valley has on American life in general.
That article argues that the old measure of antitrust harm is not applicable in today’s market. Consumer prices and happiness have traditionally been the measure of determining whether an antitrust abuse has occurred, but this is rather hard when the likes of YouTube makes videos available for free, and when Amazon has driven prices down by beating the bricks-and-mortar retailers to the e-commerce punch.
Similarly, there is not a current restriction on how large a company can be. Amazon is enormous, with fingers in very many pies, but there’s nothing in the books that says it can’t do this – even if you have a suspicion that its influence in one market is having a material impact on others.
For Broadcom, the case is clearer – and was settled before Khan’s arrival. Going forward, smaller firms are likely to find it easier to get the FTC’s ear, and make the case for pressure or intervention in their particular niches. Operator CPE is one such area, but there will be cases to be made across the entire stack – from the customer homes all the way through carrier networks and into the data centers themselves.
So, while it didn’t happen under Khan’s remit, the case might be the start of a new chapter. Broadcom’s quick agreement to settle could be read as trying to avoid more barbed criticism and attention from Khan, but without being privy to all the evidence collected, one can’t be sure.
There’s also the question of whether the FTC has actually punished Broadcom. The wording makes it sound like Broadcom has simply agreed to follow laws it should already have been following. There’s no talk of fines or further investigations, no threats of a breakup, nor any restrictions or embargoes. Instead, this looks like a slap on the wrist, but done wearing winter mittens. Sure, it’s been told that it better not step out of line again, but Broadcom has seemingly gotten away with doing so for the past five years.