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Broadcom Is Reeling from the Huawei Ban. Now It Faces Big Antitrust Trouble in Europe

This isn’t turning out to be a great month for Broadcom.

Less than two weeks ago, the California chip giant had to knock 8% off its 2019 revenue outlook, thanks to the ban on U.S. companies supplying China’s Huawei, the world’s biggest telecoms equipment firm. That took 8% off Broadcom’s share price.

Now the company is facing a formal antitrust probe in Europe, over the way it allegedly shunts competitors out of the markets for TV set-top boxes and modems. And while the investigation will probably take years to play out—as is already happening in a separate U.S. antitrust investigation into Broadcom—the European Commission is likely to hit Broadcom with a rarely-used tool that could affect its business model sooner rather than later.

“TV set-top boxes and modems are part of our daily lives, for both work and for leisure,” said Competition Commissioner Margrethe Vestager in a statement. “We suspect that Broadcom, a major supplier of components for these devices, has put in place contractual restrictions to exclude its competitors from the market. This would prevent Broadcom’s customers and, ultimately, final consumers from reaping the benefits of choice and innovation.”

A new weapon

The investigation isn’t just a concern for Broadcom because it could theoretically end up with a fine of up to 10% of the company’s overall annual revenues, which would be north of $2 billion in Broadcom’s case. The European Commission also wants Broadcom to change its allegedly lawbreaking ways while the investigation is still ongoing.

This tactic is known in antitrust-speak as “interim measures,” and it hasn’t been deployed by the Commission for the last 18 years. Indeed, if the Commission does go ahead with imposing interim measures on Broadcom—the company has two weeks to explain why this shouldn’t happen—it will be the first time the tool has been used under the EU’s current antitrust enforcement law, which was was adopted in 2004.

To be clear, the accusations being investigated are quite serious. Someone (it’s not clear who yet) passed the Commission information suggesting Broadcom makes set-top box and modem manufacturers agree to exclusivity provisions that stop them buying chipsets from the firm’s rivals.

But why is the Commission waving this big stick at Broadcom when it failed to do so in other big antitrust dramas over recent years, such as the series of cases against Google, or the competition watchdog’s probes into Mastercard and Intel?

Lucky Broadcom

According to Commission spokesperson Ricardo Cardoso, the regulator has been “carefully assessing all the cases we were looking at” to see whether any merited the use of this rarely-deployed tool. Vestager signaled this would happen in a 2017 Financial Times interview that cited the example of France, where the national competition regulator has been exercising this power for years.

The “interim measures” weapon has recently been a hotly-debated subject in competition-law circles, particularly in the context of the fast-moving tech industry. As the British government’s Digital Competition Expert Panel recommended in a March report, antitrust cases typically take years to resolve, so regulators should make “more use of interim measures to prevent damage to competition while a case is ongoing.”

The Commission looked at two things when deciding to threaten Broadcom with this interim measures, said Cardoso: “The first is that you have a serious at-first-sight infringement of competition rules. And secondly, that in this market, without these interim measures, there would be a risk of damage to the market which could not be repaired afterwards.”

Cardoso denied that the Commission was taking this tack with Broadcom as part of a new strategy for dealing with tech companies in particular. Either way, though, the chipmaker would probably rather not have the honor of being the first target of this tool since the turn of the century.

In a regulatory filing, Broadcom said it did not believe the interim measures would have a “material impact” on its set-top box and modem businesses. “Broadcom believes it complies with European competition rules and that the Commission’s concerns are without merit,” the company said. “Broadcom will respond to the Commission regarding its objections and proposed interim measures.”

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