Broadcom Agrees to Settle FTC Antitrust Case Over Broadband, Video Chips

Broadcom has agreed to settle charges filed by the Federal Trade Commission that the firm abused its dominance in the market for chips used in television set-top boxes and home networking gear such as internet modems, striking long-term agreements with its customers that squeezed out potential rivals.

The FTC said that, under a proposed consent order, Broadcom must stop requiring customers to source systems on a chip (SoCs) from the company exclusively or semi-exclusively in the future. The commission charged Broadcom with using anticompetitive tactics in its negotiations with customers, giving it an illegal monopoly in three types of chips for broadcast set-top boxes, internet modems, and broadband devices.

“America has a monopoly problem," said Holly Vedova, acting head of the FTC’s competition bureau, in a statement. She said this "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." The commission voted unanimously to file charges against Broadcom, with new chair Lina Khan staying out of the final 4-0 vote.

The FTC voted to accept the proposed consent order, signed by Broadcom CEO Hock Tan, to address the complaint. The San Diego, California-based firm disclosed the investigation to shareholders in early 2018.

Broadcom supplies networking, routing, storage, and other chips to the top server gear manufacturers. It has also become one of the world's largest WiFi and Bluetooth chip vendors to Apple and other consumer electronics giants. It is also a leading player in embedded processors and other chips used at the heart of television set-top boxes as well as gateways, modems, routers, and other types of home networking gear.

The FTC alleged Broadcom maintained its monopoly over these markets by entering long-term contracts with original equipment manufacturers and service providers that prevented them from buying chips from Broadcom's rivals under threat of retaliation. The main accusation is that Broadcom threatened to punish firms that did not buy Broadcom chips by restricting supplies, refusing support, or charging higher prices.

Broadcom, the FTC, alleged, entered into exclusivity or loyalty agreements with at least 10 manufacturers that control most of the global market in broadcast set-top boxes and broadband devices, including those with the strongest ties to service providers. These unfair practices, the FTC claimed, started as early as 2016, when the chip vendor faced competitive threats to its dominance from "low-priced, nascent rivals."

The FTC said that it also objected to Broadcom's tactics in striking deals with major US and other global service vendors. Broadcom sells the chips directly to manufacturers that roll out set-top boxes, modems, gateways, and other gear. The OEMs roll out the devices to television and broadband service vendors such as Comcast, Charter, Dish, Verizon, and AT&T that then sell or rent them out to consumers. The OEMs also often submit designs to leading service vendors for approval and coordinate with them on chip selection.

The FTC also alleged Broadcom offered better pricing to manufacturers that were “broadly committed” to purchasing its products and warned customers that disloyalty could lead to a loss of favorable prices. “By entering exclusivity and loyalty agreements with customers at both levels of the supply chain, Broadcom created insurmountable barriers for companies trying to compete with Broadcom,” the FTC pointed out.

The complaint also alleged Broadcom leveraged its monopoly to force customers to buy related products, including WiFi and RF chips used in set-top boxes and cable broadband devices. The FTC said Broadcom threatened to withhold the supply of categories of chips that it dominated unless its customers agreed to buy related chips. The tactics, the FTC alleged, hindered the ability of its rivals to compete "on the merits."

Broadcom said in a statement that it was pleased to be moving forward with the settlement. But it also disagreed that its actions violated the law and disputed the commission's portrayal of its business. The semiconductor firm added, "we look forward to putting this matter behind us and continuing to focus on supporting our customers through an environment of accelerated digital transformation. We are equally pleased that the FTC's investigation into our other business lines has been closed without action."

Under the proposed order, Broadcom will be prohibited from entering into specific types of exclusivity or loyalty agreements with its customers for the supply of key chips used in set-top boxes and broadband 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.

The settlement, which still faces a final commission review, further prohibits Broadcom from retaliating against customers for doing business with its rivals by withholding chips or raising prices, the FTC said.

Broadcom settled a similar antitrust dispute with the European Union involving the same chips last year. The deal came after EU officials ordered it to stop using allegedly anticompetitive tactics to get customers to accept unfair contracts. Broadcom, which reported revenues of $17.2 billion in its core semiconductor business in 2020, said its proposed deal with the US government is similar to its settlement with the EU.

In October, the European Commission said that it accepted Broadcom’s legally binding commitments to refrain from exclusivity agreements around chips used in television set-top boxes and internet modems for seven years. The EU did not force Broadcom to pay fines as part of the accord, but the commission threatened to impose penalties of up to 10% of the company's annual sales should it fail its obligations.

The FTC said the proposed deal would not force Broadcom to pay fines for its corporate misconduct as long as it amends its business practices and stops pressuring its customers into unfair contract terms.