Jeff Kagan: Why Qualcomm Antitrust Monopoly Ruling Is Wrong

Jeff Kagan  |

Word came from a U.S. Judge that Qualcomm  (QCOM) violated antitrust law. While I appreciate the court trying to keep the marketplace fair, in this case I think it was simply wrong. Two points. One, Qualcomm is not a monopoly. They have competitors like Huawei, Ericsson  (ERIC), Intel  (INTC) and more. Two, a market-based solution works better than a government-imposed one which always creates new problems.

Let’s take a closer look at these important issues which say to me that this is not a matter for the courts. Rather, as always, it’s a matter for the marketplace to resolve.

First and foremost, there is a difference between good intentions and reality. Every business matter is better off being resolved in the marketplace if at all possible. When the government gets involved, there are always lots of ways we regret it going forward. Problems always show up that we don’t even know about yet.

Marketplace can resolve any problem with Qualcomm pricing

The market-based solution is simple and effective. If Qualcomm is charging too much, then companies can choose a competitor. It’s that simple. There still are competitors in this space. Companies like Huawei, Ericsson and others.

So, networks have a choice. They are not tied to Qualcomm. They choose based on their own preferences. By definition, that means Qualcomm is by no means a monopoly.

The government trying to control pricing is simply wrong and dangerously short sighted.

After all, does the government say a Mercedes Benz or Lexus should cost as little as a Chevy or Ford? Of course not. Customers who want an expensive car can buy an expensive car.

Same in the 5G chip and network world. Networks have the ability to choose whichever supplier they want. Why would the government think there is a problem with that?

Qualcomm is a Lexus not a Chevrolet

Second, companies must be profitable in order to stay in business. That’s one reasons why company after company has dropped out of this space over the years.

Most recently, Intel dropped out. They said the reason is simple. They could not be profitable. And that makes my point.

Companies should be able to charge whatever they want as long as the customer has other choices. That’s what makes a market.

After all, if you own an Apple iPhone or Samsung Galaxy smartphone, you are paying much more than you have to. There are less expensive models in the market. Yet, these are the top two players in their space. Why? The answer is simple. Because that’s what customers choose.

There is no difference between a Lexus and a Mercedes Benz, Apple iPhone or Samsung Galaxy, and Qualcomm 5G and network gear. And there are less expensive alternatives in the market today.

So why does the government need to step in?

Companies like Qualcomm and Intel must be profitable

Qualcomm has been successful. They are still in this business when others failed and left. The reason is they understand they need to be profitable. That’s why they charge more. I look at this as being smart. If other companies were as smart, they may still be in this space as well.

Qualcomm is not a monopoly. There are other competitors they compete with like Huawei, Ericsson, Intel and many others.

They may be a strong competitor, but that is not a monopoly. Instead, I see Qualcomm as understanding the marketplace and doing what they have to do in order to stay in the 5G chip business.

Qualcomm is not monopoly and competes with Huawei, Ericsson, Intel

Many competitors either had lower quality gear or they didn’t charge enough to remain profitable. Like what Intel said a few weeks ago when they exited this business space.

Qualcomm is one of a few companies that has cracked the code. They make excellent quality chips and network gear, and they make a profit.

Isn’t that the definition of a well-run business?

The problem I see with this antitrust ruling is the court thinks they know better than the marketplace. They think if they say that Qualcomm is overpriced and must reduce their cost to the networks, that will solve the problem.

However, that won’t solve the problem. In fact, I firmly believe it will make the problem worse, not better. It will create new problems we cannot even see today. That’s what happens every time we do this.

All it will do is make it more difficult for Qualcomm to be profitable. And when a company is not profitable, they either exit the business or reduce their quality. We’ve seen this movie too many times.

The problem with the antitrust ruling against Qualcomm

So, while I appreciate the effort made by this court, the reality of business is much different, much more complex and intricately linked. Today’s marketplace is much more effective at finding the right balance than any of us. And when the market lets an industry evolve, there are no unforeseen consequences we have to deal with down the road.

The 5G marketplace should be a place where companies can choose their suppliers. Where they can get the products they need, from a variety of players who can be profitable.

If the court wants to help us save money, there are so many other companies they can focus on. Companies like Apple with their super expensive iPhone, Samsung with their pricy Galaxy, Mercedes or Lexus with their luxury cars and so many others.

Think about it. If this action against Qualcomm stands, then it is only the right thing to take down every other high-priced company as well.

If you want to talk about monopolies, what about Facebook, Twitter, Alphabet and so many others who are even more monopolistic. After all, who is their competition? If that’s the case, why then don’t we take them down, too?

You may think, that makes no sense. Well that’s the same argument with Qualcomm. They have competitors so they are not a monopoly. There is no antitrust issue. They are priced like a luxury car or house. This is simply part of our successful economy. And it has always worked.

The marketplace always finds the best balance. Government may have the best intentions, but in reality, it always screws things up, both today and tomorrow as new problems are created from this incident. Enough said.


Jeff Kagan is an Equities.com columnist. Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst, Influencer, speaker and consultant. He follows wireless, wire line, telecom, Internet, pay TV, cable TV, IPTV, Cloud, Mobile Pay and communications technology. Email him at jeff@jeffKAGAN.com. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan.

DISCLOSURE: The views and opinions expressed in this article are those of the author, and do not represent the views of equities.com.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
INTC Intel Corporation 48.19 1.34 2.86 21,886,309 Trade
ERIC Ericsson 9.58 -0.14 -1.44 5,868,587 Trade
QCOM QUALCOMM Incorporated 74.95 2.40 3.31 13,807,972 Trade

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