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Cable Tech

FTC targets Broadcom's 'monopoly power' over video and broadband silicon

The US Federal Trade Commission has lodged a complaint against Broadcom over claims that the chipmaker has exercised "monopoly power" with its range of video and broadband silicon that powers set-top boxes, modems and gateways.

Broadcom, a top supplier of DOCSIS and set-top box silicon to the cable industry, has exerted that monopoly power over both service providers as well as original equipment manufacturers (OEMs), the FTC alleged in a complaint (PDF) that was filed July 2.

According to the FTC, Broadcom is a "monopolist in the sale of three types of semiconductor components" used as the core circuitry for traditional TV set-tops and certain broadband devices. The Commission also claims Broadcom is one of the few suppliers of five other related types of chips that provide the core circuitry for streaming set-tops and cable broadband devices, along with Wi-Fi silicon and "front-end" chips for both set-tops and broadband devices that convert incoming analog signals to digital signals.

Examples of end customers in the US cited by the complaint include AT&T, Charter Communications, Comcast, Dish Network and Verizon. On the cable side of that service provider equation, Broadcom has sought, and in some cases secured, stringent joint development deals (JDAs) related to new silicon Broadcom is building based on the new DOCSIS 4.0 specifications, industry sources tell Light Reading. Those JDAs, sources added, have become a point of contention among certain cable operators. Light Reading will have a more detailed story on that development later in the week.

The FTC's complaint further alleges that Broadcom used "threats of retaliation" against other customers to deter them from using products supplied by Broadcom's rivals, and that its actions have likewise hindered competitors.

"Since 2016, Broadcom has entered and maintained agreements with customers that require customers to purchase, use, or bid Monopolized Products and Related Products from Broadcom on an exclusive or near-exclusive basis," the FTC alleges. "Broadcom secured these restrictive contract terms in part by threatening to retaliate against 'disloyal' customers in various ways, including by withholding needed Monopolized Products, by charging higher prices for needed Monopolized Products, or by withholding support for previously purchased Monopolized Products."

Alleged sway over OEMs and major service providers

The FTC alleged that Broadcom induced OEMs to enter deals on an exclusive or near-exclusive basis in order to be treated as favored or "strategic" customers. Customers that did not broadly commit to the chipmaker would be mere "tactical" customers that would face higher prices and less favorable non-price terms and conditions than their rivals, including disadvantageous technology access, product allocation, delivery lead times and bid support, the complaint stated.

"In other words, OEMs that did not accept exclusivity, the 'tactical' customers, would find themselves at a significant commercial disadvantage relative to other, competing OEMs that did agree to purchase exclusively from Broadcom," the FTC alleged. The Commission noted that at least ten OEMs, which collectively represent the majority of set-top and broadband device sales worldwide, entered into these exclusive or near-exclusive arrangements with Broadcom.

The complaint also holds that, in parallel with its exclusive arrangements with OEMs, Broadcom in 2016 also began to seek exclusivity and "high share commitments" from major service providers – initially in the US, and later around the world.

"As a lever to extract these commitments, Broadcom 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 (engineering on devices containing Broadcom Monopolized Products, including Broadcast STB SOCs), that were already deployed on the Service Providers' networks," the FTC alleged. The Commission added that charging substantial fees for ESS services, available only from Broadcom, was a "departure" from the chipmaker's prior practice and dealing with service providers.

Among examples, the FTC cited an unnamed "major" service provider that considered awarding a minority share of a design award to a new supplier rather than Broadcom, but when faced with threats by Broadcom to boost prices for current business as well as an increase in ESS services, the service provider later gave the entirety of the design award to Broadcom.

"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," said Holly Vedova, acting director of the FTC's Bureau of Competition, in a statement.

Proposed consent order

The FTC has also voted to accept a proposed consent order that addresses the issues linked to the Broadcom complaint, and has been signed by Broadcom President and CEO Hock Tan for public comment.

According to CNBC, the proposed agreement would prohibit Broadcom from entering certain exclusivity or loyalty contracts with certain customers, ban Broadcom from conditioning access to chips in exclusivity or loyalty deals, and prohibit Broadcom from retaliating against customers that also deal with the chipmaker's competitors.

In a statement to Light Reading, Broadcom said it is "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 settled the EC-related complaint last fall.

"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 and continuing to focus on supporting our customers through an environment of accelerated digital transformation," Broadcom added. "We are equally pleased that the FTC investigation into our other businesses has been closed without action."

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— Jeff Baumgartner, Senior Editor, Light Reading

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