The Economist Asia - 27.01.2018

54 Business The EconomistJanuary 27th 2018

2 leader. A scorecard issued annually by Na-

vigant, a consultancy, putsGM ahead of

the AVpack of carmakers and tech firms,

with Alphabet’s Waymo in second place.

ThatGMis ahead of Silicon Valley’s

risk-takers may seem surprising. But earlier

investments, which were once looked on

with scepticism, seem to be paying off.

Alan Batey, GM’s president for North

America, points to the manufacturing of

mass-market long-range EVs, where the

firm has a lead. The Chevy Bolt, the world’s

first such vehicle, has been on sale for over

a year, beating Tesla’s Model 3 and the new

Nissan LEAF to market.

The Bolt is supposed to be the basis for

an ambitiousautonomous ride-sharing

business. On January 12th GM announced

the latest version of itsCruise AV, a Bolt-

based robotaxi without a steering wheel

or pedals. GM plans to use it to launch a

commercial scheme in several cities, start-

ing next year. Rival tech firms and carmak-

ers are only running, or are planning to

launch, small test projects.

Revenge of the robotaxis

When GMpaid $1bn in 2016 for Cruise, an

artificial-intelligence startup, many an-

alysts wondered whether it was throwing

away money. But the marriage of cutting-

edge technology and large-scale manufac-

turing seems to be paying off. The carmak-

er has learned to be more nimble; Cruise

has picked up how to make its fiddly tech-

nology robustenough for the open road.

As a result, GMcan now mass-produce

self-driving cars, says Dan Ammann, sec-

ond-in-command to Ms Barra. Scale will

help steeply to reduce the cost of sensors,

which are the key components of an AV.

The firm is being rewarded because, un-

like other carmakers, it has assembled all

the parts of the puzzle youneed to build

new transport services, says Stephanie

Brinley ofIHS Markit, a consultancy. But

even ifGMis no longer a dinosaur, risks re-

main. In particular, it may be too bullish in

its estimate ofthe market for robotaxis and

it may be placing too much faith in the

benefits of being the first to market.

The company expects demand to ex-

pand quickly. Costs of ride-hailing ser-

vices, it predicts, will fall from $2.50 a mile

now to about $1 as the main expense—the

driver—iseliminated. In America alone it

would be able to tap a market worth

around $1.6trn a year (representing three-

quarters of all miles travelled) as drivers

are lured from their cars to robotaxis. But

what Mr Ammann callsthis “very big busi-

ness opportunity” comes with an inconve-

nient corollary. As car buyers become car

users, GM’s legacy business supplying ve-

hicles to drive will decline accordingly.

Critics think thatGM may have acceler-

ated too swiftly and that it will have to en-

dure years of losses before robotaxis take

off. Even ifthings move fast, points out Be-

renberg, another bank, GMmay not be the

one to benefit. The main constraint in

growing a ride-hailing business now is ac-

quiring drivers. But when these are elimi-

nated, capital will be the only limit. And

that could mean huge fleets of robotaxis

chasing passengers, forcing prices down.

Riders may then choose a brand they re-

cognise, such as Uber and Lyft, rather than

Maven, GM’s ride-hailing business.

If so, being first would confer little ad-

vantage. And yet, if carmakers do not want

to accept their fate passively, they have lit-

tle choice but to remodel themselves. The

outsized Silverado and the sensor-packed

Cruise AV show thatGM has the present in

hand—and that it is at least doing its best to

safeguard its future. 7

T

HE tech industry hardly needs another

reminder that trustbustersare on its

case. But the European Commission is al-

ways happy to oblige. On January 24th Eu-

rope’s executive body slapped a penalty of

€1bn ($1.2bn) on Qualcomm, one of the

world’s largest chip-designers, for abusing

its dominance in baseband processors, a

critical component in mobile phones.

Large fines are becoming something of

a habit for Qualcomm, which will have

paid out nearly $1bn a year, on average, to

trustbustersthe world over since 2015. This

week’s penalty, which amounts to nearly

5% of the company’s global annual rev-

enue, is a reflection of what Margrethe Ves-

tager, the European competition commis-

sioner, described as its “very illegal

behaviour” between 2011 and 2016. During

that time, according to Ms Vestager, the

company attempted to shore up its domi-

nant position—it is estimated to supply up

to four-fifths of essential types of base-

band chips—by paying Apple, its biggest

customer, billions of dollars in return for

being its exclusive supplier.

The commission ruled that the strings

attached to these payments—which in-

cluded a clawback of part of the money,

should Apple use other suppliers—acted to

shut rivals out of the market. According to

internal documents from the time, Apple

had long considered sourcing its chips

from Intel, but it did not actually do so until

2016, after its deal with Qualcomm had ex-

pired. (The chipmaker insists that its prac-

tices did notviolate European Union rules,

and plans to appeal against the commis-

sion’s decision.)

Qualcomm’s pricing strategy, too, has

won it few friends in recent years. Most

contentious is the way in which it licenses

its intellectual property to device-makers,

charging them a percentage of the total sell-

ing price of their devices. Apple alleges that

such royalties act as a tax on any innova-

tive features it adds to its products, and is

yet another way in which the chipmaker is

abusing its market power. Apple is seeking

damages of over $1bn from the chipmaker

in lawsuits filed both in China and Califor-

nia. Regulators in Taiwan, South Korea and

China have already extracted penalties for

the licensing model; an investigation by

America’s Federal Trade Commission,

launched last year, isunder way.

In a rare bit of good news for the chip-

maker, regulators in Europe and South Ko-

rea last week gave their blessing to Qual-

comm’s $47bn acquisition ofNXP, another

chip-design firm. Qualcomm hopes the

purchase will help it to boost itsbusiness

in 5Gchips and the “internet of things”, as

connected devices are collectively called.

But Ms Vestager is not quite finished with

the firm. The commission is yet to rule on

whether it also engaged in predatory pric-

ing between 2009 and 2011 by setting the

prices of certain chips below cost, alleged-

ly to force a competitor out of the market.

The continued uncertainty, and Qual-

comm’s hefty penalties so far, may give the

company’s own predator, Broadcom, a ri-

val chipmaker, more ammunition. Its

$130bn offer for Qualcomm was rebuffed

last year; a heated proxy fight at Qual-

comm’s annual investor meeting in March

seems likely. Qualcomm argues that regu-

latorswill never bless the union, which

would be the largest-ever tech deal. But

Broadcom reportedly plans to end the li-

censing model if it is allowed to make the

purchase, which would probably draw the

battle with Apple to a close. That is some-

thing for trustbusters to chew on. 7

Qualcomm’s woes

A fine habit

The chipmaker is fined again for

anti-competitive practices

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