Direct and Open Communication – CSR and Competition

I’ve never been one to duck an issue. CSR in many circles tends to stick to friendly waters; however, real CSR conversations need to address real issues that might not always fit squarely in the green or citizenship arena.

There has been a lot of press in the last week or so focused on new developments in some of the investigations into Intel and the industry’s competitive practices. These may seem to be purely legal issues, but they definitely have an impact on external perceptions of our corporate responsibility reputation as evidenced in the most recent CRO Magazine profile on Intel.

So to lend a little clarity to our positions and responses to the current events, I sat down with our V.P. and General Counsel, Bruce Sewell to get his perspective on some of the recent events.

Dave Stangis. Last week the U.S. Federal Trade Commission (FTC) shifted to a formal investigation into Intel’s competitive practices in the microprocessor market. And, the previous week the Korean FTC ruled against Intel and is seeking to hit us with a big fine. It feels like the legal scrutiny on Intel is increasing. Do you believe we compete unfairly?

Bruce Sewell. Let me answer your question with one word: No. Intel competes aggressively but completely fairly, ethically, and legally.

Advanced Micro Devices (AMD) has been complaining for many years about the lower prices that we are able to give our customers in the form of discounts. These discounts are good for consumers.

Over the last seven years, microprocessor prices, adjusted for performance, have fallen on average more than 42% per year. We strongly believe that our pricing is fair– it is pro-consumer. And despite what AMD has at times complained publicly, we do not sell our products below cost.

So, our prices are good for consumers, but yes, they can be hard on AMD. The competition has driven both companies to work hard at becoming more efficient and better competitors. And we believe the proof of that is in the marketplace.

The market works. I’ve said it before: When our competitors perform and execute, the market rewards them. I don’t think I need to remind our customers that when AMD has in the past offered some highly competitive products–in the server space, for example– they did very well against us. It was a painful period for us. But that experience shows clearly that the market is functioning well. Naturally, the reverse is true, too. When AMD has faltered or underperformed, the market has responded accordingly.

One final point. AMD has been complaining to regulatory agencies in many geographies — in Asia, in Europe, in the U.S., and at the state level as well. Many of these agencies feel compelled to investigate when complaints such as these are made. But please don’t confuse a regulatory investigation or ruling with any kind of a legal finding.

Within the next year or so, the process will shift from administrative agencies–both in the U.S. and abroad– to the courts. We’re very confident that in the court system Intel will receive fair and equal treatment. In the end, with a fair and objective review, I am sure we will be vindicated.

Dave. But what about the U.S. FTC subpoena? Is this a sign that the government at least suspects we’ve engaged in anti-competitive practices?

Bruce. No, it is not. We’ve been fully cooperating with the FTC for more than two years, and have provided the agency thousands of pages of documents. We feel we have a good working relationship with the FTC.

It is apparent from public reports that the FTC has come under some criticism over the last year for not launching a formal investigation into the Intel/AMD matters.

This latest move allows the new FTC chairman to answer those complaints. And, of course, we will continue to cooperate fully.

Dave. In Korea, though, Intel was recently hit with a $26 million fine by the Korean FTC. What should be made of that?

Bruce. First, bear in mind that this was a regulatory decision, not a court case. We believe that the logic the commission used to arrive at its conclusion goes against established competition law and ignores the wealth of contradictory evidence that we provided.

The analysis and the process used by the Korean FTC appears driven in large part by the outcome they wanted to achieve.

We are planning to appeal through one of several routes when we have the final opinion in hand, most likely in about 45 days. And this is important to underscore. We will have an opportunity to present all of our evidence before an independent court. That court will review the case from scratch and reach an independent decision based on the full facts and laws.

Dave. If, in fact, we’ve done nothing wrong, why do you think our competitor is meeting with much apparent success? At the very least, it seems they’re scoring on the PR front.

Bruce. Our competitor has indeed presented itself as a victim of competitive bullying. But nothing could be further from the truth.

If Intel and AMD were roughly the same size, most likely no one would pay much attention to these complaints. But because Intel is a much larger and more successful company, I believe that AMD can get a first hearing when they might not otherwise.

Dave. Is “antitrust” interpreted differently in different parts of the world?

Bruce. Yes. However, we strongly believe that we’ve done business in all parts of the world legally and have fully complied with the competitive laws of every jurisdiction in which we do business.

But at the same time, this whole area of the law is under a lot of scrutiny right now. Lawyers and scholars around the world are asking where the lines should be drawn between consumers’ rights to lower prices through competition and a company’s desire to be protected from tough competition.

The law in the U.S. is really quite clear– big companies and small companies alike are strongly encouraged to compete, and to compete aggressively.

In Europe and Asia, however, the law is much more ambiguous about whether the role of the law is to protect consumers or to protect smaller competitors.

We don’t have an answer from the Europeans yet. But so far the Asian enforcement agencies seem to be leaning more heavily in favor of protecting competitors rather than protecting competition. These agencies tend to be very conservative and focused on the outdated ways of looking at competition and the law.

As I’ve said, the real resolutions will come in court. In the U.S. that will happen in the early part of 2010. In Korea, which is the only place in the world where we have an appealable order, that will also happen sometime in late 2009 or 2010.

Thanks Bruce.

This may be more than you expect in a CSR blog, but I think corporate responsibility means just that.

4 Responses to Direct and Open Communication – CSR and Competition

  1. Doug W says:

    Thanks for raising the issue of competitive practices Dave. This has been a lingering issue that raised questions about Intel’s corporate responsibility. Bruce’s comments are not unexpected but do remind us to wait for the final decision.

  2. Markos says:

    There is only one issue here.
    Did you, or did you NOT, lock in PC manufacturers by offering one price for the processors if they bought all their chips from Intel?
    If you did offer that kind of pricing, you probably broke the law. If you didnt, you did not.

  3. Hi Dave,
    I was very impressed with the work that Intel has done in CSR around the world. I see that you haven’t been as active in Armenia, although there are many consumers here who have heard of your brand.
    At the British Council, we also believe that there is a lot that can be done in the community and many of our projects target the same areas of priority, like education and the environment, that you have targeted. Over the near 75 years of our existence, we have reached 109 countries. We have been in Armenia for more than 5 years and have become a well-respected name here in many areas including community projects.
    One of our current projects aims to improve entrepreneurship abilities and IT/internet skills among 15-18 year olds in Armenia. We have been looking for corporate partners to work with and Intel seems an ideal candidate. This would also be an excellent opportunity for you to celebrate your 40th anniversary here and promote your brand in our part of the world.
    Please contact me (Nazareth.Seferian@britishcouncil.am) for further information or any comments and suggestions. I had sent a message about this through the World Ahead contact form a week ago, but did not get any feedback.
    All the best and great job on the work you’ve done so far!

  4. Hi Dave,
    Does Intel covers CSR over here in Malaysia? I have an event coming up on June 29, 2008 to help the poor kids and enable IT. This event will be based on Green Computing too and organize in the forest. I have few sponsors in the list like Microsoft, but it will sound great if Intel is part of it.
    Any help? Hope you can email me at my email address :)
    Thanks.