'It's caused us to review our own practice' - channel reacts to fines for Tech Data, Ingram and Apple

As news of the €1.24bn fine slapped on Apple, Tech Data and Ingram Micro continues to sink in for the channel, we asked a number of channel figures what the fine could mean for the vendor's wider partner base

The mammoth fines dished out to Apple, Tech Data and Ingram Micro earlier this week may be specific to the French market, but they have had a ripple effect across the channel globally.

Apple took the meat of the €1.24bn (£1.15bn) penalty, but the figures levied at Tech Data and Ingram are enough to make a serious dent in a distie's already-slim margins.

The action from the L'Autorité de la Concurrence brings an end (albeit most likely temporary) to a saga started in 2012, when now-defunct French Apple Premium Reseller (APR) eBizcuss accused the vendor of unfairly favouring its own stores when doling out supplies of its latest products.

Tech Data and Ingram were accused of working with Apple to stifle competition by "implementing the product and customer allocation mechanisms developed and piloted by Apple, instead of freely determining their commercial policy". This "stifled" the market, the French agency added.

The news has been met with surprise in the UK channel, where it raises the question of the possibility of a similar investigation into the vendor's pricing process in this country.

It has also prompted one UK Apple distributor to review its own practices to ensure everything is above board.

Alex Tatham, MD at Westcoast, called the sanction by the French watchdog "extraordinary".

"We immediately initiated a review of our own, just in case there's anything in there that we could learn from," he explained.

"That review is what we would do as a matter of course when we see something like this. We would absolutely make sure there is nothing similar [occurring] to what Westcoast does with Apple or anyone else.

"We're pretty good at making sure that we don't collude or do anything [illegal] and our vendors don't tell us what to sell at or any of those sorts of things."

Tatham voiced a general caution to vendors to be mindful of the competition rules applicable in each market in which they operate.

"All vendors must be careful not to maintain prices against the competition legislation," he warned.

"The competition law is clear, companies make sure that they are abiding by that. Just make sure that you follow the legislation and that's the deal - it's for the protection of the customer."

Price fixing

Dieter Lott, a strategy consultant who previously worked at Avnet for 12 years before the distie was scooped up by Tech Data in 2016, was not surprised by the French watchdog's fine, having experienced firsthand the "close relationships" between disties in that country.

"I know this market pretty well as I spent 15 years in different executive roles - I was actually country manager with France for a while. So I'm not that surprised; I've suspected price fixing in the past," he claimed.

"I've never personally experienced it directly happening, but you do see in some market areas where distributors all have the same pricing and the margin levels are quite high, you start getting suspicious. But I've never really been able to prove it."

He was taken aback by the fact that Tech Data and Ingram Micro were being slapped with such high fines and stated that these fines would have a "huge impact" on those companies. He speculated that it was certain individuals who took the decision to price-fix at the disties, rather than it being company-wide policies at both organisations.

"I don't think they could argue ignorance here; my take is that it was certain individuals at the vendor and the distributors involved, it's not a company policy," he claimed.

"Another important point is that these things can never happen without at least the passive support of the vendor - it's impossible. A vendor may play ignorance and they may not be the one promoting it, but they're aware of it because they have the sales out data and are able to see that distributors are selling at the same margins."

Reassessing the channel?

As the industry reels from the gargantuan fine lobbed at the three companies, some may wonder whether this will cause Apple to reassess its channel strategy in favour of adopting a direct model.

Lott reckons it will prompt them to review their operations and compared the issue they may now face to Dell's dilemma when it first set up its indirect arm.

"They're going to have to do something. Because if they open up the market, maybe less will go through the channel because they can't control that pricing," he speculated.

"A much lower pricing through the reseller channel is the challenge that Dell had for many years as they entered the [channel]; they will get differentiated pricing and they have to accept that it may be to the detriment of their direct business."

He suggested that one way for Apple to overcome this possible dilemma is to segment the consumer business and have retail shops only selling to consumers and using the channel for all business dealings, thereby clearing up any overlap.

Impact on UK partners

The decision of the French investigation was predicated on the support of some disgruntled Apple APRs in that region, but for a similar investigation to occur in different countries would require a similar chorus of voices, according to Alastair Edwards, chief analyst at Canalys.

"This is very much the result of the efforts put in by the French authorities to gather the evidence and to find partners that are willing to speak out," he said.

"That's the challenge for competition commissions in other countries: finding partners that are willing to provide evidence if indeed price fixing is happening.

"I think the distributors are in a difficult position. Apple is imposing commercial conditions and, in some respects, they have to agree to those conditions. So they're in a difficult place, especially given their high dependence on Apple. That's a challenge for distributors when vendors are trying to apply those kind of practices."

The fact that the UK has left the EU wouldn't necessarily negate it from carrying out its own investigation that may result from the French authority's findings because the country's competition laws are still aligned with those of the EU bloc's, Edwards added.

"It's more of a case of whether there is an appetite to pursue a legal case against Apple and against distributors. This [alleged action] did happen a long time ago, so it's difficult to gather evidence," he said.

"It happened successfully in France because one French premium reseller was forced out of business by Apple's practices and it had nothing to lose and was prepared to pursue this.

"It's not an insignificant effort to pursue a case and, without having partners who are prepared to give evidence and stand up against, big tech practices, it's going to be difficult for those different countries to pursue a case, including the UK."

‘A strong message'

The news has been met with surprise in the UK channel, where it raises the question of the possibility of a similar investigation into the vendor's pricing process in this country.

Canalys' Edwards said the ruling is a signal to big tech companies that have perhaps transferred their US pricing model to Europe, without considering the more stringent rules around competition law in European countries.

"I think a lot of big tech companies are under the impression they can get away with practices which are in contravention of EU competition law - Apple isn't the only one. This sends an important signal to vendors and their distributors about the risks of flouting rules within the EU," he noted.

"Although we don't expect a flood of similar cases across the EU, the size of this fine will hopefully send a warning to Apple and other US vendors about the risks of blatantly disregarding competition law in Europe.

"Other US vendors frequently sail close to the wind, often believing they can do so with impunity. France is setting a precedent by demonstrating it is prepared to pursue historic cases and impose big penalties."

In a statement sent to CRN, Apple called the news "disheartening" but said that it would appeal the mammoth fine.

"Apple has been operating in France for over 40 years and we are proud of our many contributions to job creation and economic development. Our investment and innovation supports over 240,000 jobs across the country," it stated.

"The French Competition Authority's decision is disheartening. It relates to practices from over a decade ago and discards 30 years of legal precedent that all companies in France rely on with an order that will cause chaos for companies across all industries.

"We strongly disagree with them and plan to appeal. We are extremely proud to serve our French customers and believe they should be allowed to choose the product they want, either through Apple Retail or our large network of resellers across the country. We will continue to work hard to deliver the best products and services in the market."

CRN also contacted Ingram Micro and Tech Data, with the latter responding that it was "aware" of the antitrust investigation and ruling that it is in the process of deciding on its response.

"The investigation started in 2013 and was previously disclosed by Tech Data in filings with the US Securities and Exchange Commission (SEC)," the distie stated.

"We are determining how we will respond and therefore do not plan to provide additional comment at this time as this is a pending legal matter."

Ingram Micro, meanwhile, called the claims "absolutely false" and intends to contest the ruling.

"The French Competition Authority penalised Ingram Micro excessively because of so-called restricted practices towards its resellers, which they claim have a negative impact on consumers in France," it stated.

"These claims are absolutely false. The IT distribution market in France, and in particular the distribution of Apple products, is extremely competitive for IT distributors."