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The US-headquartered wireless and telecommunications research and development company Qualcomm is the world leading enterprise in the CDMA chipsets technology. Since entering China in 2003, Qualcomm has wide cooperation with the Chinese enterprises.

In the middle of March, the telecommunication chipsets giant Qualcomm were facing more and more accusations for its two many patents. Many CDMA terminal manufacturers in China said that Qualcomm had been making use of its advantageous position and asking for many high patent fees, making the cost of CDMA mobile phones much larger than the GSM ones. This forces Chinas CDMA industry chain to develop in a relatively closed environment.

According to the report from China Business News, Qualcomm had to face the accusation by the Korean Fair Trade Commission, who considered the commercial behavior of Qualcomm in Korea against the Korean Anti-monopoly Law. Texas Instruments, Broadcom and the Korea-based Nextreaming triggered this accusation.

“The patent fee should not be too high, or it will hinder the technological development,” said Li Jinliang, a telecommunication expert in China.

The relevant director of Qualcomm China said that Qualcomm had been playing an important role in the development of CDMA industry chain. After China Telecom took over the CDMA network, more and more small- and middle-sized enterprises in China joined in the CDMA camp. They all acknowledged Qualcomms business pattern. By now over 30 Chinese enterprises have been authorized by Qualcomm and become its cooperative partners, while in the world the number is 160.

Implicit Rules of the Industry

“Previously we used the CDMA chipsets developed by VIA Technology Inc (hereafter VIA).; however, if we want to further enrich the genres of products and to join in the collection camp of China Telecom, wed better use the chipsets developed by Qualcomm,” said a boss of a mobile phone manufacturing factory based in Shenzhen. He hopes to join in Qualcomms CDMA camp to improve his own enterprises competitive power. However, the “entrance fee” (fee for the authorization of using Qualcomms products) is 10 million yuan (USD 1.46 million). In addition to the mobile phone sale commission and service fee, the large cost is really a hurdle for this boss.

“Actually, this is a game rule of the chipsets industry. Only the authorization fee of Qualcomm is a bit high,” said the boss of another Shenzhen-based telecommunication factory. Presently, only two factories produce chipsets in China – VIA and Qualcomm. Most enterprises which begin to set foot in the manufacturing of the CDMA mobile phone adopt the chipsets made by VIA.

The main reason for those enterprises to use VIA Technologys products is that the entrance fee is less than 200 thousand US dollars. With the increase of the sale, VIA will return these fees to the manufacturers gradually. In contrast, the entrance fee of Qualcomm is between 1 million to 2 million US dollars and no return is available; instead, commission has to be paid after the sale of the mobile phones.

In the middle of February, Jiang Jianping, Vice President of VIA also expressed his worries about Chinas CDMA industry in a forum held by China Telecom. In his opinion, the truth that the cost of CDMA mobile phones is larger than the one of GSM mobile phones is mainly attributed to the entrance fee of the patent technology and commission.

“Those factors all exert negative influence upon the development of CDMA industry chain. Our operators are also in the adverse position,” said Jiang Jianping.

Changeable Commission

According to a source from a Shenzhen-based mobile phone design company which has gained the authorization of Qualcomm, the entrance fee of Qualcomms CDMA and the service fee of updating software every year are fixed. However, the commission of selling patent products is changeable. Qualcomm usually divides the customers into two classes – Class A and B, depending on the relationship with the customers. The gap between the commission rates for those two classes of customers is usually 15% to 20%.

“We are very cautious in our cooperation with Qualcomm,” said the above-mentioned source. His company sometimes also uses VIAs CDMA chipsets according to the clients requirements. However, if such a case is open to the public, Qualcomm may delete the favorable condition in the patent fee for this company.

A source from another mobile phone manufacturer proved the saying in last paragraph. But this companys CDMA mobile phone is sold so well that it enjoys a lot of favorable conditions from Qualcomm. There is no need for them to cooperate with the other chipsets manufacturers.

According to a report from Qualcomm, seven Chinese CDMA terminal manufacturers got the patent authorization of Qualcomm from last April to this February, including some small- and middle-sized enterprises. In Qualcomms opinion, this means that Chinas terminal manufacturers have already acknowledged Qualcomms business pattern

Business Pattern under Query

In spite of that, Qualcomms business pattern has also been criticized a lot.

“A middle-end CDMA chipsets made by Qualcomm is usually priced at seven US dollars while the one made by VIA is priced at six US dollars,” said a general manager from a Chinese CDMA terminal manufacturer. Presently, the price of VIAs CDMA chipsets is usually one or two US dollars lower than Qualcomms. Nonetheless, the price of CDMA chipsets is at least 20% higher than the one of GSM chipsets.

Lei Ming, former President of Qualcomm China, blamed Qualcomms exploitation of the CDMA mobile phone manufacturers after he left Qualcomm in 2001. He also said that the monopoly of Qualcomm in China encumbers the development of CDMA industry in China.

A source from Broadcom said that Qualcomm took advantage of its dominant control over CDMA patent to conduct the bundle sale and expel other chipsets manufacturers. For example, Qualcomms CDMA solutions include the bundle sale of RFMDs Bluetooth technology and Atheross WiFi chipsets and open some application programming interfaces (APIs) especially for them. However, Qualcomm doesnt open APIs for the other Bluetooth and WiFi chipsets manufacturers, which indirectly leads to those manufacturers loss in the CDMA terminal market.

Such a saying also became the basic reason of Texas Instruments and Broadcom to accuse Qualcomm of violating the Korean anti-monopoly regulations. The two companies believe that Qualcomm integrates the multi-media solutions into its chipsets and provide discount for its customers.

According to Li Jinliang, Qualcomm requires so high a fee for patent authorization that the cost of purchasing the equipment and terminal, forcing more operators to give up CDMA gradually. Koreas second largest telecommunication operator Korean Telecom Freetel (KTF), Japans second largest telecommunication operator KDDI and two India-based CDMA operators – Reliance and Tata- all declared to give up their own CDMA network last year.

“The case of KTF tells one truth: no autonomous technology means no independent development. Nearly half of this Korean companys profits are taken away by Qualcomm,” said Li Jinliang.

“Many customers require us to add more functions in our CDMA terminal chipsets. We just conduct the bundle sale based on the requirements of our customers,” said an insider from Qualcomm.