Trade Wars II: China shuns Qualcomm – no CDMA tax!
Can't pay - won't pay
In what's sure to be a bone of contention in forthcoming Sino-American trade negotiations, China is determined to adopt its home-grown cellular air interface, and the big losers are both Qualcomm and the GSM camp.
Despite pressure from the US government, the 3G Planning Group of the State Information Office in the People's Republic now wants to waive royalties for its preferred TD-SCDMA, a GSM overlay which it developed in conjunction with Siemens. Naturally Qualcomm, which holds 40 per cent of the patents on CDMA, isn't too pleased.
A royalty-free TD-SCDMA would mean nothing for either Qualcomm or the GSM patent holders.
And so the door appears to be closing on the largest untapped market for Qualcomm's CDMA.
Four years ago Qualcomm executives boasted that CDMA would have the largest share of the 2G phone business. When the world went GSM, they then promised that the world would run Qualcomm's cdma2000 3G standard. But Europe and Asia have already plumped for WCDMA in volume, which gives Qualcomm a much smaller royalty. (Qualcomm also markets WCDMA). So it's ceaselessly talked up the potential of the Chinese market: the only one left undecided. And the Chinese are determined to do it their way.
(This mirrors China's investment in Linux, and its determination to produce an x86 compatible processor, the Dragon Chip).
Perhaps South Korea's experience with Qualcomm in popularizing CDMA helped shape their decision. South Korea is the only country outside the United States in which CDMA is more popular than GSM:-
"Seven years ago we did not have international experience, we are just now starting
joint venture work," Seon Jong Chung, president of Korean Electronics and Telecommunications Research Institute (ETRI) is on record as saying. "So seven years ago we followed Qualcomm and the US way. At the time, the US way was more advanced than ours. Later on we found that the US way was not the international way. I'm very sorry, but we committed to such a mistake. We didn't use the modern, standardization approach."
Qualcomm has already signed a deal with Nortel where Nortel's TD-SCDMA equipment would gain the former a royalty. But because China wants to stimulate demand for its own royalty-free TD-SCDMA kit, Nortel's is immediately less attractive.
If China can prove that its TD-SCDMA technology can be made to work - early trials were mixed - although the People's Daily reported a successful trial in June - it has a delicious implications for Sino-American trade relations.
It's debatable whether the US government continue to fight so hard on behalf of a company that's admitted false accounting practices, and its non-standard technology, when other US companies stand to gain much more. Why should it? Qualcomm's loss is Motorola, Lucent and Texas Instruments' gain. Qualcomm's success in identifying itself so closely with the national destiny has obscured the fact that many other American companies gain from being standards neutral: and these include of some of America's biggest technology giants. The net gain for the nation could be substantial.
And if China refuses to pay Qualcomm a cent for CDMA, what will Qualcomm do? Send in its green-ink, letter writing militia? Call for "Supreme Dragonlord" himself?
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