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Qualcomm considers radical action as pressure mounts

Chipmaker feels the heat in face of likely EU probe

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The latest row within the IEEE highlights how standards groups are increasingly used to play out vendor politics and rivalries, and will further throw doubt over how effective the IEEE process is for the modern wireless industry – especially in the wake of the failure of the 802.15.3a UltraWideBand effort and various hitches in the 802.11n fast Wi-Fi process, all created by the politics of large chipmakers.

It is probably rather less damaging for Qualcomm itself, since the chances of passing 802.20 off as a truly open standard were always slim. It would always have been regarded as virtually a Qualcomm technology anyway, and Flash-OFDM would be better seeking industry support through a backers' club like FLO Forum which can provide a measure of openness, without being bogged down in standards body procedures.

After all, investigations by the EC, IEEE or any other body, while damaging to a vendor's reputation and potentially significant in the future, move slowly and are rife with politics and factional interests. It is far more urgent that the vendor can make its case to the customers, and maintain a sufficiently strong business that even a drastic decision by the authorities – such as a forced breakup – does not prove disastrous.

India

So the patents licensing debate that matters most urgently is not taking place in the corridors of the EC or Department of Justice, but with the major operators in Qualcomm's key markets.

Korea, once the country that most helped establish CDMA as an alternative to GSM, has been chafing against the level of royalties its vendors and operators pay to the west in general and Qualcomm in particular. China is claiming that it does not need to pay royalties to Qualcomm for its homegrown 3G technology, TDSCDMA, an assertion the chipmaker disputes.

And now another giant, India, has joined the battle, pressuring Qualcomm to lower its royalty rates for CDMA. The Indian government and operator Reliance Communications - the largest CDMA provider in the subcontinent and responsible for 8 per cent of the global CDMA user base - are complaining that CDMA is not affordable for India, prompting CEO Jacobs to pay a visit to the Indian communications minister, Dayanidhi Maran.

He is likely to be looking for a concession similar to the one Qualcomm made a few years ago in China, lowering the royalty rates for that country in order to stimulate CDMA uptake. Indian officials said the royalty on CDMA handsets sold in India is 7 per cent.

These discussions are vital and may indicate the first, most urgent changes to the Qualcomm approach. More flexible licensing regimes, or a reduced dependence on patents revenue at all, may be the price of ensuring that CDMA-based technologies take off as rapidly as possible in high growth markets.

Unlike responses to possible EU investigations, these decisions need to be made quickly. They will surely spark a broader review of Qualcomm's business models to prepare it for the 4G world and deflect some of the mounting pressure on the existing model that has served it so well until now.

The company has sufficient strengths and technology assets to make significant changes without destroying itself, and some clever adjustments made now - even if these include some concessions to powerful governments and even to powerful handset makers – should ensure it does not have to go as far as a break-up, and that it still stands a fighting chance of retaining a powerful market position in 4G.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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