Korea phone royalties to continue, says Qualcomm

Telecoms chip maker Qualcomm has denied claims that its technology licensing agreements with South Korean mobile phone makers will soon expire - an event that had been predicted to cut handset prices by up to five per cent.

Citing a confidential contract between Samsung and Qualcomm, the Korea Times said yesterday that licence fees for exported phones would be phased out in 2008, and for domestic sales in 2006. However, US-based Qualcomm said today that media reports of an imminent end to royalty payments were not correct.

"Royalties generally continue throughout the life of the licensed patents," Qualcomm says in its most recent annual report, but adds that "in a small number of agreements, royalties are payable on those patents for a specified time period."

In fiscal 2005, about $2.1bn, or 37 per cent, of Qualcomm's $5.6bn revenue was earned in South Korea, according to company financial data - the country is the largest single user of Qualcomm's technology. Qualcomm no longer manufactures chips itself, and makes much of its income from royalty and licence fees.

According to media reports from Korea during the past couple of years, telecoms manufacturers have complained that Qualcomm's royalty charges in Korea are too high compared to those levied elsewhere. The country has tended to act as a testbed for Qualcomm's technologies. Qualcomm would not confirm a report that it charged a royalty of 5.25 to 5.75 per cent in Korea.

The Korean claims and denials arise amidst a background of growing discontent with Qualcomm's powerful grip on core technologies used in the mobile phone industry. Qualcomm developed and patented many key technologies related to the CDMA (Code Division Multiple Access) standard during the late 1980s and early 1990s, and is seeking to extend its influence to cover new 3G technologies. The total CDMA royalty earned by Qualcomm in Korea rose from about $400m in 2002 to over $500m in 2004, according to government statistics cited in media reports.

In Europe, Nokia, Ericsson, NEC, Panasonic and others have alleged anti-competitive behaviour by Qualcomm, and filed complaints with European Commission regulators. Qualcomm denied these allegations and filed a patent infringement lawsuit against Nokia.

In the US, competitor Broadcom Corp. has filed an action alleging that Qualcomm violated antitrust and unfair competition laws. The two companies also exchanged patent infringement lawsuits. "[Qualcomm's] monopoly in CDMA technology has increased the price of cell phones in the US, and we are hoping that the courts will prevent the same thing from happening with the next generation 3G cell phones," claimed Scott McGregor, Broadcom's president and CEO.

Antitrust actions in one part of the world have tended to spark similar actions elsewhere, and Korean antitrust regulators have been particularly active recently. For example, cases against Microsoft in the US were followed by regulatory action in Europe, and subsequently by investigations in Korea and other countries. "Major telecommunications equipment companies on three continents are standing up and saying that Qualcomm’s business practices are unfair, anticompetitive and ultimately illegal. Qualcomm’s illegal practices stifle competition and ultimately hurt the consumer," said David Dull, a senior vice president and general counsel at Broadcom.

As well as CDMA, Qualcomm's patent portfolio covers aspects of other popular standards, including WCDMA (Wideband CDMA) and CDMA2000, the basis for the 1xEV-DO wireless data standard.