Date:29/06/2006 URL: http://www.thehindubusinessline.com/2006/06/29/stories/2006062903630400.htm

Back Qualcomm may invest more in R&D centres

Thomas K. Thomas

The royalty issue
Since royalty is a percentage in single digit of the handest price, the royalty is really low. In the near future, we will see sub-$20 handsets in the market.
CDMA is not a proprietary technology. And to think that GSM does not pay royalty is not true.

MR JEFF JACOBS, President, Global Development, Qualcomm, in the Capital on Wednesday. - Kamal Narang

New Delhi , June 28

Mr Jeff Jacobs, President, Global Development, Qualcomm Inc, is part of the high power team visiting India to find a resolution to the concerns raised by Reliance Infocomm over royalty payments. In an exclusive interview to Business Line, Mr Jacobs spoke on the controversy, the future roadmap for code division multiple access (CDMA) technology and on Nokia's decision to pull out of CDMA handset business.

Is Qualcomm prepared to lower its royalty in India on CDMA handsets?

It is interesting to note that India has the lowest royalty on CDMA handsets. India has the cheapest CDMA phones and since royalty is a percentage in single digit of the wholesale price, the royalty is really low. We do not talk about specific numbers but the royalty component is insignificant in the total cost of the handset. Compared to the numbers in China, the average overall royalty in India is 15 per cent lower. Nobody in the world pays 7 per cent as royalty as is being claimed.

If the royalty is low, why is Reliance Communication, which has threatened to shift to the rival GSM technology, pushing for reduction?

They are trying to drive down the cost and at this time they have the point of leverage because they have the opportunity to do so; they are looking out for equipment purchasing for a major expansion into the rural markets and one of the components that adds to the overall cost, though small, is royalty. There is, however, a misconception that Qualcomm is making $15 or $20 per phone as royalty. These numbers are in the cold storage.

How are you going to address the concerns raised by Reliance? When do we see cheaper CDMA handsets?

We are working with Reliance to keep dropping the handset costs. We are working on the technology side to bring down costs. There are a variety of things such as sales and support, packaging that drives the price down. It also depends on volumes. If they make a commitment for big volumes, that will bring prices down.

So we are working with the operators on different things including, technology, logistics, shipment cost that will enable lowering the handset price.

A lot of R&D is going to drive down costs of chips and components that will enable cheaper handsets. In the near future, we will see sub $20 handsets in the market.

Even the Korean Government has raised the royalty issue. Do you think Qualcomm should change its business model based on open standards?

There is no change in the business model. The initial contract signed with the Korean manufacturers was for a certain period of time. Since then we have renegotiated the contract with every major Korean manufacture. CDMA is not a proprietary technology. Just like you think that WCDMA is open or GSM is open, CDMA is exactly the same. To think that GSM does not pay royalty is not true. Nokia, Motorola, Ericsson and couple of others have formed a club to trade intellectual property on GSM and have decided that they are not going to charge each other. But any new entrant, such as the Koreans, Chinese, who wants to come into the GSM market, has to pay the royalty.

Any plans to bring in fresh investments? What about getting CDMA gear suppliers to set up manufacturing unit in India?

We have invested in the past in setting up R&D centres in India and we will look at growing these centres. We are also exploring setting up centres in other parts of the country. On the manufacturing front, I would expect over time that CDMA suppliers such as LG and Samsung will see the opportunity and benefits in manufacturing in India.

Even Nokia has pulled out of manufacturing CDMA handsets blaming high charges from Qualcomm. Please comment.

There is a battle going on between Nokia and Qualcomm. Nokia has a vertical business model. They do their own R&D, make their own software, make their own phones. They are focussed on their own development. Qualcomm, on the other hand,collects royalty from each handset that gets sold. We then spend a billion dollar in R&D, integrate into a chipset and sell it to different manufacturers. So what we are doing is to create a competitive environment which Nokia has had never had to face. They could not compete in the CDMA space with Samsung, LG, Motorola. They are trying to position this as if CDMA is not succeeding around the world.

How do you see the battle between GSM and CDMA playing out?

It is interesting to note that GSM is beginning to go down while WCDMA and CDMA are growing. Large operators such as Viodafone, T Mobile and Telecom Italia are looking to migrate from their legacy GSM network to a WCDMA network. Then there are the operators in emerging markets such as Indonesia, Vietnam, Africa, Latin America and India where CDMA is growing fast. In India, the CDMA share is at 35 per cent and we would like to increase that share. GSM is going away while WCDMA is the future.