Qualcomm board may review differential royalty

KOLKATA: The Prime Minister’s Office (PMO) will track the outcome of Qualcomm’s board meeting on July 19. The PMO will be concerned on whether Qualcomm chooses to discontinue its differential royalty structure that is now skewed in favour of China, South Korea and the US, and hurts the Indian CDMA industry.

At present, the royalty component on CDMA handsets sold in India is significantly higher than in rival telecom markets like South Korea, China and US, something that makes CDMA handsets more expensive in India than in China, Korea or the US. Not surprisingly, CDMA heavyweights like Anil Ambani-controlled Reliance Communications Ltd (RCL) are looking to abandon the CDMA ship at some point and embrace the GSM platform, given that GSM cellular phones enjoy a whopping 75% market-share in a country with over 100 million mobile subscribers.

Top PMO sources said, ”It has been brought to our notice that Qualcomm has a differential handset royalty fee structure for its proprietary CDMA technology which favours only consumers in the US, South Korea, and China even though India happens to be the biggest telecom market in the world after China.”

This practice, it appears, has made CDMA handsets more expensive in India.”Under their respective licensing agreements, large CDMA handset makers pay Qualcomm a royalty fee for using its proprietary CDMA technology. While the final royalty component is a hefty 7% of the price of any CDMA handset sold in India, it is a paltry 2% in South Korea and China, while there is no royalty component on CDMA phones sold in the US.

Accordingly, if a consumer buys an entry level CDMA handset in India for $40, the royalty component at 7% is $3. The same low-end handset can be priced lower in markets like China and South Korea as the built-in royalty component is just 80 cents.

Top Government circles indicated that local CDMA biggies like RCL and Tata Teleservices have sought the DoT and PMO’s intervention in urging Qualcomm to make the royalty fee component on CDMA handsets sold in India at par with those in South Korea and China. “Prime Minister Manmohan Singh’s intervention has been sought to enable millions of Indians to access to modern CDMA technology at the same royalty rates which the Chinese and Korean consumers pay,” said a senior government source.

It remains to be seen if Qualcomm CEO Paul Jacobs actually revises the company’s India CDMA strategy in light of demands from large Indian telecom operators like RCL that Qualcomm discontinue its differential royalty structure as it was hurting the Indian CDMA industry.

Another ticklish issue is whether the Qualcomm top brass takes up the issue of CDMA chipset price reduction for the Indian market to bring down the price of entry-level handsets further.

At present, the price of a CDMA chipset at $10 is double that of a GSM chipset which costs $5. In an internal note to Qualcomm, RCL has noted that ”if Qualcomm makes the price of CDMA chipsets at par with GSM, it can instantly reduce price of an entry level CDMA handset in India from $40 to $35, and in turn, reduce the handset pricing disparity by 50% and expand the national CDMA market. At present, an entry-level CDMA phone costs $40 while a similar GSM phone costs $30”.