CDMA Royalty in China Sparks New Tensions
etienglish.com
By Lee, Eun-yong
Tuesday, May 15, 2001
It is highly likely that the negotiation over the royalty fee on Code Division Multiple Access (CDMA) mode mobile telecom between Qualcomm of the U.S., and Chinese telecom equipment makers, will be settled at half the level as was proposed for Korea. Accordingly, Korean companies are expecting that they will get equal treatment (most-favored treatment) with Chinese companies, but they have become somewhat wary as Qualcomm requested joint ventures between Korean and Chinese companies for the same loyalty rates as that of Korean concerns.
In particular, Korean telecom equipment makers are paying keen attention since this situation may develop into a discriminatory application of loyalty rates to Korea and China.
According to Chinese sources, the negotiation over CDMA royalty fees between Qualcomm and Chinese telecom equipment makers is close to being settled at 2.65 percent per terminal unit, and 700,000 dollars in technology fees subject to prepayment.
Qualcomm, however, stated its intention to stick to the 5.25 percent in royalty rate, which it has been applying to Korean companies (applicable to products sold in the Korean market) to Korea-China joint venture companies, raising concerns about discriminatory application of royalty fees.
For now, Korean telecom equipment makers, including Samsung Electronics and LG Electronics, are busy trying to figure out Qualcomm's real intention. If Qualcomm insists on 5.25 percent royalty fees in Korea-China joint ventures, that could work as a stumbling block to Korean companies' foray into the Chinese terminal market.
"The application of a standard royalty fees can differ in accordance with changes in Qualcomm's policy," said an official at LGE's legal team. In other words, though Qualcomm may have been stressing partnerships with Korean companies, it can make separate corporate policies regarding the issue of discriminatory application of loyalty fees.
A Samsung official also said, "Qualcomm's most-favored treatment principle is nothing but a guideline that was made and was prompted by the Ministry of Information and Communication. If the principle was not specifically specified on contracts between companies, it can not be considered legally binding."
"We can not divulge exact rates on royalties as negotiations are currently in progress," said Kim Sung-woo, president of Qualcomm Korea. He explained however that, "It is the intention of Qualcomm to apply existing rates (5.25 percent) until contracts between Qualcomm and Chinese companies are finalized, particularly as we have taken into consideration the strategy by Korea-China joint ventures to monopolize the Chinese market."
Korea-China joint ventures are thus in a situation in which they will have to pay 5.25 percent in royalty fees for the Chinese terminal market to Qualcomm this year. Given this, it is expected that Chinese companies will observe the development in their negotiations with Qualcomm, and reconsider establishing joint ventures and forging strategic alliances with Korean companies; a move that is expected to put a brake on the advancement of Korean mobile terminals into China. |
