Qualcomm's Paul Jacobs (Transcript of Interview)
Hong Kong, June 14 (Bloomberg) -- The following is a transcript of a
Bloomberg interview with Paul Jacobs, executive vice president at Qualcomm
Inc. The reporter is Thomas Lau.
LAU: Joining us today is Paul Jacobs, the executive vice president of
Qualcomm Inc. Welcome to Bloomberg.
JACOBS: Thanks for having me.
LAU: Now, you're in Hong Kong to address at the CDMA Mobile Conference.
Tell us, what do you talk about to this crowd?
JACOBS: My main point to the crowd was that, you know, there's a lot of
doom and gloom surrounding the industry right now because people are
seeing delays in the roll out of 3G and that's really a lot to do with the fact that
there's the delays in systems that have been very widely publicized.
But there's really, you know, 3G's alive and well. It's just not in the place that
you've heard about so much. There's networks running 3G in Korea right now.
KDDI, the second largest operator in Japan, will launch its 3G network later
this year. In the United States, we'll have two 3G networks that are operating,
you know, by the middle of next year.
So there's a lot of 3G going on. So we shouldn't focus on the negatives of
what's happening in the industry. What we need to focus on is what our
opportunity is. And that opportunity is that we can build a wireless Internet
that's greater than what the wired Internet is. And I look at that in a lot of
different ways. We've seen projections that say by 2003, there'll be more hand-
held devices connected to the Internet than desktop PCs. So there's a big
market out there.
The other thing, though, is that the wireless Internet has attributes the wired
Internet doesn't. The wireless Internet is the wired Internet plus mobility - you
can take it with you - plus, location sensitivity, there'll be GPS built into the
devices; time sensitivities, so things can get back and forth, information when
you need it. And the fact is, you're carrying it around in your pocket so you
have it with you all the time.
So we talked about, kind of, what's reality, new devices that are actually out
on the market. Some of these things that used to be science fiction not so
long ago are actually reality today, you know. Samsung showing off their
video-on-demand phone and Sitcom (ph) in Japan running a position location
technology where they give, you know, a small child a device and that person -
you know, we had an occasion where a child got lost in Osaka Park and the
security guy came up and found her. She was crying but, you know,
everything was OK.
So some of these - some of these things that we've thought about as being,
you know, far in the future, they're here today and they're rolling out along with
these 3G networks. So we just focused on, you know, what the future is and
let's keep our mind on what the real opportunities are.
LAU: OK. Now, let's talk about China Unicom, the country's second biggest
mobile phone company just awarded a both domestic and foreign telephone
equipment makers about $1.5 billion in contracts. It looks like China is pretty
set, you know, on using the CDMA technology, I mean, because of that. Are
you happy with the, you know, with the contract signing? I mean, that's
happened in the last month.
JACOBS: That's a great milestone for us. You know, we've been working in
China for a very long time. What we're looking forward to is seeing the
subscriber uptake and new subscribers coming on to the system. And that
would be, I think, the best indication of how things are going.
But the other thing that we've seen here today that I thought was very
interesting was ETE (ph), our first Chinese manufacturing licensee, showing a
commercial 3G CDMA 20001X space station operating. So we're already
seeing the Chinese manufacturers who we've licensed start to bring out their
equipment and be able to bring that into the market. So I think that will also
have an impact on the wider CDMA market, as the Chinese manufacturers join
in, along with the other Asian manufacturers who have been driving the CDMA
market, as well.
LAU: Now, when will the China Unicom be launching its service, CDMA
service, I mean?
JACOBS: Their plans - you know, they've announced plans to try and launch it
before the end of the year. So we're looking forward to seeing that.
LAU: Now, have you also been talked about a telecom play (ph) in China at
the same time?
JACOBS: We've had, you know, some discussion. But, you know, the
framework agreement that we negotiated was with China Unicom. And so
China Unicom's definitely our partner that we're working with right now.
LAU: That's not an exclusive agreement, is it, with China Unicom?
JACOBS: No. China Unicom actually doesn't take a license directly from
Qualcomm. You know, the manufacturers of hardware are the ones who take
the licenses. So China Unicom is an operator much like, you know, a Sprint or
a Verizon would be.
LAU: Now, how do you see China entering the WTO, what sort of impact
would it have on, you know, on your business and on China's telecom
industry?
JACOBS: I mean, I think anything, you know, where there's more foreign
investment that can come in, I think that'll help out the industry. And, you
know, certainly it's been something that we follow with great interest because,
you know, there's been ups and downs and things as we've been trying to
work, you know, getting CDMA into China. And you know, I think WTO profits
has helped us along. So we see it as a positive step for the company.
LAU: Now, let's talk about another market in Asia with a big market for you,
Korea. I mean, LG Telecom, Hanaroll (ph) Telecom. And they have said
publicly they are actually interested to have Qualcomm to come on board to
(inaudible) the first 3G license in Korea.
JACOBS: Right.
LAU: Are you interested?
JACOBS: Qualcomm's always interested in anything that we can do to help
drive the CDMA market. And so, you know, it's obviously turns out, what's the
business proposition? You know, we always look at that. And we also look at
how can we build the market larger. And so, if the opportunity arises, we could
be interested. And really, it depends on what the - what the business is.
LAU: Are you actually turning talks with those two companies?
JACOBS: We are. We talk to everybody. So clearly, we're talking to any
number of players in Korea. And, you know, LG Telecom, you know, we talk
to because they're a very close partner already. They have a CDMA network
that they've already launched. And so, you know, we continue to work with
them closely.
LAU: They have formally asked you to joined a consortium, have they? It
would be for licensing?
JACOBS: You know, we have all sorts of discussions.
LAU: OK. Now, Qualcomm and Nokia are also, you know, currently in talks,
negotiating over these WCDMA royalty issues. Can you give us - post us - on
that?
JACOBS: Well, we're continuing to talk to Nokia. And I think that the two
companies have a good relationship, will continue on a good relationship. And
I think that we're all optimistic that things will work out well. So, just continuing
on down the road.
LAU: When can we expect an announcement or anything concrete to come
out from these negotiations? Is there a timetable?
JACOBS: Yeah. We don't actually - we haven't set a firm timetable to get
anything done. Obviously, it's important for things to get resolved before any
major shipments of equipment would occur that revenues would be generated
from.
LAU: Let's go back to license in Asia. Besides Korea, what about other
countries - I mean, in Asia? Say, Hong Kong coming, the 3G license at the
auction.
JACOBS: Right.
LAU: Is that something you're looking to? And what other ...
JACOBS: Like I said - I mean, Qualcomm's number one goal is to drive
CDMA. And we do make investments into operators when it's possible to go
drive CDMA. We're looking at any number of areas around the world. You
know, Australia, we made an investment into a license there to and drive the
market, as well. But I think there's lots of new opportunities. China is one.
India is another very interesting place where CDMA is rolling out. South
America is another interesting place. So there's, you know, a lot of
possibilities for Qualcomm. We have to be very careful about how - you know,
which places we make our investments so that we can make the best
possible return from them.
LAU: Are you currently in touch with any potential partners in Hong Kong or
even in India, I mean, about bidding for licenses?
JACOBS: Well India, they've already - you know, the license process has
gone through. So we're talking to those companies there. And Hong Kong, I
don't know of anybody that we're talking to right now specifically for Hong
Kong.
LAU: Now, you mentioned about Australia - I mean, a while ago, you had - the
company has one license to be a mobile phone participant. I mean, before
coming to Australia, you know, companies are actually looking for a local
partner that - what's your progress with that?
JACOBS: We're continuing on, trying to structure a business process. But
there's really no update that ...
LAU: Do you have any particular criteria when it comes to select an Australian
partner?
JACOBS: I mean, as part of any consortium, we certainly want to have an
operator involved because that's not Qualcomm's business. We've spun off our
operating businesses into (inaudible). We've continued to make investments,
as I said, because we want to drive the market. But we don't see that as our
core competence. And we would look for somebody else to come in and take
care of that.
LAU: Now, currently there's about 19 million CDMA subscribers. How do you
actually convince, you know, other carriers like GSM carriers, you know, to
switch to your side these days? I mean, what sort of strategy do you have?
JACOBS: I think most of the GSM operators today are looking at evolution
path WCDMA. And it's really a question, I think, over what time period that
happens. Other operators, you know, clearly we go in and talk about their
migration path. And, you know, we believe that CDMA 2000 is the technology
with the most - you know, most efficient, fastest time to market, lowest cost
associated with it. You know, there's a lot of conventional wisdom that says
look at how large the GSM market is. That must mean that the WCDMA
market is going to be so large and that's going to actually force the handset
prices down lower than CDMA 2000. That's not true.
If you look out over time, because we're in the same spectrum, almost
everybody who's a CDMA One subscriber will become a CDMA 2000
subscriber over the next couple of handset generations. You know, we churn
handsets every so often. That's not necessarily the case with the WCDMA
market. And we look at the penetration rates over time and see that the CDMA
2000 market will actually drive the handset cost lower. So we make that point
to people.
We talk about how inexpensive it will be to upgrade networks to CDMA 2000
and we also discuss how many handset manufacturers there are, so what
kinds of devices of the kinds that we're seeing here today. Now, the new
innovation that are coming from the over 45 manufacturers that are building
CDMA devices today, you know, that's going to come into the market and I
think really advantage the carriers who are choosing CDMA 2000.
And so, we look forward to actually, over the next year or year-and-a-half,
when we have operators who have deployed nationwide 3G network in a
number of these countries, they'll be competing against operators who have
only deployed 2G networks or 2.5G networks.
Now there's a difference in cost and the services that you can provide between
a 2G and a 3G network. It's much less expensive to provide things like mobile
multimedia on a 3G network. In fact, the difference is such that, on a 2G
network, you really can't imagine doing that at a price that a consumer would
be willing to pay. On a 3G network, you can imagine it.
So what we're going to see over the next year or year-and-a- half is that the
operators with the 3G networks that have rolled out CDMA 2000 are really
going to be able to provide new services at a cost that consumers may want
and may be willing to pay for. And that, I think, should be an interesting battle
to watch in terms of market share. And we explain that to any carriers that
we're discussing their transition strategy.
LAU: Now, while you're in Hong Kong, can you tell us how much of your
revenue actually is coming from the Asia Pacific region?
JACOBS: Yeah. We haven't broken out our revenues that way.
LAU: But can you give us some idea how big the growth is, and how big the
growth in Asia? I mean is it, comparable by (ph) other regions, like Europe,
like U.S.?
JACOBS: Well, I mean, we have a number of markets in Asia. The ones that
have been driving strongly are Korea and Japan. And, you know, we know that
the story with Korea, with the government mandates on SK Telecom and the
subsidies, so that, you know, had an impact on slowing down the growth rates
there.
Although, we're also getting to large penetration levels there. I think Japan is
going to be interesting to see what happens. And we have both KDDI rolling
out their 3G CDMA networks and DoCoMo starting to deploy CDMA, as well,
followed by J-Phone. And, you know, so there's a possibility for, you know, in
the future, you know, more uptake of CDMA there.
And then, you know, as China rolls out, you know, we're going to go from very
small numbers in China to larger numbers. So Asia, we see Asia as a driver of
the market, not just for CDMA, but for 3G overall. And that, I think is going to
be a - you know, it's going to be an exciting place to watch. And it certainly
will be interesting.
Now, up until now, we haven't - you know, we haven't factored in and most of
the analysts haven't factored in a lot of subscriber uptake in China. So, you
know - but we're still watching and making sure that those subscribers come
on line.
LAU: How optimistic are you for the next six months - I mean, for the business
from this part of the world?
JACOBS: I can't give you any new financial update, but, like I said, there's
been new systems rolling out. And so, you know, over the next six months,
that's, you know, sort of the timeframe over which things are rolling out. So I
don't know that I would expect great things in six months. But I think the
long-term perspective is really excellent. And I'd say - and we really just need
to follow the rollouts of the networks over time. I can't really give you a new
prediction.
LAU: OK. Thank you. That was Paul Jacobs, the Executive Vice President of
Qualcomm Inc. This is Thomas Lau for Bloomberg in Hong Kong.
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