Art, I understand the argument that lower royalties [allegedly down to 2.5% in this case from 5%] leads to a better competitive position, increased consumer acceptance, more attraction to subscriber device licensees and perhaps most importantly, political acceptance by China's political bosses.
However, the primary reason for QUALCOMM's existence was to create greatly improved use of the spectrum by coding the signals and using phone computing power to decipher the bitstream. QUALCOMM achieved the primary aim and is now heading for 20:1 capacity improvement over analogue services and 5:1 over TDMA services. That is quite an offer to make to countries, companies and subscribers.
To also have them whine about royalties of such a derisory level is pathetic. QUALCOMM's only assured return on the creation of mobile CDMA comes from royalties. The ASICs, handsets, infrastructure and other stuff are all subject to competitors taking the business. So far, they have taken the handsets and infrastructure business. The ASICs business will no doubt come under continued attack. There are many competitors.
There is nothing inherently more expensive about the CDMA electronic gizzards than GSM or analogue so it isn't as though there is some other competitive advantage that GSM equipment has which necessitates a lower royalty. GSM has had an economy of scale advantage of very large proportions as well as a handset design advantage. But that wasn't enough to stop the inroads of CDMA purely on the capacity advantages.
Now that CDMA has comparable economies of scale, combined with the enormous capacity advantage, I see no need for royalties to be lowered. The proof of the value of CDMA was in the spectrum auctions in the $100 billion range as well as the installation of it in existing spectrum in preference to other technologies. They don't bid like that for GSM spectrum. Nobody registered to bid for 1900 MHz GSM in Brazil for example.
Keep in mind that we are not talking about a spectrum improvement of 3% or 8% or 15%. Those are the sorts of efficiency which gain huge amounts of business in other industries. To offer an efficiency improvement of 15% in any industry is a salesman's dream. We are talking about something three times as efficient as existing technology with a technology development pathway which is limited only by imagination. This is not a normal situation. It's a whole new world.
For QUALCOMM to get 2.5% consideration for inventing a whole new world is pathetic. It is simply absurd. If they can't compete on ASICs, then that is all the reward they will get.
If QUALCOMM had refused to accept such low royalties, what would China have done? They could have continued to stick with GSM, use up all their spectrum and end up in a technological blind alley. They would develop none of their own technology and would remain an economic backwater. That's not a good choice.
Perhaps there were other considerations such as a Chinese court adjudicating on the intellectual property rights of the locally 'invented' variation of CDMA. They might find that it was not in fact breaching QUALCOMM's patents. If rumour is true, China is an intellectual property thief, with officials and presumably judges grateful for bribery.
With low royalty rates inside China, there is less attraction to steal and it might help kill that competition. Exports can be easily controlled by USA aircraft carriers off the coast if there is any hanky panky. When, in a few years, China starts whining about 7% export royalties, they can be told that sure, they can have the same rate as others just as soon as they start paying the same inside China.
It all seems to me as though China is being handed a big pile of spectrum with great CDMA devices with negligible royalties.
As you say, timing is the key. Perhaps a three year advantage in getting CDMA going quickly in China, with cdma2000 ascendant, is worth it.
Succinctly,
Mqurice |
