Here is the full text of the letter sent to the Koreans by Irwin Jacobs. This letter has been released due to the media selectively reporting out of context.
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September 10, 2001
Representative Kim Hyong-o
Chairman of Science, Technology, Information and Telecommunication Committee
National Assembly
Seoul, Korea
Dear Rep. Hyong-O Kim:
Thank you for your letter dated August 21, 2001. QUALCOMM greatly appreciates your history of support for CDMA in Korea and I personally thank you for your foresight and leadership.
I believe the wisdom of your action as one of the first Korean parliamentarians to support the adoption of the CDMA standard is well demonstrated by the large current export market for Korean CDMA equipment and by the present dominance by Korean manufacturers of the domestic Korean market. In the early 1990's, before QUALCOMM began its mutually beneficial cooperation with ETRI and Korean manufacturers, including transfer technology, the Korean handset market was dominated by foreign suppliers.
With third generation networks based on WCDMA (asynchronous technology) now lagging badly in Europe and Japan, with costs higher and with performance falling well below the third generation CDMA2000 1XRTT (synchronous technology), Korean manufacturers and operators have even greater opportunities to expand world market share of equipment and services. As noted in the Goldman Sachs Report entitled: "1XRTT in South Korea-Lessons for the US", dated August 24, 2001, the initial launch in Korea has been highly successful, with operators adding over 687,000 1XRTT subscribers in three months (with no subsidies). In my view, the major shortcoming of the pioneering third generation effort in Korea, as well as a potentially costly decision that perhaps should be examined by your committee, is the mislabeling of CDMA2000 1XRTT in Korea as 2.5G technology. (IS-95B is 2.5G technology and the Korean deployments were the first of any 2.5G technology deployed worldwide). This mislabeling of CDMA2000 has reduced the worldwide benefits to Korea of this great accomplishment and allowed one company in Japan to continue to falsely claim the title of first with 3G despite their repeated delays and performance shortfalls. Indeed, Korean operators are currently the only operators with commercial services achieving the requirements of the ITU for third generation systems.
QUALCOMM continues to work closely with Korea to help introduce the latest technology ahead of others, supported by early availability of advanced QUALCOMM chipsets and software. Through joint efforts on a world-leading software initiative named BREW, developers can now rapidly introduce and operators offer new data applications for download to the advanced handsets being introduced by Korea manufacturers. By exploiting the capabilities offered by CDMA2000 1XRTT, Korean developers can earn significant revenues from BREW applications not only in Korea but also in the United States, where we expect BREW to be launched before the end of this year. Wireless communications remains an area where time-to-market confers a great advantage.
Recently, many articles have appeared in the Korean press regarding our license agreements in China and our most favored contractual obligations to our Korean (and other) licensees. Our license agreements generally have confidentiality obligations in all countries preventing lawful public disclosure of the terms including the royalty rates. QUALCOMM fully stands by both the most favored and the non-disclosure obligations, but will respond to your concerns within the confines of our confidentiality obligations.
First, with regard to China, our framework agreement with China Unicom provides the basis for licensing Chinese manufacturers. Pursuant to this framework agreement, China Unicom, with approval from the Chinese government, committed to rapidly deploy a CDMA network in China. In exchange, QUALCOMM agreed to grant worldwide subscriber and infrastructure licenses to a reasonable number of Chinese companies that included, among other terms, lower royalty rates for sales in China. In return for a lower royalty rate on subscriber units manufactured and sold for use in China, Chinese manufacturers are required, among other things, to agree to (i) pay a substantially higher royalty rate on sales outside of China (including any sales by them in the Korean market) and (ii) make a worldwide commitment to purchase QUALCOMM's CDMA and related components for the life of the agreement. I believe the framework agreement with China is highly beneficial to Korean manufacturers, who now have a major new market which is both close at hand and one in which they have had little or no presence. If Korean manufacturers choose to maintain their existing royalty structure, the vast Korean experience should offset the small royalty advantage provided to the Chinese domestic manufacturers for the China market only.
I agree with you that contracts between two parties should be fair and reasonable to both parties, what I often refer to as a win-win situation. In working out the win-win situation, one party may decide to stress an improvement in one term balanced by a concession in another. In this regard, our most favored royalty provision with our Korean licensees is a typical provision found in many license agreements of this nature. It requires that if the licensee elects to change to a royalty provision found acceptable by another company, it must maintain balance by accepting the full set of terms and conditions that were accepted by that company. It cannot pick and choose among terms and conditions from different licenses to assemble the best of each, which would not be win-win. In this case, if the Korean licensee accepts the lower royalty rate in China, it must also accept payment of the higher royalty rate for sales outside of China, as well as commit to purchase QUALCOMM's components. Because of the large market outside of China that the Korean licensees are benefiting from, some or all may decide that their existing agreements are more favorable and suited to their needs, but that is a decision we of course leave to them.
We have contacted all of our Korean licensees and have offered them the terms of the recent Chinese license agreements. We will have separate discussions with each of them, but will keep our discussions confidential. Whether or not our Korean licensees accept the terms of the Chinese license agreement or maintain their existing agreement, they will benefit greatly from the fact that they can use their leading CDMA expertise and market share to export significant amounts of CDMA equipment to China. In this regard, we were quite pleased when Samsung announced that it received a portion of the $1.5 billion CDMA infrastructure award* from China Unicom and when Telson Electronics announced that it had signed a contract to supply handsets worth $61 million to China's Konka Telecommunication Technology Co. We believe that this is just the beginning of substantial CDMA handset awards to our Korean licensees.
It remains my strong belief that the royalty rate and the business terms and support provided to our Korean licensees by QUALCOMM will continue to benefit our Korean licensees in the rapidly growing CDMA market. This growth continues to be fueled by QUALCOMM's many activities, with a substantial part of the monies that are paid to us by our licensees reinvested in these activities. We have spent and continue to spend a substantial amount of money on QUALCOMM initiatives such as third generation CDMA2000 1X and 1XEV-DO, gpsOne, BREW, and inexpensive world-wide roaming through multi-mode, multi-band chipsets including WCDMA when it becomes commercial. We also invest in carriers around the world, including Korea, to expedite the deployment of CDMA. We look forward to possible substantial growth in South America and India and smaller markets such as Vietnam as well as in China and we are working with Korean manufacturers on many opportunities.
Korean subscribers and operators have benefited greatly from the transition to CDMA 2G, 2.5G, and now 3G. Korean manufacturers have enjoyed great success in the worldwide CDMA market. Korean software developers have a great opportunity to supply a worldwide applications market. We acknowledge and are thankful that these Korean successes have also benefited QUALCOMM. It has truly been a win-win situation. It has worked because we have cooperated fairly and moved quickly.
Thank you again for your past support. I believe we have a solid base of accomplishment on which to launch even greater successes.
Very truly yours,
Irwin Mark Jacobs
Chairman and CEO
QUALCOMM |
