Maurice, one cannot fault your logic on royalty rates, and I do not disagree at all with your analysis. But . . . what really determines the choices between GSM and CDMA, or higher speed technologies are non-economic decisions that are more political or nationalistic in origin.
If QCOM reduced its royalties from the current range of 4 - 5% to something closer to, say 3%, it could claim the lowest royalties in the entire industry, and any argument that the rate was too high would be demolished, especially when compared to the rates charged by the GSM cabal. More important, even Nokia, with its friends among the European regulators, would still be laughed out of their offices.
A company spending $100 million a year on legal costs must either have a very good set of arguments to challenge the bullies or must not have thought out the costs and benefits of alternative policies, including lower royalty rates.
As to the assumption that costs of handsets containing QCOM IP will not be materially changed, regardless of royalty rate, each service provider will have to make that decision, and some may opt for lower prices and lower initial profits if such a policy grows their business faster than maintaining higher profit margins.
All I'm saying is that, irrespective of the rational rate level, which would be about what it is currently, I like the old Intel model of squeezing out competitors by keeping prices on their microprocessors as low as possible. It's the service providers in this case, such as Verizon and Cingular, or the Chinese or Indian service providers, who must determine which systems will be better for their long term profits. If QCOM gives them a little more incentive to adopt CDMA based technology, then it's going to be more and more difficult for other technologies to gain serious consideration. And once a standard technology is in place, there's little demand to change unless the cost of a newer technology is substantially lower.
Art |
