Deal closes rivals'
CDMA dispute
BLOOMBERG in Stockholm
Ericsson, the world's third-largest
cellular-phone maker, and rival
Qualcomm have agreed to share
technology for CDMA phones and
equipment, ending a 2.5-year patent
dispute.
Ericsson will buy Qualcomm's
unprofitable unit that makes
cellular-network equipment, and the
companies will jointly support one
standard for next-generation gear that lets
users send and receive e-mail, hold video
conferences and browse the Internet.
Analysts predict there will be 700 million
to one billion new cellular-phone users in
the next five years.
The agreement will help Ericsson take on
rivals Nokia and Motorola in the US
cellular-equipment market and lets San
Diego-based Qualcomm focus on making
phones and developing computer chips.
Most importantly, analysts say, it means
next-generation equipment for cellular
networks will be the same worldwide,
enabling users to make and receive calls
wherever they go.
"Resolving this issue for the industry is the
big story here," said Brian Modoff, an
analyst at BT Alex Brown. Before the
agreement, Ericsson was supporting a
standard that primarily benefited operators
in Europe, while Qualcomm's standard
was biased towards US customers.
Ten years ago, Qualcomm introduced a
standard for digital cellular networks,
called code-division multiple access, or
CDMA. When no one would adopt the
technology, Qualcomm, which was
founded to focus on research and
development, chose to manufacture
equipment and phones to prove that
CDMA, which provides more capacity on
networks than rival standards, worked.
"We needed to seed the market,"
Qualcomm chief executive Irwin Jacobs
said.
The agreement gets Qualcomm out of the
cellular-network business, which has less
than US$600 million in annual sales and
loses about $150 million to $200 million a
year, analysts estimate. Ericsson is
expected to have better luck with the unit.
Now Qualcomm can focus on its more
profitable chips, which other
manufacturers use in their phones and
equipment. Ericsson says it will use
Qualcomm's chips for its current line of
CDMA network equipment and is
considering buying more for future
products, as well as phones.
Mr Jacobs denied speculation that
Qualcomm was looking to exit the phone
business as well.
Unlike Nokia, Motorola, Lucent
Technologies, Northern Telecom and
others, Ericsson has avoided the CDMA
market, partly because of the patent
dispute. Getting in could be a huge
opportunity, analysts said.
Some of the largest US cellular providers,
including Sprint PCS, Bell Atlantic and
AirTouch Communications, use CDMA.
There are more than 23 million CDMA
subscribers today, and Ericsson estimates
the standard will account for 15 per cent
of one billion new cellular users
worldwide in five years.
Ericsson expects to begin making CDMA
phones early next year. Qualcomm will get
access to Ericsson's patents on GSM
technology and could start selling phones
based on that standard. It will also gain
royalties for its CDMA technology.
Cellular carriers are eager to install
next-generation equipment that allows for
faster data services, taking advantage of
mushrooming demand for Internet access,
e-mail and other services.
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