India costs Qualcomm $12 bn

Jul 04 2006, 13:27 IST
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The standoff between global CDMA patents holder Qualcomm Inc and Indian CDMA mobile companies Reliance Communications (RCL) and Tata Teleservices and the government over reduction in royalty on CDMA handsets sold in the country has cost the US-based company $11.7 billion in market capitalisation over the last month.

To make matters worse for the San Diego-based and Nasdaq-listed Qualcomm, the world's largest handsets manufacturer Nokia on June 22 announced that it will stop production of CDMA handsets at its plants around the world.

The Qualcomm stock, which closed at $51.18 per share on the Nasdaq on April 3, 2006, fell to $47.05 on June 1 and to $40.07 on June 30. The stock has shed 14.83% in the last one month.

India's largest CDMA player Reliance Communications wrote to the department of telecommunications saying it intends migrating entirely from CDMA to GSM technology. It has been demanding a lower royalty on handsets sold in India to help it fight fierce competition from rival GSM mobile operators.

Reliance Communications, with its 21-million subscribers, is one of the biggest consumers of the company's patented CDMA technology, accounting for nearly 8% of all CDMA users worldwide. It is believed to have added another million subscribers in June.

Meanwhile, India's second largest CDMA operator Tata Tele also demanded a cut in royalty though it ruled out a drastic step like exiting CDMA. The ministry of communications, led by minister Dayanidhi Maran, also pushed for a lower royalty to make the service affordable in rural areas. Qualcomm CEO Paul Jacobs' firefighting visit to India last week, however, could not break the impasse. Jacobs met with Tata group chairman Ratan Tata, Reliance Communications chairman Anil Ambani and Maran during his three-day visit but rejected all demands for lower royalty. Industry sources say that Jacobs was reluctant to reduce royalty, but offered volume discounts on handsets in the meeting with Ambani. Reliance rejected the offer. The CDMA operators are also facing tough times vis-a-vis their counterparts using GSM technology for allocation of frequency as they have been getting nearly half the spectrum compared to GSM operators. Royalty and spectrum issues have been forcing the operators to rethink over use of the technology.

Qualcomm is understood to have said that they would discuss the matter with equipment manufacturers to reduce handset prices based on large volumes.

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