Qualcomm Sets Out Defense vs. Nokia, Others

THE HAGUE – Wireless technology company Qualcomm (QCOM) on Tuesday set out its defense in a fight against Nokia and others over technology royalties before the European Commission and U.S. courts, saying it had never competed unlawfully.

"What we've done is very lawful price competition. We're competing in a fair way and a lawful way. This is a very competitive market place," the president of the San Diego-based firm, Steve Altman, told Reuters.

"The discounts we've offered amount to nothing more than lawful price competition," Altman said in a telephone interview.

Nokia (NOK), Ericsson, Broadcom said two weeks ago they had filed complaints asking the European Commission to investigate and halt anti-competitive behavior by Qualcomm.

They said the company was selling its crucial mobile phone technology too expensively, was charging different prices to different vendors and was linking it to sales of its chips.

At an investor day in London that was Webcast, Qualcomm executives said it had 130 licensees of its technology. These included more than 60 for its WCDMA technology, which is the fast successor of the GSM mobile phone networks used by two-thirds of the world's mobile phone subscribers.

Altman said he found it strange that over 60 firms had agreed to license its technology, including Nokia and Ericsson, and had then complained that Qualcomm was not selling its technology on fair, reasonable and non-discriminatory terms.

"This is nothing more than to seek government intervention to negotiate something different," he told Reuters.

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Qualcomm has yet to receive a copy of the complaint, but it said it was respecting the rules of standardization bodies and offering its technology on fair, reasonable, non-discriminatory terms to its rivals and other customers.

"What we've said is that our royalty rate is single digits [of the wholesale price of a mobile phone]," Altman said.

Analysts estimate Qualcomm charges around 4.5 percent to 5 percent, but that may drop to zero if a rival company can swap its own technology with that of Qualcomm, Altman said.

"The major vendors tend to cross-license and don't charge each other any royalties," he said.

Qualcomm invented CDMA, the smaller rival of GSM, and its technology is a crucial component of WCDMA. "CDMA is WCDMA," Qualcomm CEO Paul Jacobs said at the investor meeting.

Others feel they have also contributed significantly to WCDMA, and Qualcomm should therefore limit its royalties.

The GSM industry agreed on WCDMA as the successor of GSM in the 1990s on the condition it became an industry standard, which means technology has to be offered at fair, reasonable and non-discriminatory (FRAND) terms to everyone in the industry. This process is designed to prevent abuse of monopoly power.

Glenn Manishin, a partner at the U.S. law firm Kelley Drye & Warren, said FRAND obligations had never been specifically acted upon by a U.S. or EU court. So there was no precedent to be used to forecast potential outcomes.

Qualcomm's customers and rivals who filed the complaint said it is trying to exclude competing manufacturers of chipsets for mobile phones from the market.

Altman said the accusations were without merit, pointing at rapidly falling prices of WCDMA handsets. The company said it had already found a $124 WCDMA handset in the market, although in a limited production run, built with a Qualcomm chip.

The average price of the lowest 10 percent of WCDMA phones has dropped to an estimated $217 in the third quarter from $436 in the fourth quarter of 2003.

"We have a market place that is very vibrant with competitors in China, Japan, Korea, United States and Europe," he said.

When asked when WCDMA handsets would dip below $100, he said it "shouldn't be terribly long."

Qualcomm sued Nokia this week for not paying royalties to Qualcomm for its GSM phones, which now include some CDMA technology.

"Given recent events, we felt we were being gamed," Altman said.