Indian spectrum policy flawed according to Qualcomm

Posted on July 2, 2006  /  1 Comments

Qualcomm has come under some pressure recently when Reliance, with one of the fastest growing CDMA-based networks in the world based on Qualcomm’s patented technology, announced that it would provide mobile service using GSM technology and criticised Qualcomm’s high royalty and licensing fees. The inference was that Qualcomm’s fees were resulting in higher costs for handsets which is preventing Reliance from offering affordable service to low-income subscribers.

Qualcomm claims that CDMA handset prices in India were already some of the lowest in the world and that royalty was only about $2 per handset. It further argues that Reliance’s move into GSM has to do with flawed spectrum policy of the Indian Telecom Ministry (DoT) that provides more than twice the spectrum to GSM operators compared to CDMA operators like Reliance. This is because according to Qualcomm, GSM technology allows only a finite number of subscribers in a cell whereas the CDMA technology on the other hand poses no such restrictions. “For instance India’s GSM operators get 4.4 MHz of spectrum initially while CDMA operators get 2.5 MHz. But when the subscribers of GSM operators cross one million they become eligible for a total of 10 MHz. For crossing that level, the CDMA operators get only 5 MHz. That’s because DoT, the spectrum allocater, feels that since the CDMA technology can carry about five times more traffic, it can operate efficiently with much lower spectrum.”

The announcement by Reliance has however spurred Qualcomm CEO, Paul Jacobs, to visit India and meet with Reliance and Tata, the two dominant CDMA operators. India contributes 2.2% of all Qualcomm royalty revenues and 8.8% of CDMA handsets sold worldwide. Jacobs is also meeting with the Indian regulator TRAI and the DoT minister.  Although Qualcomm has ruled out lowering  royalty fees it is promising increased investment and contributions in kind. The above issues are discussed in detail here:

Telcos in a spectrum jam

 Qualcomm says no to royalty cut

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  1. India costs Qualcomm $12 bn

    MUMBAI, JULY 3: 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.

    From the Financial Express.