Yet another flank has been opened up against Qualcomm, now under flak for overcharging royalty and chipset prices.
The proprietary CDMA technology provider’s refusal to prune royalties may cost it dearly.
KOLKATA: Yet another flank has been opened up against Qualcomm, the proprietary CDMA technology provider, now under flak for overcharging royalty and chipset prices.
Close on the heels of Anil Ambani’s Reliance Communication’s decision to base its future expansion on GSM platform, Vivo Participacoes SA, the holding company of personal mobile service that operates under the leading Brazilian brand `Vivo’, has announced it will start studies to achieve transition towards 3G through GSM Edge network. Qualcomm chief Paul E Jacobs had recently visited India.
According to a Morgan Stanley report on Vivo’s decision, the transition cost for the service provider’s 30.5 million subscriber base would be around $1.25 billion. This, along with Reliance Communication with a CDMA subscriber base of 20 million and GSM base of over 2 million deciding to go the GSM way, will put Qualcomm under new strain after having refused to prune royalties and chipset prices for CDMA handsets.
According to Vivo, the construction of GSM Edge will be added to its current CDMA network which will continue in full operation. According to sources in Reliance Communications, Qualcomm has been keeping fingers crossed that the company’s shift of platform could be impeded by the Indian government’s refusal to grant GSM spectrum unless the company surrendered spectrum allocated for its CDMA network. But with the government making it clear that mobile telephony operators can operate on dual technological platforms, Qualcomm’s growth in two of the fastest growing telecom markets, India and Brazil, is poised to be stymied.
“Government policy on telecom will always be technology-neutral and not pegged to CDMA or GSM. Every operator will be free to choose technology or adopt both. For the government, the final arbiter is whether the consumer is getting service at the most competitive price,” sources in department of telecommunications (DoT) told DNA Money.
A Morgan Stanley report on Vivo’s technological transition states, “Vivo should achieve certain benefits from GSM Edge network that the stock markets have not yet priced in, namely, cheaper handsets, lower maintenance capital expenditure and decline in fraud related charges.”
“Our own internal estimates of cost of transition are somewhat lower than Vivo’s. In addition given out rapid growth, there is a better cost benefit equation,” highly placed sources in Reliance Communications said. Like Vivo, Reliance’s bone of contention with Qualcomm has been price of CDMA chipsets at $10 compared with GSM chipsets that cost $5. Qualcomm also has a differential royalty rate where it charges 7% in India compared with 2% in China and Korea and nil in the US.
CDMA operators like Reliance have argued with Qualcomm that lower royalties can help increase market share of CDMA in India from 25% at present to 40% by 2010. But as things stand now, Qualcomm has refused to buy any of these arguments.
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