Qualcomm Monopoly means Big Trouble in China

by Matt Klassen on July 25, 2014

Qualcomm has a monopoly in China’s chipset market, a Chinese state-run newspaper announced Thursday, and that’s not good news for the American chipmaker. According to the report, the China National Development and Reform Commission (NDRC), China’s regulatory body for antitrust issues, has determined Qualcomm does indeed have a monopoly, potentially using its dominance in the country’s chipset market to overcharge local licensees.

As a Reuters report explains, the NDRC is “investigating Qualcomm’s local subsidiary after it said in February the U.S. chipmaker was suspected of overcharging and abusing its market position in wireless communication standards, allegations which could see it hit with record fines of more than $1 billion.”

For Qualcomm this news serves as a culmination of years of ever-increasing regulatory scrutiny, with the Chinese antitrust regulatory body informing the San Diego-based company last November that it was under investigation for potential antitrust violations. At the time the investigation seemed to both a kneejerk reaction toAmerica’s increasing scrutiny of Chinese companies working there, and an attempt to break America’s ironclad hold on China’s burgeoning 4G mobile market, one that Qualcomm was poised to yet again dominate.

There’s no question that Qualcomm has established a dominant mobile chip empire across the globe. The company generates revenue from chip sales and also collects licensing royalties from wireless providers who ship Internet-capable phones. Now that China is on the cusp of rolling out its own advanced fourth generation wireless network, such dominance in the chip sector clearly has Chinese regulators worried about monopolization that would almost completely exclude local Chinese companies.

“Qualcomm is positioned to reap the vast majority of licensing fees for the chip sets used by handsets in the world’s biggest smartphone market, providing the San Diego-based chipmaker with a fresh source of royalties”, a report from Reuters last year explained.

“While most of Qualcomm’s revenue comes from selling chips that enable phones to communicate with carrier networks,” Reuters explains, “most of its profit comes from licensing patents for its widespread CDMA cellphone technology.” With China’s forthcoming rollout of 4G technology, Qualcomm stood to cash in.

Although it may be too early to determine Qualcomm’s guilt in this matter, as having a monopoly under Chinese antitrust law doesn’t automatically mean one is guilty of market monopolization, its clear things aren’t looking great for the chipmaker, in a country that accounts for half the firm’s revenue no less.

Further, this regulatory scrutiny accompanies other struggles, particularly with local licensees in China, which Qualcomm has indicated may be contributing factors to this investigation as well, with said licensees perhaps fudging sales numbers to make it seem that Qualcomm’s market position is stronger than it really is and that the company is over-charging on licenses because of its dominance.

One almost feels sorry for Qualcomm in all this, as the company’s success in China has come in large part because of the country’s rapidly expanding mobile market coupled with a dearth of local options. Chinese citizens are demanding advanced smartphones on advanced networks, and Qualcomm is really the only option to deliver the necessary processors.

Now if Qualcomm truly is guilty of impeding market growth and overcharging its licensees, well then it deserves everything it gets. But that said, I wouldn’t be surprised if Qualcomm was nothing more than an unfortunate pawn in the worsening tech war between American and China.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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