By Kim Tae-gyu
Staff Reporter

U.S. chipmaker Qualcomm’s royalty policy has angered Korean manufacturers of code division multiple access (CDMA) phones as it charges lower rates to China than to Korea.

A local CDMA phone maker contends that Qualcomm gives a ``subsidy’’ to Chinese exporters as it collects as low as 5 percent of handset prices in royalties from them. But the rate is 5.75 percent for Korean makers.

Korean cell phone producers, which pay a fixed 5.75 percent for export and 5.25 percent for local sales to the San Diego-headquartered firm, shoulder higher royalty burdens in both domestic and global markets.

According to a contract between Qualcomm and one of China’s leading handset manufacturers, which The Korea Times obtained exclusively, the royalty rates are 2.65 percent for local sales and 7 percent for offshore shipments.

However, the contract says the export royalty will be cut to as low as 5 percent after the three years immediately following the license effective date.

The deduction ranges from 5 percent to 6.5 percent, depending on quarterly export volume, but the Chinese firm is entitled to enjoy the low rates ``if more than 100,000 such subscriber units (handsets) are sold in the applicable calendar (year)’’ in overseas markets.

Considering the 10-year contract was signed in early 2001, the licensee will be able to ``enjoy’’ the 5 percent royalty rate for exports from some time this year for the next seven years if the firm meets the 100,000-unit, three-month requirements.

Hwang Tae-kyung, an official from the private Information and Telecommunications Intellectual Property Association (ITIPA), the nation’s mid-tier cell phone makers’ lobby group, said such rates would be applied to all Chinese cell phone exporters.

``Because Qualcomm has a policy of setting the same royalty rates for firms of the same country, the royalty level will be identical for all Chinese companies. Also, I have a copy of a contract between Qualcomm and another Chinese company, which stipulates the same rates,’’ Hwang said.

He added because Qualcomm doled out CDMA technology usage deals with Chinese handset providers mostly in 2001, their export royalty level will fall from the middle of this year.

The royalty gaps angered Korean handset makers, which have suffered under the higher CDMA royalties which are based on not only the Qualcomm chips but the price of the entire handset, excluding only batteries and packaging.

``The discrimination really infuriates me. We have paid the high royalties, which are chipping away at our bottom line. On what grounds does Qualcomm favor China at the expense of Korea,’’ an official from a mid-size Korean cell phone maker said on the condition of anonymity.

He added Korean handset manufacturers are already enraged by Qualcomm as it collects royalties even on high-end peripherals, like cameras and sound modules, with which the company has nothing to do with.

``Qualcomm should cut the rates to those levels of China. At the same time, Korea should do all it can to be free from Qualcomm’s arbitration based on its monopolistic status,’’ the official claimed.

Korea accounts for more than half of the world’s CDMA-phone production with global leaders LG Electronics and Samsung Electronics. Each of the two companies churned out more than 20 million such handsets last year.

Studies conducted by the nation’s legislature showed last year Korean handset makers paid over 1.5 trillion won in royalties to Qualcomm since 1995.

When questioned about the royalty discrimination, Qualcomm senior director of corporate republic relations Christine Trimble said, ``Due to the confidentiality of our license agreements, we are unable to comment on the terms of the agreements.’’

The official also added: ``Qualcomm’s license agreements with some licensees require Qualcomm, under certain circumstances, to offer those licensees the terms and conditions of later license agreements signed with new licensees. Qualcomm has fully abided by its most favored obligations.’’

ITIPA’s Hwang said, however, Qualcomm did abide by its obligations but at the same time the shrewd outfit found out a way to present favorable royalty rates to Chinese makers, while muting Korea’s opposition, with the staged system.

``Surely in 2001, Qualcomm asked whether Korean companies would switch royalty rates to those of China in accordance with the most-favored-obligations clause with Korean companies.

``But our large-volume cell phone exporters can’t endure an additional (royalty) burden of 1.25 percent for three years. If our industry was in the nascent stage, of course, we would have accepted it,’’ Hwang said.

Hwang added that for Chinese makers 7 percent royalty rates were not a big deal in 2001, because the CDMA phone start-ups weren’t able to focus on exports during the first three years of operation and that afterwards the rates will go down to 5 percent for large-volume exporters.

voc200@koreatimes.co.kr