ing negative news about Code Division Multiple Access technology prospects for China Unicom, Qualcomm Inc. quickly hammered out eight intellectual property research and development deals with local mobile-phone vendors in China.
Unicom, which competes with giant China Mobile, already offers Global System for Mobile communications service, but received the go-ahead last year from the Chinese government to deploy cdmaOne technology as a way to differentiate itself. China Mobile supports more than 50 million customers, dwarfing Unicom’s 7 million customers. The Chinese government vowed to help Unicom better compete with China Mobile, the former government-owned telecom monopoly, and approving cdmaOne technology was one way to assist it.
The carrier had expected to deploy cdmaOne technology by now, but various holdups ranging from World Trade Organization and licensing issues to standard paperwork problems halted deployment plans.
Investors in Qualcomm were hopeful in February, when the company worked out licensing issues with Unicom, granting China’s vendors reduced royalty rates if they agreed to buy the majority of their chipsets from Qualcomm. Unicom, however, has not mentioned any cdmaOne plans in conjunction with its initial public offering, which should draw between $4 billion and $5 billion. Recent China Daily press reports indicated Unicom may build a 3G system based on today’s Interim Standard-95 technology, but analysts speculate the company may opt for W-CDMA technology, the 3G technology chosen by the GSM community.
Now it appears Qualcomm is trying to work more closely with Chinese vendors by reaching R&D pacts. The Chinese government has been concerned for many years that overseas vendors like Motorola Inc. and L.M. Ericsson dominate the mobile-phone market. While many local vendors build GSM equipment, none manufacture cdmaOne equipment. Many foreign suppliers have set up joint ventures with local vendors to work around this problem.
Qualcomm said it reached agreements with Eastern Communications Co., Datang Telecom and Tech Co., Capitel Group in Beijing, Shenzhen-based Huawei Technology Co., Shenzhen Zhongxing Telecom Co., HiSense Group, Langchao Group in Jinan and Shanghai Lawton Technology Group.
Qualcomm did not disclose the terms of the agreements, but said it will provide chipsets and system software and relevant documentation required for cdmaOne research and development. The agreements will allow the vendors to develop handset and base-station prototypes based on IS-95 and 1X standards. The manufacturers can secure commercial licenses at any time.
“These agreements are evidence that Chinese manufacturers are growing in the CDMA market,” said Diana Baldwin, Qualcomm spokeswoman. “Qualcomm is working with the government and manufacturers. We have a framework agreement in place, and we expect CDMA to roll out in China.”
The cdmaOne patent holder said it understands that China Unicom is considering deploying 1XRTT technology and possibly High Data Rate technology as a third-generation system. 1X technology is a 3G software upgrade to cdmaOne networks that allows 144 kilobit data speeds and doubled voice capacity. Qualcomm’s HDR technology, supported by Lucent Technologies Inc., is an Internet Protocol overlay designed to give carriers high-speed data access of about 2.4 megabits.
Amid Wall Street’s concerns that Qualcomm won’t receive as many royalties if China Unicom and other carriers opt for W-CDMA technology, Qualcomm released a statement saying it owns essential patents necessary to deploy any CDMA system, including W-CDMA systems the GSM community has chosen for its 3G technology. Analysts, however, remain skeptical, pointing to the fact that many vendors may have a piece of the W-CDMA patent pie, which could dilute royalties for Qualcomm.
“Qualcomm will aggressively enforce its patent rights around the world, and unlicensed companies that supply products for 3G CDMA from an unlicensed supplier will be infringing on Qualcomm’s patents,” the company said.
And Qualcomm furnished this warning for those companies like Nokia, which haven’t secured licenses for W-CDMA network equipment: “Qualcomm expects to charge the same royalty rates for all third-generation products as it does for 2G (IS-95A), 2.5G (IS-95B) and 3G CDMA 1X, but, because terms and conditions may change over time, Qualcomm has reserved the right to adjust its license terms and conditions, including increasing its royalties, for those companies that delay in entering into a license with Qualcomm.”
In related news, Lucent announced it signed a strategic technology partnership agreement with Unicom under which Lucent will become Unicom’s preferred vendor for next-generation networking.
