China probe may be aimed at Qualcomm's 4G royalties

Tue Nov 26, 2013 6:29am EST
 
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By Supantha Mukherjee and Neha Alawadhi

(Reuters) - China's anti-trust investigation into Qualcomm, the world's biggest smartphone chip maker, is likely tied to the impending $16 billion rollout of commercial fourth-generation services by China's big telecoms carriers.

The probe by the National Development and Reform Commission (NDRC), China's top economic planning body and price regulator, is a likely pre-emptive measure that will allow China's telecom providers to gain leverage in royalty negotiations ahead of the rollout of new high-speed mobile networks, analysts said.

China Mobile, China Unicom and China Telecom are investing more than 100 billion yuan ($16.4 billion) in system equipment for the next-generation wireless networks, which are expected to be introduced nationwide over the coming year.

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.

"This is a big deal for Qualcomm," said Alen Lin, a telecoms analyst at BNP Paribas in Hong Kong. "For the first 6-9 months Qualcomm will be the only chipset provider that can support a handset using both 3G and 4G in the China market."

China is a key market for Qualcomm as smartphone growth shifts from the United States to developing countries. Qualcomm reported $12.3 billion in revenue from China in the 12 months through September, almost half its total revenue. Many of the smartphones made in China are exported, however, so the Chinese market actually accounts for about a fifth of Qualcomm's chip shipments and licensing revenue, according to Raymond James analyst Tavis McCourt.

BIG MARKET, BIG OPPORTUNITY

The three carriers, including China Mobile, the world's biggest mobile carrier with 759 million subscribers, are upgrading their infrastructure to LTE, or Long-Term Evolution, so customers can enjoy speedier Internet and data access. With Broadcom Corp, Intel Corp and other chipmakers missing targets for their own LTE components, Qualcomm is the main player in LTE.   Continued...

 
A Qualcomm sign is seen at one of Qualcomm's numerous buildings located on its San Diego Campus February 7, 2011. REUTERS/Mike Blake