Qualcomm Inc. was fined a record $208 million by SouthKorea?s antitrust regulator for "unfair" business practices inselling their chips to mobile phone manufacturers Samsung Electronics and LG.Electronics.
Following a three-year investigation, the Korea Fair TradeCommission (KFTC) ordered Qualcomm, a San Diego, California based company, tostop charging higher royalties to customers who buy CDMA (Code DivisionMultiple Access) chips from rivals and to cease offering rebates to handsetmakers who purchase products mainly from Qualcomm.
Qualcomm owns the code-division multiple access wirelesstechnology that is the most widely used mobile technology in the world. CDMAallows phone companies to cram more calls and information across limited radiospectrum than GSM (global system for mobile communications) based systems. Thatmeans a mobile carrier using CDMA can have more paying customers for each celltower radio base station than if they were using the GSM protocol.
KFTC said in a statement that because ?Qualcomm owns theorigin of CDMA technology and occupies around 99.4% in the CDMA modem chipmarket at home [in Korea], and has strengthened its monopolistic positionthrough those acts? they were fined a large amount. The fine is the biggestever imposed by the agency. In 2005, the KFTC levied a $90 million fine onfixed-line telecommunication giant KT.
On Wednesday, Qualcomm issued a revenue target for the current quarter that was below Wall Street expectations.Qualcomm’s shares fell to $46.10 in after-hours trading from $48.45 at theclose on NASDAQ. Qualcomm had warned in early June that chip shipments couldfall this quarter, however many investors had hoped that its sales would end upbeing better than expected.
Ed Snyder, Charter Equity Research analyst, said thoseexpectations being fulfilled is unlikely. Snyder said that a good portion ofthe chips Qualcomm shipped last quarter went to restocking depleted inventory.He felt that won’t happen this quarter because the shelves are stocked now andconsumer demand hasn’t increased.
Qualcomm has a long history of legal battles, includingrecently settled run ins with Nokia andBroadcom. So, it was no surprise when Donald J. Rosenberg, Executive Vice Presidentat Qualcomm, said in their press release < http://www.qualcomm.com/news/releases/2009/090723_KFTC_decision.html> they were extremely disappointed about the ruling. The press release saidQualcomm will appeal the decision to the Korean courts and continue vigorouslyto defend itself against the claims of unlawful conduct.
European Competition Commissioner Neelie Kroes said thismonth that she?ll soon decide whether to file a formal complaint againstQualcomm in a dispute over patent royalties.
The Brussels based commission began probing how muchQualcomm charges for licensing its patented technology after a 2005 complaintby Nokia Oyj, Broadcom, Texas Instruments, Ericsson AB, and two othercompetitors. Nokia and Broadcom withdrew their complaints after reachingsettlements with Qualcomm worth more than $2.5 billion.
In May, 2008, John M. Connor, Purdue University; AmericanAntitrust Institute said that the Korean FTC has the best record of enforcementin Asia, but even the KFTC’s surcharges are recouping less than 15% of damagesto its citizens. It remains to be seen how much Qualcomm will actually suffer.
