China regulator sees Qualcomm as having a monopoly

Mainland regulator determines that one of the world's biggest chipmakers has a monopoly in China, following an investigation into the firm

PUBLISHED : Friday, 25 July, 2014, 1:35am
UPDATED : Friday, 25 July, 2014, 5:27am

China's antitrust regulator has confirmed that Qualcomm, one of the world's biggest mobile chipmakers, has a monopoly, the state-run Securities Times newspaper reported yesterday, as Qualcomm's chief executive held talks in China.

The regulator, the National Development and Reform Commission (NDRC), is investigating Qualcomm's local subsidiary after it said in February the US 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 US$1 billion.

The Securities Times report, based on unidentified sources it said were close to the NDRC, did not say whether the regulator had determined that Qualcomm had abused its monopoly.

Angela Zhang, an antitrust expert at King's College London, said the report was a "loose expression that the NDRC has gathered facts that Qualcomm has abused its dominant position."

She noted that having a monopoly alone is not a violation of China's anti-monopoly law.

Qualcomm CEO Steven Mollenkopf, who launched a US$150 million "strategic venture fund" in China yesterday, declined to take questions from reporters. A spokeswoman travelling with Mollenkopf also declined to comment on the report.

The NDRC declined to provide immediate comment.

China is a key market for Qualcomm, accounting for nearly half of its revenue. The country is the world's biggest market for smartphones and is preparing to roll out faster 4G mobile networks this year.

While most of Qualcomm's revenue comes from selling chips that enable phones to communicate with carrier networks, most of its profit comes from licensing patents for its widespread CDMA mobile phone technology.

Qualcomm President David Aberle, speaking as the company reported a lower-than-expected outlook for the September quarter on Wednesday, said "some loss would be probable" from the probe.

"We are really not in a position to be able to estimate what that might look like, we just believe whatever the resolution may be, will likely include some form of payment," he added.

Aberle said that the investigation concerns Qualcomm's licensing business as well as interactions between its licensing business and its chipset business, and that the probe was making it harder to negotiate new 4G licenses with manufacturers in China.

During the launch of the China fund, Qualcomm CEO Mollenkopf defended the company's licensing programme, saying the US$30 billion spent in research and development over the company's lifetime had allowed it to spread its technology in China.

"It's really why anybody that signs up on a licence, actually does it voluntarily - because it is a way of leveraging all of that R and D," Mollenkopf said.

Under China's six-year-old anti-monopoly law, the NDRC can impose fines of between 1 and 10 per cent of a company's revenues for the previous year. Qualcomm earned US$12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.