The Telecom Marketplace Would Be A Better Place Without Qualcomm’s Drama

Mike Wendy President, Media Freedom
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Mobile chipmaker Qualcomm is on a branding tear of late. The company wants its customers – such as the major smartphone manufacturers – to see its chips as “platforms” instead of merely processors.

As Qualcomm tells it, the term “processor” is an “inadequate representation of what the technology actually is, and the solutions that tens of thousands of Qualcomm Technologies innovators have worked on.” In its view, these “solutions” are actually more than just silicon.  Rather, they are “an anthology of technology, comprising hardware, software, and services that are not fully captured in a word like ‘processor.’”

An “anthology of technology.”  That seems a bit melodramatic.

Like any statement emanating from a drama queen’s mouth, one should take this story with a grain of salt.  That’s because Qualcomm’s PR soliloquy runs counter to the opinion of a growing tidal wave of competition officials and private companies across the globe – those who experience the real character of the company in their daily dealings.

No doubt Qualcomm makes good products, which help some of the most popular smartphones run. As a testament to that, last year the company had almost $24 billion in sales.  Industry players don’t mind paying a fair value to use the company’s innovations and contributions.  But how Qualcomm arrives at that value, and how it leverages that technology, seem neither fair nor reasonable. Some believe this behavior isn’t just harmful to the path of the industry’s free market growth.  It’s downright illegal, too.

Qualcomm’s sharp-elbowed tactics are no secret. As its annual SEC report explains:

“We depend on operators of wireless networks and our customers and licensees to adopt these technologies for use in their networks, devices and services…“[However the company’s] revenues and/or growth in revenues could be negatively impacted…if we are unable to drive the adoption of our products and services into [those] networks and devices…” (Emphasis added)

They’ve been driving hard, alright. So hard, in fact, that regulators worldwide have taken notice. Some massive fines have resulted, too.

To give you an example, South Korean regulators recently imposed an $865 million levy for unfair patent licensing practices; and in China, regulators hit the company with a $975 million fine in 2015 to address long-standing royalty and other licensing matters.

The FTC has also gotten in on the action.

Earlier this year, the agency sued Qualcomm in Federal Court, claiming that the company used its dominance in core baseband chips to “impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers to weaken competitors.”  A couple of days after the FTC’s action, Apple came out of the shadows and reinforced the FTC’s claims by suing Qualcomm in Federal Court. Apple CEO Tim Cook “didn’t see another way forward” to heal Qualcomm’s damaging behavior.

Apple’s lawsuit asserts Qualcomm’s “illegal scheme” has overcharged the company billions of dollars by collecting royalties that go well beyond the value of Qualcomm’s contribution to cellular standards which enable all smartphones to communicate with their networks. In order to purchase chips or get access to those cellular patents, Qualcomm demands a royalty based on the entire price of the product in which they sit.

Consequently, as Apple innovates, Qualcomm collects a “tribute,” which Cuppertino says is “at least five times more in payments than all the other cellular licensors [Apple has] agreements with combined.”

For its part, Qualcomm disputes assertions made by Apple, as well as those made by the FTC. Since then, however, the dispute has only grown more contentious. Apple recently stopped making its royalty payments because it says it doesn’t know how much it must pay Qualcomm (another major smartphone maker has suspended payments, too). In response, it has been reported that Qualcomm might go after Apple at the U.S. International Trade Commission to ban imports of iPhones, which are made overseas.

The last one’s a real brand builder – hauling your best customer before a tribunal to “drive adoption” and tribute.  Just like a drama queen who remains incognizant of her own not-so-niceness.

Qualcomm would do well to stop believing its own press releases. Its “anthology of technology” really reads more like an “anthology of licensing terror.”   The marketplace would be a better place without Qualcomm’s drama.

Mike Wendy is the Director of MediaFreedom.org, a market-oriented nonprofit. Over the last 20 years in the telecommunications and IT industry arena, Mr. Wendy has served as Vice President for Press and External Affairs at The Progress and Freedom Foundation, Director of Public Affairs for the Computing Technology Industry Association (CompTIA), and directed grassroots efforts for the United States Telecom Association.