“It’s Handset Prices, Stupid:” Qualcomm Chief Paul Jacobs Tells Reliance

QUALCOMM’s third quarter conference call (transcripts here) with analysts has some interesting bit of information on India. The chipmaker is having a spat with Reliance Communications on the royalty payments. Reliance is even contemplating shifting over to GSM, and it has applied to the department of telecom for the same. QUALCOMM CEO Paul Jacobs has this to say on the question of Reliance spat.

On Reliance, I would say the issue started out, at least publicly, around royalty rates. I think we had pretty much a meeting of the minds that the issue is predominantly handset costs and that’s what we need to focus on. We have done, I think, a very good job over the last year. I think the result was that through competition we got the handset prices at the very low end down by 25% in the last year.
So we’re going to continue to drive that. They are always focused on the cost differential between their lowest-cost phone and the lowest-cost phone available to the GSM operators, although on an average basis, the gap is extremely small in the sub-$50 range. Across the entire market, CDMA actually has lower average selling prices, although that has something to do with the strategy of focusing more in on the low end of the market. So we are discussing with them things like how to get a broader range of handsets, some higher-end handsets into that market as well.
Clearly, the way the spectrum is being allocated in India and the relative lack of spectrum availability is playing into some of their concerns. They are a GSM operator in certain circles, so I would say it’s still up in the air, what their decision-making process is going to be, and we are still in pretty deep discussions with them, not just us but also other partners.
So, I think that’s going to continue on and there’s a lot of negotiating back and forth that’s currently happening.

On the question when a final resolution will happen, Jacobs said.

They (Reliance) say things like that to us, so I would expect so, but we’ve been in discussion with them for a fairly long period of time, so we’ll see how it goes. Like I said, the negotiations continue; the discussions continue.
I should point out that while I was there, I also met with Tata and BSNL, both of whom seem to be very aggressive on their CDMA2000 plans, and met with some of the WCDMA operators. So India is turning out to be a very increasingly interesting and complicated market, and we will spend a fair time focusing on that.

The India market has a cumulative base of 33.6 million CDMA subscribers. Leading CDMA2000 operators Reliance and Tata have crossed 20 million and 10 million subscribers, respectively. BSNL plans to go in for CDMA2000 technologies for its rural expansion. In a recent bid opened by state-owned service provider MTNL, more than one-third of the 2 million expansion planned is ear-marked for 3G mobile services, based on WCDMA.

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