China's large and growing market may give it extra trust-busting clout. After taking on foreign makers of powdered milk and liquid crystal displays, one of the country's competition watchdogs is investigating Qualcomm. Though details are scarce, a probe is likely to involve the mobile phone chipmaker's approach to licensing technology.
Technology standards generally make lives easier. Yet they can also turn those with relevant patents into monopolists, able to extract license fees from anyone using the underlying technology. That's why standards-setting bodies tend to require those fees to be on "fair and reasonable" terms.
Chinese manufacturers have long bristled at having to pay fees, and have tried to push their own standards. This has had limited success - Chinese EVDs didn't make much headway against DVDs, and the country's own third generation (3G) mobile phone technology didn't take off globally.
Qualcomm owns rights over much of the technology used in modern mobile networks. In the past, China's go-it-alone approach allowed some phone makers to avoid paying royalties on domestic models - though they still had to pay up for handsets sold overseas. As China switches to the newest high-speed phone network, known as 4G LTE, domestic payments are likely to rise.
That may be why China's National Development and Reform Commission, which polices pricing and market dominance, is looking into Qualcomm. Royalties generated roughly $8 billion in the year to September, or 30 percent of the company's turnover. Given that almost half Qualcomm's total revenue comes from China, any crackdown could be painful.
Qualcomm negotiates rates with manufacturers on an individual basis, and expects 4G royalty rates to be some 3 percent of a wholesale phone price. Whether that amount is fair and reasonable is up for debate. Korea's Fair Trade Commission found in 2009 that Qualcomm abused its market dominance by offering a "loyalty rebate" on its licensing fees to phone makers who buy the company's chips. That case and a resulting 260 billion won ($245 million) fine are still under appeal.
The NDRC could be using similar logic, and could even set a cap on royalty fees. Qualcomm has so far managed to resist attacks on its royalty-based business model. But as the world's biggest smartphone market, China may have the authority to impose its own vision on what has until now been a Western affair.
