Qualcomm (NASDAQ:QCOM) is facing new pressure from regulators after South Korea's antitrust regulator said it is considering investigating whether the chipset giant misused its dominant market position in the country. The probe comes just days after Qualcomm announced a settlement with China's National Development and Reform Commission, in which the company agreed to pay a $975 million fine and change its licensing and royalty practices.
According to the Wall Street Journal, a spokesman for South Korea's Fair Trade Commission confirmed the probe but declined to comment on the details of the potential investigation. However, as the Journal noted, local South Korean media reports said the probe was already under way and could focus on whether Qualcomm violated antitrust regulations in collecting royalty payments for its patents.
An unnamed FTC spokesman told Yonhap News the agency was carefully examining actions taken by China and if Qualcomm engaged in similar activities in South Korea. "If a probe is started, it will be a long, drawn-out affair that could take two to three years," he said.
Qualcomm declined to comment, according to multiple reports.
In 2009, South Korea's FTC fined Qualcomm around $235 million after an investigation showed that it abused its dominant position in selling chips to OEMs in South Korea.
While the Chinese fine is manageable for Qualcomm and the company said it was pleased to have clarity on its business in the world's largest smartphone market, investors fear any concessions Qualcomm gives on licensing fees could spread to other device makers in other markets. Regulators in other markets may also begin probing Qualcomm's licensing practices. Qualcomm derives most of its profit from licensing fees and most of its revenue from sales of chipsets and modems.
Indeed, in November Qualcomm disclosed that the U.S. Federal Trade Commission had been looking into licensing business since September, including into potential breaches in commitments to license standards-essential patents on fair, reasonable, and non-discriminatory terms.
Additionally, the European Commission is probing the sale or marketing of Qualcomm's baseband chipsets, "including alleged conditions relating to the provision by us of rebates and/or other financial incentives."
In addition to the fine in China, Qualcomm laid out some specific changes to its business it will make as a result of the resolution. The company also revealed its patent-licensing rates--a figure it generally doesn't make public. The company said it will offer licenses to its current 3G and 4G essential Chinese patents separately from licenses to its other patents. Qualcomm also said it will charge a 5 percent royalty rate for most 3G devices in China and 3.5 percent for most 4G devices. The company's existing licensees will be able to move to the new rates now. As Bloomberg pointed out, the new rates will likely funnel more profits to Chinese smartphone makers like Xiaomi and Lenovo. Qualcomm also made other concessions in China.
Qualcomm is also facing new challenge in the baseband market. Although it still holds an overwhelmingly strong position, Chinese companies like MediaTek re starting to eat into its LTE business and Intel has pledged to bolster its own LTE chipset business.
For more:
- see this WSJ article (sub. req.)
- see this Yonhap News article
- see this Reuters article
- see this FT article (sub. req.)
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