Qualcomm faces probe in China ahead of LTE service launch

Qualcomm (NASDAQ:QCOM) said China's National Development and Reform Commission started a probe related to an anti-monopoly law (AML) in the country. Analysts said the investigation could be an attempt to slow Qualcomm's business in the world's largest smartphone market.

Qualcomm said in a statement that the details of the investigation are confidential, but that it is "not aware of any charge by the NDRC that Qualcomm has violated the AML. We will continue to cooperate with the NDRC as it conducts its confidential investigation."

"There's a lot more to this than any kind of antitrust investigation," Cody Acree, an analyst at Williams Financial Group, told Bloomberg. "To the extent that you can stymie Qualcomm's efforts, all the better."

Qualcomm supplies chips to the likes of Huawei, Lenovo and ZTE in China. Qualcomm said in its most recent annual report with the Securities and Exchange Commission that customers in China generated 49 percent, or $12.3 billion, of its total consolidated revenue for fiscal 2013 through the end of September.

Analysts speculated that the probe could be related to China's forthcoming launch of LTE services. According to Xinhua, China's state-run media outlet, commercial LTE service will begin in China on Dec. 18. China Mobile, the country's No. 1 mobile operator with more than 700 million users, will start its TD-LTE services on that date with a new brand, He, meaning harmonious in the Chinese language, according to the report. China is expected to issue licenses for LTE services before then.

According to Reuters, analysts said the investigation is likely a pre-emptive move to allow China's operators to gain leverage in royalty negotiations ahead of the rollout LTE service. Qualcomm could generate large revenues from licensing fees as a result of the deployments, since the new networks will require handsets with more advanced chipsets.

"This is a big deal for Qualcomm," Alen Lin, a telecoms analyst at BNP Paribas in Hong Kong, told Reuters. "For the first six to nine months Qualcomm will be the only chipset provider that can support a handset using both 3G and 4G in the China market."

The granting of the LTE licenses could also finally open the door for China Mobile to carry Apple's (NASDAQ:AAPL) newest iPhones, the iPhone 5s and 5c.

In September, China's Telecom Equipment Certification Center revealed that Apple received what is known as a "network access license" for a handset resembling the iPhone that runs on the mobile standards used by China Mobile for 3G and TD-LTE networks. Apple's iPhone 5c model A1529 and iPhone 5s model A1530 both support TD-LTE in Bands 38, 39 and 40 (2.6 GHz, 1900 MHz and 2.3 GHz, respectively). Those are the bands China Mobile has authorized for its TD-LTE network thus far.

For more:
- see this Qualcomm release
- see this Reuters article
- see this Bloomberg article
- see this separate Bloomberg article
- see this Xinhua article
- see this Shanghai Daily article
- see this separate Reuters article
- see this TechCrunch article

Related Articles:
Alcatel-Lucent confirms it won part of massive China Mobile TD-LTE deal
China Mobile confirms TD-LTE suppliers, as iPhone goes live
Apple nears clearance for China Mobile's TD-LTE network
Report: Huawei, ZTE win 50% of China Mobile TD-LTE contract
European Commission denies link between probe delay and Chinese TD-LTE tender

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