Reliance toughens stand on Qualcomm’s royalty

Jacobs’ meeting with Anil comes days after Reliance decided to enter the GSM-based technology. The meeting took place in Reliance Communications headquarters in Dhirubhai Ambani Knowledge Centre in Navi Mumbai. Though Reliance did not comment officially on the royalty issues, insiders say Qualcomm did not make any concrete offers to reduce the fees.

Jacobs, however, offered to reduce the prices of its handsets by asking the component makers to take a cut and bring them in line with the prices in China. When contacted, Qualcomm officials did not comment on the meeting.

Qualcomm holds patents to CDMA technology and charges five per cent royalty on handset prices from those telecom operators who use its technology. At present, Reliance and the Tatas are the only telephone operators who are using the CDMA-based technology.

All over the world, including in Korea and China, Qualcomm is facing the heat over high royalty charges. Nokia, in fact, stopped making CDMA-based phones saying the high royalty to Qualcomm is unaffordable.

Telecom analysts say if Qualcomm—which earned a profit of $493 million in 2nd quarter on a revenue of $1.7 billion— reduces its royalty, the costs of both Reliance and the Tatas will come down significantly which can be used to provide cheaper phones to the customers, say Reliance insiders.

Jacobs had met telecom minister Dayanidhi Maran yesterday in Delhi and discussed the allocation of more spectrum for CDMA operators. According to Qualcomm, as handsets prices in India are lowest in the world, its royalty came to around $2 on a $40 hand set. With handset prices falling to $30, its royalty will come down further, say Qualcomm officials.

Yesterday, Qualcomm had suggested to Reliance not to ‘move back to a second generation’ technology like GSM. Even as it has a national footprint on CDMA mobile service with over two crore subscribers, Reliance Communications recently applied for spectrum from the government to start GSM-based mobile services in some more circles. The company has 21 million total subscribers.

‘‘We are having this discussion.. Their focus is to get the lowest possible cost for the handsets .. We are working with them to try to enable them that,’’ Jacobs said on Wednesday.