The Hindu Business Line : Reliance, Qualcomm in deadlock over royalty

The scenario
The US company offers to share marketing, ad costs and to lower costs of handsets based on volume commitments.
Anil Ambani wants an upfront reduction in handset price.

MR PAUL JACOBS

New Delhi , July 2

In a bid to appease Reliance Communication, Qualcomm Inc has offered sops including sharing marketing, advertising and promotional cost incurred by the Indian operator.

The US-based company, during its negotiations with the country's largest CDMA operator, has also offered to bring down the costs of handsets based on volume commitments. Both the offers have been rejected by Reliance on the grounds that it wanted an upfront reduction in handset price.

Qualcomm's global Chief Executive Officer, Dr Paul Jacobs, had come to India to hold negotiations with Reliance after CDMA operators announced their decision to shift to GSM services.

Reliance has demanded that Qualcomm should reduce its royalty as it was coming in the way of cheaper handsets. While Qualcomm has maintained that a reduction in royalty would not impact handset prices, Reliance has hardened its position on the issue.

Sources close to the negotiations said that the Reliance Group Chairman, Mr Anil Ambani, was open to only a transparent and upfront handset price reduction as against the volume-led discount on cost elements, other than royalty, that was being offered by Qualcomm.

The Ministry of Communication had also asked Qualcomm to remove all bottlenecks hindering reduction in handset price. Sources said that an offer to share advertising and marketing cost is understood to have been given to the other CDMA player in the country - Tata Teleservices. Both Qualcomm and Reliance were not available for comment.

Meanwhile, Qualcomm's share price has taken a huge beating at Nasdaq where the scrip has lost over $11 billion in market capitalisation over the last few weeks.

Sharp drop

Analysts said that the drop in Qualcomm's share price may also be due to Nokia's decision to pull out of CDMA handset business. Qualcomm's stock price has slipped from $47.05 on June 1 to $40.54 on June 29.

The Korean Communication Ministry had also raised some concerns on payment of royalty by Samsung and LG.

Qualcomm has, however, said that while Nokia's decision had no impact on its business, the issue with the Korean manufacturers have been sorted out.

The company is, however, yet to make clear its strategy in addressing concerns raised by Reliance Communications.

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