(Bloomberg) — China’s antitrust regulator fined Qualcomm
Inc. a record $975 million for practices it said hurt consumers.
The real winner may be the nation’s smartphone makers.
Companies like Xiaomi Corp., Lenovo Group Ltd., Huawei
Technologies Co. and ZTE Corp. stand to gain because, in
addition to the fine levied by China’s National Development and
Reform Commission, Qualcomm also agreed to new terms to license
the chipmaker’s technology, according to five analysts surveyed
by Bloomberg News.
As part of the accord to end an investigation that lasted
more than a year, Qualcomm agreed to stop bundling other patents
with the rights to its technology essential for connecting
phones with high-speed wireless networks. It will also start
calculating royalty fees at 65 percent of the wholesale price of
phones sold in China, instead of the full price previously.
That’s a boon to Chinese vendors, said Roger Sheng, a Shanghai-based analyst at Gartner Inc.
“The discounted royalty will provide more profit for
Chinese manufacturers,” such as Huawei and Lenovo, Sheng said.
China is the world’s largest smartphone market with more
than 1.29 billion wireless accounts at the end of December.
Xiaomi had the second-largest share last quarter with 13 percent
of the market, trailing Apple Inc.’s 17 percent. Lenovo ranked
third in the country and Huawei fourth, Counterpoint Technology
Market Research said last month.
“The behavior of Qualcomm restricted competition in the
market, curbed technology innovation and harmed the interests of
consumers,” the regulator said in a statement.

China Market

Hou Mingjuan, a Beijing-based Qualcomm spokeswoman, didn’t
immediately return calls or reply to an e-mailed request for
comment. Qualcomm, which said it was disappointed with the
results of the commission’s probe, will continue investments in
China and will boost ties with the country’s semiconductor
industry, Xinhua reported, citing Qualcomm President Derek
Aberle.
Whether the changes Qualcomm accepted will benefit
consumers is another issue, said Kiranjeet Kaur, a Singapore-based analyst at International Data Corp.
“The question remains if the handset prices will become
any cheaper eventually, or if vendors will pocket the savings
they get,” Kaur said. “Either way, it should help the Chinese
companies in the domestic market.”
In the competitive China market, foreign products like
Apple’s iPhone and Samsung Electronics Co.’s Galaxy S phone
compete with products from hundreds of local vendors.

‘Positive’ Conclusion

Joe Kelly, a spokesman for Shenzhen-based Huawei, said he
had no information available immediately. Angela Lee, a
spokeswoman for Lenovo, declined to comment, as did Xiaomi
spokesman Tony Wei. Both Xiaomi and Lenovo are based in Beijing.
ZTE, based in Shenzhen in southern China, welcomed
Qualcomm’s accord with the NDRC, said spokesman David Dai.
“The conclusion of the National Development and Reform
Commission’s investigation of the Qualcomm case is positive for
the development and protection of intellectual property rights
in China,” Dai said. It “will help promote fair competition
for technology innovators.”
In addition to paying lower royalties, the end of bundling
patents by Qualcomm may also give a boost in licensing
opportunities to the larger Chinese vendors who have made
investments in research and development, said Nicole Peng, a
Shanghai-based analyst with researcher Canalys.
“The change in license bundling and cross licensing will
directly benefit the major Chinese vendors which own a large
number of relevant wireless patents such as Huawei and ZTE,
possibly Lenovo,” Peng said.
To contact Bloomberg News staff for this story:
Edmond Lococo in Beijing at
elococo@bloomberg.net