Last month, the SEC sued Broadcom’s two founders, Henry Samueli and Henry Nicholas, alleging phony accounting in connection with incentive stock options. Today, the feds unsealed an indictment of Nicholas — charging stock price manipulation, using and distributing drugs and hiring prostitutes for his employees and customers. (Of course, Nicholas denies the charges).
The stock option accusations are not unusual for tech executives, and there are even a few that seriously argue that this is mostly an accounting issue not worthy of felony prosecution. But the sex-and-drugs accusations (stemming from a disgruntled ex-employee’s complaint) are just plain weird, more suitable for a pro athlete than a tech executive. This is complete with the report that (since April) Nicholas has been at a celebrity rehab center in Malibu. No such accusations have been leveled at Dr. Samueli, Nicholas’ former UCI professor who used his Broadcom wealth to endow two engineering schools, UCI and UCLA.
Clearly the course cases will be a major distraction for the company’s founders if not its management. Given all the problems Broadcom has created for Qualcomm, such a distraction would be welcomed by at least some Qualcomm employees and shareholders.
The German word for this is Shadenfreude, although I think the original Qualcomm executive team would have too much class to even hint at it in private. As for the current CEO, I’ve had no direct contact from which to judge; perhaps the best indicator would be how many elbows he throws in his notoriously competitive basketball games.
Thursday, June 5, 2008
Sunday, June 1, 2008
China will/won't allow cdma2000
Back in November 2000, I needed a case to teach political risk. So I wrote one about Qualcomm's on-again, off-again relationship with the Chinese government and state-owned carrier China Unicom — the one that eventually allowed Unicom to offer cdmaOne 2G mobile phone service in China. (My teaching case “Qualcomm in China” was used to flesh out the China portion of Dave Mock’s Qualcomm book).
Last month, the Chinese government unveiled a master reorg of telecommunications carriers is realigning six companies to three, each of which will have a wireline and mobile operation. China Unicom will be broken up, and its CDMA operations sold to China Telecom (the dominant wireline carrier) while its GSM network will be sold to China Netcom. One estimate places the value of the CDMA network at $13-15 billion.
But after that, nobody can agree on what’s happen — which exactly makes the point of the original case that a lack of policy transparency creates high risk and uncertainty for Western firms operating in China.
Among the disputed predictions that are the source of so much speculation:
Qualcomm is notoriously secretive in disclosing its royalty terms, which makes it difficult for researchers like me but also leaves it vulnerable to accusations of violating the non-discriminatory part of RAND patent licensing terms. One report I thought curious was an account Friday that claimed that China Telecom signed a deal with Qualcomm to pay CDMA royalties at 4%.
Reviewing my notes from the Qualcomm in China case, it’s clear that report is wrong. The list price for QCOM’s patents is known to be in the 4-5% range. I reported back in 2001 that on behalf of Unicom and its suppliers, the Ministry of Information Industry (MII) negotiated Irwin Jacobs down to 2.65% for handsets and 1% for infrastructure. So there’s no way the MII-led reorg will cause China Telecom to pay 4% royalties for Unicom’s existing 2G network.
Last month, the Chinese government unveiled a master reorg of telecommunications carriers is realigning six companies to three, each of which will have a wireline and mobile operation. China Unicom will be broken up, and its CDMA operations sold to China Telecom (the dominant wireline carrier) while its GSM network will be sold to China Netcom. One estimate places the value of the CDMA network at $13-15 billion.
But after that, nobody can agree on what’s happen — which exactly makes the point of the original case that a lack of policy transparency creates high risk and uncertainty for Western firms operating in China.
Among the disputed predictions that are the source of so much speculation:
- Will it create real competition for China Mobile, which with nearly 400 million subscribers is the world’s largest cell phone operator? An expert interviewed by the FT said “There will be no way to create a real three-way fight – China Mobile will still be the big one standing alone” but the market pummeled China Mobile shares on the assumption that it will have real competition.
- Supposedly having three carriers means three 3G licenses will be issued, solving a long-standing problem in Chinese telecom policies. Some say (as has been long predicted) it will happen in time to showcase Chinese wireless technology for the 2008 Olympics, but others say it won’t happen until 2009.
- Many say it clears the way for every carrier to deploy TD-SCDMA, but TheStreet speculates that all three types of 3G will be deployed: TD-SCDMA with China Mobile, W-CDMA with China Netcom and cdma2000 with China Telecom. With this plan, CT would have a huge time to market advantage because the cdma2000 upgrade is faster and cheaper, while China Mobile would deploy the least proven technology (one it has been trailing for several years).
- Reportedly one expert claims that China will skip 3G to 4G (see the comments on this post). It would certainly make sense technologically — allowing China to skip a generation of infrastructure development and giving its manufacturers a huge leg up on 4G equipment deployment. The problem is that the comment is attributed to Willie Lu, a prolific wireless researcher who is well connected and well trained (although a lousy webmaster), but a 4G promoter based in America who speaks for himself and not the Chinese government.
Qualcomm is notoriously secretive in disclosing its royalty terms, which makes it difficult for researchers like me but also leaves it vulnerable to accusations of violating the non-discriminatory part of RAND patent licensing terms. One report I thought curious was an account Friday that claimed that China Telecom signed a deal with Qualcomm to pay CDMA royalties at 4%.
Reviewing my notes from the Qualcomm in China case, it’s clear that report is wrong. The list price for QCOM’s patents is known to be in the 4-5% range. I reported back in 2001 that on behalf of Unicom and its suppliers, the Ministry of Information Industry (MII) negotiated Irwin Jacobs down to 2.65% for handsets and 1% for infrastructure. So there’s no way the MII-led reorg will cause China Telecom to pay 4% royalties for Unicom’s existing 2G network.
Saturday, May 17, 2008
Leap: pride before the fall?
Last September, Leap rebuffed MetroPCS’s proposed merger, in which the younger rival proposed exchanging 2.75 shares of PCS for every 1 of LEAP. In one sense, Leap’s decision seems smart, because its shares are still worth more than Metro’s offer — at Friday‘s close, the offer would have been worth $59.76 but the stock ended at $61.09.
However, both shares are down (PCS down 24%, LEAP down 27%) since the deal was announced last Sept. 4. The relative market caps remain the same, but now Metro is worth $7.6b vs. $4.2b for Leap.
But the more serious problem is that the four major carriers have gone to unlimited service plans — which was the whole point of Leap’s Cricket service (later copied by MetroPCS). Yes, the Big Four want $100/month while Metro wants $40/month (unlimited voice, text messaging and voicemail). But they’ve been forced to respond with a family plan promo: two lines for $35, three for $30, or four for $25 ($100 total — get it?). Cricket is about $5/monh cheaper for comparable plans, and its roaming minutes are less than half the price of those for Metro (but only sold in bundles).
Still, the big boys are heading towards unlimited minutes. If Leap and Metro don’t build a national footprint soon, they’ll be toast. They need to move before the industry shifts from voice to data (since their customers and equipment are not well suited for data). Sprint is in too much trouble to buy either one, leaving only Verizon as a potential buyer
Leap and Metro are as compatible as two carriers could be (other than the bad blood between them, and the fact that Metro is based in Texas). In addition to similar business models and demographics, they also use Qualcomm’s CDMA networks (unlike the Sprint-Nextel nightmare) in 1900 MHz and soon 700 MHz.
The foot prints are nicely complementary, as the original MetroPCS offer made clear. From a personal standpoint, both carriers individually are useless, but together my wife and daughter (and maybe I) would jump for their California coverage. MetroPCS has the Bay Area, Sacramento Bakersfield, LA and. and Las Vegas; Cricket has San Diego and central California (Fresno to Modesto) as well as Reno and (soon) Las Vegas.
The two are starting to build out redundant coverage, so the savings from the combination are going down. Now that the 700 MHz auctions are over, speculation is that negotiations will resume. But then speculation about merger talks was spreading in December and October, too.
Asked twice during the analyst call earlier this month, MetroPCS Roger Lindquist neither confirmed nor denied an interest in resuming merger talks. He didn’t deny it, because it would have no credibility; but he didn’t confirm it, to avoid raising expectations of any near term solution.
At the beginning of the year, FierceWireless predicted that the merger will take place in 2008. So far, two other predictions are bearing out (spinout of the MOT handset division, and merger of Sprint and Clearwire WiMax properties), and the year is not quite half over.
However, both shares are down (PCS down 24%, LEAP down 27%) since the deal was announced last Sept. 4. The relative market caps remain the same, but now Metro is worth $7.6b vs. $4.2b for Leap.
But the more serious problem is that the four major carriers have gone to unlimited service plans — which was the whole point of Leap’s Cricket service (later copied by MetroPCS). Yes, the Big Four want $100/month while Metro wants $40/month (unlimited voice, text messaging and voicemail). But they’ve been forced to respond with a family plan promo: two lines for $35, three for $30, or four for $25 ($100 total — get it?). Cricket is about $5/monh cheaper for comparable plans, and its roaming minutes are less than half the price of those for Metro (but only sold in bundles).
Still, the big boys are heading towards unlimited minutes. If Leap and Metro don’t build a national footprint soon, they’ll be toast. They need to move before the industry shifts from voice to data (since their customers and equipment are not well suited for data). Sprint is in too much trouble to buy either one, leaving only Verizon as a potential buyer
Leap and Metro are as compatible as two carriers could be (other than the bad blood between them, and the fact that Metro is based in Texas). In addition to similar business models and demographics, they also use Qualcomm’s CDMA networks (unlike the Sprint-Nextel nightmare) in 1900 MHz and soon 700 MHz.
The foot prints are nicely complementary, as the original MetroPCS offer made clear. From a personal standpoint, both carriers individually are useless, but together my wife and daughter (and maybe I) would jump for their California coverage. MetroPCS has the Bay Area, Sacramento Bakersfield, LA and. and Las Vegas; Cricket has San Diego and central California (Fresno to Modesto) as well as Reno and (soon) Las Vegas.
The two are starting to build out redundant coverage, so the savings from the combination are going down. Now that the 700 MHz auctions are over, speculation is that negotiations will resume. But then speculation about merger talks was spreading in December and October, too.
Asked twice during the analyst call earlier this month, MetroPCS Roger Lindquist neither confirmed nor denied an interest in resuming merger talks. He didn’t deny it, because it would have no credibility; but he didn’t confirm it, to avoid raising expectations of any near term solution.
At the beginning of the year, FierceWireless predicted that the merger will take place in 2008. So far, two other predictions are bearing out (spinout of the MOT handset division, and merger of Sprint and Clearwire WiMax properties), and the year is not quite half over.
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