CDMA success brings Chinese royalty gripes

Taking a page from their Korean counterparts, in the face of rapidly growing sales, Chinese cellphone manufacturers are airing complaints through local propaganda organs in hopes of lowering their contractually obligated CDMA royalties.

Last year, a reorg of China’s telecommunications industry brought dominant landline provider China Telecom the opportunity to offer 3G mobile services using Qualcomm’s cdma2000. On Wednesday, China’s official Xinhua news service reported good news for Qualcomm and its local licensees:

Under the stimulation of China Telecom's large investment and procurement this year, the growth of China's CDMA cell phone market will be great, said an industrial insider. Competition will heat up as many GSM mobile phone manufacturers are entering the CDMA field, he added.

China's CMDA cell phone market rebounded in the end of 2008 despite gloomy market conditions. According to statistics released by market research firm Sino-MR, sales volume of CDMA handsets topped 1.29 million during December 2008, up 33.6 percent year on year and 183 percent month on month, marking a five-year high.

However, the report ended with a complaint about the royalty rates

Insiders with China Telecom consider China an important market for CDMA business and expect Qualcomm to realize the market condition and give more supportive pricing. Qualcomm refused to comment.

When in 2000 Irwin Jacobs negotiated government permission for CDMA to be used in China, Qualcomm granted Chinese manufacturers the best rates in the world — around 2.65% as opposed to 5% for other makers. (Qualcomm neither discloses nor confirms its royalty rates).

In fact, this deal has brought continued griping by Korean manufacturers paying list price. The Korea Times has run one-sided stories since 2004 airing selective leaking by the unhappy manufacturers. For example, it ran a March 2004 story (no longer on their website) entitled “Qualcomm's Royalty Policy Angers Korean Chip Makers”:

U.S. chipmaker Qualcomm’s royalty policy has angered Korean manufacturers of code division multiple access (CDMA) phones as it charges lower rates to China than to Korea.

A local CDMA phone maker contends that Qualcomm gives a “subsidy” to Chinese exporters as it collects as low as 5 percent of handset prices in royalties from them. But the rate is 5.75 percent for Korean makers.

Korean cell phone producers, which pay a fixed 5.75 percent for export and 5.25 percent for local sales to the San Diego-headquartered firm, shoulder higher royalty burdens in both domestic and global markets.

According to a contract between Qualcomm and one of China’s leading handset manufacturers, which The Korea Times obtained exclusively, the royalty rates are 2.65 percent for local sales and 7 percent for offshore shipments.

However, the contract says the export royalty will be cut to as low as 5 percent after the three years immediately following the license effective date.

The deduction ranges from 5 percent to 6.5 percent, depending on quarterly export volume, but the Chinese firm is entitled to enjoy the low rates “if more than 100,000 such subscriber units (handsets) are sold in the applicable calendar (year)” in overseas markets.

The KT report said that Chinese manufacturers signed a 10-year agreement in “early 2001,” which would mean these deals will be expiring in 2011.

A review of Qualcomm’s 2001 press releases reveals this May 21, 2001 announcement:

Qualcomm Incorporated … today announced that it has signed a commercial license with ZTE Corporation, a leading manufacturer of telecommunications equipment in China. Under the terms of the royalty-bearing license agreement, Qualcomm has granted ZTE a license under Qualcomm's CDMA patent portfolio to develop, manufacture and sell cdmaOne™ and third-generation (3G) CDMA2000 1x/1xEV network equipment. The license grants ZTE the right to use Qualcomm's technology and integrated circuits to make and sell cdmaOne and CDMA2000 equipment in China and worldwide. ZTE becomes the first company in the People's Republic of China to enter into a commercial license with Qualcomm.

Additional manufacturers signed licenses in July and November, with the latter including Huawei. Another 17 Chinese firms signed in January 2002.

The Xinhua story seems designed to help Chinese manufacturers (or China Telecom) pressure Qualcomm to lower royalties on the current deals, or at least when the licenses come up for renewal in two years.

Interestingly, there is no complaining about the GSM royalty rate, which is also secret. One report estimated the rate at 2-10%. However, data from the various Sendo-related lawsuits put the number more like 10-13%, suggesting that single-digit GSM royalties are only available to firms with big enough patent portfolios to negotiate a cross-license. Thus far, only a few Chinese manufacturers have enough patents to possibly put them in the latter category.

MediaFlo hurt by DTV delay

The House voted yesterday to delay the Digital TV transition by nearly 4 months. A majority of both houses have decided that America is not ready for a transition and thus a delay to June 12 is warranted.

However, delaying the end of analog transmissions (and thus the surrender of those broadcast bands) is also delaying the deployment of new services by the communications companies who paid for rights to those bands, especially in the various 700 MHz bands.

Although AT&T and Verizon own such spectrum, the company most ready to use its spectrum is Qualcomm with its Media Flo service licensed by AT&T and Verizon.

Qualcomm issued a statement Wednesday (although it’s not on its website), with the most complete summary in Telephony magazine:

We are disappointed with the passage of legislation extending the DTV transition date to June 12th. … Due to the investments we made, we were ready for a February 17th transition to provide our innovative FLO TV service nationwide immediately. We are encouraged that several Congressmen and Senators who supported the delay stated that this would be a one-time delay only. In light of the fact that the legislation, as amended and finally passed by Congress, allows TV stations to transition voluntarily between now and June 12th, we cannot determine the specific impact of the final bill's passage on our MediaFLO business.

Due to interference its service causes around (analog) UHF channel 55, Qualcomm will have to delay rollouts in Boston, Houston, Miami and San Francisco; its efforts to have these markets exempted fell on deaf ears.

It’s hard to predict the commercial impact of the delay. Qualcomm has been aggressively planning this rollout for five years, and its speed to market was intended to preempt rivals (at least in the US) from gaining a foothold in the (presumed) lucrative mobile multicast TV market.

Coding in space

Local telecom industry veterans, particularly those who got a good dose of information theory in their EE degrees, understand why Andy Viterbi won his Shannon Award. All would know that Viterbi developed what (proved to be) the maximum likelihood decoding scheme for convolutional codes, which remained the state of the art until turbo coding came along.

Most would know that every GSM cellphone (let alone CDMA cellphones) includes a Viterbi decoder. Some might know that one of Qualcomm’s first products (and I believe its first semiconductor product) was a Viterbi decoder chip.

A few would recall that Klein Gilhousen led the group that designed the LMP (Linkabit Microprocessor) which was used to implement the Viterbi algorithm for the Dual Modem.

What might not be known — I didn’t know until I researched the back story for the book — is that before cellphones, chips and the dual modem, the first real application for the Viterbi decoder was for NASA deep space probes.

In the late 1960s, NASA was planning two competing families of space probes for mankind’s first visit to the outer planets. The communication challenges were among the most daunting in history, where (due to the inverse square law) the signal strength a billion miles away was faint, and power (from nuclear decay batteries rather than solar power) is minimal.

Theoretically, the application of Claude Shannon’s ideas (and coding theory) could provide as much as a 10 dB signal gain. MIT-trained academics worked with two different divisions of NASA, both using coding theory:

• Pioneer 10 and 11: Codex of Newton, Mass. worked with NASA Ames to apply Fano decoding
• Voyager 1 and 2: Andrew Viterbi, Joe Odenwalder and others — first as a UCLA contract and then as a Linkabit contract — worked with JPL to use concatenated decoding and the Viterbi algorithm.

My research on this led to chapters on MIT and NASA for the book, as well as changes to other chapters. However, I’ve stopped quoting an ETA for the book given (as a part-time job) it’s coming very slowly.
In the meantime, two years ago I wrote a paper for the Journal of Management Studies, in a special issue on technology commercialization. The paper, entitled “Commercializing Open Science: Deep Space Communications as the Lead Market for Shannon Theory, 1960–73,” was published in December after several rounds of review.

Errata (Feb. 4, 2009). I received an email from Andrew Viterbi with a correction to the paper that will be applied to the book:

the first Linkabit customer was the Naval Electronics Laboratory Center (NELC) in San Diego… NASA was the second, but never became a large customer.

Most universities subscribe to the journal, so the paper is available as online from a university IP address (DOI: 10.1111/j.1467-6486.2008.00807.x). Normally I post a PDF of the pre-publication Word document, but there were major changes after submission during editing the page proofs. However, I would be glad to email the published PDF to anyone who asks (at ).

Graphic credit: Brewster Rocket comic from Sunday, February 1, 2009. Note to Tim Rickard: Pioneer 10 was launched first, but Voyager 1 was actually the first manmade object to leave the solar system and the most distant space probe. So your aliens would first see the Golden Record rather than the Carl Sagan memorial plaque.