Cell Phone Prices Likely to Fall


By Kim Tae-gyu
Staff Reporter


Korean makers of code division multiple access (CDMA) cell phones will stop paying Qualcomm, the developer of the technology, tens of millions of dollars per year, with their contracts to expire next August. This could pave the way for the handset prices to be lowered.

According to a copy of the confidential contract between Qualcomm and Samsung Electronics, which The Korea Times was allowed to view, the global No. 3 cell phone maker will be exempted from CDMA royalties for the Korean market at the expiration of the contact.

For CDMA handsets exported to offshore markets, the technology usage fee will also be phased out beginning Aug. 2008, or 15 years after the contract was signed in Aug. 1993.

``Following the 15th anniversary hereof, the license hereunder to licensee shall be fully paid up and no further royalties shall be due from licensee for subscriber units (cell phones), which are sold after the fifteenth anniversary hereof,’’ the contract read.

``Provided, however, that licensee shall have no obligation to pay any royalties on subscriber units, which are sold for use in Korea after the 13th anniversary hereof,’’ it added.

Other major Korean CDMA phone manufacturers _ LG Electronics and Pantech _ will savor the same royalty exemption together with Samsung because Qualcomm doled out similar deals to LG and Hyundai Curitel, now Pantech & Curitel, in Aug. 1993.

``In the early 1990s, Korean phone makers like Samsung and LG pulled out all the stops to develop commercial CDMA technologies with Qualcomm after the country decided to adopt CDMA as a single national standard,’’ said Song Wi-chin, a researcher at the state-backed Science and Technology Policy Institute.

``The royalty expiration is kind of compensation for such joint research efforts. Korea’s major players will be able to be relieved from high royalty costs soon,’’ Song added.

Korean handset vendors have paid 5.75 percent of phone prices in royalties to Qualcomm, which holds most CDMA source technologies, and 5.25 percent for local sales.

The prohibitively high technology fees have weighed heavily on the domestic cell phone makers as Samsung and LG are the world’s two leading CDMA phone producers.

With the continual advent of pricey top-line phones, the size of Qualcomm’s royalties has snowballed, since they are based on total handset prices, including built-in cameras and MP3 players that the U.S. firm has nothing to do with.

Government data shows local outfits paid about 1 trillion won to Qualcomm for sales in Korea since 1997 and experts expect the amount would be 2 trillion won for exports over the same period.

However, mid-tier handset firms here failed to secure such favorable conditions when they struck a CDMA license deal in the late 1990s and in the early 2000s.

Consequently, they will have to continue paying lofty royalties to Qualcomm. Most CDMA phone companies in China got a license in the early 2000s, so they will not benefit from such a royalties exemption, either.

voc200@koreatimes.co.kr