Wednesday, November 09, 2005

Korea Licks Its Chops

Something halfway around the world something happened that might have a profound effect on Korea and one of the largest telecom firms in the world. Last week a few telecom manufacturers got together to bring Qualcomm's pricing policies before the EU Trade commission on the grounds of price discrimination.

Most of the analysts are bringing up parallels to the Microsoft trials five years ago. In ways it is similar. One could even argue that Texas Instruments position is similar to RealNetworks. However I do not cover EU competition law, so I so not know how appropriate such a comparison is, let alone the quality of the case. It all may not matter anyway in Europe, some think this is only a negotiation tactic.

What does this all have to do for Korea? Simple, Korea for sometime has been trying to take down Qualcomm for just about anything. As mentioned here before, Korea has a mercantilist knee-jerk reaction to many things. One of the particularly strong knee-jerks is the trade deficit it has with other counties in regards to royalties. Qualcomm accounts for about 10% of all royalties going out of Korea, or 17% of the deficit. Predictably Qualcomm is the bloody shirt politicians and businessmen wave as they want to drive home the idea of Korea becoming a knowledge economy.

I am willing to wager that Qualcomm will be the target of some Korean Fair Trade Commission inquiry next year. Based on what I can decipher I can give three reasons:

1. Korea Fair Trade Commission does not like to launch investigations on their own, they usually wait for others to launch first. This is true of the recent cases against Microsoft (restrictive agreements with PC makers) and Intel (same) Both of those were first tried by other countries well before similar investigations were launched in Korea. The European case (pursued fully or not) will give good impetus (or even political cover) to take up a Qualcomm investigation.

2. I mentioned in the Oracle case, there (as I recall) the issue was whether Oracle can bundle, and charge, for features not used by the average user (in Economic parlance a tie between goods). This is likely due to the fact that whatever updated Qualcomm CDMA chipsets sold in Korea will likely be able to work with Qualcomm 3G standards (most notably WiMAX, where Korea uses its own standard WiBro instead).

3. The troubling hidden aspects of the Microsoft/Daum Fair Trade Commission fight over messenger services. One thing unsaid in this fight is that many of the things Microsoft includes for free in it OS now and in future are things that the Korean Government paid billions of dollars for Korean companies to develop and export (messenger programs, VoIP, media players, etc.). WiMAX threatens WiBro, and the Korean government as well spent millions on the development and the export promotion of WiBro. A similar situation.

Lastly all this is particularly scary to Qualcomm. Last year Qualcomm had a total income of about US$1.5 billion. The annual Korean royalty of US$500 million represents ONE THIRD of their income. Qualcomm could be very vulnerable financially by any move from the Korean Fair Trade commission. Expect Q's Korean lawyers to fight hard (and be well paid).


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