Korea questions Chinese deals - Company Business and Marketing

CommunicationsWeek International, August 13, 2001 by Mike Newlands

Controversy was again reignited in South Korea over the decision by state-owned Korea Telecom Freetel to launch the world's first commercial mobile Internet service based on Qualcomm BREW technology, after allegations of Qualcomm doing "special favors" for Chinese manufacturers--to the detriment of Korean CDMA manufacturers looking to enter the Chinese market.

Gina Lombardi, vice president, marketing and product management, at Qualcomm Inc., of San Diego, California, told CWI that the announcement of another Asian carrier introducing BREW (binary runtime environment for wireless) will be made "within a few weeks." Analysts believe the most likely candidate is China Unicom, which is building what will become the world's largest code-division multiple access (CDMA) network. A few weeks ago. Qualcomm opened a 43,000-square-feet CDMA development center in Beijing, which, according to chairman and chief executive Irwin Jacobs, will support "localized research and development in China, supporting Qualcomm technologies and applications such as CDMA2000 1x/1xEV and the BREW platform."

But it was another throwaway comment made by Jacobs to reporters in Beijing--that Chinese manufacturers of CDMA equipment had been granted "somewhat favorable" licensing terms--which stirred the Korean media again.

Ted Dean, managing director of consultants BDA (China) Ltd., of Beijing, said: "I've seen stories about Chinese vendors being offered lower licensing fees, but all the details of this have not been made public. After a long uphill struggle to get CDMA into China, it's not surprising that Qualcomm would finally have to cut a deal to sign [contracts] here."

Korean manufacturers, having invested heavily in CDMA and Qualcomm by spending billions on technology license fees and chips, were hoping payback time had arrived with the Chinese government's decision to allow the construction of a nationwide CDMA network for up to 100 million subscribers. The Korean government has lobbied the Chinese government long and hard to make sure Korean firms get a big slice of the vendor action. But if Qualcomm is doing special favors for Chinese manufacturers to make them more price competitive, the Koreans will suffer.

Qualcomm and KT Freetel have been working to calm worries over the perceived power that BREW, which only works on CDMA chipsets, would give the U.S. company over the wireless Internet sector in Korea (see box, right).

But one analyst, who did not want to be named, was not convinced: "If Qualcomm manages to authenticate applications for wireless Internet use, domestic content providers and mobile phone operators will become subcontractors."

"Not at all," countered Qualcomm's Lombardi, who said there is some confusion between content and applications. "What BREW does is provide the capability for users to download applications, like an MP3 player for example, and then go to a third party server to get the content, she says.

Korean media reports that Qualcomm had structured BREW deals with KT Freetel and other operators so that Qualcomm filters content and stores it on servers, to which carriers must connect in the U.S., were dismissed by Lombardi as further misconception caused by confusion between applications and content.

"Content [has] nothing to do with Qualcomm," she said. "Once an application has been enabled, it is up to the service provider to make deals with third parties to provide content...We are simply trying to enable carriers to offer services to end users."

There has also been opposition to the amount of money Qualcomm would supposedly garner in license fees from content providers. Opposition member of parliament Kim Hyung-oh told the Korean legislature that domestic telecoms companies had already paid Qualcomm billions of dollars for royalties and chip imports, and now content providers would also have to pay royalties.

Lombardi disagrees, because content deals are between KT Freetel and third parties, and only applications are enabled by Qualcomm and BREW.

Jin Kim, Korean researcher for telecoms consultancy PBC, of Bucketty, Australia, said BREW would not give Qualcomm dominance in the Korean wireless Internet market. "I don't think so. Korea has several players in the market and I think the record shows they know what they are doing," he said.

And KT Freetel has issued a statement saying although it will share profits with Qualcomm and content providers, it will not allow Qualcomm to control the central server and certification process.

"The difference between [our] offering and [for example] NTT DoCoMo's with hits iAppli Java service is that DoCoMo had to pay for the development costs and provide the equipment. We are providing a ready-made platform," Lombardi said.

BREW sets early pace against Java mobile in Korea

There is a wider issue around the introduction of BREW technology in Asia: its challenge to the Java Mobile service (JVM) from Sun Microsystems Inc., of San Jose, California.

Jin Kim, Korean researcher for telecoms consultancy PBC, of Bucketty, Australia, says KT Freetel and LG, the Korean electronics and manufacturing group, are introducing BREW in competition to the Java Mobile service, which wireless market leader SK Telecom (SKT) is employing. The competition between the two technologies mirrors the situation in Japan, where second-ranked KDDI Corp. is to introduce a BREW service in opposition to NTT DoCoMo's iAppli Java service.