Ultra low-cost sets ring in bonanza for Qualcomm

CDMA technology pioneer Qualcomm is all smiles. The launch of ultra low-cost handsets by Reliance Communications (RCOM) augurs well for Qualcomm, which gets royalty on every CDMA handset sold anywhere in the world. It also has the potential to expand the share of CDMA in the world’s fastest growing telecom market.

As per industry estimates, Qualcomm gets around 5% of the price of every CDMA handset sold. However, Qualcomm CEO Paul Jacobs has said its ‘royalty rates are somewhere below the 5% range, so if you have a $40 phone that may be $2 at most.’

With RCOM claiming to have sold a million handsets of the Classic range, beginning at Rs 777, within a week, Qualcomm would have made a cool Rs 3.80 crore at the upper-end rate of 5%. Early this month, RCOM had unveiled a range of low-cost mobiles in the range of $17-$20.

Currently, nearly 73% of the subscribers in India are on the GSM platform while the rest use CDMA technology. The GSM net adds in India are helped by the second hand market, where handsets are available in the $18-$27 range without any subsidies.

According to a research by the Prudential Equity group, “the competitive offering by the CDMA operators is likely to pull new subscribers into their service.” Prudential says the move is positive for Qualcomm in two ways.

“The new CDMA subscribers will lead to higher CDMA handset sales, albeit at a lower average selling price; and two, the availability of low-cost CDMA handset will alleviate some concern over the lack of competitiveness of CDMA over GSM due to low-cost handset availability.”

The major argument by the GSM handset and infrastructure vendors had been the availability of low-cost GSM mobiles compared to higher selling prices for CDMA handsets. “We believe that this will help further narrow the handset cost gap and weaken some of the previous incentives for operators to move to GSM from CDMA to take advantage of lower-cost handsets,” said the report.

Qualcomm was in the thick of controversy last year when RCOM raised questions about the royalty being charged by the US-based chipmaker. Mr Jacobs has said, “If we cut our royalties in half and it’s $1 and you contrast that with the fact that over the last year we dropped the handset prices by 25%, so those royalties that are coming into Qualcomm we’re actually using that to fund R&D and to create competition among handset manufactures, which then brings the handset prices down.”