Fight Gets Ugly for Postwar Wireless
As Congress begins debate today on a massive bill to fund war and reconstruction efforts in Iraq, Qualcomm Inc. is pressing behind the scenes for its wireless technology to be used to build a phone network there after the conflict ends.
The San Diego company was behind last week’s controversial call by Rep. Darrell E. Issa (R-Vista) to require the Bush administration to favor Qualcomm’s CDMA technology when the government hands out billions of dollars worth of reconstruction contracts.
The company’s maneuvering underscores its struggle to maintain the worldwide market share for CDMA -- short for code division multiple access -- at 12.4%. A rival wireless system, GSM, is used by more than two-thirds of the world’s wireless phone customers and is popular in the Middle East.
To some, Qualcomm’s efforts in Washington amount to little more than a grab for postwar riches in a war-scarred country more concerned about food and water than cell phones.
“The timing was in very poor taste,” said analyst Philip Redman at the Gartner Inc. research firm in Stamford, Conn. “It appears they’re starting to show some desperation as they look at their shrinking market share.”
Although CDMA is strong in the U.S. and South Korea, he said, “Qualcomm is becoming a niche player with a niche technology.”
The company’s CDMA chip business suffered a setback Wednesday on news that its biggest chip customer, Samsung Electronics Co., is expected to start shipping handsets that use its own semiconductors this month. Qualcomm stock dropped $1.77, or 4.9%, to $34.18 in Nasdaq trading.
Qualcomm would not comment on its role in urging Issa to introduce a bill last week that would mandate the use of CDMA in postwar Iraq.
Issa has defended his bill, saying it raises the issue of whether the billions of U.S. taxpayer dollars spent on reconstruction should benefit American companies. He said this week that he doesn’t expect the bill to pass, though he hopes to have a preference for U.S. products included in the overall appropriations measure.
“We need an open system,” said Issa, who received $5,500 in campaign contributions over the last two years from Qualcomm, one of his bigger supporters.
According to staffers in Issa’s office, Qualcomm’s Washington lobbyists learned that the federal government was preparing to solicit bids for the quick construction of a cell phone network after the war, and that the contract would specify that the network be based on GSM technology.
The lobbyists went to Issa and his staff. Together, they drafted a letter to Defense Secretary Donald H. Rumsfeld and the U.S. Agency for International Development, which is handling the bidding process. The letter urged the use of a CDMA-based network. It was signed by 41 members of Congress.
The U.S. international aid agency has not yet formulated the bidding requirements and could not say what standard would be sought, spokeswoman Ellen Yount said.
Analysts said they are bemused by Qualcomm’s desire to serve Iraq when the rest of the Middle East is dominated by GSM, which stands for global system for mobile communications.
“An argument against GSM seems more political than anything,” said Jeff Kagan, an independent telecom analyst in Atlanta. “If we really want Iraq to flourish postwar, they should have the same standard as their neighbors so they aren’t an island.”
Fast-rising demand for mobile phones worldwide has fueled the $76.5-billion wireless industry, allowing strong sales growth for CDMA and GSM systems.
Qualcomm’s biggest territory is the U.S., home to about 45% of the world’s 146 million CDMA subscribers, according to EMC World Cellular Database, an industry clearinghouse in Britain. Its technology is used by Verizon Wireless and Sprint Corp., two of the nation’s largest wireless carriers. An additional 16% are in Asian countries, primarily South Korea, according to EMC.
After selling its own handset manufacturing business to Kyocera Corp. and its infrastructure business to Ericsson Inc., Qualcomm relies on only two core businesses: licensing royalties from its CDMA technology and sales of its chips. Although Qualcomm supports GSM products, it can’t demand royalties for its GSM work.
But plenty of other U.S. firms would stand to gain if a GSM system were deployed in Iraq. Motorola Inc. is a major producer of GSM-based handsets. The Schaumburg, Ill., company also holds a number of patents on GSM technology, although the royalty stream for such products is dispersed among a wide array of companies worldwide.
Some argue about which is the best technology, but most experts point out that the two are simply different. CDMA offers some technical advantages: Since it can operate in lower frequencies, for instance, its networks require fewer wireless towers.
But the widespread availability of GSM allows for ease of communication while traveling internationally, a major concern in Europe and the Middle East.
Although it has posted impressive growth, Qualcomm could find the going tougher in both mature markets and new ones.
GSM has moved aggressively into North and South America, where AT&T; Wireless Services Inc., Cingular Wireless and T-Mobile USA Inc. are adopting the standard.
