Qualcomm Faces Barrage of Complaints Over Business Practices

Mobile technology developer Qualcomm (Nasdaq: QCOM) is facing charges from U.S. based companies that it improperly used its market dominance to squelch competition in Korea, where regulators are probing a fresh batch of complaints.

Korea's Fair Trade Commission is examining allegations by Dallas-based Texas Instruments (NYSE: TXN) and Irvine, Calif.-based Broadcom (Nasdaq: BRCM) that Qualcomm used the market power it created with its code division multiple access (CDMA) technology for mobile communications to unfairly limit competition.

Not the First Claims

The agency confirmed that it is looking into the matter, but said it was not close to reaching any conclusions.

The new complaints come on top of similar actions by two Korean-based producers of handset software. Nextreaming and THINmultimedia have asked Korea's FTC to investigate.

At issue is how Qualcomm has handled the fact that its CDMA technology is the standard in Korea, where every mobile handset in use must be loaded with a compliant chipset. Manufacturers must pay fees to Qualcomm for each device sold.

San Diego-based Qualcomm did not respond to requests for comment on the investigation. Qualcomm shares were down 1.5 percent to US$39.44 in midday trading Monday on news of the investigation.

Tangled Web

Qualcomm is no stranger to complaints from rivals and has been a target for such complaints since it developed CDMA, which competes with the GSM (Global System for Mobile Communications) technology that dominates in many other markets.

Last fall, Qualcomm was the focus of complaints filed with the European Commission by a slew of competitors and others, including Broadcom and Texas Instruments, as well as NEC (Nasdaq: NIPNY), Ericsson (Nasdaq: ERICY), Panasonic Mobile and Nokia (NYSE: NOK).

Those companies have asked European antitrust regulators to investigate whether Qualcomm engaged in anticompetitive practices through the licensing of its technology for third-generation (3G) mobile networks and handsets.

That investigation is ongoing. More recently, Qualcomm has found itself locked in a variety of patent-related disputes. In June, it asked the U.S. International Trade Commission to look into possible patent infringement by Nokia, which has previously sued Qualcomm for infringing its own patents.

Those actions focus mainly on GSM technologies, which Qualcomm increasingly has been offering in its chipsets.

In the Crosshairs

Qualcomm is in the crosshairs often because it holds "an impressive portfolio of patents for cellular network technology" that has made it difficult for some competitors to gain traction with rival technologies, said Gartner (NYSE: IT) analyst Paul Dittner.

"Qualcomm has been a company based on its intellectual property portfolio since its inception," Dittner said.

Those patents and technologies extend beyond CDMA, which is a technology some see in decline as more markets are being built out on the competing GSM standard.

In fact, Nokia recently announced it would withdraw from a planned partnership with Sanyo aimed at making a family of CDMA-compatible phones to focus on GSM handheld devices, part of what some see as a trend away from Qualcomm's technology. That partnership would have cranked out some 35 million handsets per year, targeting emerging markets in particular. Nokia's decision was based on a trend toward GSM in some of those markets.

One of the major producers of handsets in India, Reliance Technologies, also recently indicated it would consider embracing GSM for some of its 3G devices. CDMA remains dominant in Korea, Japan and other markets, however, many of which are seeing slower growth rates.