Qualcomm Fined $208 Million by Gov`t Watchdog

The Fair Trade Commission yesterday fined Qualcomm, the world`s biggest maker of mobile phone chips, a domestic record 260 billion won (208 million U.S. dollars) for abusing its monopolistic position.

Similar cases are expected as other countries are also cracking down on Qualcomm`s alleged unfair business practices.

The commission said yesterday that the company imposed a royalty of 5.75 percent on Korean cell phone makers, a rate levied when companies use competitors’ products instead of Qualcomm’s CDMA modem chips. Qualcomm charges five percent when cell phone makers buy its products.

Qualcomm Korea President Cha Young-koo said, “It is regrettable that the Fair Trade Commission made such a decision. The decision that stemmed from a complaint by the GSM Association, which is a competitor of Qualcomm and Korean companies, only helps the GSM side.”

Qualcomm also offered rebates on the condition that Korean companies buy its products. When one Korean company purchased more than 85 percent of modem chips from the U.S. provider, it received a rebate of three percent on the purchase. The rebate amount reached 21 billion won (16.8 million dollars) per year until 2004, and 41 billion won (32.8 million dollars) thereafter.

Modem chips are a core part of a cell phone that transforms people’s voice into a digital signal and changes it again into an analog signal heard by people. Qualcomm owns the core technology of the chips.

Even after the patent rights expire, Qualcomm has burdened Korean companies with a royalty of 50 percent.

“As Qualcomm charges different royalties and offers conditional rebates, Korean and Taiwanese companies have failed to enter the Korean modem chip market,” vice commission chairman Seo Dong-won said. “As a result, Qualcomm has maintained a high market share – almost a monopoly – for more than a decade.”

Qualcomm controlled 99.4 percent of Korea’s CDMA modem chip market last year.

The commission is also investigating the suspicion that Qualcomm limited competitor activities in the mobile software market for video storage and playback on cell phones.

lovesong@donga.com sanhkim@donga.com