Qualcomm to be Hit Hard by ITC Trade Ban in the USA

Semi-conductor major Qualcomm is facing the heat in the USA as American authorities announced they were not going to contest the ban slapped on the company earlier by the International Trade Commission (ITC).

The trade ban on import of 3G handsets that use Qualcomm chips had been proposed after the discovery by the ITC that chips manufactured by the company violated patent privileges of competitor Broadcom.

In a ruling last year, the ITC had declared Qualcomm’s chips to be in violation of patents applied by Broadcom to enable power conservation by mobile phones as they searched for signals from 3G networks.

The announcement by the Bush government of its decision not to veto the existing ITC ruling against Qualcomm meant the company’s chances of pulling off an escape had become slimmer.

With the ban against the import of Qualcomm’s 3G handsets scheduled to come into effect from today, Broadcom seems to be on the verge of winning this decisive round against its rival.

Qualcomm, on its part, said it hadn’t thought about defeat yet. It has steadfastly maintained it has done no wrong, and has questioned instead the validity of Broadcom’s patents.

In a statement released after the government took its decision, the company said it was trying to identify any possible workarounds to the problem by creating new software in collaboration with customers and operators.

In the meantime, it would lodge an appeal for staying the ban order at the Federal Circuit Court of Appeals, the release said.

The mood at the Broadcom office after the government announcement was pretty upbeat. The company’s statement that the decision by the government to abstain from the veto was a victory for all organizations who wanted to protect their intellectual property seemed to reflect this feeling.

The ban, should it actually come into effect, would impact all major mobile phone operators in the USA. All these operators have been deploying their 3G networks in the country over the past few years. Not just that, they have also pumped in billions of dollars into the exercise so far.

Qualcomm is the biggest player in the semiconductor chip market for EV-DO and WCDMA - two major next generation technologies. Three of the four major operators in the country are using these technologies to set up their latest high-speed wireless networks - Verizon Wireless and Sprint Nextel use the EV-DO technology, while AT&T uses WCDMA .

Analysts have been studying the potential impact of the ban, should it come in place. And the numbers are by no means comforting. A report by the Brattle Group, a consulting firm, said the direct damage would be between $4.3 billion to $21.1 billion for handset manufacturers, customers, and phone carriers.

This amount represented only the direct losses. The companies would also suffer loss of revenue in terms of gross national product (GNP) arising out of diminishing productivity. Besides the US Treasury would lose an estimated $1.4 billion with respect to the proposed auction of the 700 MHz band.

Besides finance, there are other areas that would feel the impact of the ban. These include current attempts by operators to enhance 911 capabilities.

The Group cited the above numbers from a study conducted by two economists from the University of California at Berkeley, economics Nobel laureate Daniel McFadden and Glenn Woroch.

In the meantime, the bigger mobile operators have already started to look for ways to mitigate losses arising out of the proposed ban. Verizon Wireless announced last month a deal with Broadcom.

As per the deal, Verizon will pay Broadcom $6 for any smartcard, handset, or data card it imports containing the 3G Qualcomm chips. Verizon would also get to use Broadcom’s patents currently under litigation with Qualcomm.

Regional players such as Alltel are, however, not too worried about the ban. In a statement released by the company, the operations president said the ban would not impact them so much. He also said his people were already looking at ways to sort the issue without running into losses.

On the whole, industry watchers feel like most other crises, this one too will sort itself out. However, in the absence of an instant solution, finding the right answer would take time. And that is what would impact the companies, both in terms of cost and safety.