Qualcomm's operations and strategy in China

Qualcomm in China

Why does GSM have a larger share of wireless subscribers worldwide?

Most likely, the best answer to this question is of a historical nature: GSM was on the market as an available technology long before CDMA, which meant that it was able to better create a technological dependency on this type of technology. Indeed, the GSM technology was backed in Europe by the European Union ever since the beginning of the 1990s, significantly before the apparition and popularization of the CDMA technology. In general, technology is hard to catch on very fast unless the advantages are immediate and very palpable. Despite the fact that CDMA boasts extra competitive advantages, Europeans had already grown accustomed to GSM and the implementation of the CDM a would be difficult and cumbersome.

Additionally, some of the most important producers of mobile phones in Europe and the world, such as Nokia or Ericsson, used GSM technology and for them to adopt the CDMA technology would have incurred significantly high costs, which is why they preferred to back GSM and lobby against a significant presence of CDMA technology in Europe. So, most likely, the larger share of GSM wireless subscribers worldwide comes from a larger number of GSM subscribers in Europe.

2. To what extent do political decisions explain the global leadership of GSM?

The political decisions are in fact partly tied to the economic factors that have expanded global use of GSM. First of all, on the Chinese market, for example, Soviet pressures occurred because Soviet manufacturers were already using the GSM technology and had been adapted to that market, which meant that a switch to CDMA would have affected their activity. On the other hand, taking this further in political terms, the U.S. have constantly encouraged the CDMA technology, a fact that is sustained by the large number of CDMA users on the U.S. market, while the European Union and Russia have supported the GSM rather than the CDMA. In this sense, this could probably be seen as a political fight.

However, on the Chinese market, the political factor was perhaps even more important than the economic factor simply because the political leadership of the country eventually needed to approve or disprove the implementation of a new technology, without which the project could not go ahead. In this sense, differently from the other global markets, the Chinese market was one where the political factor was at least just as important as market factors.

Additionally, it was also a matter of what each sustainer of technology could offer at a global level. The U.S. government, for example, could back the CDMA technology by promising China that it would support its candidature for the WTO, where eventually China acceded.

3. To what extent do economic factors?

The economic factors are essential in explaining the global leadership of GSM, mainly because of the economies of scale that can be made when dealing with the GSM technology. The economies of scale are evident in terms of the equipment, going as far as the handsets, for example. This means that despite a cost advantage for the CMDA, the economies of scale obtained from the GSM technology can virtually nullify this and make GSM more profitable.

On the Chinese market, economic considerations also played an important role in the competition between GSM and CMDA. First of all, China Unicom had already invested significant sums of money in the development of a wireless network based on GSM, so it wasn't very open to make new investments in order to implement a CMDA network as well.

Second, a lot of the discussion revolved around the royalty rates that QUALCOMM asked for and the need to lower this in order for Unicom to remain profitable after implementing the CMDA technology. This meant that negotiations in China often went beyond actual political matters and into simple evaluations of potential profit or loss. In this case, in certain conditions, the GSM technology in China, which Unicom was already successfully using, meant lower costs and higher profits. Once CMDA entered the game, new economical conditions needed to be negotiated for the QUALCOMM royalties.