Nokia CEO says CDMA is 'financially untenable'

Nokia to ramp down its CDMA research and manufacturing activities

Continuing a war of words with Qualcomm, Nokia's chief executive on Thursday reiterated the handset maker's feeling that companies will increasingly find it impossible to support businesses that build CDMA (Code Division Multiple Access) products.

"The CDMA market is simply financially untenable and has challenging growth prospects," said Olli-Pekka Kallasvuo, chief executive officer of Nokia, speaking during the company's earnings conference call.

In June, Nokia said it had decided against creating a previously announced joint venture with Sanyo Electric that was to produce CDMA phones. The CDMA market is financially prohibitive, Nokia said at the time, and the company decided it couldn't build a sustainable CDMA business. Nokia also said it would ramp down its CDMA research and manufacturing activities.

Kallasvuo Thursday cited one main reason for the growing challenges in the CDMA market: "Recent developments indicate that CDMA industry unit growth may be negatively impacted in the future as some CDMA carriers build out GSM and WCDMA networks," he said. A few operators around the globe, including Telstra in Australia and KTF Co. in Korea, have decided to migrate from CDMA to GSM (Global System for Mobile Communications) or to upgrade their networks to WCDMA (Wideband CDMA) rather than the flavor chosen by CDMA operators.

But probably the more important issue for Nokia is an ongoing licensing dispute with Qualcomm.

Nokia's current intellectual property licensing agreement with Qualcomm expires in April 2007. Qualcomm earlier this year said that it was continuing to work on negotiating a new deal but there was no guarantee that it could by the time the current contract expires.

Nokia has been working to improve its own intellectual property licensing situation, in part in an effort to be in a better negotiating position with companies like Qualcomm. Currently, Nokia pays more in licensing fees then it receives, Kallasvuo said. But the company has grown its patent portfolio. "As our current payment obligations expire, in the future we believe we will benefit from the strength of our portfolio when renegotiating some of our existing payment obligations," he said.

Qualcomm is by far the biggest recipient of royalties from Nokia, he said.

Both companies have initiated complaints against each other. Qualcomm asked the U.S. International Trade Commission to look into Nokia's trade practices and the organization recently launched an investigation. Qualcomm is also suing Nokia in U.S. and U.K. courts, charging Nokia with patent infringement. Nokia is one of several companies that filed complaints against Qualcomm with the European Commission last year, charging it with anticompetitive behavior

In response to Nokia's decision not to complete the joint venture with Sanyo, Qualcomm said its licensing terms weren't to blame and that the companies didn't ask for or require a change in the licensing terms. Qualcomm also said that the CDMA market is very competitive and that Nokia's decision won't negatively affect Qualcomm.

Copyright © 2006 IDG Communications, Inc.

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