Qualcomm Inc (QCOM)

[demi22]

This interview was posted on the moderated by Slacker711


I've said it before....Andrew Gilbert really does a good job of representing Qualcomm in Europe. This is a long interview and it is easier to read at the link, but I think it is worth posting in case the link goes down.

http://www.telecomredux.com/index2.php?option=com_content&do_pdf=1&id=3518

Insightz: Qualcomm - change is happening
(Wednesday, 06 September 2006) -
With a major presence in multiple cutting edge wireless technologies, Qualcomm’s views on industry developments are
likely to be highly significant. Andrew Gilbert, European President of Qualcomm, has been talking to TelecomRedux.
TelecomRedux: How is Qualcomm Europe developing? At one time the Qualcomm presence in Europe was quite small.

Andrew Gilbert: Yes, in 2001 there were probably only six or seven Qualcomm people across the whole of Europe. In the
last two or three years there have been some acquisitions, such as Trigenix and elata, and most recently Flarion. There
are now some 400 Qualcomm people in Europe at least half of which are in the R&D/engineering side. We are doing a
lot of work now in Europe and I don’t think that is well known.

TR: It is easy to assume that everything is going on in San Diego.

AG: Yes but when I talk about what I want to do in Europe, I want to turn it into a European Qualcomm. At the moment
we have lots of people running around with Qualcomm Europe badges on but it is not really there yet. The whole concept
of organic growth is good and acquisition is going to be essential as well. We need to grow a substantial force because
we have to do more locally.

TR: Europe is historically a no-go area for Qualcomm, harking back to the infamous tech wars. There are still ongoing
IPR disputes for example.

AG: I think that is the last bastion of that battle. If you look at the holy wars over the technology I genuinely think we are
past that. Everything I hear from the operator side is that they actually see that Qualcomm has moved from being a sort
of pariah to being a player in the industry. We have twenty full time engineers helping on the engineering services group,
for example, who are working on thirty three UMTS network optimisation. So they are helping operators to optimise their
UMTS networks, you know how badly performing they were in the past. I think firstly Qualcomm came in and we
understood CDMA, and two we threw the equivalent of about forty full time people at the standards bodies where we are
probably the biggest single contributor to the 3GPP process. We have helped to re-architect 3G in Europe and we have
helped bring in and specify HSDPA and HSUPA. Finally the chipsets. We were the first people to design and provide a
form factor accurate test handset. We did this locally in Farnborough. This was a major breakthrough and after that we
started bringing through the chipsets that enabled all the devices to come out. We were eighteen months ahead of the
market with HSDPA. So the point is that you have these really measurable things we have done over the last two to
three years which gives the operators confidence that we are players.

The royalty/IPR thing is probably the last vestige of concern. Before we move from what I like to think of as being a
player in the industry to being a partner to the industry in Europe, we need to get across to people what our business
model is, what it is not, why some people like it and some don’t and what it means for industry.

TR: Operators are very focused on generating revenues and don’t really want to be involved in IPR disputes. So we are
only talking about the vendor community and in fact probably only about a small part of that community. IPR is very
valuable and so people are very passionate about it.

AG: I think operators have changed, they are now much more desirous of controlling their own destinies. They feel that
they have not had in Europe the same success with 3G that perhaps other parts of the world have had and certainly not
in line with their expectations. So they felt they were lead a little bit along a path by the vendors on issues such as cost
and performance. They were not sure of the cost when they signed up to it and they thought they were signing up to a
certain voice and data performance that they have not yet achieved. So their view for the next generation is that they are
going to strongly influence where that goes. So I think that you are now seeing the start, with the NGMN group, of
operators taking charge of their own destinies. Not dictating to vendors because it has to be done in collaboration but
certainly sending a strong message to say that they need a certain level of cost and performance and we need to work
together to achieve this. There will be a change there.

I agree with your assessment of IPR. I don’t think Qualcomm has helped itself. What we did was recognise that IPR
disputes eventually work themselves out, so why do we need a public debate? Why not just wait until the issue plays

itself out in the courts. I don’t think that was a good thing. What I want to do, certainly in Europe, is to be much more
transparent, given our confidentiality agreements, about how the whole IPR royalty model works. It does have a lot of
benefits but until people understand the structure and how it works and what it delivers, there is going to be a lot of illinformed
debate. What people need to recognise is that many vendors have a different self–interest than operators or
even us. Until you understand everyone’s perspective with the model it is difficult to make a judgement.

TR: Can you give us your view on the evolution of mobile technology?

AG: The thing I want to talk about is the rise of the next iteration of 3G which is HSDPA and HSUPA. There has been a
lot of press speculation over the failings of 3G but I would say that 3G has done a great job of reducing the cost of
delivering a voice minute and it has done a great job of delivering a kind of ISDN/dial-up feel of data. But it has not done
a great job of delivering on all the high speed broadband style of data that we had all expected, or hoped, it would. Now
we are finally, finally with this HSDPA phone we have the form factor, the battery life, the look and feel that is as good if
not better than GSM, we also have download speeds of 1.8Mbits/s (soon to be 3.6Mbits/s) so we are actually getting to
the point where 3G delivers something over and above what GSM has done. My fear when I read the press is that we
are in danger of pulling up the plant to see if the roots are growing and destroying the plant in the process. We are just
about to see that plant bloom.

TR: We have had for some time the over selling of technology. 3G was oversold, it was a bad compromise in the first
place, so making it work was always going to be difficult. What we are facing therefore is the problem of doing a fix on 3G
and that fix is HSPA. I am sure that this will work but my concerns is that expectations have been raised again, perhaps
too far - after all it was only a year ago that people were shouting that HSDPA would do 14.4Mbit/s and the first iteration
is 1.8Mbits/s.

AG: I agree there is no need for that, what you are saying is that it is 14.4Mbits/s theoretically when you are standing
next to base station. Let us back off from that and say what does the experience feel like? Let us to talk about it in terms
of how easy it is to download a music track. I prefer to think of HSDPA in terms of finally allowing operators like Vodafone
to move from downloading ringtones to downloading full music video in a reasonable timeframe rather than saying you
are going to receive X amount of bits.

I think the speed is important but the real thing for the vast majority of users is how easy is it to use and do I get out of it
what I want to get out of it?

However, I don’t want to oversell HSDPA because I think it is the first part of what I think is a two stage process. The first
part is dealing with the asynchronous traffic which is downloading reasonable amounts of data onto a device, a data card
or handset. So you can download music and videos and you can Web surf in a more reasonable way.

The next thing which is equally if not more important is HSUPA which will be coming out in 2007 which will deliver the
uplink experience. You can then have two things. You can have high speed uplink service and you can have decreased
latency, so you are getting into the sub 100 milliseconds latency which is the critical point where you can have highly
interactive data traffic. Then you can get into things like multi-player online gaming and websurfing. You can get into
things and use enterprise applications that you cannot currently do.

The two stage process of HSDPA today will allow people to use technology as a better download mechanism and then
HSUPA, which we support and have recently successfully tested, will complete the circle to allow what some people call
the ‘I Generation’ or the ‘MySpace’ generation to do stuff they have not been able to do before on a mobile device. They
could take pictures or record video clips when they are out with their friends or on holiday and then send it as a postcard.
It will allow people to do things that they are doing on the Web today but mobilise it. I firmly believe that mobilising an
existing application is the secret of success in terms of money. We mobilised voice and created a massive industry, we
are in the process of mobilising broadband download with HSDPA. With HSUPA we will mobilise much more interactive
traffic. So this next eighteen months will finally give us what we wanted out of 3G: we have proved the applications in a
fixed line environment and the operators are moving towards this fixed mobile convergence world where they do want to
be able to offer the same experience going forward and I think that HSPA will do that.

The interesting thing, as a final stage, is capacity. There is a need to drive up capacity to deliver the user experience
across millions of users. The evolution of HSPA into LTE will allow operators to scale to much higher capacities and to

continue to track the wireline evolution. For the first time this will be something that will differentiate 3G.

TR: Is capacity going to be an issue if everyone starts sending data heavy traffic through the networks?

AG: It is a law that when you give somebody something that is new they use it much more. So you go from being a
megabyte user to a gigabyte user. Operators have to deal with capacity and deliver it at a cost point that is reasonable.
HSPA has years in it, it is not going to run out of juice at any time soon for two reasons. HSPA will begat HSPA+ which
will improve efficiency so you will continue to wring more from the current spectrum. Also we have announced, launched
and tested UMTS 900 so we are also going to go through an evolution over the next couple of years of re-farming the
900MHz GSM spectrum and re-profiling it for UMTS. So there is going to be a whole lot more spectrum opening up for
these services.

When I talk about the capacity issue I talk about it in the 2010-2012 and beyond timeframe when you really are ramping
up to millions and millions of gigabyte customers and that is when you need to go the step beyond. That is the initiative
the NGMN group is addressing and LTE.

TR: When you refer to NGMN you are talking about the group of major operators who are getting together to promote
4G?

AG: They have not actually used the term 4G but yes. NGMN is a group of operators who have a vision for beyond 3G.
The current bodies as they stand address 2 and 3G. NGMN are looking beyond HSPA and are saying we want to take
control of our own destinies, we want to strongly influence, not the technical specifications, but the cost performance
curve for the next generation. To do that we have formed a body to help industry by coalescing our views, giving a
common voice to say these are the things that are important to us, these are the industry priorities you should work to in
order to deliver what we want beyond 3G.

I don’t think this undermines any existing body. People have asked me if it undermines the standards bodies such as
3GPP and the reality is it does not because NGMN have stated quite clearly that their default route is to pursue 3GPP as
a standardisation process for achieving the performance goals that they want. All those folk who are also on 3GPP are
strong supporters of the 3GPP standards process but what they are doing is sending a clear message to say as part of
this process, as you achieve our goals you must listen to us, you must hit these performance curves, you must hit these
time frames, and you must deliver this commercial environment.

TR: Earlier you mentioned the Qualcomm IPR/royalty model. Can you go through the model and explain how it works?

AG: We are involved in every part of the value chain; we provide the user interface which we call UIOne which an
operator can scope out for their own purposes and O2 is already implementing it; we have the BREW content download
platform; you have the chipset; the technology of the air interface; the engineering optimisation services and handset
acceptance services, so we do the whole end-to-end value chain. But we are not trying to sell you a handset and we are
not trying to sell you a base station. So we are kind of unique as a vendor independent wireless technology partner to the
operator. And we support a vast vendor ecosystem to help go after that market. So in many ways the operators see
Qualcomm now in Europe as very much a potential partner, somebody who has the same kind of risk profile. We don’t
really make the money until the operators can create and sell the services. We are not selling base stations or handsets
so it is not until the operator starts making money and starts shifting handsets in volumes that we start to make money
from royalties or chipset revenues. So we are very aligned with making it a success so that has helped us to be part of
the process.

TR: So you would you regard yourself as the third party that stands outside of the direct vendor/operator relationship with
a foot in both camps but able to give independent advice?

AG: Absolutely, I think we have bridged the two in many senses. If you think of the WCDMA situation where they found
themselves in a bit of a challenging position in terms of network rollout, we were the ones who stepped in to try and help
make it work. For all the moaning of some of the vendors if it wasn’t for Qualcomm much of this stuff wouldn’t have
worked. We wouldn’t have got HSDPA to market so quickly. So there is a recognition from the operators that we do that
and we even get some respect from the vendor community.

There are some vendors, notably the traditional GSM vendors, who see this as disruptive to their business model. If you
think about it what Qualcomm does is we innovate, we come up with new pieces of technology and then we make that
technology available. We license our technology to over 130 companies worldwide and in return they get certain rights to
our technology. So when we sell our chipsets the buyer not only gets our hardware and software, they also get our
patents, the rights to use our innovation and we pass on to them all the rights we have negotiated from other vendors.

From the buyer’s point of view that is really valuable. A vendor can bring to market a multimode phone, that is a 3G and
GSM phone into the GSM market but because they are using our pass-through rights to other people’s patents they don’t
have to negotiate with other patent holders. They only have a single, low digit royalty rate to pay and not multiple rates to
multiple companies.

Think about that. Up to that moment all the traditional GSM vendors had that market kind of closed off. They had done
their cosy cross licensing deals on GSM and so they had the market pretty well locked up. If anyone wanted to enter that
market, as indeed they did, they had to pay a huge tax because they had to pay each of these people for bilateral
agreements on royalties. What Qualcomm did, because we brought CDMA in and that gave us a lot of negotiating power
on behalf of industry, we were able to negotiate with all the GSM guys, gain the rights to their technology in return for
ours, we passed that on to our customers so they did not have to pay them twice. So we have reduced the stacking of
royalties.

We have become quite disruptive to some of the previous incumbents. If you look at the GSM handset market there were
relatively few players and they had the market locked. If you look at the WCDMA market the picture is quite different with
many many new vendors and you have considerably less market dominance by one or two major players. The reason for
this is that Qualcomm has been able to level the playing field and given operators much greater choice in terms of
handset vendors. And we have been able to drive down the prices accordingly.

Whilst that is great for the operators and the new entrants and the consumer you can understand how some people are
less than happy about that. My point is that operators are now seeing when Qualcomm comes on the scene and the
number of OEM vendors goes up, the average selling price trends down. We encourage choice which is seen as a
positive thing by the operators.

TR: This must be good for the operator and consumer because it brings in more players which means more competition
and more innovation.

AG: It is important to let new players into the market. Why shouldn’t people be able to get access to this innovation and
new technology. We talk about Qualcomm enabling choice. Whilst I understand that some companies have invested a lot
of money in protecting their brand, and good luck to them, that is not our business model, our business model is helping
operators to deliver more choice to the consumer. So there is always going to be that tension.

TR: So you are saying that this business/royalty model is spreading the availability of technology to a wide group?

AG: Take a look at how the model works. There is the operator who takes much of the risk in coming up with services
that customers will want. So how is this funded? We take R&D, come up with ideas, and then make it available as IPR or
through our chipsets to the manufacturer who is then able to build the networks and provide the devices. If they are
successful the operator buys the equipment and if the operator is successful the subscriber buys it which funnels
revenue back through this virtuous circle.

Where we are not making money is on the margin of the sale from the manufacturer to the operator-we are dependent
on this whole cycle working. So that is not where we are hiding our R&D, which is what some vendors are doing. That is
because they are making their margins on the equipment. We don’t do that, we are trying to drive down costs, we are
trying to drive up choice. We make available all our innovation on a complete portfolio so if you buy a licence from
Qualcomm you will find the cost is, on average, five per cent. So from the actual wholesale price of a phone for example
five per cent of that is paid to Qualcomm. We use that money to fund all of our innovation, all of our acquisitions - we
spent a billion dollars last year on R&D.


What we do then is make all that innovation available on the licence for one cost. Everything-not just essential IPR-all
IPR is available to our licensees. It is true of all our innovations which come as part of the package. Other vendors use
IPR in a different way. Their primary R&D budget is spent on innovation for their own products, which is quite acceptable.
So if they come up with a great user interface, for example, they patent it and use it to exclude others from having access
to that patent. This is a perfectly valid way of working with patents. Because of that they will be successful. The point is
that they will only license essential IPR, not all IPR.

Our approach is totally different, we take all of our innovation and license it on this five per cent or equivalent and
hopefully it is a success and we make it up in volume. If not it is back to the drawing board. When 3G was not successful
for example, we were making zero on any 2G phone that shipped. Yet we put in all those engineers to help optimise
networks, and forty staff to help in the standards process, to evolve WCDMA to the point where operators felt they could
deploy it. It was only then that we started to get a return on our investment over the last few years. So ours is a very
different model but for the operators it pays out well.

TR: One could argue that this investment and your historical CDMA patents put you in a unique position so this is not a
transferable model?

AG: No, but if we did not have the CDMA expertise and portfolio we would not have been able to participate in this
market. It is only that we have such strong innovation across the range of mobile that we have been able to take part.
People say we are so successful in our patent portfolio because we are so dominant. This is ludicrous. When we started
signing these 130 plus agreements we were a very small company; five years ago we didn’t have the horsepower of the
people we were signing with. We didn’t twist their arms. My happiness is that since talking to the operators they realise
that this virtuous cycle, where they invest money through the manufacturers, they help increase choice and decrease
cost. That seems to have got through to the operators but you are never going to convince some vendors.

TR: It is probably fair to say that historically Qualcomm has not helped itself. Some of the public positions you have
adopted have not been publicly appealing. So there has to be suspicion of your motives.

AG: I agree with you. I can’t speak about what went before; all I can say is that my approach is much more transparent,
more open, more collaborative, because I genuinely believe that Qualcomm are not the bad guys in this. I think they are
misunderstood and there is a reasonable case to be made. The proof of the pudding is in the eating and the operators
are eating. They are happy to see the phones, they are happy to deploy the technology that we have helped enable, and
so far all of the vendors are happy to pay the price. It will evolve over time. If we continue to innovate and earn our
stripes and contribute then we will continue to be successful.

TR: Thank you.

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