The Chinese government probe into Qualcomm, announced earlier this week, is a case of déjà vu all over again.

For China's National Development and Reform Commission (NDRC), it is yet another investigation into a foreign company. For Qualcomm Inc. (Nasdaq: QCOM), it is a fresh complaint about its licensing fees.

Qualcomm revealed on November 25 that it is under investigation by the NDRC, China's prime economic planning body, under the Anti-Monopoly Law. It said it was "not aware of any charge" that it had violated the law.

Analysts have widely interpreted this as a move by the Chinese government to gain leverage in forthcoming negotiations with Qualcomm and other foreign suppliers over LTE technology licensing fees.

It comes just ahead of the commercial launch of 4G, with China Mobile Ltd. expected to be granted an LTE TDD license on December 18. (See China Holds Key to LTE TDD.)

Alen Lin, a telecom analyst at BNP Paribas in Hong Kong, told Reuters that Qualcomm would be the only chipset provider that can support a handset using both 3G and LTE TDD for most of 2014.

Officially, 49% of Qualcomm's 2012 revenue came from China, although most of that was from the assembly of chips sold elsewhere. In reality, the real figure is estimated to be around 20%. However, the company told an analysts' briefing last week that it expected the debut of 4G in China would boost royalty revenues because of its strong LTE patent portfolio.

Chinese handset firms are reportedly paying between 3%-6% of their wholesale sale price to Qualcomm, according to a report carried by China's Sohu IT website: Five of the six LTE TDD phones procured by China Mobile recently used Qualcomm chips.

Latest run-in for Qualcomm
The dispute also comes amid China's attempts to restructure the domestic mobile chip market, with state-owned Tsinghua Unigroup buying Nasdaq-listed Spreadtrum and RDA Microelectronics during the past six months.

However, it is also the latest in a series of controversies over Qualcomm royalties. In November 2009, the European Union ended a four-year investigation of Qualcomm's licensing practices after Ericsson AB (Nasdaq: ERIC) withdrew its complaint. (See Qualcomm's Legal Load Lightened.)

In July 2009, South Korea's Fair Trade Commission fined Qualcomm approximately US$200 million, the agency's biggest ever fine against a single company. (See Korean FTC Fines Qualcomm.)

In July 2006, Indian operator Reliance Communications Ltd. demanded that Qualcomm cut its patent fees to enable it to drop its handset prices.

And in negotiations with the Chinese government over 3G patent fees in 2005, Qualcomm was reported to have demanded much higher royalties than other foreign vendors.

With 4G about to be launched, the Chinese government is expected once more to seek agreement on behalf of Chinese operators, equipment vendors, and handset-makers on royalty prices from foreign intellectual property rights (IPR) holders. It is this dissatisfaction with foreign licensing fees that is in part responsible for China developing its own wireless standards.

The American Chamber of Commerce in China has complained that this practice means foreign companies are being "pressured through possible market exclusion" to accept "unreasonably low royalties that are not based on the underlying patented technology’s economic value."

But that is not the only pressure on foreign companies. As soft targets, they have become popular punchbags for the government as it strives to be seen to be protecting consumer interests.

The Anti-Monopoly Law has been applied to South Korean and Taiwanese flatscreen TV-makers and foreign milk powder suppliers, and to head off an attempted local acquisition by Coca-Cola.

The state-controlled CCTV network has also taken repeated swings at foreign brands, including Starbucks, KFC, and Samsung, and even forced Apple CEO Tim Cook into an apology.

But there is plenty of sentiment on the government side. Yang Peifang, the head of the government-controlled China Information Economics Society, has called on the Chinese telecom industry to "take action and jointly oppose the Qualcomm monopoly and build a fine, healthy industry order."

— Robert Clark, contributing editor, special to Light Reading