WASHINGTON-A seemingly parochial fight between a small San Diego firm and two European manufacturing giants over next-generation wireless technology could foreshadow a larger confrontation between the United States and the European Union and offer a glimpse into a future where transnational companies dominate the global economy.
That Qualcomm Inc.’s cutting-edge digital wireless technology cannot crack the European market is a chapter in a story of the unprecedented realignment in international commerce occurring today. It is a story of big money that will have winners and losers.
Whether Qualcomm sees a happy ending is uncertain.
“It’s going to be good for Europe, so it’s going to be good for the U.S.,” said Maeve O’Beirne, a press spokeswoman here for the EU delegation, echoing the EU line.
That might work for U.S. manufacturers, like Motorola Inc. and Lucent Technologies Inc., and even Canada’s Northern Telecom Ltd., which build to different wireless technologies and have facilities worldwide. But not for Qualcomm, which is laser focused on the global licensing of Code Division Multiple Access technology it invented. As such, its versatility is limited compared with other manufacturers insofar as responding to changes in the global market.
Globalization is complex, confusing and at times contradictory. It will affect how wireless firms are organized and how business is done in the new millennium. It already is shaping U.S. politics (union and protectionist left-to-right congressional opposition to the North American Free Trade Agreement) as well as foreign policy (bipartisan congressional opposition to continued satellite launches from China and to unconditional trade with China as a result of alleged technology transfers and human-rights abuses).
Qualcomm has hundreds of patents for CDMA technology, a powerful wireless format that is spectrally efficient. CDMA is used by top U.S. mobile phone firms such as Sprint PCS, PrimeCo Personal Communications L.P. and by some carriers overseas-except in Europe.
Because of that, Qualcomm fears its third-generation wireless technology-wideband cdmaOne-also will be locked out of the 15-member European Union’s market.
Those fears are not unfounded.
Today, European mobile phone service is based on the Global System for Mobile communications standard popular throughout the world.
As for the next wave of wireless phones, the EU is standing behind a technology known as W-CDMA that is based on a GSM platform and borrows (Qualcomm’s believes) from cdmaOne. Thus, one possible scenario that could play out, is a messy patent-infringement lawsuit.
The synergy for the EU’s embrace of GSM comes from Sweden’s L.M. Ericsson and Finland’s Nokia Corp., which dominate GSM manufacturing worldwide.
That, according to Qualcomm, is the EU wall it has run up against.
Qualcomm officials are pressing lawmakers and the Clinton administration to view the situation not as an esoteric standards spat but as a serious, multibillion dollar trade dispute with the EU.
Qualcomm supports converging W-cdmaOne and W-CDMA, but European vendors oppose doing so because they claim it would result in an inferior standard and would undermine existing capital investment in GSM infrastructure.
Even if the Geneva-based International Telecommunication Union settles on a family of 3G standards that includes W-cdmaOne and W-CDMA, Qualcomm believes W-cdmaOne likely will be shunned by EU technocrats when it comes time to issue licenses.
European wireless standards are fashioned by strictly European technology, whereas U.S. standards are open to foreign input.
Qualcomm is not alone in its angst over U.S.-EU trade generally and EU standard setting specifically.
Earlier this month, the U.S. government lost a case before a World Trade Organization appellant body in which it alleged the EU violated a WTO agreement by raising rather than lowering tariffs on U.S. computer networking equipment. The WTO previously ruled against the United States (on behalf of Kodak) on film trade barriers in Japan.
Under the 1997 Information Technology Agreement, the EU promised to lower tariffs on telecom and computer products to zero by Jan. 1, 2000.
The EU, for its part, has made noises about bringing a WTO case against the United States regarding the Federal Communications Commission’s implementation of the free trade telecom services accord.
Moreover, the EU is threatening to kill the proposed $37 billion merger between WorldCom Inc. and MCI Communications Corp. if more concessions are not made to reduce the would-be duo’s Internet dominance.
In other words, the EU-not the U.S. Justice Department-is in a position to be the deal buster of a U.S. mega merger.
In the future, there are signs trade conflict between the United States and the European Union could become the major flashpoint in U.S. trade relations.
Asia’s contagious financial troubles have given the United States newfound leverage to seek trade concessions with Japan and others in that populous region of the world. Meanwhile, Europe has become the darling of Wall Street.
“The European stock market today has the same characteristics that the U.S. stock market did 20 years ago when it began its bull market run,” said Kevin McCarey, manager of the Fidelity Europe Capital Appreciation Fund, in Fidelity Focus magazine.
“As European countries prepare to combine their currencies in the near term as part of the European Economic Community, many European companies are taking a more pan-European view of the marketplace and are looking to acquire or merge other companies in order to become more competitive,” said McCarey.
If he’s right, the European Union and the United States will duke it out for world trade supremacy, with Asia and Russia on the sidelines nursing financial wounds.
But trade wars and economic sanctions eventually may go out of style in the global economy overseen by the WTO.
Interestingly, globalization ultimately could lead to a state of affairs not anticipated by Qualcomm or the EU.
In his 1997 book Europe Adrift, author and foreign policy expert John Newhouse writes, “These [EU] telecoms … are seen by some Europeans as an instrument for moving EU members from manufacturing-based to service-based economies. When facing serious competition, telecoms create jobs at a more rapid rate than most other industries and pay higher waivers than most.”
Qualcomm argues that if the EU were sincere about securing the best wireless technology for its citizens it would choose cdmaOne.
However, made-in-America arguments will have less sway in the global economy.
Ericsson, Nokia and Nortel all employ significant numbers of U.S. citizens.
Ericsson alone, for example, has 8,000 U.S. employees and 100 locations in the states, including major manufacturing plants in Lynchburg, Va., and Morgan Hill, Calif., and a research and development facility in Triangle Park, N.C.
To underscore that point, Newhouse points to the future view of former Clinton administration labor secretary Robert Reich. “Transnational companies have grown faster than world trade in the last 20 years. In the future, there will be no more national products, national technologies or national corporations. There will not even be national economies,” said Reich.
Yet, the new world order is loaded down by old world baggage that makes European political and economic unification fragile at best. Employment and social welfare insecurities of globalization are as great in the European Union as in the United States. Moreover, the possibility that political instability in Eastern Europe could spread west adds another level of uncertainty to the EU’s future.
Thus, it is unclear whether Europe will become the economic juggernaut that
some predict. But for Qualcomm right now, the EU juggernaut is very real.
