South Korea slaps $208 million fine on Qualcomm

South Korea's anti-trust agency imposed on Thursday a $208 million fine on Qualcomm Inc and ordered the U.S. wireless chip and technology firm to end discriminatory licensing practices and rebates.

The ruling deals a blow to Qualcomm, which counts Korean mobile phone makers Samsung Electronics Co Ltd and LG Electronics Inc -- the world's No. 2 and 3 respectively -- as its major clients.

Qualcomm said it deeply regrets the ruling and warned the decision could hurt Korean mobile phone makers' competitiveness.

There has been no illegal activity, Qualcomm Korea head Cha Young-koo told reporters, adding Qualcomm plans to appeal if the final statement, to be published in the next few months, maintains the fine.

The Korean Fair Trade Commission (KFTC), which has been investigating the case for more than three years, said in a statement that Qualcomm abused its dominant position in the local market for code division multiple access (CDMA) mobile phone chips. Qualcomm held a 99.4 percent share in that market in 2008.

When licensing its CDMA mobile technology, Qualcomm levied higher royalties on companies that use modem chips supplied by its rival firms, the commission said.

Qualcomm also provided clients with rebates for itself, it said, adding anti-competitive business practices helped the U.S. company maintain its near monopoly for more than 10 years in South Korea.

Qualcomm said the difference in royalties and other types of incentives were part of marketing and based on agreements with Korean clients.

The KFTC's fine of 260 billion won ($208 million) is the largest fine it has ever issued against a single company.

South Korean media reports estimated Qualcomm's annual revenue from Korean makers at 2.5 trillion to 3 trillion won annually. Qualcomm said on Wednesday it expects its fiscal year 2009 revenue at $10.25 billion to $10.45 billion.

Analysts have said the regulator's ruling was unlikely to have an immediate impact as handset makers usually have long-term contracts with Qualcomm.

They say there is no viable alternative to Qualcomm for companies such as Samsung and LG, who rely heavily on Qualcomm's technology for key mobile phone standards such as CDMA 2000 and

W-CDMA.

Qualcomm, which competes with Texas Instruments Inc and others in the market for cellphone chips, has also been under investigation by the European Commission in Brussels for anti-competitive behavior.

(Reporting by Rhee So-eui and Shin Jieun; Editing by Jacqueline Wong)