AMSTERDAM – Nokia, the world’s biggest mobile phone maker, said the winner of a fight over patents on third generation (3G) mobile telecoms technology would set the conditions for all future wireless standards.
“This will set the ground rules, not just for 3G but also for 4G and beyond,” a senior Nokia executive who declined to be identified said at a Nokia World conference on Thursday.
Telecoms equipment companies are designing or making 3G and 4G gear to provide ever faster wireless broadband.
Nokia, Ericsson and other sellers of handsets and network equipment complain that U.S. rival Qualcomm Inc. is overcharging for its 3G technology.
At issue is the meaning of “fair, reasonable and non-discriminatory” (FRAND), a legal concept to which all vendors of mobile technology must adhere when charging royalty payments on patents.
Qualcomm charges a royalty rate of between 4 to 5 percent of the wholesale value of a 3G W-CDMA phone, the same rate it charges for CDMA phones.
Crucially, however, Qualcomm has only 20 percent of essential W-CDMA patents as opposed to the bulk of all essential CDMA patents, according to a study earlier this year from U.S. academics David Goodman and Robert Meyers.
Nokia and Ericsson each own around one quarter of essential W-CDMA patents, the study showed.
It all adds up, and the result is that 3G W-CDMA mobile phones are more expensive than they could be. Estimates vary, but operators, vendors and analysts reckon that up to 25 percent of the wholesale value of the basic 3G W-CDMA phone is made up of royalty charges, said Pyramid Research analyst Ozgur Aytar.
For vendors who own their own 3G patents, that percentage is as high as 10 to 15 percent, she added.
By comparison, royalty rates for second generation GSM handsets are around 8.5 percent for companies that do not own their own 2G patents, according to disclosures from BenQ.
Fighting it out
The dispute has been brought to a U.S. court and also to the European Commission, which will decide in coming weeks whether to start an official investigation. Nokia is hopeful that a picture will begin to emerge of what should be regarded as “fair and reasonable” as early as next year.
The outcome will affect the popularity of 3G phones, which most consumers and telecoms operators currently regard as too expensive.
If Qualcomm manages to hang on to its W-CDMA royalty rates, this may benefit the CDMA market in which Qualcomm is the sole chip supplier and the main beneficiary, according to a study from a graduate at the Dutch Free University, Jeroen Celie.
CDMA is mostly used in the Americas and parts of Asia, where it competes with GSM/W-CDMA networks, which are used in all countries around the world.
Currently CDMA handsets are more expensive than GSM handsets, which are produced at a much larger scale, but that situation may change when third-generation CDMA phones are pitted against identical W-CDMA models with high royalties.
The ruling on W-CDMA royalty rates will also have an impact on forthcoming 4G technologies such as Wimax, which operators hope will have low royalties. Wimax for mobile devices has just been standardized, and the first devices are expected next year.
“There’s no dominant holder of (Wimax patents). There are hundreds of holders. The wireless and wireline community believe Wimax will have much lower (royalties). That echoes well with operators,” Pyramid’s Aytar said.