According to ABI Research, one of the major factors that has kept average royalty rates very high in WCDMA devices is the fact that 12 companies own 80% of the essential IP, with four of those owning nearly 60%. In order to access essential patents, device vendors not among that top four are subject to cumulative royalty rates that can climb to 28.5%. ABI Research believes that the 4G royalty landscape will be far more diverse, and this alone will allow average royalty rates in 4G devices to be lower than in their 3G equivalents. License trading will be more commonplace, especially in the WiMAX environment, where over 350 companies own essential IP.
ABI Research believes a more diverse 4G IP landscape will allow more companies to trade licenses rather than be required to pay royalty fees to access others’ IP. This will result in lower average royalty rates. The diverse IP landscape will not be a product of litigation or regulation, but of pure market mechanisms. Companies have seen the benefits of a strong IP portfolio, and are now ploughing huge funds into R&D in order to capture patents.
ABI Research’s study, Mobile Handset Royalties has found that although the original motivation to choose OFDM based technologies was to loosen Qualcomm’s hold on the market, its acquisitions of Flarion and Airgo give it essential IP in all 4G technologies. There could also be a case of “out of the frying pan and into the fire” regarding WiMAX, where it is likely that Samsung will hold close to 30% of the essential IP, effectively replacing Qualcomm as the 800-pound gorilla in the market.
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