LET THE 5G BATTLES BEGIN / THE FINANCIAL TIMES COMMENT & ANALYSIS

Let the 5G battles begin

There is exponentially more wealth to be made and tech titans are vying for position

Rana Foroohar




The consumer internet revolution of the past 20 years has brought us many amazing things, from online search engines to phones doubling as personal assistants. But as dramatic as that change was, it’s nothing compared with the coming evolution of 5G wireless and the internet of things, which will involve putting data mining chips in everything from your fridge to your car.

This will not only create entirely new businesses, but also allow advertisers to reach you in ever more targeted ways (they’ll know not only where you are, but if your garden needs watering or if you are running out of milk). The economic stakes are high. As rich as big tech companies are, there is exponentially more wealth to be created in this new 5G world. Yet the technology that underpins it all is being threatened by a battle over which businesses and industries will seize which slice of this juicy pie.

Traditionally, companies such as Apple, Google, Samsung and others that make wireless devices have paid the developers of crucial wireless technologies — including Qualcomm, Nokia and Ericsson — a licence fee to use their chips and other essential patented intellectual property (IP). Standard-setting bodies in the US and Europe designated which technologies were essential to building the underlying system, and then allowed innovators to patent them provided they would offer “fair, reasonable and non-discriminatory” access to all market players.

Of course, there are big disagreements about what’s “fair”, particularly as connectivity becomes more widespread across a greater variety of devices.

One of the most contentious issues has been whether the value of essential patented technologies should be based on the price of a chip (which might only cost a few dollars) or the phone it powers (which could be hundreds of dollars). The tech giants, of course, want to locate the licence value in the chip, which would mean they pay less for IP.

Companies such as Qualcomm want it based on the price of a finished product, a phone or even a car, for example. They argue that connectivity needs are very different for a device that, say, monitors water levels in soil once a week versus an always-on autonomous vehicle, and prices should reflect that.

This is all part of a deep and growing divide between the largest consumer brands, such as Apple, which see their ability to put tens of thousands of bits of patented technology together in a beautifully finished product as the biggest contributor to value, versus US and European innovators that argue they have spent billions on research and development creating standards and technologies that actually make smartphones smart — and are now being bilked.

The result, according to one recent survey, is that roughly three-quarters of wireless tech IP holders are refusing to provide assurances that they’ll license their latest technologies, something that could start to undermine connectivity. The epic legal battle between Apple and Qualcomm reflects this stand-off. Qualcomm is refusing to ship its chips to Apple, while Apple is refusing to pay Qualcomm fees for what it is already using.

Both sides have a point. Critics say Qualcomm is charging too much for its technology but also that Apple is wrong to hold out on paying licence fees. “The fact that there’s so much litigation now means that neither regulators in the US or the EU are doing their jobs,” says Elvir Causevic, a managing director and IP specialist at Houlihan Lokey, the San Francisco-based investment bank. Indeed, the regulatory signals coming from either side of the Atlantic have been contradictory.

In 2015, the US standards-setting body, the IEEE, moved towards a position that favours big tech companies. But on November 10, US assistant attorney-general Makan Delrahim, gave a speech indicating that he thought players who “hold out” and refuse to pay licence fees (such as Apple) were a bigger problem than patent owners who “hold up” the system by demanding higher fees.

The European Commission, meanwhile, had been headed in the opposite direction. You’d think it would be a no-brainer for Europe to protect its own telecom players. Yet there is a battle within the commission, with innovation advocates (who fund the research conducted by companies such as Nokia) arguing for the telecoms businesses and those in antitrust seeing patents as a monopoly that should not be protected.

It’s also possible that the antitrust contingent is looking to protect an entirely different group of stakeholders. If cars become phones on wheels, then French, German and Italian automakers will need access to cheap wireless tech, just as Apple and Google do. It may be that the commission will throw telecoms (and the existing patent system) under the bus to give European carmakers a leg up with smart vehicles.

They may also decide to punt and see which direction the US goes in, not only in terms of wireless standards but patent rights in general. This week, confirmation hearings will begin for the presidential nominee for director of the US Patent Office, and the Supreme Court will hear the “Oil States” case that could shift the entire patent system in the US. Corporate lawyers of the world, rejoice — the 5G battles are only just beginning.