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January 10, 2007

ABI: Handset Royalty Rates Inhibiting Mobile Phone Market


Apple’s announcement of its mobile iPhone device, which will launch in June, generated a lot of news this week. Amidst all the excitement, it seems a worthwhile question to ask just how the mobile phone industry is doing. The answer to that question could provide perspective on the potential impact of iPhone.
 
ABI Research (News - Alert) provided one answer with its Wednesday report indicating that handset technology royalty rates are dampening an otherwise very robust mobile market.
 
Royalty rates are particularly problematic, ABI said, for WCDMA technology, forming “a significant share of handset bills-of-materials” and presenting “a challenge to the development of more affordable devices for the world's mobile consumers.”
 
ABI analyst Stuart Carlaw noted that, in the mobile industry, standard cumulative royalty rates for consumer devices is 5 percent. But, for WCDMA handsets, that number currently stands at 9.4 percent. This discrepancy, Carlaw said, is the result of a flawed standardization process.
 
“The extremely opaque environment for royalty negotiations within the European Telecommunications Standards Institute (ETSI) makes it impossible to ascertain benchmark levels for royalty payments,” Carlaw explained in a statement.
 
He continued: “This prevents a more solid understanding of what can be considered ‘Fair, Reasonable and Non-Discriminatory’ terms. Further, ETSI’s patent policy does not include any robust method for conflict resolution, which renders the current system toothless.”
 
If Carlaw is correct, this means that companies within the mobile phone industry are not doing anything wrong, but rather than regulatory matters need to be remedied.
 
Even outside the WCDMA realm, though, handset royalty revenues are on the rise. ABI predicts that such royalties will rise to more than $10 billion by 2011—with average cumulative rates ranging from 3.8 percent to 8.5 percent depending on technology.
 
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Mae Kowalke previously wrote for Cleveland Magazine in Ohio and The Burlington Free Press in Vermont. To see more of her articles, please visit Mae Kowalke’s columnist page. Also check out her Wireless Mobility blog.





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