Nikkei Electronics Asia -- October 2007
Analysis
Standards, Patents Key to Qualcomm's Success

Qualcomm is rushing to acquire firms with crucial patents related to next-gen mobile communication technology. It is also working hard on incorporating its patents into standards, participating extensively in standardization efforts.

Mobile WiMAX (IEEE802.16e), which has been attracting significant industry attention as the wireless Internet standard of the future, was born as a way of providing high-speed service (several Mbps class) for vehicles, mobile phones and other moving platforms. The range of services it supports is expected to grow from about 2008, and manufacturers of products including base stations and handsets are getting serious about development. Qualcomm Inc of the US is also swinging into action: "We hold a key patent for orthogonal frequency division multiple access (OFDMA)."

OFDMA is the key wireless access technology, essential for high-speed wireless communication (Fig 1). The firm has claimed numerous times at meetings of the IEEE802 Committee, the center of standardization activity, that it holds many OFDMA-related patents, and will exercise its rights in Mobile WiMAX as well. At the meetings, which include core members such as Intel Corp of the US, Samsung Electronics Co Ltd of Korea and Motorola Inc of the US, many fall silent.

IEEE802 Committee participants are astonished, and many express worries about the future: "The big manufacturers like Intel and Samsung have patent interrelationships with other firms and will find some way to get around it, but the situation will be tough for the little guys. They wouldn't stand a chance if they got sued. It doesn't look like they'll be able to avoid paying Qualcomm license fees."

Full Ahead with OFDMA
Qualcomm is stepping up its activity in next-generation mobile communication technology, and is rushing to acquire patents related to OFDMA, seen as the key to mobile service in the future, multi-input, multi-output (MIMO) patents dealing with the use of multiple antennas, and more.

The firm is also working hard on incorporating its patents into standards, participating extensively in standardization efforts. 

Qualcomm is acquiring patents in more ways than just developing new technology. For example, beginning with the acquisition of Flarion Technologies Inc of the US and its hundreds of OFDMA-related patents in 2005, it went on to acquire Airgo Networks Inc of the US with MIMO technology at the end of 2006, and then acquired Mobile WiMAX design resources from TeleCIS Wireless of the US, a manufacturer of semiconductors for WiMAX applications, in May 2007.

Standardization projects also cover more than just Mobile WiMAX. They are deeply involved in standardization of next-gen mobile phones, according to a professor at a Japanese university knowledgeable in the mobile communication field. For example, the firm has increased the number of participants it sends to the Third Generation Partnership Project (3GPP), the standardization group for the Wideband Code Division Multiple Access (W-CDMA) standard in competition with its own CDMA2000 standard. In addition, it head-hunted engineers involved in the long-term evolution (LTE) next-gen standard based on OFDMA now being considered by the 3GPP. Some engineers involved in LTE also say that they have been contacted by Qualcomm.

The Third Generation Partnership Project 2 (3GPP2), where Qualcomm plays a leading role, openly favors OFDMA. The CDMA2000 1x EV-DO successor standard switched technologies from the prior CDMA to OFDMA, and named itself ultra-mobile broadband (UMB). The technology standard includes many Qualcomm intellectual properties.

Patents, Standardization
Applying for and receiving patents is executed in parallel with standardization projects. Specifications that favor the use of acquired patents are hammered out in the standardization process, and built into the standard (Fig 2). This is the Qualcomm style of winning, based on a tight linkage of standardization and patents.

Qualcomm established this business model in the standardization of the IMT-2000 third-generation mobile communication system. At that time, it held the winning hand with the key technologies to CDMA. CDMA then was primarily utilized in military applications, and few manufacturers were involved in developing it for mobile communications applications. The power control technology held by Qualcomm, allowing the base station to control the strength of the signal transmitted to a handset, was essential for CDMA-based mobile phone service. As a university professor in Japan explained, "Without Qualcomm's technology, CDMA-based mobile phone service would have been impossible. It was that fundamental."

5% of Handset Price
The company leveraged its powerful patents to build a business model collecting licensing fees of up to 5% of the handset price from the manufacturers. Annual licensing income (mostly from such royalties) has reached about US$2.5 billion, or about 30% of the company's total annual revenues (Fig 3).

Qualcomm calls the CDMA licensing contract a "multi-mode license," because it is a blanket license for many technologies related to CDMA. Originally the multi-mode license covered only tens of patents, but today it covers thousands. According to William Davidson, senior vice president, Global Marketing, Investor Relations at Qualcomm, "There has been an increase in the number of patents included in the multi-mode license, but the royalty rate has remained the same at 5% or less. Handset manufacturers appreciate that."

Patent Acquisition
For handset manufacturers, meanwhile, the contract term never ends, because even if some patents expire, many new patents are added. "The oldest CDMA patents will expire in around 2010, but that's not a problem for us because every year we add new patents that are even more important," explained Qualcomm's Davidson (Fig 4). The patents critical in handset development change over time, and as long as Qualcomm keeps on acquiring key patents, its business model will never end. 

For Qualcomm, preserving the business model established for CDMA is the overriding priority for corporate survival, and that is why the firm is hurrying to boost its patent portfolio for OFDMA technology, which is viewed as the successor to CDMA. Qualcomm has the advantage because even if next-gen mobile phones utilizing OFDMA appear, it will mean an immediate end to CDMA technology. Multimode designs will be common, using W-CDMA, CDMA2000, etc for voice and OFDMA for high-volume data streams. As long as the CDMA era continues, Qualcomm will maintain its advantageous position.

More BREW Applications
While Qualcomm is reinforcing its business model, it is also further strengthening its infrastructural position in the mobile communication industry by expanding the Binary Runtime Environment for Wireless (BREW), the software development platform for mobile telephony. Increasing the number of BREW applications will make it more difficult for handset manufacturers to avoid using the BREW platform. 

Much of Qualcomm's interest in things like BREW platforms and the MediaFLO broadcasting service for mobile gear derives from the instability inherent in the present situation. When global shipment volume growth for handsets flattens out and it is no longer a growth market, the business model will begin to collapse. Already handsets with low average prices dominate, such as handsets for Brazil, Russia, India and China (BRIC). Royalties are calculated in percent, so a drop in the average handset price means a drop in revenue. One of the reasons Qualcomm is so interested in next-gen handset functions like LTE and UMB is because powerful functions like these will help maintain the average handset price. 

The technologies underlying mobile communication are on the verge of a major change, and Qualcomm is very serious about preserving its business model. It will no doubt invest massive resources into the standardization of the fourth-generation mobile communication system (IMT-Advanced), expected to start shortly, in an effort to ensure that its technology is incorporated.

by Hiroki Yomogita

Websites:
Airgo Networks: www.airgonetworks.com
Flarion Technologies: www.flarion.com
Intel: www.intel.com
Motorola: www.motorola.com
Qualcomm: www.qualcomm.com
Samsung Electronics: www.samsung.com
TeleCIS Wireless: www.telecis.com

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