China has grown to be the biggest smartphone market in the world thanks to its recent economic expansion, but it is only with the dawn of LTE that it will really gain the technological self-sufficiency in wireless that it has sought for years. Two events highlighted that this week ‘ reports that China Mobile would switch on commercial TD-LTE services before the end of the year, and an antitrust lawsuit filed against Qualcomm.
The two must certainly be connected. The probe into Qualcomm’s business practices by the top Chinese economic regulatory, the National Development and Reform Commission (NDRC), is likely to be a pre-emptive bargaining measure as vendors and operators negotiate LTE royalty payments with the US chip provider ahead of TD-LTE expansion. China has resisted Qualcomm’s stranglehold on patent fees in 3GPP technologies and has negotiated special deals in the past, notably by denying an IPR position for the US company in TD-SCDMA, the homegrown Chinese 3G technology.
However, that may be harder with TD-LTE, which will be switched on commercially by China Mobile on December 18 and will represent an estimated equipment investment of about CNY100bn ($16.4bn) by the three Chinese telcos, all of which received new unpaired spectrum last week. The carriers will be keen to limit their exposure to Qualcomm patent fees, given the scale of their roll-outs and device requirements, and the government will be equally keen to assert self-sufficiency in 4G and wireless IPR terms.
Its opening gambit is apparently an investigation related to an anti-monopoly law, the US chip provider confirmed, though details are confidential and Qualcomm says it is unaware of any actual charges, but will cooperate with the probe.
The chip giant may be in some mood to be flexible, not because of antitrust probes but because it is also expecting a windfall from actual chip sales for TD-LTE handsets. It has a window of opportunity before rivals, including several Chinese ones, catch up and can offer dual-mode TD-LTE/3G devices, particularly in single-chip reference designs, necessary to ease availability of low cost handsets. “This is a big deal for Qualcomm,” Alen Lin, a telecoms analyst at BNP Paribas, told Reuters. “For the first 6-9 months Qualcomm will be the only chipset provider that can support a handset using both 3G and 4G in the China market.”
Qualcomm’s reliance on China is huge. About $12.3bn ‘ 49% of its total revenue in the fiscal year to September 2013 – came from devices made in China. Many of those are exported of course, but the actual Chinese mobile market still accounts for about 20% of its total chip and licensing revenues. It has been pushing to expand its reach in the country, and fend off the rising tide of local rivals there, such as Spreadtrum. In particular, it has been launching low end SoCs for mass market handsets.
Its stepped-up activities, as well as a series of probes, notably in the European Union, of Chinese firms’ practices, may have helped to prompt this new action, as well as the new Chinese administration’s crackdown on business practices which inflate prices for consumers, at a time when the country’s consumer boom is subsiding somewhat. Most of the headlines have centered on anti-corruption measures, but the policy also covers other mechanisms such as licensing.
However, surely the biggest factor is the impending launch of commercial 4G services and the rounds of bargaining that are reportedly going on right now between Qualcomm and local device makers and carriers. The TD-LTE launch is the flagship of China’s long but seldom successful campaign to build its own hi-tech platforms, and then establish these as international standards too.
China Mobile will launch commercial 4G services on December 18, under the brand name He (‘harmonious’ in Chinese), and reportedly with a TD-LTE iPhone to whet consumers’ appetites. The mooted Apple deal will hit the headlines, but otherwise Mobile will be using technology which has been largely developed at home, and in which local vendors hold significant market share.
Initially it will rely on the extensive ‘trial’ networks it has been running in anticipation of getting a commercial licence, but there will also be rapid new build-out in 2014. To hit the target date, the Chinese regulator, MIIT, will have to allocate those commercial franchises within three weeks. Last week, it awarded TD-LTE spectrum to all three operators, but Mobile is well ahead of its rivals in its deployments, having been using overlays in its 3G bands. Its first He offerings will be available in Beijing, Guangzhou and Chongqing, according to Chinese news agency Xinhua.
Of course, the country has tried the homegrown platform route before, with the TD-SCDMA 3G platform and others before it, but has always ended up in a technology island, limited in its ability to access global ecosystems or interoperate with partners. With TD-LTE though, it has tapped into carriers’ need for new data capacity in almost any type of spectrum, and established a 4G system that will, over time, be almost as important globally as its FDD cousin.
Chinese players hold the rudder in terms of platform development, roaming mechanisms and device ecosystem, but also in terms of IPR. Major players like Huawei and ZTE are amassing massive piles of wireless patents, aiming to have the global influence and licensing bargaining power that Ericsson, Nokia and Qualcomm had in 2G and 3G.
It is not clear how aggressively the Chinese companies will assert their patents, but they will be keeping a close eye on the increasingly active IPR enforcement programs of western rivals like Alcatel-Lucent and Ericsson itself. And they will certainly be helping their home country towards a long-held ambition, to loosen the dependence on western patents as China builds its own mobile standards and industries.
With an echo of South Korea’s moves towards mobile self-reliance in the previous decade, China is becoming more willing to probe the business methods of companies which hold the upper hand in key technologies, and to inject support and funds into local players. In recent months, organizations affiliated with the government have invested nearly $3bn in mobile chipmakers Spreadtrum and RDA Microelectronics, both of which could compete with Qualcomm, but are considered to be well behind it at the current time. This imbalance will intensify the interest of Chinese regulators in whether Qualcomm is licensing its patents on a fair, reasonable and non-discriminatory basis ‘ a vague but increasingly universal standard set by antitrust agencies round the world. Gus Richard, an analyst at Piper Jaffray, told Bloomberg: ‘China wants to give as much advantage to their indigenous chipmakers as they can. They care a lot about communications infrastructure and cellphones. I don’t think China’s going to pay them.’
Another relevant factor is that China Mobile currently pays limited patent fees to Qualcomm because TD-SCDMA has been ruled not to be covered by the US firm’s patents. Qualcomm says that will change with TD-LTE, in which it holds considerable IPR, and so it could expect to start claiming licensing payments from the world’s largest cellco, as well as supplying chips for its handsets.
This was held by up CEO Paul Jacobs as a significant positive for 2014 at the company’s recent analyst meeting. However, it seems that this will be a gain Qualcomm has to fight long and hard to enjoy.
It’s not just China which is seeking to reduce its outlay on royalties to the old western stalwarts of the wireless business. India has set some similar goals, and in the past year has introduced rules requiring telcos to buy a hefty percentage of their equipment from local manufacturers. Although well behind China in developing its own technologies and IPR, it is also likely to use its increasing weight in the mobile world to seek better royalty deals, as seen in a probe mounted this week against Ericsson.
The hunt for better deals will be especially important in 3G, whose essential patents are far more concentrated in the hands of a few companies than in LTE, and which will be India’s main mobile broadband platform until new FD-LTE spectrum is awarded. The Indian cellcos have several years of 3G expansion ahead of them, and want their local device and equipment suppliers, in particular, to have the lowest possible licensing fees as they try to drive down prices in the market with the world’s lowest mobile ARPUs.
The investigation, by the Indian antitrust regulator, was reportedly sparked by a complaint from Micromax, one of the largest Indian handset makers. The company is one of a handful of Indian vendors which are looking for international expansion, having seized significant market share at home from traditional giants like Nokia (which, however, still led the Indian smartphone market in the third quarter). As reported by Foss Patents, Micromax is claiming that Ericsson is not following Frand (fair reasonable and non-discriminatory) principles in the royalties it charges for its standards-essential patents.
The document, on the antitrust agency’s website, states that previous informal talks it has held with Ericsson have not convinced it of the Swedish giant’s case, so a formal investigation will now be launched.
What exactly constitutes Frand, especially with regard to standards-essential patents that vendors cannot avoid, has been at the heart of many of the IPR lawsuits in the mobile industry, which have mushroomed in recent years. Some have led to regulatory investigations, though most have, so far, been in Europe and the US, including the European Union’s probe of Samsung. In the Micromax/Ericsson case, the main issue at stake is that royalty rates are based on a percentage of handset price, and therefore rise if the smartphone’s price tag goes up. Micromax argues that charging different rates for the same technology is discriminatory, even though this is common practice in the mobile device space.
Qualcomm supports Chinese satellite positioning:
While the American GPS may be the global standard for positioning applications, it has a number of current or upcoming rivals, including the EU’s Galileo, Russia’s Glonass, and China’s BeiDou. Qualcomm has worked with Samsung to support the BeiDou Satellite Navigation System in smartphones, increasing precision because the devices can access more constellations of satellites.
The capability has been added to Qualcomm’s iZat location platform and Samsung will harness it in the first BeiDou-enhanced consumer smartphones next year, for use in China and internationally.
The first device to sport the triband location platform will be the Galaxy Note 3 in a W-CDMA/TD-LTE version, powered by the Snapdragon 800 processor. Within this, iZat will concurrently process signals from multiple satellite networks including BeiDou and GPS, which should improve access to positioning services even in difficult locations in China such as urban canyons.
In Qualcomm’s Snapdragon processor/baseband offerings and Gobi modems, positioning signals are handled in the modem and RF chips rather than waking up the apps processor, which saves power consumption.