Femtocell Opinion, comment and reviews

Intellectual Property: The hidden tax on Femtocells

Femtocell Tax Intellectual Property is the “other meaning” of the term IP (sometimes also known as IPR for Intellectual Property Rights). How will this "tax" apply to femtocells and derived products? [Note: Earlier link error fixed - click through to view the article]

Over many years, companies have patented their research and licensed it to others. Large telecommunications vendors such as Nokia, Ericsson, Qualcomm and others have amassed sufficient IP that they either trade it, or are paid for it – usually as a percentage of the sale price of each unit. With a market of over 1 billion handsets sold each year, and the associated million or more of basestations, that amounts to a substantial sum of money – billions of dollars annually.

Intellectual property is embedded in the standard specifications of mobile phone networks. These specifications are referenced as the legal basis on which mobile networks operate in most countries. Therefore, if a vendor sells a handset or basestation, it must comply with the specifications in order to meet the legal requirements of the operator. Implicitly, it must therefore also include the IP of many companies – unlike other transgressions of IP theft, it is very easy for lawyers to prove any misdemeanour.

When developing the 3G standards for UMTS, there was enormous conflict on this topic between several companies. One of the outcomes was the deliberate choice of sometimes more complex technical solutions to avoid IP issues. An example could be that W-CDMA cellsites are not synchronised to each other (as they are in CDMA mobile phone systems in the US and Japan). Interestingly, this could be a benefit for femtocells which operate somewhat independently of the external radio network.

We've seen recently an agreement between the major vendors to guarantee limits on the IP costs for LTE, the 4G standard which is planned to follow on and be adopted by both GSM and CDMA operators. The standard already has the backing of major operators like Vodafone, China Mobile and Verizon.

One of the concerns for femtocell vendors is that these IP costs are typically levied on the total sale price of the end product – typically the handset or the basestation. If a smartphone sells for $500, it would attract 5 time the fees compared to a $100 unit. The LTE agreement above limits the fees to 10% or $10 for a higher value item like a laptop.

However, if femtocell functionality is included as a subsystem within a more complex and costly product, such as femtocell packaging formats including DSL modem or Set-Top Box, then potentially the IP percentage would apply overall.

We have seen a tremendous growth in USB broadband “data dongles” in the last year, which presumably attract IP charges as a percentage of their total price. There is now a slow trend to incorporate modem units within the laptops themselves. Presumably, some IP agreements have been reached to address this issue and not base any fees on the cost of the laptop overall.

A similar case would need to be made and agreed for femtocells, otherwise we will either be limited to cheaper standalone units, or substantial premiums for more integrated (and potentially easier to manage) products.

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