Key Technology Players DO NOT Sign LTE Pact – Is this Good News or Bad News???

Implications: Alcatel-Lucent, NEC, Nextwave Wireless, Ericsson, Nokia, Nokia Siemens Networks, and Sony Ericsson have all signed a pact agreeing to cross licensing of intellectual property they collectively own in Long Term Evolution (LTE) technology. Missing are some dominant players in wireless technology.

Analysis: Missing in the LTE cross licensing pact are Qualcomm, Motorola, Interdigital, Broadcom, HP, Texas Instruments, and Freescale.  Between these companies they own the vast majority of all key UMTS, W-CDMA, OFDMA, and CDMA technology.  Why should they bother cross licensing?

Cross licensing is the sharing of patents between manufacturers through licensing agreements so that all parties involved can use each other’s inventions.  Cross licensing also does something else; it facilitates market growth by enabling many players to get involved in the manufacturing and even enhancement of technology.  That being said, Qualcomm, Motorola, Interdigital, Broadcom, HP, Texas Instruments, and Freescale all have a right to not sign a cross licensing agreement.

There are some technology companies that generate a substantial amount of their revenue through the plain old sale of product.  There are some technology companies that generate a substantial amount of their revenue through the sale of their intellectual property.  There is nothing wrong with either case.

The challenge for all who manufacture is finding “advantage” over one another.  Some vendors use the courts against one another, some vendors use their sheer size against one another (in many instances size does count), some vendors use their intellectual property portfolio against one another, and all vendors use their customer relationships against one another.

So what is the big deal about Qualcomm, Motorola, Interdigital, Broadcom, HP, Texas Instruments, and Freescale not willing to sign a cross licensing deal?

The inference the press is making is that the lack of participation in this pact is a sign of an attempt by Qualcomm and the others to do something nefarious.  Hey, I will be the first to admit it is a good story.

However, you can make the case the cross licensing deal among the other players is that group’s attempt to corner the market for themselves by agreeing to work with one another and to force the other patent holders to do business with them on their terms.  Cross licensing pacts typically involve low cost fees and not high cost fees.  One of the results of cross licensing is to get some compensation for the company’s intellectual property; the amounts are token amounts.  Another result of cross licensing is widespread adoption of technology.

An example of cross licensing is the original GSM cross licensing agreement.  I believe the agreement and the active participation of several national governments sped the rapid adoption of GSM on a global basis.  However, the licensing tactics used by Qualcomm turned Qualcomm from a startup to a major wireless powerhouse in a matter of a few years.  One thing to note, there is an upside and downside to everything.

The actions of Qualcomm, Motorola, Interdigital, Broadcom, HP, Texas Instruments, and Freescale are all understandable.  The companies are working towards generating revenue by licensing their technologies.  The fact is if you are a company that is in financial trouble like Motorola, giving away your technology is sheer stupidity.  I am not going to argue Qualcomm’s case; I have done that in past analyses.  Broadcom, a small company, has a right to make money off of the giants.  As for HP, Texas Instruments, and Freescale they are trying to get some level of scale in the wireless industry.

LTE investors need to be concerned about how LTE is going to be developed and commercialized when key players are not part of the cross licensing pact.  Without the ability to integrate competitors’ technology, at low cost the members of the cross licensing pact will not be able to produce attractively priced products.  If we dig a little deeper into the non-cross licensing group, you will notice that Qualcomm’s biggest customer Verizon Wireless is supporting LTE.  LTE is based on UMTS.  Qualcomm is not known for being a UMTS powerhouse but rather known as a CDMA powerhouse.  Qualcomm does own UMTS patents but its main revenues are generated from licensing their CDMA technology and selling related chips.

Is there something sinister going on with Qualcomm not joining the cross licensing group?  Is there something sinister going on with Broadcom not joining the cross licensing group?  The answer is yes – it is called competition.

The reality is that the WiMAX - LTE War has not even hit its peak yet.  Qualcomm has spent millions on its version of LTE, called Ultra Mobile Broadband (UMB), and it makes one wonder if Qualcomm will write off that investment.  On the other hand talk of UMB being a potential 4G technology might be a misdirection to cause vendors to spend money on pointless avenues.  Qualcomm and the other vendors all have some intellectual property in WiMAX and its base multiplexing schema (OFDM, OFDMA, and SOFDMA).  Bottom line, with so much money invested already in the WiMAX technology it would be foolish to give up without a fight, even with the carriers proclaiming support of LTE.

Another reality is that the carriers love it when the vendors fight.  It makes the vendors produce superior technology and product.  The original fight between CDMA and GSM made both better technologies.  The 1990s fight between CDMA and GSM forced all vendors to add functionality and capability they otherwise would have preferred not spending the money on developing.  Despite what Vodafone’s CEO, Arun Sarin, had said at the recent CTIA Convention, no matter how much carriers hate disorder amongst the vendor community they equally love it when the vendors are at each others’ throats.  Vendors desperate for business will literally do anything to get the business.  In the end the carriers win.

The fight for 4G technology dominance has just started.  Will the global winner be LTE or WiMAX?