By
Mike Wendy
February 9, 2017 at 5:00 am ET
We take smartphones for granted, but they’re truly revolutionary. Today’s devices have greater computing power than the entire arsenal of NASA computers used to send the Apollo rockets to the moon.
Think about that the next time you check the price of bananas at the local supermarket from your smartphone.
You might believe that the smartphone was something only a government program could develop, but you’d be wrong. The technology companies that make smartphones and other connected products and devices thrive best in the absence of government guidance and regulation. In fact, this has been the key to their great success for worldwide consumers.
At least, that’s how it usually works.
An 800-pound gorilla called Qualcomm is greatly challenging, if not undermining, that organic model of development. Its business tactics have some of the world’s most powerful technology companies cowering in fear, wishing that King Kong Qualcomm would either leave the jungle, or at least try to live more harmoniously within the delicate balance of the wireless ecosystem it inhabits.
Qualcomm is the dominant provider of semiconductor devices that make mobile networks run. It had $23.5 billion in sales last year. It got to this treetop by developing core offerings in the mobile space, and then using that commanding position to impose aggressive and, some say, unfair licensing deals for its chips and intellectual property.
Over the past decade, Qualcomm has been hauled before competition officials across the globe to explain for its anticompetitive behavior. Significant fines have resulted, including one for $865 million levied in December by South Korean regulators for unfair patent licensing practices; and another for $975 million in early 2015 from Chinese regulators to correct royalty and licensing issues.
Now the U.S. has the monster in its sights, too.
In mid-January, the Federal Trade Commission, in a 2-1 decision, voted to sue Qualcomm in a federal court for allegedly monopolizing a key type of chip — a baseband processor — needed by leading device manufacturers to communicate with mobile networks. According to the FTC, Qualcomm used its dominance in baseband chips to “impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers to weaken competitors.”
It pains me to say it – but I think we should let the suit play out in court.
The agency alleges Qualcomm forces smartphone manufacturers to pay “elevated royalties” for its standard-essential patents (SEPs), which are necessary to make an industry standard like LTE and other cellular communications work. Manufacturers of smartphones and tablets must comply with these industry-approved standards even if they purchase processors supplied by competitors to Qualcomm.
SEPs are required to be licensed under fair, reasonable, and non-discriminatory (FRAND) terms to minimize the potential for digital holdups and foster innovation. Qualcomm’s idea of FRAND doesn’t appear all that FRAND-ly, however.
The FTC alleges that Qualcomm enforces its chip monopoly through a “no license, no chip” policy, granting baseband processors to manufacturers only if they agree to Qualcomm’s preferred terms. These terms represent a “tax” to manufacturers and inventors, unfairly squeezing the margins of rival chip makers, limiting competition and making their offerings less attractive in the marketplace.
The agency also claims that Qualcomm’s refusal to license its SEPs to competitors, and its exclusivity arrangement with Apple — which essentially stopped Apple from obtaining competitive processors from 2011 to 2016 — compound the injury to competitors and the marketplace.
As a staunch supporter of markets, I rarely support government intervention, but this case is different.
Technology, competition and voluntary, non-governmental standards groups do a tremendous job of keeping the government at bay. This formula has led to incalculable consumer and societal benefits for the world. But Qualcomm has continually gamed the rules, fouling the ecosystem’s intricate balance. Consequently, broad, burdensome and disparate global regulations will proliferate if Qualcomm’s licensing practices are left unchecked. The mobile revolution is simply too important for the world — especially those in developing regions who stand to benefit most from wireless technologies — to let a high-tech gorilla hold the evolution of mobile technology in its clutches.
We must not take the wireless revolution for granted. If the FTC can’t temper the beast, expect other competition authorities to do so instead — but in a less-friendly manner that would likely cage the whole ecosystem for the sins of one bad actor.
Mike Wendy is president of Media Freedom.
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