The Apple-Qualcomm agreement to settle all global litigation the two companies have been waging against each other is the most significant indication that 5G is for real and starts now.
Nominally, Apple’s litigation targeted reducing the value of Qualcomm’s intellectual property in wireless technologies and increasing competition in chipsets for mobile phones, accusing the San Diego-based company of unfair royalty charges and anti-competitive behavior. These would include charging a percentage of the entire product instead of parts of it, and making access to Qualcomm’s most advanced chipsets contingent on signing of licensing agreements. Qualcomm disputed both claims. But Apple also wanted something else less visible: to reduce competition in the smartphone market to take price pressure off its iPhone brand.
On one hand, Qualcomm’s intellectual property rights have secured its ability to invest heavily in R&D, expanding well into the future its central role as the R&D powerhouse of the global wireless industry. For years, royalties have made up roughly a quarter of Qualcomm’s revenues but half of its profits, enabling heavy R&D investments. On the other hand, Qualcomm licenses its discoveries to all players in the market, leveling the playing field that allows Apple’s competitors to deliver high-end products at lower price points than the iPhone. However, Apple prefers to come up each year with cutting-edge unique features available only on the iPhone. To some extent, Qualcomm spoils this goal by licensing new technologies to all players willing to pay for its intellectual property in exchange for access to new features and innovations. Apple’s resulting dearth of compelling, unique improvements in the last few years has been noted by consumers as well as market analysts.
Of particular sensitivity to Apple is Asian handset makers’ (especially Samsung, Huawei, Xiaomi, Oppo and a few others) abilities to eat up Apple’s market share in key high-volume markets such as China, India, and Southeast Asia. In fact, Qualcomm has greatly facilitated Chinese cell phone makers’ competitive entry into the Chinese and world markets. This was at the heart of Apple’s escalation of legal action against Qualcomm. Cheaper but highly innovative Chinese players limit Apple’s iPhone sales in important markets, having found their strength in using the Android operating system with Qualcomm’s innovations.
Apple’s litigation, which threated the heart of Qualcomm’s business model, was overcome by the company’s urgency to enter the 5G market. Qualcomm’s push to accelerate the radio part of 5G standard (5G New Radio or 5GNR) proved too risky for the Cupertino-based company to ignore. With all of its competitors launching 5G smartphones by early 2020 while the iPhone lagged behind was unacceptable for Apple, proving again that Qualcomm has the best-in-class wireless technology R&D in the world.
For regulators, the settlement sparks a note of caution. Had Apple prevailed in court, we would have seen less innovation across the smartphone ecosystem, and potentially less competition in the chipset market as well. Qualcomm would have refocused on market share. (Qualcomm’s market share has declined in the last few years, proportionate to Intel’s, Mediatek’s, Samsung’s and Huawei’s gains in chip sales.) Now, the handset market is likely to benefit consumers with choices and strong price competition. And with this agreement, Apple will have 5G sooner rather than later, adding to competition and innovation.