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ComputerWire: IT Industry Intelligence

The cracks keep on appearing in the third-generation mobile market, but the news is not another European operator abandoning its 3G license, instead it is the market realization that technology licensing costs could torpedo the market for 3G before it even takes off.

The 3G standard controlled by US technology company Qualcomm Inc, CDMA2000, seems relatively sensible, with the company fixing the royalty rates at around 5% to 6% of the cost of end-user equipment. However, with the more widespread W-CDMA technology these costs could spiral to around 20% believes consulting group PA Consulting. The company also criticized the patent holders, of which there are estimated to be around 100, for not setting up a single body for companies to license W-CDMA technology.

Strong criticism on this subject has also been made by Brian Kearsey, director general of the major third-generation standards group, the 3GPPP (3G Patent Platform Partnership). Although Nokia attempted to push for the introduction of a cap on 3G intellectual property royalties at around 5% earlier in the year, so far this has borne no fruit. However, the 3GPPP has also backed Nokia's idea of a 5% flat fee and is pushing to settle the license payments as well as intellectual property claims.

The problem is also that many of the major patent holders, such as LM Ericsson Telefon AB are in serious financial trouble, high license payments will favor them in the short term, but could cripple the early development of the market, due to few vendors actually competing and therefore prices, especially of mobile handsets, remaining too high.

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