Success in the market for wireless devices and services is all about timing -- if you don't get hot new products released in time to meet or beat the competition, you're stuck selling off second-rate inventory at a loss. Wireless vendors and service providers have already been jockeying to compete in the next generation of wireless services still years away, and many have recently come together in hopes of speeding their entry into the market.
The group, which includes Nokia (NYSE: NOK), Alcatel-Lucent (NYSE: ALU), Ericsson and NEC, have struck an agreement to cap the royalty fees they earn for products using a technology platform called LTE, or "Long Term Evolution." The move is intended to help the technology platform gain momentum against WiMAX, which is seen as having a lead in commercializing networks, as a result of efforts from Sprint Nextel (NYSE: S), Intel (Nasdaq: INTC), and Clearwire.
The consortium believes that a 10% royalty cap is fair and reasonable for wireless devices, and that a hard $10 cap is appropriate for laptop computers incorporating LTE technology. The thinking is that if companies holding intellectual property pledge to limit license fees early on, then late-in-the-game demands and legal maneuvers won't have a chance to stall LTE commercialization down the road.
In theory, this makes sense. But notably missing from the quorum is wireless-technology purveyor Qualcomm (Nasdaq: QCOM). The company's absence is not surprising, since these are many of the same companies that have joined Broadcom (Nasdaq: BRCM) in efforts to cram down on the royalties that Qualcomm earns on wireless-device sales today.
Since Qualcomm and another company absent from the list -- Texas Instruments (NYSE: TXN) -- together dominate the market for chips used in wireless devices, some licensing obstacles will remain. Other companies that rely more heavily on licensing revenues -- such as Motley Fool Stock Advisor pick InterDigital -- also may end up protesting efforts to limit royalty rates on equipment.
Bringing intellectual-property disputes to a head several years in advance of commercialization may help work out the kinks before the LTE platform hits prime time, but I doubt it. As Qualcomm has learned from Broadcom, more leverage comes when products are shipping and companies have more to lose. And with billions at stake, the incentives still remain to spend millions on a legal team to resolve matters in court.
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