Royalties keep phone prices up

A new study from ABI Research has found that the currently high average handset technology royalty rates – particularly for WCDMA – are potentially the most challenging barrier that is preventing these markets from reaching their full potential.

Royalties continue to form a significant share of handset bills-of-materials and present a challenge to the development of more affordable devices for the world’s mobile consumers.

According to director of wireless research Stuart Carlaw, “The industry-accepted norm for cumulative royalty rates for consumer devices is 5%. WCDMA handset average royalty rates currently stand at 9.4%. Our research indicates, however, that current high rates for WCDMA are not the result of any one company’s actions in the market but are a result of a flawed standardization process.”

The new report, “Mobile Handset Royalties” finds that the global WCDMA royalty revenues were in the region of $2.5 billion in 2006. Total handset royalty revenues are forecast to rise to over $10.0 billion in 2011 based on average cumulative royalty rates ranging from 3.8% to 8.5% depending upon the technologies in question.

Carlaw notes that “The extremely opaque environment for royalty negotiations within the European Telecommunications Standards Institute (ETSI) makes it impossible to ascertain benchmark levels for royalty payments.

This prevents a more solid understanding of what can be considered ‘Fair, Reasonable and Non-Discriminatory’ terms. Further, ETSI’s patent policy does not include any robust method for conflict resolution, which renders the current system toothless.”