Qualcomm is in trouble.
For most, those words probably mean next to nothing, but if you know much about the technology within your smartphone, it means a great deal. Qualcomm builds many of the key... more
Qualcomm is in trouble.
For most, those words probably mean next to nothing, but if you know much about the technology within your smartphone, it means a great deal. Qualcomm builds many of the key components of the world's smartphones — specifically, the modems and often the processors, too. It's also the dominant vendor in both categories.
To smartphone users, the difference between a phone that uses a chip or modem from Qualcomm and some other brand is often measured in seconds — how long it takes to launch an app or call up a webpage, for instance. To the industry, it's measured in billions of dollars — the reward for making deals to get your technology into the hands of millions of people. And in the future, the difference could play a role in the 5G race.
For the last several years, Qualcomm has been particularly adept at making those deals, growing its market share even in the wake of public stumbles like the Snapdragon 810, a flagship chip that ended up prone to overheating. In particular, it's been the exclusive provider for modems on the iPhone since 2011 (at least until last year, when Apple began using Intel modems in some iPhone 7 models).
An iPhone 6 and 6 Plus.
Now it looks like some of Qualcomm's deals may have been out of bounds. The Federal Trade Commission took the rather extreme step of suing Qualcomm over how it does business, and it's been very specific about it.
In a nutshell, the FTC says Qualcomm is being a supreme dick about its patents, which allows the company to squeeze licensing fees from anyone it does business with. For a patent holder that's not entirely unexpected (or necessarily bad) except that Qualcomm's patents here are so fundamental to smartphone technology that they're considered standard-essentials patents — a special type that basically forces the patent holder to license them at a "reasonable rate."
The FTC accuses Qualcomm of not doing that, but also that it went even further, basically forcing any smartphone maker to pay Qualcomm for phones that don't contain its modem tech, if they wanted to do business with Qualcomm at all.
Not the first complaint
Qualcomm's been accused of noncompetitive practices before, but they were from the South Korean and Chinese governments in Asia, whose interests happen to align with chip companies (like MediaTek and Samsung) based there. Not so this time. Qualcomm is a U.S. company, negating any claims of regional protectionism.
"This is the third time they've had an antitrust suit," explains Tim Bajarin of Creative Strategies, a Silicon Valley market research firm. "There's no question that when you have these kind of suits, there has to be some kind of significant evidence or material that would force these antitrust lobbies to [act]."
Naturally, any discussion of smartphone technology eventually drifts to Apple (call it Jobs' Law), and the company is pretty heavily involved in this. Allegedly, Qualcomm pressured Apple into using its modems in the iPhone from 2011 to 2016, effectively shutting out its competitors from working with the most influential smartphone maker in the world and hampering their development. (In that time Qualcomm's market share in mobile modems grew from 45% to 65%.)
"Apple is the premium brand in smartphones," says Jan Dawson, a mobile industry analyst. "Every other brand is either not premium or a mixed bag of offerings. It's certainly more valuable as a relationship."
Interesting tidbit: Those new Intel modems in the iPhone are apparently so much slower than Qualcomm's that Apple is throttling them so users have a consistent experience. Whether that's evidence in the FTC's favor or just bad engineering probably depends on whose side you're on.
The Trump factor
The bigger question is, will any of this matter under a Trump administration? Conventional wisdom says that a theoretically business-friendly Republican leadership won't be as excited to push the case forward, and the current FTC chair will step down on Feb. 10.
However, Trump is said to be considering Utah Attorney General Sean Reyes as the replacement. Reyes hasn't been too kind to big tech companies in the past, so there's little reason to believe he would give Qualcomm a break here. (That is, if he ends up being Trump's pick.)
"This is one of the very last actions of the outgoing FTC," Dawson says. "It's possible the case may not be pursued as aggressively as it would have. But remember, [Reyes] suggested going after Google. He probably won't give anybody a free pass."
For its part, Qualcomm issued a defensive statement, essentially a non-denial denial that was very light on detail, apparently saving its point-by-point rebuttal for court. Considering the FTC filed its lawsuit in Apple's backyard of Northern California (as opposed to Qualcomm's home of SoCal), the witness testimony could get interesting.
The 5G race
If you've read this far, you may still be wondering how this affects you. Simple: 5G. Right now it's a future-tech buzzword, but in a year or two we'll start to hear about the first smartphones with 5G speeds. 5G promises smartphone connections faster than even today's wired internet, able to transfer gigabits per second (real-world LTE usually maxes out in the tens of megabits).
5G represents a new frontier for mobile internet players like Intel, MediaTek and others — especially since there are still billions (with a "b") of people who don't yet own a smartphone. It could be that Qualcomm, with its impressive patent collection and world-class team simply outplayed everybody in the age of LTE, and when 5G comes along it'll be more of the same.
But if it's found to have stacked the deck in its favor and has to make changes, the 5G era could end up being a lot more competitive. That could get messy — modem performance could vary wildly between manufacturers and even individual models — but it could also give some innovative outliers the chance to shine. It all depends if the incoming FTC chair still thinks that's a future worth fighting for. We'll find out soon enough.less