Nokia set to make €3 per 5G smartphone in licensing boom

Nokia has announced it is set to make €3 per smartphone through the company’s 5G portfolio of standard essential patents (SEPs), as the commercial realities of the awaiting 5G era start to become clearer.

Perhaps this was a move to calm the nervously shifting investors who have been waiting for the windfall for some time now. Nokia’s management team have been promising 5G fortunes through equipment upgrades, though the new dawn is yet to emerge, while operators continuing to insist CAPEX will not increase during the euphoria will not help the situation. This announcement might be nothing more than a settler for investors, putting an attractive financial target on the 5G boomtime.

Over the course of 2017, the Nokia licensing business generating roughly €1.6 billion, which included a €300 million payment in non-recurring revenues. Growing the recurring revenues column in this business unit would certainly be a way to healthily improve profitability.

“Nokia innovation combined with our commitment to open standardization has helped build the networks of today and lay the foundations for 5G/NR,” said Ilkka Rahnasto, head of the Patent Business at Nokia. “This announcement is an important step in helping companies plan for the introduction of 5G/NR capable mobile phones, with the first commercial launches expected in 2019.”

The standardisation process of new technologies might not be the most exciting aspect of the development roadmap, but when Nokia makes these announcements are made the pain of rubbing shoulders with competitors and enduring the forensically detailed conversations start to pay off. Nokia expects to have a significant position in SEPs once the standards are finalized later in 2018, with the licensing rate for the 5G SEP portfolio capped at €3 per device.

While €3 device is attractive, some investors might wonder what all the fuss is about, it’s not an earth-shaking amount of cash after all, but the expanse of 5G takes licensing businesses onto a whole new frontier. With 5G set to penetrate almost every aspect of our lives, and IoT seeking to become a revolution of its own, the number of devices in the field which could make use of Nokia’s patents becomes quite extraordinary.

This promise seems to be more at enticing investors to sit back more comfortably, as there are few concrete promises. The €3 rate does not cover these devices, though it will depend on numerous conversations with the various licensees. What should be worth noting is that is likely to much more varied when you take into account some IoT devices might not cost €3 to manufacture.

Of course, Nokia isn’t the only company with skin in the game. Ericsson announced back in March it would charge $2.50 for SEPs in lower-end devices and up to $5 as you scale up the portfolios. Who actually has the upper hand in the licensing game is unknown for the moment, and will remain so until the ink is dry on the final standard.

The old master of the licensing game, Qualcomm, is another which will aim to continue to benefit from the 5G euphoria. This is a perfect example of what can be achieved through an effective licensing business, as Qualcomm has dominated standards setting in 3G and 4G wireless, with both handset manufacturers and telecommunications gear makers paying royalties to the firm. The majority of profits at the chipmaker have come as a result of this business unit for several years.

With Nokia joining Ericsson in announcing patent rates, Huawei is the final vendor of the this segment we are waiting on. Those of a paranoid persuasion will be fidgeting ahead of this announcement, hoping the Chinese giant will also officially state its sticking to fair, reasonable and non-discriminatory (FRAND) terms.

UPDATE – 16:00, 21 August 2018 – We asked Ericsson for a comment on this announcement and got the following statement:

“We view this announcement from Nokia as something positive for the industry – more transparency in the patent licensing space is beneficial for all stakeholders. Open standards and patent licensing are keys to success for the whole 5G ecosystem, and Ericsson has been a major driving force in this area for many years. In fact, we are so confident in our impact on and contribution to the 5G standard, that already in March 2017 we articulated our 5G licensing conditions for handsets ahead of the standard definition. While we were clear in our declaration that the Ericsson royalty rate of $5 is for 5G/NR multimode handsets, that also incorporate earlier generations of mobile technology such as 4G/LTE, this was not mentioned in the Nokia press release that was published today.”