LTE Chips Away at Qualcomm's CDMA Royalty

Verizon is gung-ho about launching LTE-only devices, which means the chip giant's CDMA royalty stream may dry up.

Sarah Thomas, Director, Women in Comms

August 23, 2013

2 Min Read
LTE Chips Away at Qualcomm's CDMA Royalty

Ever since Verizon Wireless laid out its timeline for single-mode LTE smartphones, investors have been concerned for one company that may not be as excited about the transition: Qualcomm.

The chip giant, of course, gets a hefty royalty from 3G CDMA chip sales since it invented the technology in 1990. Verizon Wireless is its biggest customer, so losing its business will be a blow to the steady stream of fees it has collected ever since. It's not a new concern for Qualcomm Inc. (Nasdaq: QCOM), but one that's become heightened as Verizon has grown more confident that voice-over LTE (VoLTE) will let it build LTE-only handsets in about a year. (See CTIA: Verizon Pushes for Single-Mode LTE.)

Ditching CDMA benefits Verizon for many reasons, a big one being that it will bring down the cost of subsidies on VoLTE smartphones. On the flip side, it will likely make devices still bridging CDMA and LTE that much more expensive as Qualcomm looks to recoup lost revenue. (See Verizon Envisions Cheaper VoLTE Subsidies.)

"The move to VoLTE is inevitable and will impact what has been a long and prosperous royalty stream for Qualcomm," BTIG Research analyst Walter Piecyk writes in an email to Light Reading.

For its part, Qualcomm isn't too worried as it's already moved on to tackling LTE's global roaming challenges in newer generations of its chipsets. (See Mobile Migraine: Carrier Aggregation Roaming .)

A Qualcomm spokeswoman says that the company's patent position will let it charge about 3.25 percent for single-mode LTE, just for the essential patent portfolio. So, while it's possible it may see a step down in the rate of royalties over time, she says, it's comfortable about the position it's in "with more than 65 single-mode OFDM/OFDMA licensees."

There's another reason Qualcomm isn't sweating it, too. While Verizon says VoLTE-only handsets will be the norm near the end of 2014, that may be overly ambitious, Piecyk predicts. Verizon has already pushed back its VoLTE launch timetable several times in a bid to get it exactly right, so it's reasonable to expect it to take longer than anticipated for it to be comfortable with LTE-only devices, too. (See Verizon Promises Voice-Over-LTE in 2014.)

"New wireless implementations tend to take longer than promised, especially the ones that impact voice," Piecyk says. "Verizon's timeline already appears to be stretching and, with a resurgent T-Mobile and Sprint, they might not want to risk a poor consumer reaction to a technology evolution."

— Sarah Reedy, Senior Editor, Light Reading

About the Author(s)

Sarah Thomas

Director, Women in Comms

Sarah Thomas's love affair with communications began in 2003 when she bought her first cellphone, a pink RAZR, which she duly "bedazzled" with the help of superglue and her dad.

She joined the editorial staff at Light Reading in 2010 and has been covering mobile technologies ever since. Sarah got her start covering telecom in 2007 at Telephony, later Connected Planet, may it rest in peace. Her non-telecom work experience includes a brief foray into public relations at Fleishman-Hillard (her cussin' upset the clients) and a hodge-podge of internships, including spells at Ingram's (Kansas City's business magazine), American Spa magazine (where she was Chief Hot-Tub Correspondent), and the tweens' quiz bible, QuizFest, in NYC.

As Editorial Operations Director, a role she took on in January 2015, Sarah is responsible for the day-to-day management of the non-news content elements on Light Reading.

Sarah received her Bachelor's in Journalism from the University of Missouri-Columbia. She lives in Chicago with her 3DTV, her iPad and a drawer full of smartphone cords.

Away from the world of telecom journalism, Sarah likes to dabble in monster truck racing, becoming part of Team Bigfoot in 2009.

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