Share & Share Alike

In most industries, from enterprise software to recipes for cola, the inner workings of products are a closely guarded secret. Telecommunications isn't like that. In fact, our success as an industry depends on open standards, which by their definition require some of the most fiercely competitive companies in the world to share what would ordinarily be considered trade secrets.

Of course, it didn't start out that way, but problems arose as business and communications became more global and yet countries, continents and regions were using different telecom standards.

As companies, governments and individuals all recognized the challenges in literally not being able to talk to each other, global standardized communications technologies were developed, ensuring end-to-end system performance and worldwide interoperability between networks, devices and network operators.

How can this possibly work? The answer lies in a sophisticated and incredibly effective system called FRAND (for Fair, Reasonable and Non-Discriminatory), which allows a company that has developed proprietary and innovative technology to make it freely available under license to everyone else -- including its competitors -- on the explicit understanding that if they implement it they will pay them a license fee. (The "per device" license fees can themselves be tiny, but in a world where billions now use the Internet they soon add up!)

As the world enters a new era of high capacity, agile, virtualized communications, it has never been more critical that we, as an industry, hold true to this open model -- yet there is a real risk that we could return to a proprietary environment where companies protect their bespoke technology rather than sharing it.

The reason comes down to the changing nature of the global communications market. As the needs of network operators shift from just providing reliable capacity to deploying profitable services over software-based networks, many new competitors are entering the fray. Some of them have their roots in the enterprise world, where the principals of making proprietary technology available to competitors have not adhered. Many of these companies have shown over the years -- often in the courtroom -- that sharing their technology crown jewels is simply not in their DNA. They may be unwilling to license and share tech which they have invested billions of dollars to develop. Others are startups that may not be willing to pay license fees.

If either of these things happens, the communications ecosystem, as well as consumers, will suffer.

The mobile market provides a great object lesson in the importance of open standards and technology licensing.

Currently in the cellular space, the standards that allow interoperability include 2G (GSM, GPRS, EDGE), 3G (UMTS, WCDMA, HSPA) and 4G (LTE), which are developed by the 3rd Generation Partnership Project (3GPP), a collaboration among regional standard developing organizations (SDOs) in Europe, America and Asia. If a solution is adopted as part of a standard by 3GPP, the corresponding patents are said to be "standard essential patents" (essential patents). As telecom networks evolve, frequently the next generation of a network builds on previous generations, so 3G standards include many essential patents from the 2G standards.

A product that is compatible with a standard needs to use the essential patents for that standard. For example, a mobile device that can connect to a 4G network will have to use technology (and thus essential patents) that are part of the 4G standard. However, using those patents also means the product will be compatible with the standard, which allows companies new to an industry to start manufacturing products -- such as smartphones -- with the assurance that if they follow the standards, their devices will work on and provide the services of a 4G network. That lowers the barrier of entry for new players, enables multivendor high-performance interoperability and creates more choice for consumers.

Economies of scale made possible through this standardization have led to the availability of a wide array of products that range in price from very cheap basic models to expensive top-of-the-line devices. This dynamic has opened up the mobile phone market to more and more people. It also means a consumer in almost any country of this world can now not only use his or her device to call any other device, but also use it in almost any other country of the world. There is no longer any need to carry different phones in different countries because the standards are global. That is why smartphones are one of the most sold consumer products worldwide.

For the system with these open standards to work, there has to be a balance between the incentives to contribute to a standard and the incentives to implement the standard. In other words, the companies that invest millions of research and engineering hours and billions of dollars in developing standards like 4G, and commit to license their essential patents on FRAND terms and conditions, need to be fairly compensated by those who use and benefit from the technology.

If they are, this creates a win-win situation for both parties. The company that uses the technology so that its product works on the network gets access to the essential patents it needs, and the company with the innovations to move the industry forward is compensated for its contributions. This, in turn, secures further research and continued evolution of the technology. On these continuously evolving platforms, further innovation and business can also be built.

The FRAND system has been proven to work for the telecom industry, as evidenced by the broad competition, the number of both participants and products on the market and the equally broad market penetration of these technologies around the world. However, the system only works if all market players respect the basic rules. Sometimes companies simply ignore paying a reasonable royalty for access to the technology. If this continues, there is a clear risk that in the long term the system will be put out of balance, since it makes little business sense to go on investing in technology without being able to get adequate returns.

With 2G technology, a 90-minute high-definition movie over a supported bitrate of 100 Kbit/s would take 75 hours to download. On today’s 4G/LTE networks at 300 Mbit/s, the same movie downloads in 90 seconds. Over the 10 Gbit/s that 5G networks promise, the download will take a mere 2.7 seconds. These are the types of advances continued research and development bring and the kinds of technology that can be shared across the industry under the open standards system.

That type of evolution is exciting and opens up the opportunity for many ways to improve our lives through connectivity. However, that kind of advancement is built on collaboration for mutual gain, and is only possible if there is balance in the system and people are willing to share their innovations with others, who in turn are willing to fairly compensate them for it.

If companies ignore these agreed-upon principles, the incentive for the kind of collaborative environment on which our global telecom industry has been built is at risk. And no one waits 75 hours for a movie to download today.

— Monica Magnusson, Vice President IPR Policy & Communications, Ericsson AB (Nasdaq: ERIC)

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