One Chip Manufacturer Might Be Responsible for High Cell Phone Prices

It’s no secret that purchasing a new cell phone can be expensive, and recent findings by the FTC reveal that the price may be higher than necessary thanks to a single company.

Cell phone chip manufacturer Qualcomm has been hit with a lawsuit claiming that they used patent-licensing policies to create a monopoly on their baseband processors. According to the FTC, Qualcomm refused to sell their baseband processors to any manufacturers unless they agreed to their “preferred license terms,” effectively enforcing a “no license, no chips” policy. This license applies to baseband processors supplied directly by Qualcomm as well as those supplied by its competitors, effectively collecting a fee whenever cell phone manufacturers use non-Qualcomm processors.

In enforcing this policy, Qualcomm created a monopoly for itself, effectively forcing cell phone manufacturers to pay high royalties to Qualcomm while agreeing to exclusively using Qualcomm processors.   This blocked lower-cost rival chip manufacturers from competing with Qualcomm. As manufacturers such as Apple became locked into exclusively using chips provided by Qualcomm, the cost of paying these royalties were passed onto the customer via high retail prices for cell phones and tablets.

The processors in question are essential chip-technologies that make it possible for mobile phones to connect to cellular networks. The telecom industry has adopted these processors as a standard, making 3G and 4G communications impossible without them.

FTC lawyers claim “by using its monopoly power to obtain elevated royalties that apply to baseband processors supplied by its competitors, Qualcomm in effect collects a ‘tax’ on cell phone manufacturers when they use non-Qualcomm processors. This tax weakens Qualcomm’s competitors, including by reducing demand for their processors, and serves to maintain Qualcomm’s monopoly in baseband processor markets.”

For now, the industry must wait for the outcome of the FTC’s lawsuit before speculating about lower cell phone and tablet prices. Still, if the FTC rules that Qualcomm’s practices were unjust or constituted a monopoly, consumers may see a dip in price as processor manufacturers begin to supply chips to phone manufacturers without the extra cost.

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