Huawei will begin levying royalties from smartphone makers that use its patented 5G technology, expecting to open a lucrative new revenue stream as US sanctions hit the company’s consumer business.
Huawei plans to collect fees for smartphones capable of connecting to 5G and previous generations of mobile networks. Starting this year, per-phone royalties will be capped at $2.5, representing a reasonable fee rate as a percentage of each device’s selling price, according to Huawei’s head of intellectual property rights Jason Ding speaking at an event on Tuesday.
The price Huawei is set to charge is lower than some of its rivals. Nokia said the licensing rate for its 5G technology would be capped at 3 euro ($3.58) per device in 2018, while Swedish telecoms company Ericsson said it would charge $2.5 to $5 per device, CNBC reported.
The Chinese telecoms giant seeks to enter into negotiations with mobile giants including Apple and Samsung in demanding 5G royalties, according to Song Liuping, chief legal officer of the company. Huawei believes that it can generate about $1.2 billion to $1.3 billion in revenue from patent licensing between 2019 and 2021.
When a new generation of cellular networks is built up, telecoms behemoths including Huawei, Nokia, Ericsson, LG Electronics and Qualcomm will contribute to the establishment of a new set of standards enabling the interoperability of smartphones globally. During the process, these companies devise technologies for which they could later file patents for. Those patents, which are critical to the 4G or 5G standards, will be designated as a “standard essential patent” or SEP.
It is generally recognized that telecoms firms are entitled to charge a royalty fee from smartphone makers who use their SEPs to manufacture devices.
According to analysis by technology research firm GreyB, Huawei owns a portfolio of 3,007 5G patent families, of which 18.3% are SEPs – more than any other company in the world.
The cutting-edge technology has exceptional prospects, as global sales of devices using 5G are projected to soar from $5.53 billion in 2020 to $667.90 billion in 2026, according to Allied Market Research. Huawei’s moves to monetize its 5G technologies could potentially make up for its loss in smartphone shipments due to US sanctions.
In 2019, the administration of former US President Donald Trump placed the Chinese phone maker on a blacklist, which prevented American firms from exporting some technology to Huawei, affecting its ability to design chips and smartphones. Huawei’s consumer business accounted for 54.4% of the company’s revenues in 2019, according to Reuters. During Trump’s term in office the US also pressured its allies, including the UK and Japan, to cease purchasing Huawei’s equipment to develop their domestic 5G networks.