Radical improvements to cellular communication are on the horizon as tech companies and service providers prepare to roll out 5G, the next generation of wireless broadband technology. With speeds 100 times faster than today’s networks, 5G will unleash innovative consumer technologies — like smart cities, artificial intelligence, and self-driving cars — that will bring countless benefits to our everyday lives.
With 5G services expected to produce an additional $1.2 trillion in consumer benefits,
the U.S. needs to act quickly and clear roadblocks to deployment. Other countries are moving fast, and falling behind in the race for 5G technology could significantly erode America’s international competitiveness. 5G’s nationwide rollout is being slowed by a dizzying number of costly local and state regulations, the lack of available spectrum space, and other challenges.
One particular issue that threatens to delay consumers’ access to 5G is a patent dispute between Qualcomm, one of the world’s largest manufacturers of cellular chips, and Apple. Qualcomm claims that some functions of Apple’s smartphones equipped with Intel chips infringe on its patents and has asked the International Trade Commission (ITC) to ban imports of all iPhone 7 smartphones that don’t have Qualcomm’s chips.
But Qualcomm has a history of dubious behavior and significant questions have been raised about the legitimacy of its claims. Regulatory agencies around the world have fined and are currently investigating Qualcomm for apparent anticompetitive practices. The U.S. Federal Trade Commission filed a complaint last year alleging that Qualcomm refused to license its competitors, charged excessive royalties, and made exclusivity deals that gave rebates to manufacturers who agreed not to buy chips from its competitors. Moreover, Qualcomm’s current dispute with Apple may be retaliation for Apple’s cooperation in an antitrust investigation in South Korea that led to Qualcomm being fined $853 million.
Whatever the merits of Qualcomm’s complaint, the ITC has only one remedy at its disposal if it finds Apple at fault, no matter how trivial the infringement: preventing iPhones with Intel chips from being sold in the U.S. This “one-size-fits-all” solution could trigger severe disruptions in America’s smartphone market, immediately creating a shortage of iPhones (an estimated 30 million or so devices could be banned), and delay consumer access to 5G, as compatible smartphones and network equipment manufacturers would face a monopoly supplier in the chip market.
Not surprisingly, Qualcomm’s ITC claim specifically targets devices that use its chief competitor’s chips. With no potential competitors able to challenge Qualcomm’s monopoly in the foreseeable future, Apple and other smartphone manufacturers would have no choice but to purchase their chips from Qualcomm, pay higher prices, and accept whatever alleged anticompetitive contractual terms Qualcomm imposes.
An analysis by the American Consumer Institute found that an importation ban would reduce consumer welfare by nearly $10 billion per year, increasing the price of an Apple iPhone by approximately $47 per unit. This estimate understates the adverse impacts such an action would have on consumers, since it doesn’t take into account the many indirect and induced benefits the public derives from smartphones through online and video services, applications, software, and public safety.
Among the criteria ITC regulators will use to adjudicate the case is whether their decision would harm consumers. If Qualcomm wins its case, consumer choice will shrink, smartphone prices will surge, and the U.S.’s race to build out its 5G technology will be at risk. Clearly, consumers will be harmed and the race to 5G broadband deployment delayed.
The choice is clear.