Similar to the transition in the mobile phone industry from feature phones to smartphones, in which business models, platforms and market participants transformed the way in which profits are distributed among companies, we look set to see shifts and profit redistribution within the auto industry. Currently, automotive connectivity is mostly used for automatic emergency calls (eg, eCall), smartphone signal enhancements, telematics and navigation. However, the transport sector will make use of connectivity for dynamic traffic management, intelligent parking and infrastructure to support the integration of autonomous vehicles into road traffic. While fully autonomous vehicles are likely to evolve over several stages, manufacturers are already implementing autonomous functions (eg, speed control and lane departure warnings).
The auto industry could be one of the first sectors outside of the smartphone world to heavily rely on 5G technologies. However, as the 5G standard is protected by potentially over 100,000 SEPs, the integration of 5G standards will include the payment of royalties for vehicle manufacturers. Licensing fees for SEPs in the communications industry (ie, 3G, 4G and soon 5G), can easily amount to hundreds of millions of dollars per year. However, licensing practices in the automotive industry differ significantly from those in the communications industry. A tier 1 supplier rarely receives royalties from an original equipment manufacturer (OEM). In licensing negotiations, royalties are usually based on a single component that has been improved by an invention. As such patents are not essential and there is always the option to invent around it, patent licensing costs have had little impact on vehicle prices. In contrast, with regard to SEPs there is no invent-around option if the auto manufacturer wants to integrate and be compliant to a standard (eg, 3G, 4G or 5G). SEP owners in the past few years have mostly targeted OEMs and avoided licensing their SEPs downwards the value chain.
However, a question that yet has not been publicly discussed is how much 4G or 5G functionality is actually needed in a car? Will the 4G or 5G standards implementation for vehicles significantly differ from the use in smartphones and – if so – does this mean that SEPs will be much less involved?
Analysis conducted by IPlytics and ResearchWire shows that out of the 50 most patented 4G and 5G technical standards, only around 80% need to be integrated in currently built-in automotive connectivity boxes and not all declared SEPs will be relevant for each standard implementation and therefore also royalties must consider these differences. The report provides further details:
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