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Continued ...

It's not just over-engineering that is a problem, many handsets still have sub-standard user interfaces. They are hostile for non-technical users: not suitable for the mass market. Cue the iPhone. As one delegate said, "Maybe the iPhone will be good for the other handset suppliers. They might start thinking about usability rather than just features, features, features."

If we analyse the main cost components of a handset, some areas - notably the battery, screen and memory - are already on a strong downward curve, which follows Moore's law, in the case of memory and screens. Thus, the scope for 3G-related reductions in the price of these components is strictly limited.

There are, however, several areas of the handset bill of materials (BOM) where costs can still be squeezed, notably: chipsets, software/OS and IPR/licensing. Greater levels of integration will soon result in single-chip 3G handsets, based on 65nm levels of integration. Chip makers, such as QUALCOMM and TI, are investing heavily in 45nm technology, so even higher levels of integration are in the pipeline. OS developers, like Symbian, are reducing the price for their OS by as much as 50%. However, the growing contribution of IPR-related costs to the 3G handset BOM was raised repeatedly as a serious concern. For 2G handsets the IPR tariff is roughly 5% of handset net selling price, whereas for 3G this is nearer to 15%. One delegate described IPR as a "time bomb for the whole industry". Despite this, there are few signs of anyone approaching the problem with wire clippers and body armour. The big patent holders, such as Nokia, manage to reduce the IPR tariff through cross-licensing agreements with other patent holders: not good news if you are a small player trying to get a toehold on the handset market. Meanwhile, 3G Licensing has established a W-CDMA Patent Licensing Programme, "as a convenience to the marketplace in providing fair, reasonable and non-discriminatory access to certified essential patents owned by several patent holders".

Everyone agrees that something must be done about IPR costs, if handset prices are to continue their downward trend. But don't expect the problem to be solved overnight: some IPR disputes relating to 2G technology are still rumbling on from the early 1990s.

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