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You Might Be Paying Too Much For Smartphones, Says The Federal Trade Commission

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Smartphones became ultra-expensive in years past. The Federal Trade Commission thinks it’s Qualcomm’s fault, primarily for charging companies way too high for its patented technologies.  ( Tero Vesalainen | Pixabay )

The price of a flagship-tier smartphone has been ballooning over the past few years and shows no sign of ever retracting.

For the most part, this makes sense. After all, yearly increases are primarily how manufacturers make bank.

How they justify these increases vary greatly, but often, they upgrade the cameras, put out faster chips, and make better screens for each flagship. Whether these things justify upgrading yearly is debatable, but money talks — people keep on buying them, so manufacturers will make them as long as the market is sustainable.

Are People Paying Too Much For Smartphones?

However, the U.S. Federal Trade Commission thinks people are paying way too much for smartphones. It is not because Apple, Samsung, or other manufacturers and wireless carriers are making them expensive, but because of Qualcomm, a brand familiar to anyone with cursory knowledge about mobile specifications.

Is It Qualcomm's Fault?

Qualcomm makes lots of chips every year, powering countless phones from a roster of different phone manufacturers. The company's business extends beyond processors, though, as it also owns key wireless-technology patents.

Because Qualcomm owns proprietary technology, it charges companies such as Apple a set percentage of the total price of a smartphone. Consider this as Apple's payment in exchange to use Qualcomm's mobile technology, as the FTC explains in its antitrust suit. The percentage differs for each company, but Qualcomm generally takes a 5 percent cut, giving it up to a maximum of about $20 per device sold.

Companies aren't happy about this, especially since they have no choice. They can argue all they want about how Qualcomm charges exorbitant prices, but they're going to pay anyway because Qualcomm won't provide its technology otherwise, as Wired notes.

Qualcomm doesn't just charge for using its technology. The company also requires companies that buy its chips to also license its patents because, as Qualcomm CEO Steven Mollenkopf explains, it doesn't factor the price of its intellectual property into its chips. As such, it needs to charge a separate patent royalty.

The FTC had sued Qualcomm for antitrust violations back in 2017, but only now has it reached the trial phase. Whether smartphones will drop in price if Qualcomm loses the case remains to be determined. There's an extremely possible chance that makers will keep the savings for themselves instead of slashing the price of their phones.

If that were to happen, Qualcomm would have plenty of reason to fear for its business, especially if manufacturers can switch to other vendors if need be. Apple, for instance, has stopped using Qualcomm components entirely and instead gets them from Intel. Other companies following suit is well within the realm of possibility, and it's something Qualcomm must consider as it goes forward.

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