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China Investigates Ericsson Over Licensing as 5G Competition Heats Up

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04/15/2019 | 08:58am EDT

By Yoko Kubota

BEIJING -- Swedish telecom-equipment maker Ericsson AB is under investigation by China's antitrust authorities over its technology licensing practices, as the competition between companies and governments heats up over next-generation 5G information networks.

Some 20 investigators from China's State Administration for Market Regulation raided Ericsson's Beijing office Friday, said a person familiar with the matter. Ericsson spokesman Peter Olofsson confirmed the investigation late Sunday, and said it follows complaints from unspecified sources about the company's intellectual property-licensing practices.

Mr. Olofsson declined to comment further other than to say Ericsson is cooperating with the investigation. The market regulation agency didn't respond to a request for comment.

The Chinese probe targets one of the biggest Western companies building 5G network infrastructure, and Ericsson holds a valuable portfolio of patents for technologies related to 5G standards, which are essential for everything from base stations to smartphones.

A bruising fight is under way between the U.S. and China over 5G, which promises superfast data transmission that will underpin autonomous driving vehicles, robotic assembly lines, remote surgery and other next-wave businesses.

Telecommunications operators are expected to spend hundreds of billions of dollars in the coming years to build out the networks. The U.S. has effectively barred China's Huawei Technologies Co. from domestic 5G networks and is trying to persuade allies to do likewise, saying that the Chinese company is beholden to the Communist Party and thus presents an espionage and security risk in networks that will be pervasive. Huawei denies the allegations.

While Ericsson wouldn't address the source or the substance of the complaints against it, a Chinese state media report suggested that they involve licensing patents for smartphones.

Once 5G-compatible devices are rolled out, handset makers are likely to face an increase in royalty fees they must pay to Ericsson, said the People's Posts and Telecommunications News in an online report. The report said Ericsson will likely impose 5G patent fees on top of fees for older generation technologies such as 3G and 4G.

The Posts and Telecommunications News is the official newspaper of China's Ministry of Industry and Information Technology, which sets telecommunications policy and is an architect of government plans to make China a 5G leader.

The probe may be a part of a negotiating tactic of Chinese handset makers, said Phil Marshall, chief research officer of Tolaga Research, a mobile-industry research firm based in New Zealand.

Currently, handset makers are preparing smartphones that would have 3G, 4G and 5G technologies in them, Mr. Marshall said. The timing of this probe could be "related to them trying to make sure to reduce the cost of using Ericsson IPR," he said, referring to intellectual property rights.

China has in recent years spent more to import microchips than oil, prompting the government to back big pushes to boost domestic production of semiconductors and otherwise reduce licensing costs for its smartphone makers.

Chinese antitrust regulators previously investigated U.S. chip maker Qualcomm Inc. and found that its practice in licensing patents for mobile phones violated China's antimonopoly law. In 2015, Qualcomm agreed to pay $975 million in fines and to use a different formula for calculating patent royalties on devices sold in China.

China is a key market for Ericsson, accounting for 7% of the Swedish company's 2018 revenue, according to the company.

In recent years, Huawei has surpassed Ericsson and Finland's Nokia Corp. to become the world's biggest maker of cellular-tower hardware, internet routers and related telecom equipment.

Opportunities presented by 5G are imminent. In China, the government and major carriers have said they plan trials of 5G in 2019 and aim to roll it out in a larger scale in 2020. In the U.S., companies are expected to test pilot network installations by the end of the year and the government is preparing to auction off broad swaths of airwaves.

Still, Ericsson, as well as Nokia, have yet to capitalize on the U.S. scrutiny against Huawei, partly for fear that if they are seen trying to take advantage of the situation, Beijing could retaliate by cutting off access to the massive Chinese market.

--Yang Jie contributed to this article.

Write to Yoko Kubota at yoko.kubota@wsj.com

Corrections & Amplifications

This article was corrected at 11:48 a.m. ET because an earlier version misspelled Peter Olofsson'a surname Oloffson in the third paragraph.

Stocks mentioned in the article
ChangeLast1st jan.
5G NETWORKS LTD -7.34% 1.325 End-of-day quote.240.48%
ERICSSON AB 1.40% 83.96 Delayed Quote.7.75%
ERICSSON AB -0.48% 7.834 Delayed Quote.4.24%
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