Vendor says setting royalty rates at 1% on its substantial LTE portfolio will help quick start the 4G ecosystem.

Nortel has always claimed to hold a substantial amount of the intellectual property in orthogonal frequency division multiplexing access (OFMA) and multiple input/multiple output (MIMO) smart antenna technology that will power the world’s future 4G networks, but this week it actually put a number to its claims. It said today it is setting a 1% royalty rate on handsets drawing on its LTE patents in an effort to jump start LTE device development.

Of course, that 1% rate is subject to terms. “If an LTE chipset gets embedded in a $50,000 Mercedes Benz we won’t charge 1% of $50,000,” said Scott Wickware, Nortel vice president of marketing and strategy for carrier networks. The 1% is meant to be a guideline that applies would apply to most device scenarios on the market, not a number set in stone. Most importantly, the number is designed to provide a baseline for device manufacturers to start planning royalty costs into their plans. If consumer device makers know Nortel and other vendors aren’t going to hold them to wall over IP, they have far more incentive to pursue an LTE strategy in the future, Wickware said.

Nortel isn’t the first to spell out its intentions over LTE intellectual property. Last month, Alcatel-Lucent, Ericsson, NEC, NextWave Wireless, Nokia, Nokia Siemens Networks and Sony Ericsson announced a pact committing themselves to fair, reasonable and non-discriminatory (FRAND) practices in licensing their LTE technology, specifically promising not that the aggregate royalties for LTE handsets would not exceed a single-digit percentage of the overall device’s cost and that aggregate royalties for embedded modules in laptops would not exceed a single-digit dollar amount.

Wickware said Nortel was invited to join the LTE pact at a late stage, but opted instead to lay out its own strategy. Instead of agreeing collectively with other vendors to keep royalty rates down below a certain threshold, it is publishing a specific rate it deems to meet the FRAND guidelines and encourage the market while still ensuring and reasonable term on its years of research into the technology. None of the other vendors have named specific rates.

The issue of intellectual property has became highly politicized—and heavily litigated—in recent years over 3G patents, pitting CDMA inventor Qualcomm against most other vendors in the industry. By engaging entering FRAND agreements, the vendor’s claim they can head off potential in-fighting before it starts and encourage rather than discourage more players to enter the market. Attracting non-traditional vendors into the fold is particularly important to 4G. As a data-centric technology, it will be driven not by phones but a multitude of other devices that have been traditionally built by consumer electronics and computer makers, not phone vendors.

Qualcomm, however, remains the big question market in 4G licensing. Both LTE and WiMAX use OFDMA and MIMO technologies heavily, and through its acquisition of Flarion Technologies in 2005, Qualcomm owns a substantial portfolio of OFDMA patents.