The last few years of the mobile Internet have been dominated by 3G cellular connections, but 4G is on the rise and Qualcomm is poised to benefit from the growing technology.   

Out with the old
Cell phone companies are eager to switch customers to higher capacity networks like 4G because newer network generations are more efficient. Companies like AT&T  can use their networks in more profitable ways because 4G airwaves can hold about 100 times more data than the 2G system. As of this past summer, AT&T still had about 12% of its contract customers on 2G connections. Yes, 2G. As AT&T and other companies switch customers to 3G and 4G connections, Qualcomm is able to collect licensing revenue from handsets that use its 3G and 4G technology. I've mentioned Qualcomm's patent powerhouse before, but it's worth repeating.

Qualcomm owns thousands of 3G patents and comes in second place with 21% of all 4G LTE patent ownership, behind Korea's LG Electronics' 23%. The number of patents obviously isn't as important as how much money the patents provide to the company -- and Qualcomm does quite well. The company receives about 5% of the handset price on all CDMA-enabled 3G devices and about 3.2% on 4G LTE devices. That last percentage is important considering the future growth of 4G LTE networks, which is the preferred 4G network for wireless carriers. A recent annual forecast by Cisco shows that 4G mobile connections will account for 10% of all worldwide mobile data traffic by 2017. That might not sound like a huge percentage, but the current amount of data traffic from 4G is at only 1%. 


4G for the future
Telecommunications companies are still at the beginning states of 4G, and 3G isn't near its saturation point, either. Sprint Nextel will shut down its 2G network this summer and AT&T won't shut its 2G network down until 2017. This leaves Qualcomm years' worth of licensing fees to collect.

Qualcomm will also benefit from the fact that all 4G devices will be backwards compatible with 3G networks for the next 10 years. This means the company has the potential to increase its licensing fees on handsets that contain both 3G and 4G technology owned by Qualcomm. According to Morningstar, Qualcomm will also collect higher licensing fees on the 4G LTE technology than the 3G ones.

More than just patents
Admittedly, assessing patent worth can be difficult and valuing an entire investment on the amount of wireless network patents a company owns doesn't provide a complete investment picture. But with Qualcomm's licensing revenue expected to grow by 17% in 2013, the patents represent a strong suit for the company right now and into the near future. Qualcomm doesn't rely strictly on its patent revenue, though. The company is deeply committed to mobile processors, and the chips can be found in Nokia's Lumia phones, BlackBerry's new BB10, as well as Samsung and HTC phones and tablets. With 28% revenue growth in 2012 and an expected 25% growth this year, Qualcomm's patents and processors put the company is positive position to benefit from future 4G mobile growth.

2013 and beyond
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The article What 4G Expansion Means for Qualcomm's Future originally appeared on Fool.com.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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