Table Of ContentCOMPETITION
FOR THE
MOBILE INTERNET
COMPETITION FOR
THE MOBILE INTERNET
edited by
Eli M. Noam
and
Dan Steinbock
"~.
Springer Science+Business Media, LLC
Library of Congress Cataloging-in-Publication Data
COMPETITION FOR THE MOBILE INTERNET
Eli M. Noam and Dan Steinbock
ISBN 978-1-4613-4878-8 ISBN 978-1-4419-9290-1 (eBook)
DOI 10.1007/978-1-4419-9290-1
A C.I.P. Catalogue record for this book is available
from the Library of Congress.
Copyright © 2003 Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 2003
Softcover reprint of the hardcover 1s t edition 2003
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Printed on acid-free pap er.
Contents
1. Introduction
I. Policy Debate 13
2. Spectrum Policy and the Development of Advanced 15
Wireless Services
ThomasJ.Sugrue
3. The NextFrontier for Openness:Wireless 21
Communications
EliM.Noam
4. Competition Policy for 3GWireless Services 39
HowardShelanski
5. More Spectrum Must BeProvidedTo ServeWireless 55
Consumers' Needs .
RobertF.Roche
II. Industry and Market Developments 63
6. Globalization ofWireless Markets 65
DanSteinbock
7. Restructuring viaVirtuality inthe3-GContext 89
KathrynRudieHarrigan
8. TheEmerging Wireless ValueChain andCapitalMarket 103
Perceptions
John M.Bensche&JenniferC.Ritter
9. Wireless Services andNetworkEconomics 121
Nicholas Economides
III. Industry Perspectives: Networks, Applications 129
and Services
10. Terminals andApplications forthe3GMarketplace 131
Kari-PekkaWilska
11. KeyDrivers ofSuccess for 3G:ACarrier's Perspective 145
Clayton Foster
12. Applications in the 3G Era: Criteria for Success, Myths 169
for Hype
Donna Campbell&KeithShank
13. Mobility and Applications:"It's the Audience, Stupid" 175
NeilF.Budde
IV. Globalization and Future 187
14. Globalization of the Wireless Industry: The Race to the 189
Top
DanSteinbock
15. Epilogue 207
DanSteinbock
AbouttheContributors 215
Chapter 1
Introduction
Dan Steinbock
HelsinkiSchoolof Economics.InstituteforMobileMarketsResearch,ColumbiaInstitutefor
Tele-Information
1. INTRODUCTION
Billionsof dollars(and euros, yen,and othercurrencies) have been spent
by wireless services providers to acquire the radio frequency spectrum
needed to offer so-called "Third Generation" (3G) mobile services. These
services include high-speed data, mobile Internet access and entertainment
such asgames, music and video programs.Equal or greateramounts will be
spenttoactuallydeploy the 3G networks. What is thedifference between 3G
and 2G or 2.5G? When will 3G handsets be available in quantity? Will
businesses and individual consumers really want mobile services that only
3G can support? Will there be a "killer app"? Will the killer app vary in
different businesses or regions or among different age groups? Will enough
users be willing to pay enough and use the services enough so that wireless
service operators will be able to make a profit? And if 3G takes off, will
there be enough spectrum to satisfy demand? In other words, what are the
key driversand obstacles for wireless 3G?
The Columbia Institute for Tele-Information (CITI) has been exploring
these fundamental questions in its Mobile Internet Project. In addition to
ongoing research, this program included a conference on October 25, 2001
with a wide research consortium, including experts from wireless service
E. M. Noam et al. (eds.), Competition for the Mobile Internet
© Springer Science+Business Media New York 2003
2 ChapterJ
providers, equipment manufacturers, application software developers,
investors and government officials. Due to the highly topical and intensely
debated subject matter, several presenters also prepared papers on their
respective themes, while the participants joined the research project.
Competition for the Mobile Internet is the culmination of these efforts. It
exploresthe "twindrivers" ofmobilityand the Internet.
Focusing on the industry transformation, this book stresses three central
perspectives:
- PublicPolicyDebate(e.g.,successor failure of past regulatory policies,
leapfrogging of bottlenecks,competition policy, spectrum friction);
- Industry and MarketDevelopments(e.g.,globalization of wireless
markets,restructuring via virtuality and 3G, wireless value chain and
capital marketperceptions);
- IndustryPerspectives:Networks, Applicationsand Services (e.g.,network
economics, issues ofoperators,applications,handsets,andcontent
mobilization)
This introduction presents the structure of the book, while the Epilogue
outlinescentral policy and strategyconclusions from thecontributions.
The research project is unique in that it has drawn together academic
researchers and industry practitioners. The academics are known for their
wirelessinvestigationsand pioneering industry studies,whereasthe industry
practitioners and thinkers remain highly influential in the rapidly changing
wireless industry. This approach reflects and augments those of the
Columbia Institute for Tele-Information (CITI), which is a university-based
research center focusing on strategy, management, and policy issues in
telecommunications, computing, and electronic mass media. As the Sloan
Foundation industry researchcenteron telecommunications,CITI focuses on
information and telecom industry, while sharing the main objective of the
Sloan Foundation to make practical and unbiased contributions to the
industries studied and to accelerate economic development and
competitiveness. For example, CITI is engaged in analyzing the boom-bust
cycle of network industries, which is affecting the technology and telecom
sectors, including wireless. CITI is independent in its research from any
stakeholders, and leaves its researchers a wide latitude in their work and
perspective.
t.introduction 3
2. PUBLICPOLICYDEBATE
The first part of the project focuses on the public policy debate in the
wireless industry.It comprises four contributions,which reflect the views of
the industry's trade association,of academicresearch on spectrumregulation
and competition policy, as well as theindustryinterests.
Thomas J. Sugrue is Chief of the Federal Communications Commission's
Wireless Telecommunications Bureau. In Chapter 2, he presents his views on
the alleged success and failures of past regulatory policies in mobile
communications, as well as the success potential of new policies. Despite
increasingcompetition,Sugrue suggeststhatthereissomereasonforoptimism
intheUnitedStates,aswell:
... a couple of years ago, you couldn't pick up a newspaper or a popular
magazine without seeing a headline, "U.S. trailing in 3G," "Why Is U.S.
behind?" and so on. To some degree, we were a bit behind in terms of
3G licensing and implementing some services. However, the market
demand and the technologies really had not been worked out yet. You
always hear about being the first in the market. Well, being first to the
market isgreat if you've got it right. But being first to the market carries
enormous risks when the market demand is uncertain and the way the
technology isgoing tooperateis uncertain.
Eli M. Noam is the Director of the Columbia Institute for Tele
Information and Professor of Economics and Finance at Columbia Business
School. His view ofthe past regulatory policies is much more skeptical. In
Chapter 3,he argues that for wireless communications the United States has
limited openness, by permitting the emergence of vertically integrated end
to-end providers that can exclude content, applications, and hardware
solutions. This is creating problems of reduced hardware innovation,
software applications, user choice, and content access. To deal with these
emerging issuesand create multi-level forms of competition,he advocates to
open equipmentinterconnection for wireless. He concludes:
American communications policy has fared best when it puts its faith in
the dynamism of the periphery of the network, instead of seeking to
strengthen the ability of the network core to dominate. Wireless is no
exception. And the mediocre results of policies focusing on the core, in
contrast to those for other parts of the communications environment,
suggest that a reorientation is in order. The key step now is to follow the
opening set by the FCC's for software defined radio by a Carterfone
style opening to equipment that can access multiple wireless networks.
4 Chapter I
With itwecan leap frog the "3G"model with itscarrier- orientation toa
"4G" model patterned after the internet.
Howard Shelanski is Professor of Law at the University of California at
Berkeley and has served as ChiefEconomistof the Federal Communications
Commission (FCC). His research and teaching focus on antitrust and
regulation, with a specialization in telecommunications. In Chapter 4, he
argues that competition policy for 3G wireless should focus on ensuring as
much as possible an efficient industry that benefits consumer welfare. This
competitive policy framework should include a market definition that takes
account of potential substitutes and entrants in the rapidly changing and
uncertain 3G marketplace; careful assessment of available spectrum and
economies of scale to set an appropriate market-structure benchmark against
which to assess competitiveness of the 3G industry; a wary approach to
claims that dynamic innovation requires sacrifice of static competition; and
openness to private standard-setting coalitions coupled with vigilance for,
and rigorous enforcement against, features of such organizations that might
harm competition and accumulate market power. Once the substantive
framework for competition policy in the 3G market is established, Shelanski
notes that assigning competitive oversight to the Justice Department or the
FTC would be appropriateand in keeping with a U.S.trend towards moving
market structureissues in telecommunicationsaway from theFCC and to the
antitrust agencies. On the other hand, it is likely that some aspects of 3G
competitionpolicy would be well governed byasector-specificregulation.
Dr. Robert F. Roche is Vice President for Policy & Research, Cellular
Telecommunications & Internet Association. He has headed CTIA's
Research Department since January 1993, where he is responsible for
directing CTIA's surveys and wireless industry metrics, and providing
research findings and background information about the wireless industry to
the media, industry analysts, representatives of government agencies, and
foreign governments and businesses. In Chapter 5, he tackles the
controversial issue of spectrum. He argues that industry trends justify more
spectrumto meet thedemand and that while the deploymentof digital makes
possible data services, dedicating capacity to data services also reduces the
capacity available for voice users.According to Roche,the wireless industry
has taken to new heights, with the technology growing from earphones to
cellphones to wirelessly-connected PDAs and laptops. More than 203,000
people are directly employed by wireless carriers in the United States, with
over a million related jobs. An estimated two-thirds of American workers
will use wireless devices as part oftheirjobs by 2004, with as many as 137
million wireless data users in North America by 2005. However, argues
Roche, the benefits which wireless will provide to individual users, the
government, and the economy will depend on the resources that wireless
I.introduction 5
carriers have available to them. Without more spectrum,those contributions
will be jeopardized. He advocates that the government is turning what had
been a potential "win-win" into a guaranteed "lose-lose" - consumers'
ability torely on wirelessfor voice ishurt and their ability to use data ishurt.
The industry's solution is derived to provide more spectrum for commercial
mobile radio services.
3. INDUSTRYAND MARKETDEVELOPMENTS
Dan Steinbock is Director of the Centre of International Business
Research (CIBR) at the Helsinki School ofEconomics (HSE).He also serves
as SeniorAdvisorof the Institute for Mobile MarketsResearch (IMMR),and
as an Affiliate Researcher at the Columbia Institute for Tele-Information
(CITI) and has managed CITI's mobile Internet program. In Chapter 6, he
focuses on the globalization of wireless markets, from Marconi to the 4G
era. The globalization of wireless markets, he argues, intensified only with
the 2G era, with rapid growth in regional penetration and the increasing
differentiation of the lead markets. Historically, the wireless industry has
evolved through the interplay of innovation and diffusion, not vis-a-vis
innovation or diffusion alone.What made the early 3G transition so painful,
argues Steinbock, was the concurrent commodification, i.e., market
saturation coupled with increasingly novel and complex technologies. The
transition from voice communications to data communications was
accompanied by a shiftfrom original demand to replacementdemand, which
deflated industryexpectationsand market hype inallcentralTriad regions:
In the wireless business, it is this interplay of technology change and
market evolution that has driven the industry from the early market
creation ofthe pre-cellular era to the regional penetration of the cellular
era. During 2000-2002, the birth pains of the 3G transition were not due
to technology issues alone, or even predominantly.The problems were in
the opposite direction. Over time, the thrust ofchange has shifted from
upstream activities (technology) to downstream activities (markets), as
original demand has been replaced by replacementdemand.
Kathryn Rudie Harrigan is the Henry Kravis Professor of Business
Leadership atColumbiaUniversity inNew York. She teaches "eStrategyand
Internet Firms", as well as other strategy courses. Her research interests
include strategic alliances, internal venturing, industry restructuring, mature
(and declining) businesses, diversification, turnaround strategies,
