Competition for the Mobile Internet PDF
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COMPETITION 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 AH rights reserved. No part ofthis work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording, or otherwise, without written permis sion from the Publisher, with the exception of any material supplied specificaHy for the purpose ofbeing entered and executed on a computer system, for exclusive use by the purchaser ofthe work. Permission for books published in Europe: [email protected] Permissions for books published in the Umted States of America: [email protected] 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,
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