3G MOBILE LICENSING POLICY: FROM GSM TO IMT-2000 A COMPARATIVE ANALYSIS

GSM Case Study

This case has been prepared by Audrey Selian <audrey.selian@itu.int>, ITU. 3G Mobile Licensing Policy: GSM Case Study is part of a series of Telecommunication Case Studies produced under the Ne Initiati!es pro"ram of the #ffice of the Secretary $eneral of the International Telecommunication Union %ITU&. The author ishes to ac'no led"e the !aluable "uidance and direction of Tim (elly and )abio *eite of the ITU in the de!elopment of this study. The +$ case studies pro"ram is mana"ed by *ara Sri!asta!a <lara.sri!asta!a@itu.int> and under the direction of ,en -etra..ini <ben.petra..ini@itu.int>. Country case studies on +$, includin" S eden, /apan, China 0 1on" (on" SA2, Chile, 3ene.uela, and $hana can be found at <http455 .itu.int5+">. The opinions e6pressed in this study are those of the author and do not necessarily reflect the !ie s of the International Telecommunication Union, its membership or the $S7 Association.

GSM Case Study

TABLE OF CONTENTS: 9 Introduction...................................................................................................................................................: 9.9 The $enerations of 7obile Net or's ..................................................................................................; 8 A *oo' ,ac' at $S7....................................................................................................................................< 8.9 $S7 Technolo"y....................................................................................................................................< 8.8 The 1istory of $S7 ............................................................................................................................9= 8.+ The $S7 7ar'et..................................................................................................................................9: 8.> *icensin" $S7.....................................................................................................................................9? + A *oo' Ahead at I7T@8===........................................................................................................................9A +.9 )rom $S7 to I7T@8===......................................................................................................................9A +.8 I7T@8=== Technolo"y..........................................................................................................................8> +.+ The 1istory of I7T@8=== ....................................................................................................................8> +.> *ayin" the $round or' for +$ Success...............................................................................................8; +.: The +$ 7ar'et......................................................................................................................................8? +.; +$ *icensin" -olicies ..........................................................................................................................+9 > Comparin" and Contrastin" the Be!elopment of $S7 and the 2oad to I7T@8=== ...................................+; >.9 *essons from $S7 that Apply to +$....................................................................................................+; >.8 *essons from $S7 that BonCt Apply to +$.........................................................................................>8 >.+ Is +$ UniDueE.......................................................................................................................................>> : Conclusion...................................................................................................................................................>; ; Appendi64....................................................................................................................................................>A

GSM Case Study

TABLES AND FIGURES: Table 9.94 2e"ional Bominance of Current Fireless Technolo"y Standards..................................................? Table 8.84 Timeline of the de!elopment of $S7..........................................................................................99 Table 8.+4 Bi"ital *icense Assi"nment -atterns............................................................................................9A Table +.>4 Comparati!e 3ie on Ser!ices5Applications................................................................................9< Table +.:4 Betailed Comparison of 9st, 8nd, and +rd $eneration Technolo"ies ...........................................8= Table +.;4 Gconomies Fhere 7obile -hones 1a!e #!erta'en )i6ed #nes..................................................8A Table +.?4 Summary )orecast for 7obile Ser!ice in Festern Gurope %to 8==>&...........................................+= Table +.A4 $lobal 7obile Commerce 2e!enues, 8=== @ 8==: %USB millions&..............................................+9 Table >.<4 Gstimated cost of $S7 and U7TS net or's...............................................................................>; Table ;.9=4 Allocation of +$ mobile licences in the Guropean Union...........................................................>A

)i"ure 9.94 The > operational di"ital cellular technolo"ies4 Bec C== %;+? million users&...............................? )i"ure 9.84 Forld $S7 Cellular Subscribers to /une 8==9.............................................................................A )i"ure 8.+4 )orecasted Adoption of $S7 7obile -hones in Festern Gurope and the Forld.......................9; )i"ure 8.>4 Comparison of 8$ 5 8.:$ 5 +$ subscribership in Gurope............................................................9? )i"ure 8.:4 )orecasted Subscribers for $S7, $-2S, U7TS and 1SCSB Systems in Gurope......................9? )i"ure +.;4 A Step@by@Step To ards I7T@8=== %U7TS&.............................................................................8= )i"ure +.?4 )rom $S7 to U7TS4 *i'ely -aths to +$...................................................................................8+ )i"ure +.A4 I7T@8=== Terrestrial 2adio Interfaces........................................................................................8: )i"ure +.<4 3oice Traffic !s. Bata Traffic )orecastin"..................................................................................8? )i"ure +.9=4 )i6ed and 7obile *ines, H,i" -ictureC and HCloser UpC ...........................................................8A )i"ure +.994 Top 7obile Gconomies %8===, millions& ..................................................................................8< )i"ure +.984 Festern Guropean Cellular Users by Technolo"y, 9<<?@8==;..................................................8< )i"ure +.9+4 7obile ,y the Numbers4 -enetration 8=== I 8==: %millions&...................................................+= )i"ure +.9>4 A!era"e Cost of +$ *icense -er -opulation.............................................................................+8 )i"ure >.9:4 Festern Guropean 1andset Shipment 3olumes by Technolo"y................................................+A )i"ure >.9;4 $S7 Timeline @ 9<A8 to -resent...............................................................................................>= )i"ure >.9?4 +$ Timeline4 )rom 9<A< to -resent..........................................................................................>9

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GSM Case Study

Introd !t"on

Tremendous chan"es are ta'in" place in the arena of mobile technolo"ies, and the orld ide push to ard + rd "eneration ser!ices is currently at the forefront of these transformations. 7any Duestions surround the concept of +$ I not only in terms of hat it means and hat ser!ices it ill offer, but also in terms of ho to "et there, hich standard ill be dominant, ho lon" it ill ta'e to deploy, and hether it ill be as lucrati!e as e6pected "i!en the current rush of e6orbitant spectrum fees. This case study is desi"ned to e6amine some of these Duestions about +$ from the analytical perspecti!e of predecessor 8 nd "eneration technolo"ies, and specifically of $S7 in Gurope. The successful de!elopment and deployment of $S7 o!er the past t o decades is most si"nificant, if one is to accept the hypothesis that He6perience countsC in the mobile arena. +rd "eneration mobile technolo"ies must, after all, in some ay be the result of an e!olution from pre@e6istin" 8$ systems, hether this is because they are de!eloped from o!erlays on 8 nd "eneration systems, or because operators deployin" them must le!era"e pre@established 8$ infrastructure or customer bases. The t o are in many ays ine6tricably lin'ed, and therefore e6aminin" one necessarily implies loo'in" at the successes5shortcomin"s of the other. -rior to the mar'et liberali.ation of the 9<<=s, Guropean telecom mar'ets ere firmly controlled by national "o!ernments and their respecti!e -TT monopolists. #!er the past decade, Guropean telecommunications policy has been characteri.ed by principles of mar'et liberali.ation, harmoni.ation of conditions of the re"ulatory frame or', and the promotion of the Guropean telecommunications industry. J$S7 momentumK has been born of this en!ironment, and is by far the bi""est 8$ system, ith pan@Guropean co!era"e and systems also installed in Asia, Australia, North America and more recently in South America. The deployment of $S7 is most aptly characteri.ed by the commitment of t enty@si6 Guropean national phone companies to standardi.e a system, and the or'in" process responsible for this accomplishment has been deemed a "reat success orthy of replication. Gssentially, those countries and firms in!ol!ed reali.ed the ad!anta"es of a cross@border standard and the amount of money and ener"y that can be asted hen competin" for mobile technolo"y H orld dominationC. 9 $enerally spea'in", the story of the establishment of $S7 is of interest to anybody studyin" the "ro th and traLectory of di"ital technolo"y and its commercial applications. After all, as some ha!e ar"ued, the nature of di"ital economies implies that control o!er net or' e!olution translates into control o!er the architecture of the di"ital mar'etplace.K 8 The $S7 case has pro!en that a hold o!er national net or's has "lobal economic ramifications. Amon" the factors that helped to precipitate the creation of $S7, as the reali.ation that locali.ed solutions to the de!elopment of mobile communications ould not be able to "enerate the economies of scale I from the 20B, production as ell as distribution standpoints I necessary to attain !ery si"nificant mar'et penetration. Fith strides in the de!elopment of the realm of 20B came also the reali.ation that only international mar'et penetration "oals could Lustify such e6tensi!e pro"rams of in!estment. *on"@term economic "oals ould be subLu"ated to the constraints of an unstandardi.ed mobile communications sector, unless action could be ta'en to create some sort of consensus. The e6istence of tremendous potential !alue in the net or' itself, follo in" the lo"ic of 7etcalfeCs *a and net or' economies, in addition to the !alue of scale economies in eDuipment mar'ets, ensured that no "o!ernment ould lose out by a"reein" to merely multilateral solutions hen more idely cooperati!e institutional options ere possible. After all, $S7 as a net or' standard I not merely a product standard I and this had considerable si"nificance in terms of the potential benefits to be deri!ed from associated net or' e6ternalities. Bisharmony and the licensin" of competin" operators actually helped to ma'e $S7 a si"nificant success in Gurope4 Duality of ser!ice prior to $S7 as lo , and handsets ere e6pensi!e. Than's to a series of rather fortuitous mar'et occurrences as ell as to the efforts of $ermany, the necessary impetus as pro!ided to "et $S7 off the "round. Guropean mar'ets happened to open up to competition ri"ht around the time that the $S7 standard as de!eloped, resultin" in a massi!e sur"e in demand for cellular phones. It is important to note that success came about in t o parts4 the initial interstate bar"ain, and the ensuin" collaborati!e implementation once a"reement as reached. The purpose of this paper is to e6amine the maLor factors surroundin" and contributin" to the creation %and success& of GuropeCs 8 nd
9 8

Andersson, Christoffer. J$-2S and +$ Fireless ApplicationsK. Filey Computer -ublishin", Ne Mor', 8==9, pp. 9>@9:. )rom a presentation "i!en by )rancois ,ar called JThe Bi"ital Gconomy in Comparati!e -erspecti!eK, 7ay 8?, 9<<< in Fashin"ton B.C. 2eferenced by ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 12th International Conference of Europeanists, Chica"o, Illinois. 7arch += I April 9, 8===, p.9.

GSM Case Study

"eneration H$S7C cellular system, and compare and contrast it to 'ey e!ents and recent de!elopments in + rd "eneration HI7T@8===C systems.+ The obLecti!e is to ascertain hether lessons from the de!elopment of one system can be applied to the other, and hat implications 8$ has for the deployment and assessment of +$ technolo"ies.

1#1

T$% G%n%r&t"on' o( Mo)"*% N%t+or,'

The idea of cell@based mobile radio systems appeared at ,ell *aboratories in the United States in the early 9<?=s. 1o e!er, mobile cellular systems ere not introduced for commercial use until a decade later. Burin" the early 9<A=Cs, analo" cellular telephone systems e6perienced !ery rapid "ro th in Gurope, particularly in Scandina!ia and the United (in"dom. Today, cellular systems still represent one of the fastest "ro in" telecommunications systems. Burin" de!elopment, numerous problems arose as each country de!eloped its o n system, producin" eDuipment limited to operate only ithin the boundaries of respecti!e countries, thus limitin" the mar'ets in hich ser!ices could be sold. )irst@"eneration cellular net or's, the primary focus of the communications industry in the early 9<A=Cs, ere characteri.ed by a fe compatible systems that ere desi"ned to pro!ide purely local cellular solutions. It became increasin"ly apparent that there ould be an escalatin" demand for a technolo"y that could facilitate fle6ible and reliable mobile communications. ,y the early 9<<=Cs, the lac' of capacity of these e6istin" net or's emer"ed as a core challen"e to 'eepin" up ith mar'et demand. The first mobile ireless phones utili.ed analo" transmission technolo"ies, the dominant analo" standard bein" 'no n as JA7-SK, %Ad!anced 7obile -hone System&. Analo" standards operated on bands of spectrum ith a lo er freDuency and "reater a!elen"th than subseDuent standards, pro!idin" a si"nificant si"nal ran"e per cell alon" ith a hi"h propensity for interference.> Nonetheless, it is orth notin" the continuin" persistence of analo" %A7-S& technolo"ies in North America and *atin America throu"h the 9<<=Cs. Initial deployments of second@"eneration ireless net or's occurred in Gurope in the 9<A=Cs. These net or's ere based on di"ital, rather than analo" technolo"ies, and ere circuit@s itched. Circuit@s itched cellular data is still the most idely used mobile ireless data ser!ice. Bi"ital technolo"y offered an appealin" combination of performance and spectral efficiency %in terms of mana"ement of scarce freDuency bands&, as ell as the de!elopment of features li'e speech security and data communications o!er hi"h Duality transmissions. It is also compatible ith Inte"rated Ser!ices Bi"ital Net or' %ISBN& technolo"y, hich as bein" de!eloped for land@based telecommunication systems throu"hout the orld, and hich ould be necessary for $S7 to be successful. 7oreo!er in the di"ital orld, it ould be possible to employ !ery lar"e@scale inte"rated silicon technolo"y to ma'e handsets more affordable. To a certain e6tent, the late 9<A=Cs and early 9<<=Cs ere characteri.ed by the perception that a complete mi"ration to di"ital cellular ould ta'e many years, and that di"ital systems ould suffer from a number of technical difficulties %i.e., handset technolo"y&. 1o e!er, second@"eneration eDuipment has since pro!en to offer many ad!anta"es o!er analo" systems, includin" efficient use of radio@ma"netic spectrum, enhanced security, e6tended battery life, and data transmission capabilities. There are four main standards for 8$ net or's4 Time Bi!ision 7ultiple Access %TB7A&, $lobal System for 7obile Communications %$S7& and Code Bi!ision 7ultiple Access %CB7A&N there is also -ersonal Bi"ital Cellular %-BC&, hich is used e6clusi!ely in /apan.: %See )i"ure 9.9& In the meantime, a !ariety of 8.:$ standards %to be discussed in Section 8.?& ha!e been de!eloped. H$oin" di"italC has led to the emer"ence of se!eral maLor 8$ mobile ireless systems.

>

)or the purposes of this paper, HI7T@8===C is often considered in its Guropean conte6t, hence its interchan"eability ith the acronym HU7TSC %Uni!ersal 7obile Telecommunications System&. $uyton, /ames. JFireless Net or's in Gurope4 A Three@Step G!olutionK. The )letcher School of *a 0 Biplomacy, April 8===, p. A. This system has put /apan in an a ' ard situation ith an old system that as incompatible ith all of the othersN it has helped to Lumpstart /apanese operatorsC a""ressi!e pursuit of ne technolo"y and standards. In the late 9<<=Cs, cdma#ne be"an "ainin" "round in the /apanese mar'et, increasin" the pressure e!en more on the e6istin" -BC operators. Andersson, Christoffer. J$-2S and +$ Fireless ApplicationsK. Filey Computer -ublishin", Ne Mor'. 8==9., p. 9:.

GSM Case Study

F"- r% 1#1: T$% . o/%r&t"on&* d"-"t&* !%** *&r t%!$no*o-"%': D%! 000 1233 4"**"on '%r'5
$S7 >>=m TB7A5 IS@9+; ;>m -BC :9m CB7A A8m

Source: International eleco!!unication "nion

TB7A % hich as pre!iously referred to as A7-S&, as "i!en an Hadd@onC to create HBi"ital A7-S %B@ A7-S&C, hich facilitated the ability of handsets to s itch bet een analo" and di"ital operation. TB7A is the most idely used 8$ technolo"y in the estern hemisphere %See Table 9.9& and is the base for $S7 and -BC systems. ,its of !oice are di"itised and transmitted throu"h an indi!idual data channel, and then reconstructed at the other end of the channel to be con!erted bac' to !oice. ; CB7Aone %also referred to as IS@<:&, a solution that Oualcomm introduced in the mid 9<<=s, pic'ed up to ard the end of the decade. CB7A in "eneral uses di"ital encodin" and spread@spectrum techniDues to let multiple users share the same channelN it differentiates usersC si"nals by encodin" them uniDuely, transmittin" throu"h the freDuency spectrum, and detectin" and e6tractin" the usersC information at the recei!in" end. CB7A is noted to increase system capacity by about ten to fifteen times compared ith A7-S, and by more than three times compared ith TB7A. The industry reco"ni.es CB7A as a superior air interface technolo"y compared ith that used in $S75TB7A. 1o e!er, hat ma'es $S7 popular is its international roamin" feature. ? Asia boasts a ide deployment of CB7A systems, than's lar"ely to (oreaCs in!estments in the technolo"yN these systems, of course, represent the most ad!anced of second@ "eneration technolo"ies, pro!idin" much more reliable error reco!ery than TB7A counterpart alternati!es. $S7 is a typical 8$ system in that it handles !oice efficiently, but pro!ides limited support for data and Internet applications. #perators freDuently point to $S7 penetration le!els of more than :=P in order to Lustify reDuired in!estments in +$ licenses, net or' construction, and ser!ices de!elopment. A That the e6tent of the costs of deployment for +$ has rendered it a Hcostly businessC is a tremendous understatement. Fhat sort of li"ht could the $S7 e6perience shed on the potential for acceptable 2#I %returns on in!estment& for operators amidst this e!olutionE Fhat 'ey lessons ha!e e learnt from $S7Cs time frame of deployment as ell as its maLor dri!ers of successE T&)*% 1#1: R%-"on&* Do4"n&n!% o( C rr%nt 6"r%*%'' T%!$no*o-7 St&nd&rd' 9 % of Total Subscribers 1999 E ro/% $S74 A<P #ther4 99P Nort$ A4%r"!& A7-S, other4 ;=P TB7A4 8?P CB7A4 <P $S74 >P
Source: ITU Forld Telecommunications 2eport 9<<<

L&t"n A4%r"!&n A7-S, other4 ::P TB7A4 +<P CB7A4 :P $S74 9P

A'"& P&!"("! $S74 +:P CB7A4 9>P TB7A4 +P #ther4 >AP

A(r"!& $S74 AAP #ther4 98P

? A <

TB7A is a di"ital air interface that di!ides a sin"le radio freDuency channel into ; uniDue time slots, allo in" a number of users to access a sin"le channel at one time ithout interference. ,y di!idin" the channel into slots, three si"nals %t o time slots for each si"nal& can be transmitted o!er a sin"le channel. In this ay, TB7A technolo"y %also referred to as ANSI@9+;&, pro!ides a + to 9 "ain in capacity o!er analo" technolo"y. There are 99: million proLected orld ide TB7A subscriber for 8==9. )or more information, see the Uni!ersal Fireless Communications Consortium ebsite. *in'4 http455 .u cc.or"5ed"e5tdmaQfaD.html. J$eneration FirelessK, #et$or% Co!puting, 3olume 98, Issue 98, /une 99, 8==9, p. 99A. JFireless4 2idin" its luc' into +$K. Mobile Matters, )ebruary 8==9, p.:+. ITU Forld Telecommunications Be!elopment 2eport 9<<<.

GSM Case Study

The $S7 standard clearly dominated the Guropean mar'et in 9<<<, ith an A<P share. 9= %See Table 9.9& Today, $ermany, the United (in"dom, Italy and )rance represent si"nificant portions of subscribers relati!e to total Guropean subscribers. %See )i"ure 9.8& $S7 systems are based on technolo"ies similar to TB7A, e6cept for the fact that they operate at hi"her freDuencies. 2e"ion by re"ion, Gurope, Asia -acific and North America are e6periencin" a dramatic pace of e6pansion herein $S7 has become a dominant standard, ith a hi"h de"ree of e6tra ser!ices and ensuin" popularity. 1o e!er, ith around +: million customers already in 8===, China retains its position as the lar"est sin"le $S7 mar'et in the orld. 7ar'et penetration is reachin" ?=P in many de!eloped $S7 mar'ets, ith )inland and Italy e6pectin" to be the first countries to reach 9==P. In se!eral Asia -acific mar'ets, the penetration of mobile ireless phones is o!erta'in" that of fi6ed line phones.99

F"- r% 1#2: 6or*d GSM C%** *&r S )'!r")%r' to 8 n% 200112

A4%r"!&' E ro/% - Non EU USA;C&n&d& Ir%*&nd Gr%%!% G%r4&n7 EU A'"& P&!"("! Fr&n!% F"n*&nd D%n4&r, M"dd*% E&'t A(r"!& U: It&*7 L 9%4)o rN%t$%r*&nd' Port -&* S/&"n S+%d%n A 'tr"& B%*-" 4

J$S7 is no in more countries than 7cBonalds.K9+ @7i'e Short, Chairman of $S7 7oU Association
Source: http:&&$$$'gs!$orld'co!

Carriers around Gurope and Asia ha!e "ained a t o@year lead in deployin" +$ ser!icesN /apan is e6pected to see +$ some time in 8==9, hile Guropean deployment is anticipated sometime in 8==8. Accordin" to the Strate"is $roup, +$ ill not roll out in the United States until 8==>.K 9> Gurope is e6pected to be"in offerin" +$ products in 8==8, follo ed by the U.S., hich, RoptimisticS analysts predict, ill li'ely launch +$ ser!ice bet een 8==+ and 8==:.9: The third "eneration of mobile communications, as distinct from its predecessors, is li'ely to chan"e many areas of social and economic acti!ity, and is e6pected to unleash a a!e of in!estment in the creation of ne data@intensi!e ser!ices I the li'es of hich e can not yet aptly en!isa"e in detail. It is not an e6a""eration to e6pect many of these chan"es to be re!olutionary, in a ay that ill li'ely be difficult, e6pensi!e and destructi!e, fundamentally affectin" e6istin" trends in the de!elopment of current technolo"ies and the companies that support them %see *.7c(ni"ht and -.3aalerCs notion of JCreati!e BestructionK&9;. ,ut they ill also li'ely be liberatin", re ardin" and creati!e.

9=

99

98 9+

9>

9:

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$uyton, /ames. JFireless Net or's in Gurope4 A Three@Step G!olutionK. The )letcher School of *a 0 Biplomacy, April 8===, p. <. J$S7 Approaches half a billion customersK, $S7 Forld -ress 2elease, April 8===, p.9. *in'4 http455 ."sm orld.com5ne s5pressQreleasesQ:>.html. *in'4 http455 ."sm orld.com5membership5"raph>.html. Ouote from 7r. 7i'e Short of The $S7 7oU Association 9<<:@;. JA $a.e into the )utureK See *in'4 http455 ."sm orld.com 5about5historyQpa"e9?.html. $oodman, -eter S. JA -ush for 7ore )reDuencies4 Fireless )irms Say They CanCt Ad!ance Until $o!ernment #pens Up the Air a!esK. (ashington Post, )ebruary 8A, 8==9. -. $98. 1amblen, 7ar'. +$ Fireless, )eb. 89, 8=== %estimatin" that /apan ill be the first to launch an ad!anced +$ system early in 8==9, follo ed by Gurope in 8==8 and the U.S. bet een 8==> and 8==:&N see also JImplementation of Section ;==8%b& of the #mnibus ,ud"et 2econciliation Act of 9<<+K, Annual 2eport and Analysis of Competiti!e 7ar'et Conditions Fith 2espect to Commercial 7obile Ser!ices, )CC ==@8A<, at +A %rel. Au". 9A, 8===&. Fhile the Internet economy has stron" implications for business strate"y, traditional economic dynamics still apply to firms doin" business in the Internet %and, by e6tension, ar"uably in the ireless& en!ironment. Contrary to the predictions of ne @economy optimists, the Internet industry has not brou"ht an end to the business cycle or created boundless opportunity for an unlimited number of ne entrants. Companies ill still ha!e to compete, and those that emer"e as successful must constantly respond to the chan"in" conditions of their business en!ironment. %continuedT&

GSM Case Study

2 2#1

A Loo, B&!, &t GSM GSM T%!$no*o-7

#ne of the most important conclusions from the early tests of the ne $S7 technolo"y as that the ne standard should employ Time Bi!ision 7ultiple Access %TB7A& technolo"y. This ensured the support of maLor corporate players li'e No'ia, Gricsson and Siemens, and the fle6ibility of ha!in" access to a broad ran"e of suppliers and the potential to "et product faster into the mar'etplace. After a series of tests, the $S7 di"ital standard as pro!en to or' in 9<AA. Fith "lobal co!era"e "oals in mind, bein" compatible ith $S7 from day one is a prereDuisite for any ne system that ould add functionality to $S7. As ith other 8$ systems, $S7 handles !oice efficiently, but the support for data and Internet applications is limited. A data connection is established in Lust the same ay as for a re"ular !oice callN the user dials in and a circuit@s itched connection continues durin" the entire session. If the user disconnects and ants to re@connect, the dial@in seDuence has to be repeated. This issue, coupled ith the limitation that users are billed for the time that they are connected, creates a need for pac'et data for $S7. The di"ital nature of $S7 allo s the transmission of data %both synchronous and asynchronous& to or from ISBN terminals, althou"h the most basic ser!ice support by $S7 is telephony. 9? Speech, hich is inherently analo", has to be di"iti.ed. The method employed by ISBN, and by current telephone systems for multiple6in" !oice lines o!er hi"h@speed trun's and optical fiber lines, is -ulse Coded 7odulation %-C7&. )rom the start, planners of $S7 anted to ensure ISBN compatibility in ser!ices offered, althou"h the attainment of the standard ISBN bit rate of ;> (bit5s as difficult to achie!e, thereby belyin" some of the limitations of a radio lin'. The ;> (bit5s si"nal, althou"h simple to implement, contains si"nificant redundancy. Since its inception, $S7 as destined to employ di"ital rather than analo" technolo"y and operate in the <== 71. freDuency band. 7ost $S7 systems operate in the <== 71. and 9.A $1. freDuency bands, e6cept in North America here they operate in the 9.< $1. band. $S7 di!ides up the radio spectrum band idth by usin" a combination of Time@ and )reDuency Bi!ision 7ultiple Access %TB7A5)B7A& schemes on its 8: 71. ide freDuency spectrum, di!idin" it into 98> carrier freDuencies %spaced 8== (h. apart&. Gach freDuency is then di!ided into ei"ht time slots usin" TB7A, and one or more carrier freDuencies are assi"ned to each base station. The fundamental unit of time in this TB7A scheme is called a Hburst periodC and it lasts 9:58; ms %or appro6. =.:?? ms&. Therefore the ei"ht Htime slotsC are actually Hburst periodsC, hich are "rouped into a TB7A frame, hich subseDuently form the basic unit for the definition of lo"ical channels. #ne physical channel is one burst period per TB7A frame. 9A The de!elopment of standards and systems spans ell beyond the technical realm and often into the politicalN this is best e6emplified by hat happened ith $S7. Shortly after the suitability of TB7A for $S7 as determined, a political battle erupted o!er the Duestion of hether to adopt a ide@band or narro @band TB7A solution. Fhereas )rance and $ermany supported a ide@band solution, the Scandina!ian countries fa!ored a narro @band alternati!e. These "o!ernmental preferences ere clearly a reflection of the respecti!e countriesC domestic eDuipment manufacturers as $erman and )rench manufacturers SG* and Alcatel had in!ested substantially into ide@band technolo"y, hereas their Scandina!ian counterparts Gricsson and No'ia poured resources into the narro @band alternati!e. Italy and the U(, in turn, ere the

9?

9A

%Continued from p.<& This is here /oseph SchumpeterCs theory of creati!e destruction meets the HInternet economyC. In the Internet orld, old businesses and industries ill be destroyed e!en more rapidly, and firms must learn to identify, cope ith, encoura"e, and e6ploit this dynamic. )rom a summary of JCreati!e Bestruction4 ,usiness Sur!i!al Strate"ies in the $lobal Internet GconomyK %7arch 8==9& published by *. 7c(ni"ht and -. 3aaler of the )letcher School of *a and Biplomacy. See *in'4 http455 .ceip.or"5files5e!ents5mc'ni"ht.aspEprU90G!entIBU+8=. JThe $S7 "roup studied se!eral speech codin" al"orithms on the basis of subLecti!e speech Duality and comple6ity % hich is related to cost, processin" delay, and po er consumption once implemented& before arri!in" at the choice of a 2e"ular -ulse G6cited @@ *inear -redicti!e Coder %2-G@@*-C& ith a *on" Term -redictor loop. ,asically, this is a method hereby information from pre!ious samples, hich tends not to chan"e Duic'ly, is applied to predict the current sample. Bata can use either the transparent ser!ice, hich has a fi6ed delay but no "uarantee of data inte"rity, or a non transparent ser!ice, hich "uarantees data inte"rity throu"h an Automatic 2epeat 2eDuest %A2O& mechanism, but ith a !ariable delay. The data rates supported by $S7 are +== bit5s, ;== bit5s, 98== bit5s, 8>== bit5s, and <;== bit5s.K Link: http://kbs.cs.tu-berlin.de/~jutta/gsm/js-intro.html. Scourias, /ohn. J#!er!ie of the $lobal System for 7obile CommunicationsK. 9<<?, *in'4 http455 .shoshin.u aterloo.ca5 VLscouria 5$S75"smreport.html.

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GSM Case Study

subLects of intense lobbyin" on behalf of the t o camps ith the result of freDuently chan"in" coalitions. 9< The culmination of this contro!ersy bet een the t o camps as a CG-T %Conference des Administrations Guropeans des -osts et Telecommunications& 7eetin" in 7adeira in )ebruary 9<A?. The Scandina!ian countries finally con!inced Italy, the U( and a fe smaller states of the technical superiority of narro @band technolo"y and left $ermany and )rance as the only proponents of the ide@band alternati!e. Since CG-T follo ed purely inter"o!ernmental procedures, ho e!er, decisions had to be ta'en unanimously, and $ermany and )rance ere able to !eto a decision that ould ha!e led to the adoption of narro @band TB7A as the technolo"y underlyin" the $S7 proLect. A uniDue feature of $S7 is the Short 7essa"e Ser!ice %S7S&, hich has achie!ed ide popularity as hat some ha!e called the une6pected H'iller applicationC of $S7. S7S is a bi@directional ser!ice for sendin" short alphanumeric messa"e in a store@and@for ard process. S7S can be used both Hpoint@to@pointC as ell as in cell@broadcast mode. %)urther information in Section +.:& Supplementary ser!ices are pro!ided on top of teleser!ices or bearer ser!ices, and include features such as, inter alia, call for ardin", call aitin", caller identification, three@ ay con!ersations, and call@barrin". The most no!el and far@reachin" feature of $S7 is that it pro!ides most of GuropeCs cellular phone users ith a choice I choice of net or' and choice of operator. Also, international roamin" as and continues to be the cornerstone of $S7. )or this to be possible, all net or's and handsets ha!e to be identical. Fith many manufacturers creatin" many different products in many different countries, each type of terminal has been put throu"h a ri"orous appro!al re"ime. 1o e!er, at the time, no appro!al process as a!ailable, and it too' nearly a year before the handheld terminals ere tested and fit for mar'et entry. Another of $S7Cs most attracti!e features is the e6tent to hich its net or' is considered to be secure. All communications, both speech and data, are encrypted to pre!ent ea!esdroppin", and $S7 subscribers are identified by their Subscriber Identity 7odule %SI7& card % hich holds their identity number and authentication 'ey and al"orithm&. Fhile the choice of al"orithm is the responsibility of indi!idual $S7 operators, they all or' closely to"ether throu"h the 7emorandum of Understandin" %7oU& %to be described in "reater detail in section 8.8.8& to ensure security of authentication. This smartcard technolo"y minimi.es the necessity for o nin" terminals @ as tra!ellers can simply rent $S7 phones at the airport and insert their SI7 card. Since itCs the card rather than the terminal that enables net or' access, feature access and billin", the user is immediately on@line.

2#2

T$% <"'tor7 o( GSM

The Festern Guropean mobile ireless mar'et has not been for"ed by mar'et forces alone. Indeed as mentioned pre!iously, the harmoni.ation of standards and interoperability ere due in lar"e part to "o!ernmental efforts. These public sector influences carry o!er to the ne6t "eneration of mobile cellular net or's, as ell as throu"h the ITUCs I7T@8=== initiati!e I hich is embodied in U7TS mo!ement in Gurope.8= The $S7 story be"an in the early 9<A=Cs, hen Guropean countries stru""led ith no fe er than nine competin" analo" standards, includin" Nordic 7obile Telephony %N7T&, Total Access Communications Systems %TACS&, and so on. In order to put the rise of $S7 in conte6t, it is important to note that the climate of economic liberali.ation and openin" up of ne mar'ets in Asia, *atin American and Gastern Gurope helped boost analo" system subscriber numbers throu"hout the 9<<=Cs. The roll@out of a multi@ national "lobal communications standard faced se!eral formidable barriers. #perators ere concentratin" on ne methods for e6pandin" old analo" net or's, usin" methods li'e NA7-S %Narro band Ad!anced 7obile -hone Ser!ice& by 7otorolaN unsurprisin"ly, there as resistance to the prospects of a di"ital launch. -an@Guropean roamin" as nothin" more than a distant dream at that point, and capacity as a particularly difficult issue. Guropeans reco"ni.ed the need for a completely ne system I a system that could accommodate an e!er@increasin" subscriber base, ad!anced features and standardi.ed solutions across the continent. ,ecause of the shortcomin"s and incompatibility issues associated ith analo" systems, a completely ne di"ital solution as instituted. The ne standard, $roupe SpWciale 7obile %$S7&, as built
9<

8=

,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.:. $uyton, /ames. JFireless Net or's in Gurope4 A Three@Step G!olutionK. The )letcher School of *a 0 Biplomacy, April 8===, p. ??.

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GSM Case Study

as a ireless counterpart of the land@line Inte"rated Ser!ices Bi"ital Net or' %ISBN& system. Althou"h $S7 initially stood for H$roupe SpWciale 7obileC, named after the study "roup that created it, the acronym as later chan"ed to refer to H$lobal System for 7obile communicationsC. This transition as ell as other 'ey aspects of $S7 history are elaborated upon in subseDuent sections. T&)*% 2#2: T"4%*"n% o( t$% d%=%*o/4%nt o( GSM21

Year
1)*2 1)*+ 1)*, 1)*1)** 1)*) 1)). 1))1 1))2 1))3 1))+

Events
CG-T establishes a $S7 "roup in order to de!elop the standards for a pan@Guropean cellular mobile system Adoption of a list of recommendations to be "enerated by the "roup )ield tests interface ere performed in order to test the different radio techniDues proposed for the air

TB7A is chosen as access method %in fact, it ill be used ith )B7A& Initial 7emorandum of Understandin" si"ned by the telecommunication operators %representin" 98 countries& 3alidation of the $S7 system The responsibility of the $S7 specifications is passed to the GTSI Appearance of the phase I of the $S7 specifications Set date for the HofficialC commercial launch of the $S7 ser!ice in Gurope Actual launch of commercial ser!ice, and enlar"ement of the countries that si"ned the $S7 I 7oU > Co!era"e of *ar"er cities 5 airports Co!era"e of main roads $S7 ser!ices start outside Gurope -hase II of the $S7 specifications Co!era"e of rural areas

Source4 The ITU and JAn #!er!ie of the $S7 SystemK. %See )ootnote 9A&

2#2#1 Con(%r%n!% D%' Ad4"n"'tr&t"on' E ro/%&n' d%' Po't' %t T%*%!o44 n"!&t"on' 1CEPT5 As soon as it became apparent that lon"@term economic "oals in Gurope had to be addressed, the CG-T as formed in 9<A8 by the JConference Bes Administrations Guropeans Bes -osts et TelecommunicationsK to address sector needs. The maLority of CG-TCs membership as comprised of state monopolies, that ere accustomed to considerin" their o n national interests as primary obLecti!e. Nonetheless, at that time, a areness of the fact that the ne industryCs economic future relied on hi"h le!els of pan@Guropean co@ operation as tremendously important. ,efore CG-T formally launched the $S7 proLect in 9<A8, cooperation on analo" standards for mobile communications in Gurope had been attempted bet een )rance and the U(, and )rance and $ermany respecti!ely. 1o e!er, simultaneous efforts by national "o!ernments to protect their o n industries freDuently interfered ith the reali.ation of "ains from cooperation. In the end, neither of the t o proLects as successful, and unilateral solutions in each of the lar"er Guropean states left the Guropean mar'et fra"mented, and net or's incompatible ith one another. Guropean -TT representati!es ere put in a position herein e6ploration of the feasibility of multilateral cooperation as una!oidable. As it as, the e6istin" analo" mobile systems in place ere totally incompatible ith one another and limited to the e6tent of the respecti!e national Lurisdictions. The CG-T subseDuently established the H$roupe SpWciale 7obileC %$S7&, to de!elop the specification for a pan@ Guropean mobile communications net or' capable of supportin" the scores of subscribers ho ere proLected to be li'ely customers of mobile communications ser!ices in the future. The standardi.ed system as to meet a fe criteria4 spectrum efficiency, international roamin", lo mobile and base stations costs, "ood subLecti!e !oice Duality, compatibility ith other systems such as ISBN, and the ability to support ne ser!ices.88
89

$o.al!e. Sempere, /a!ier. JAn #!er!ie of the $S7 SystemK. Communications Bi!ision, Bepartment of Glectronic and Glectrical Gn"ineerin", Uni!ersity of Strathclyde, $las"o , Scotland. *in'4 1ttp4 http455 .comms.eee.strath.ac.u'5 V"o.al!e.5"sm5"sm. html& 7ay 88, 8==9, p. +.

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GSM Case Study

2#2#2 T$% E ro/%&n Co44"''"on &nd t$% M%4or&nd 4 o( Und%r't&nd"nJT the political process that enabled $S7 featured pi!otal supranational leadership in the form of Guropean Commission initiati!es in a domain that has traditionally been dominated by national players.K 8+ A close e6amination of the emer"ence of $S7 and its characteristics re!eals that the critical 9=@9: year period durin" hich it emer"ed as characteri.ed by a systematic process of thou"ht leadership that ser!ed to challen"e hat ould other ise ha!e been a ell@en"rained Hstatus DuoC in the telecommunications sector. Certainly, the importance of the political undercurrents surroundin" these e!ents cannot be o!erstatedN the implications of the 9<A> endorsement by the Guropean Commission %GC& of the $S7 proLect are still in e!idence today. In 9<A:, a small "roup of countries includin" )rance, Fest $ermany, and Italy, to"ether determined in an a"reement for the de!elopment of $S7, that di"ital technolo"y ould become the future of "lobal mobile ireless communicationN the United (in"dom Loined in the follo in" year. ,y the mid@9<A=Cs, pressure from countries li'e )rance and Fest $ermany encoura"ed the Commission of the Guropean Communities to outline the situation to the 1eads of 7ember States at a meetin" in Becember 9<A;. The $S7 -ermanent Nucleus %headDuartered in -aris& as thereby formed to assume o!erall responsibility for coordinatin" the de!elopment of $S7, and Stephen Temple of the U(Cs Bepartment of Trade and Industry as char"ed ith the tas' of draftin" the first 7emorandum of Understandin" %7oU&. #n September ?, 9<A?, net or' operators from thirteen countries si"ned an 7oU in Copenha"en. There ere 9: si"natories in total4 )rance, $ermany, Italy, S eden, Nor ay, Benmar', )inland, Spain, the Netherlands, ,el"ium, -ortu"al, Ireland, the BTI and t o independent operators %Cellnet and 2acal@ 3odafone& from the U(.8> It as desi"ned to for"e the commercial a"reement necessary bet een potential operators, so that commitments could officially made to implement the standard by a particular date. Fithout it, no net or' ould ha!e been established, no terminals ould ha!e been de!eloped, and no ser!ice could ha!e come into e6istence. The J7oUK has come to represent $S7Xs main "o!ernin" body and currently consists of 89= contributin" members from 9=: countries. The 7oUCs basic tas' is to establish internationally@compatible $S7 net or's in member countries, and to pro!ide a mechanism to allo for cooperation bet een operators ith respect to commercial, operational and technical issues. $enerally, the $S7 Y7oU -lenaryY meets e!ery four months, and allo s member or"anisations to discuss the direction in hich $S7 should de!elop, and to e6amine re!isions and impro!ements to standard $S7 7oU documents. The 7oU includes members that operate $S7 net or's at <== 71. %$S7 <==&, and also at the hi"her 9,A== 71. freDuency %BCS 9A==& and no 9,<== 71. %-CS&. There are also a number of special interest "roups representin" operators "roups by "eo"raphical location or technolo"y. At each -lenary session, the chairpersons of !arious or'in" "roups brin" members up to date ith latest de!elopments. These or'in" "roups e6amine issues such as international roamin", harmoni.ation of tariff principles, "lobal mar'etin", accountin" and billin" procedures, le"al and re"ulatory matters, time scales for the procurements and deployment of systems, etc. -roposals are !oted upon, ith the number of !otes allocated to a member dependent on factors li'e Hnumber of subscribersC or H$B-C.8: In 9<A?, the Commission issued a J$reen -aperK on the de!elopment of the common mar'et for telecommunications ser!ices and eDuipment, emphasi.in" the crucial importance of a Htechnically ad!anced, Gurope@ ide, lo @cost telecommunications net or'C for the competiti!eness of the Guropean economy. The $reen -aper outlined the CommissionCs challen"e to -TT dominance of Guropean telecom mar'ets by su""estin" HCommunity@ ideC competition in the areas of net or' eDuipment, terminals, and communication ser!ices.8; The result as a recommendation and a Birecti!e, hich bet een them laid and reinforced the political foundations for the de!elopment of $S7, and hich called for a launch of a limited set of ser!ices by 9<<9. The Birecti!e ensured that e!ery 7ember State ould reser!e the <== 71. freDuency bloc's
88

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8> 8: 8;

$o.al!e. Sempere, /a!ier. JAn #!er!ie of the $S7 SystemK. Communications Bi!ision, Bepartment of Glectronic and Glectrical Gn"ineerin", Uni!ersity of Strathclyde, $las"o , Scotland. *in'4 http4 .comms.eee.strath.ac.u'5V"o.al!e. 5"sm5"sm.html. 7ay, 88, 8==9, p. +. ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.9. JThe X7emorandum of Understandin"K. *in'4 http455 ."sm orld.com5about5historyQpa"e?.html. JThe $S7 7oU4 1o It For'sK. *in'4 http455 .cellular.co..a5"sm@mou.htm. ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.;.

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GSM Case Study

reDuired for the rollout pro"ram. Althou"h these ere some hat smaller than the amount ad!ocated by the CG-T, the industry had finally achie!ed the political support it needed to ad!ance its obLecti!es. ,y 9<A? the critical J$S7 Birecti!eK8? as created, the purpose of hich as to ensure the "oal of freDuency harmoni.ation across GuropeCs member states such that the "oal of pan@Guropean roamin" could be achie!ed. In sum, GuropeCs success mainly reflects a decision made a decade a"o to bac' the pan@Guropean $S7 as the di"ital standard for mobile telephonyN the Guropean Commission as successfully able to le!era"e its institutional authority by stressin" the lin' bet een the creation of a pan@Guropean di"ital standard to issues of lar"e Guropean mar'et inte"ration. 8A This, coupled ith GU@bac'ed re"ulatory chan"es that mandated the licensin" of competin" $S7 net or's in all GU member states, led to the di"ital mobile telephony boom in Gurope. 2#2#3 E ro/%&n T%*%!o44 n"!&t"on' St&nd&rd' In't"t t% 1ETSI5 In 9<A<, the Guropean Telecommunications Standards Institute %GTSI& as created in order to ta'e responsibility for specification de!elopment from the $S7 -ermanent Nucleus. GTSI had a uniDue or"ani.ational structure that accorded eDual status to administrators, operators and manufacturersN this eDuilibrated terrain had a considerable impact on the speed of de!elopment. Fhereas CG-T as primarily a bro'era"e table for national "o!ernments and their -TT representati!es, GTSI as an institutional actor in its o n ri"ht, capable of concentratin" the support of all rele!ant parties behind a proLect li'e $S7. It as this combination of a co@operati!e en!ironment and impro!ed resources that enabled the maLority of -hase I of the $S7 <== specifications to be published in 9<<=. This said, ho e!er, it as also important to note the considerable influence of GU institutions on GTSICs operations as ell as on the implementation of standards, e!en thou"h GTSI itself %li'e the CG-T& is formally a body independent of the Guropean Union. The institutional arran"ement "i!es GU institutions three ays of affectin" GTSICs standardi.ation efforts as ell as standards implementation. The Guropean Commission can pro!ide GTSI ith !oluntary contributions to support the de!elopment of particular standards that it deems necessary for mar'et competiti!eness, and can also pre!ent the adoption of standards that may be desired by some members if it belie!es that those standards mi"ht inhibit the flo of trade. 7ost importantly, a Council of Becisions of Becember 88, 9<A; Jon standardi.ation in the field of information and telecommunications, reDuires GU members and their telecommunications administrations to use official Guropean standards in public procurements.K8< 2#2#. T$% >Fr%? %n!7 B&nd@ O)'t&!*% Co r'% A series of de!elopments re"ardin" the freDuency bands upon hich such technolo"y could or' created an interestin" Hobstacle courseC throu"h hich $S7 as to de!elop. In 9<A<, the U( Bepartment of Trade and Industry published a discussion document called Y Phones on the Mo/eY, hich ad!ocated the introduction of mass@mar'et mobile communications usin" ne technolo"y and operatin" in the 9A== 71.@freDuency band. The U( "o!ernment licensed t o operators to run hat became 'no n as -ersonal Communications Net or's %-CN&, hich operated at the hi"her freDuency, "i!in" -CN operators !irtually unlimited capacity. -re!iously desi"nated bands at <== 71. ere far more limited, and the $S7 community be"an to feel some hat under threat. Ironically enou"h, the U(Cs -CN turned out to be more of an opportunity than a threat in the end. The ne operators decided to utili.e the $S7 specification @ sli"htly modified because of the hi"her freDuency @ and the de!elopment of hat became 'no n as HBCS 9A==C as carried out by the GTSI in parallel ith $S7 standardi.ation. In fact, in 9<<? HBCS 9A==C as renamed H$S7 9A==C to reflect the affinity bet een the t o technolo"ies.

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8<

JCouncil Birecti!e of /une 8:, 9<A? on the freDuency bands to be reser!ed for the coordinated introduction of public pan@ Guropean cellular di"ital land@based mobile communications in the Community.K #fficial /ournal of the Guropean Communities. No * 9<;5A:. %A?5+?85GC& /une 9<A?, *in'4 http4559>:.9A.9=;.9==5doc5telecomrecht5eu5en5A?Q+?8QGGC.pdf. ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p. <. ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.98.

9+

GSM Case Study

2#2#A T$% Con!* '"on o( t$% Int%r't&t% B&r-&"n The shift of the responsibility for $S7 from the bar"ainin" table of CG-T to ards GTSI epitomi.es the conclusion of the interstate bar"ain and the deliberate mo!e to ard the tas' of implementation. )rom this point on, "o!ernments or the -TT representati!es and the national champions that they bac'ed, ere no lon"er the primary actors in the standardi.ation process. 2ather, a multitude of actors, a'in to the di!erse membership of GTSI, and the Guropean Commission, mo!ed into the spotli"ht. The case of $S7, apart from the "eneral comple6ity of the issue, as further complicated by the fact that the actors in!ol!ed in the process chan"ed considerably o!er time. Fhile international deliberations be"an on the le!el of the -TT representati!es, the final bar"ain as struc' by national "o!ernments. Supranational institutions and pri!ate corporations had played 'ey roles e!en before the "eneral a"reement as reached, but their importance "re substantially once it came to implementin" the frame or', determinin" technical specifications and rollin"@out ser!ice. += Adaptation on the national le!el led states to e6plore ne means to achie!e their "oals of promotin" domestic industry, hile simultaneously securin" benefits for consumers. 2#2#2 T$% L& n!$ The launch of $S7 too' place in the latter part of 9<<8, ith the first $S7 di"ital cellular net or' "oin" Hli!eC in )inland in 9<<9N )inland and $ermany %in 9<<8& ere amon" the first Guropean countries to launch. $ermany, specifically, as 'no n as Jthe main dri!er of Guropean $S7 cellular penetrationK +9 throu"h the early 9<<=Cs. In early 9<<8, only three or four $S7 net or's had launched. Fithin se!en years, $S7 net or's had o!er := million subscribers in Gurope. ,y comparison, it too' fi6ed net or's nearly := years to acDuire the same number of subscribers orld ide, and about 9: years for the Internet to attract := million users orld ide.+8 Amon" the early runners ere )inland %t o operators&, $ermany %t o operators&, Benmar' %t o operators&, -ortu"al %t o operators&, S eden %three operators&, Italy and )rance. #n /une 9?, 9<<8 the first roamin" a"reement as si"ned bet een Telecom )inland and 3odafone in the U(, amidst "reat concern amon"st operators mainly as a result of non@e6istent or interim type@appro!ed handsets. ,y 9<<+ the 7oU boasted ?= members from >A countries and 8: roamin" a"reements. Appro6imately one million people ere no usin" the $S7 net or', ith the ne6t million already on the hori.on. And, perhaps most si"nificant of all, the Australian company Telstra had added its name to the "ro in" 7oU membership. After t o years, $S7 had e6panded beyond Gurope and Australia, establishin" a presence in India, Africa, Asia and the Arab orld. ,y /une 9<<:, the 7oU as formally re"istered as an Association in S it.erland++, ith 9:; members ser!in" 98 million customers in A; countries. +> $S7 %and its t in system operatin" at 9A== 71., called BCS9A==& as at this time percei!ed to be one of a number of ne or re!amped mobile ser!ices enterin" the mar'et, thou"h its Hpresence in a cro dC of competin" 8$ systems ould not undermine the critical role it as to play. This as true not only due to technolo"ical features, but to ho it as introduced, hich as contributin" to the reor"ani.ation not only of the cellular mar'et, but of the confi"uration of the telecommunications ser!ices industry across Gurope. #perators in 9<<+ ere pi""y@bac'in" HlocalC di"ital ser!ices, ith lo er access and call char"es, on the <== 71. $S7 net or's. 7ost of GuropeCs public telecommunication operators %-T#s& at this point in time ere an6ious for pri!ati.ation and "reater operational fle6ibility, hence the freDuent separation of mobile di!isions, allo in" for bids for o!erseas licenses and or' ith pri!ate sector partners. In the years ahead, licensin" administrations throu"hout the orld ould employ this system I hich utili.ed modified $S7
+=

+9 +8

++

+>

,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.9. J$S7 StandardCs Influence Spreads Forld ideK Mobile Phone #e$s, -hillips ,usiness Information, Inc. 7arch 9, 9<<+. ,out, Bir' 7., Baum, Adam, Bei"hton, Ni"el, Belcroi6, /ean@Claude, Bulaney, (en, $reen@Armyta"e, /onathan, 1ooley, 7ar"ot, /ones, Nic', *eet, -hoebe, # en, $areth, 2ichardson, -eter, Tade, Ba!id. JThe Ne6t $eneration of 7obile Net or's -oses a Z9== ,illion Challen"e for GuropeK, Note Number4 2@99@:=:+, $artner $roup. September 9<, 8===. Status as an HassociationC in S it.erland is desi"ned for or"ani.ations that pursue non@profit obLecti!es and en"a"e in beneficial, scientific, cultural, political or social acti!ities. 1o e!er, many of the more important associations are formed to pursue economic "oals, for instance, professional or"ani.ations and trade unions. Non@profit associations may, for the better attainment of their "oals, carry on an industrial or commercial acti!ity. Associations acDuire the status of a separate le"al entity as soon as the articles of association are dra n up. )rom JTypes of ,usiness GntitiesK, Commercial *a -a"e. *in'4 http455"ene!a.ch5 "ene!a"uidetypesbusinessentities.htm. JThe 7emorandum of Understandin"K. The $S7 Association. *in'4 http455 ."sm orld.com5about5historyQpa"e9>.html.

9>

GSM Case Study

specifications I as a means of introducin" further competition into the mobile mar'et. The impact of such intensi!e competition as to shift mobile communications a ay from the business community and into the mass mar'et. The number of cellular subscribers in estern Gurope, hich had "ro n by rou"hly a third in each of the t o pre!ious years, increased by almost :=P in 9<<+. 2#2#3 T$% Un"t%d St&t%' &nd t$% FCC #n the other hand, the US and /apan ere "enerally percei!ed at this time as bein" some hat Hleft on the sidelinesC in the dri!e to standardi.e mobile telephones. In 9<<>, the US )ederal Communications Commission I in attempts to for"e ahead ith their o n mobile cellular mar'ets, auctioned lar"e bloc's of spectrum in the 9<== 71. band in the United States. The aim as to introduce di"ital mobile cellular net or's to the country in the form of a ne 'ind of mass mar'et -ersonal Communications Ser!ice. Slo ly, the mar'et started "atherin" momentum as handsets became more idely a!ailableN in order to foster continued competiti!eness, the )CC deliberately ensured that the personal communications ser!ices %-CS& licenses ere neutral ith re"ard to the type of technolo"y to be employed. 9<<> also sa the creation of the 7obile $reen -aper, hich presented a common approach in the field of mobile and personal communications in the Guropean Union.

2#3

T$% GSM M&r,%t

2#3#1 T$% GSM S !!%'' Stor7 $S7 as already be"innin" to be seen as a sort of distincti!e success story by the mid@9<<=Cs. Fhile there ere at this time still more users in North America than in Gurope, more than half the "ro th in Gurope as to be deri!ed from di"ital systems as opposed to the "ro th in the US, hich still operated on Analo" A7-S net or's that ere close to reachin" full capacity. $S7 by this time as percei!ed to ha!e achie!ed economies of scale in ma'in" -CS handsets cheap enou"h to compete ith analo" net or'sN it as also considered by this point to be a pro!en Jtechnolo"yK. 9<<: sa the completion of the $S7 -hase II standardi.ation and a demonstration of fa6, !ideo and data communication !ia $S7. It also produced an adaptation of -CS 9<== to meet the opportunities created by the recent )CC auction in the USA. US cellular operators ere e6pected to face competition in 9<<:@; from -CS companies, usin" hi"h freDuencies at a similar part of the spectrum to those allocated to the U( cellular operators 7ercury #ne@8@#ne and #ran"e, and G@-lus in $ermany. 9<<; as characteri.ed also by liberali.ation of the mobile and satellite sectors. Ne -CS operators in the U.S. also reco"ni.ed the ad!anta"es of an open standard in creatin" a "lobal, multi@!endor mar'et for products. This had the ad!anta"e of ma'in" net or' deployment more cost@ effecti!e. #nce the )CC had opened the door, the maLor $S7 !endors rapidly de!eloped a $S7 !ariation customi.ed for the 9<== 71.@freDuency band. The US therefore appeared to be !ery interested in the BCS@ 9A== %$S7@compatible standard&. In No!ember 9<<:, American -ersonal Communications launched the first commercial $S7 ser!ice in the US. At around the same time, Oualcomm %in precursor CB7A phases& as de!elopin" Jspread spectrum technolo"yK, but no handsets had yet been de!eloped. As an alternati!e to TB7A systems, it as percei!ed as some hat of a Hris'y propositionC. The threat of bein" left behind in the rapidly ad!ancin" $S7 mar'etplace as too "reat. ,y 7ay 9<<?, there ere already 9: -CS 9<== %no $S7 9<==& net or's and o!er >==,=== users.+: In Gurope, by 9<<?, one ne customer as si"nin" up to $S7 net or's e!ery second, accordin" to estimates from the $S7 7oU Association, the "lobal industry body that represents 8+< international $S7 net or' operators, re"ulators and administrators of 9=< countries5areas. Customer totals for $S7 had reached >> million and ere eDui!alent to 8AP of the orld mobile ireless mar'et. In 9<<A, the GU $reen -aper on Con!er"ence as ritten, the purpose of hich as to launch a debate on the re"ulatory implications of the con!er"ence of the telecommunications, media and IT sectors, and to discuss options for future re"ulatory policy. ,y 9<<<, the positi!e effects of $S7Cs success ere readily discernible on GuropeCs eDuipment !endors, net or' operators, system inte"rators, and soft are de!elopers. GuropeCs !endors benefited from the economies of scale and efficiencies associated ith the de!elopment of a stable technolo"y platform. Companies li'e No'ia and Gricsson ha!e been able to le!era"e their e6pertise in buildin" $S7 net or's in Gurope to sell their $S7 infrastructure proLects into emer"in" mar'ets, such as those of eastern Gurope
+:

J$oin" $lobalK. *in'4 http455

."sm orld.com5about5historyQpa"e9>.html.

9:

GSM Case Study

here many telecomms operators ha!e Hleapfro""edC ireline systems in fa!or of mobile ireless net or's. These are often easier, Duic'er and cheaper to roll out. $S7 net or' operators by 9<<< deli!ered ser!ice to more than 8== million users, ma'in" it the most successful mobile ireless technolo"y in the orldN it had more than >== million subscribers by the end of 8===, and has been addin" about 9= million more each month.+; *oo'in" ahead, it is possible that $S7 systems are headin" for Duieter times unless somethin" can stimulate more "ro th. In many countries, net or's ill soon be reachin" the limits of hat can be achie!ed ithout e6tensi!e, and en!ironmentally intrusi!e in!estments in ne ireless masts. Also, as saturation amon" users approaches, "ro th ill slo . Therefore, net or' operators are bound to face some critically important strate"ic decisions. In the ne6t t o years, they must continue to focus on satisfyin" rapid customer demand for mobile !oice ser!ices and on meetin" the basic customer needs of co!era"e, capacity and customer ser!ice. Those in countries ith hi"h mobile phone penetration rates ill lead the ay in de!elopin" ser!ices featurin" data as ell as !oice. It is li'ely that acDuisitions and alliance acti!ities ill help to pa!e the ay not only for necessary "eo"raphic e6pansion, but for the disco!ery of opportunities li'e net or'@ sharin". 2#3#2 F t r% M&r,%t D%=%*o/4%nt ,ased on information from $S7 Association %sho n belo in )i"ure 8.9&, Festern Guropean $S7 use is e6pected to comprise appro6imately ><P of orld $S7 cellular ser!ice in 8==:. Fhat is e!ident in the fi"ures belo is that $S7Cs role in "lobal mobile cellular mar'et is e6pected to decline, not only in terms of taperin" subscriber numbers, but !is@[@!is "i!in" ay to other more ad!anced systems li'e $-2S I and ultimately bo in" to I7T@8=== %U7TS in Gurope&. ,ased on forecasted data in Gurope, it is li'ely that the number of U7TS subscribers ill surpass the number of $-2S subscribers in 8==>, and then "o on to surpass $S7 subscribers in Festern Gurope Lust after that by the end of the year %See )i"ure 8.+&. This ill occur Lust as $S7, $-2S, and U7TS subscribership, accordin" to operators, is e!enin" out across a!ailable systems %See )i"ure 8.8&. ,ased on the assumption that the HspreadC of mobile users are in maLority comprised of these $S7, $-2S, U7TS, and 1SCSB systems, it appears that the total number of mobile subscribers in Gurope ill be some here around ;<? million by 8==:, about >=P of hich ill be U7TS users.

F"- r% 2#3: For%!&'t%d Ado/t"on o( GSM Mo)"*% P$on%' "n 6%'t%rn E ro/% &nd t$% 6or*d
1600 1400 1286.7 1144.7 910.2 666.2 455.1 258 156.9 87.3 46.9 Dec 97 Dec 98 Dec 99 Dec 00 71.1 138.4 256.4 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 492.9 365.1 Estimates 659.4 696.6 1412.1

Subscribers (millions)

1200 1000 800 600 400 200 0

596.2

Worldwide Total GSM Subscribers Source: $$$'gs!$orld'co!

Western uro!e GSM Subscribers

+;

J$S7 Association Subscriber StatisticsK. *in'4 http455

."sm orld.com5membership5assQsubQstats.html.

9;

GSM Case Study

F"- r% 2#.: Co4/&r"'on o( 2G ; 2#AG ; 3G ' )'!r")%r'$"/ "n E ro/%

2000 2002 2005 0" GSM 30" 20" 67" 30" 40" G#$S 60" %MTS 99" 27" 40" 80" 100" &S'S( 1" 5" 1"

In response to a sur!ey Duestion4 1o ill your subscribers brea' do n by net or' technolo"yE %A!era"es from 88 operators respondin"&
Source: 0orrester 1esearch

F"- r% 2#A: For%!&'t%d S )'!r")%r' (or GSMB GPRSB UMTS &nd <SCSD S7't%4' "n E ro/%
450
Number of Subscribers (Millions) 330.2

300

253.8

278.6 209.0 209.0 133.1 24.6

150

2.6

4.9
%MTS

0.0

2000
GSM G#$S

2002

2005
&S'S(

Source: I " analysis based on 0orrester and GSM(orld'co! research

2#.

L"!%n'"n- GSM

Throu"hout the 9<A=s, national "o!ernments ere more often than not free to choose licenses, and ith the e6ception of the U(, issued the first $S7 licenses to their national -TTCs. J-ublic telephone operators %-T#s& in fi!e Guropean Community member states ere "i!en the opportunity to establish a stron" presence in di"ital cellular $S7 ser!ices lon" before their respecti!e "o!ernments licensed second operatorsN ,el"acom, -TT Telecom Netherlands, Sip of Italy, SpainXs Telefonica and Telecom Gireann all had head starts of a year or more on their competitors@to@be.K +? Since the a ard of their first $S7 licenses, many countries be"an to liberali.e their telecommunications mar'ets, usually introducin" competition in the mobile ireless sector first. Countries recei!ed numerous applications for their second $S7 licenses, ma'in" the decision process more difficult than pre!ious assi"nments. 7any countries be"an to add a financial bid to the list of selection criteria for their second di"ital license, hile other countries continued ith traditional comparati!e methods.+A The case of Spain, amon" others, is particularly interestin" in this conte6t. After ai!in" the fee reDuirement for monopolist TelefonicaCs $S7 license %SpainCs first&, the Spanish "o!ernment subseDuently
+?

+A

J-TTs steal a lead as $S7 competition pro"ress slo sK. 7obile Communications, )inancial Times ,usiness 2eports Technolo"y )ile, /une 9?, 9<<+, p.+. Spicer, 7artin. JInternational Sur!ey of Spectrum Assi"nment for Cellular and -CSK. Fireless Telecommunications ,ureau. September 9<<;. *in'4 http455 .fcc."o!5 tb5auctions5papers5spicer.html.

9?

GSM Case Study

sa Jnothin" ron" ith its reDuirement to tender for a second pri!ate mobile telecomms license, and RtoS reDuest companies RtoS ma'e a payment to the treasuryK +<. %See Table 8.8 for further similar e6amples&. T&)*% 2#3: D"-"t&* L"!%n'% A''"-n4%nt P&tt%rn' F"r't D"-"t&* L"!%n'% A''"-n%d to PTT;6"r%*"n% C&rr"%r Australia, Austria, ,el"ium, Ireland, Italy, (orea, )rance, $ermany, 1(, Spain, S eden Co ntr"%' '"n- F"n&n!"&* )"d' (or S%!ond D"-"t&* L"!%n'% Australia, Austria, ,el"ium, Ireland, Italy, Ne \ealand, -oland, Spain Co ntr"%' NOT '"n- F"n&n!"&* B"d' (or S%!ond D"-"t&* L"!%n'%' )rance %0 -CN&, $ermany %0-CN&, 1( %0 more&, (orea, S eden, U(
Source4 The Fireless Telecommunications ,ureau. lin'4 http455 .fcc."o!5 tb5auctions5papers5spicer.html

$o!ernments in "eneral could not be depri!ed of their indi!idual "ain from implementin" the ne $S7 standard and from participatin" in the net or'. Fhile there certainly e6isted incenti!es for "o!ernments to support their o n national championCs Duest for scale economies in eDuipment mar'ets by see'in" the adoption of a standard ad!ocated by their o n domestic manufacturer, the lo"ic of net or's combined ith national telecom monopolies ensured that no cooperatin" party had to fear !astly uneDual returns I e!en in case a national corporate champion lost out in the initial fi"ht o!er the specifics of the net or' standard. >= ,y 9<<8, )inland %985<9&, $ermany %;5<8&, Benmar' %?5<8&, )rance %?5<8& , the United (in"dom %?5<8&, S eden %<5<8&, Italy %9=5<8&, and -ortu"al %9=5<8& ere amon" the first countries in the orld to launch their $S7 ser!ices. 2#.#1 GSM R&d"o S/%!tr 4 The ITU, hich mana"es the international allocation of radio spectrum, allocated the A<=@<9: 71. bands for the uplin' %mobile station to base station& and <+:@<;= 71. bands for the do nlin' %base station to mobile station& for mobile net or's in Gurope. JTSince this ran"e as already bein" used in the early 9<A=s by the analo" systems of the day, the CG-T had the foresi"ht to reser!e the top 9= 71. of each band for the $S7 net or' that as still bein" de!eloped.K >9 It should be noted that the Forld 2adio@ Communications Conference %F2C& in 9<<8 identified freDuency bands for )-*7TS %)uture -ublic *and 7obile Telecommunications Systems&, hich is in fact the ori"inal name of I7T@8=== %U7TS&. >8 The e6istin" second@"eneration bands for second@"eneration $S7 ser!ices consist of spectrum bet een A;8 and <;= 71. and the totality of the $S79A== band 9?9= @ 9AA= 71..

3 3#1

A Loo, A$%&d &t IMT-2000 Fro4 GSM to IMT-2000

The relationship bet een 8$ and +$ is captured intrinsically in the mi"ration process. The mi"ration to +$@ ser!ices from 8nd "eneration systems is a broad topic area, dependin" on the startin" point of the analysisN for e6ample, CB7A@based systems ha!e a !ery different road to I7T@8=== than TB7A counterparts. Such systems point to HCB7A 8===C systems as eDui!alent to H+$C, hile for TB7A systems %includin" $S7&, the Gricsson@proposed F@CB7A standard represents attainment of H+$C. Interestin"ly, CB7A@based carriers belie!e that their mi"ration path>+ ill be more ine6pensi!e than that of $S75TB7A@based carriers, because many ill ha!e only to chan"e channel cards in the base stations and up"rade the net or' soft are
+<

>=

>9

>8

Accordin" to the Spanish press, t o bids ere recei!ed by the Spanish 7inistry of -osts and Telecommunications for the second $S7 net or' license. The Airtel consortium is understood to ha!e bid -ta A: billion, hile the Cometa S27 "roup bid a conditional -ta A< billion. JSpain @ )uror #!er Cellular Telephony *icensin"K. Ne sbytes Ne s Net or'. Becember 89, 9<<>. ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.A. Scourias, /ohn. J#!er!ie of the $lobal System for 7obile CommunicationsK. 9<<?, *in'4 http455 .shoshin.u aterloo.ca5 VLscouria5$S75"smreport.html. JCommunity policy on U7TSK. *in'4 http455europa.eu.int5IS-#5infosoc5le"re"5docs5<?+=>.html]1eadin"A.

9A

GSM Case Study

as opposed to implementin" entire net or' o!erlays. In any case, the focus of the present analysis remain the path of $S7 to ards +$.

ill

Gnhancements upon 8nd "eneration $S7 systems include 1SCSB %1i"h Speed Circuit S itched Bata&, $-2S %$eneral -ac' 2adio Ser!ice&, and GB$G %Gnhanced Bata 2ate for $S7 e!olution& I all of hich allo for hi"her data transmission rates. %See )i"ure +.9 and Table +.8& The "oal of $S7 mi"ration is to reach U7TS, hich is part of the ITUCs HI7T@8===C !ision of a "lobal family of Hthird@"enerationC %+$& mobile communications systems. All of these 8.: "eneration systems are no ell on their ay to de!elopment and deployment I and the Duestion no is hich one ill be most rele!ant, !ersatile, cost@effecti!e, and able to cope ith the demands of a comple6 telecommunications ser!ice landscapeE Fhich system ill succeed in effecti!ely offerin" hich ser!icesE %See Table +.9& And, ill these Hhalf@stepsC to ard elusi!e +$@roll@out pre@empt the need for +$ itself, or Lust delay its introductionE >> T&)*% 3#.: Co4/&r&t"=% V"%+ on S%r="!%';A//*"!&t"on'
P%r"od M&Cor T%!$no*o-7 Introd !t"on N%+ Int%rn&*;E9t%rn&* A//*"!&t"on'
Telephone Gmail S7S Bi"ital Te6t Beli!ery 7obile ,an'in" 3oicemail, Feb 7obile Audio -layer Bi"ital Ne spaper -ublishin" Bi"ital Audio Beli!ery 7obile 2adio, (arao'e -ush 7ar'etin"5 Tar"eted pro"rams *ocation@based ser!ices 7obile coupons 7obile !ideoconferencin" 3ideo -hone57ail 2emote 7edical Bia"nosis and Gducation 7obile T353ideo -layer Ad!anced Car Na!i"ation5 City $uides Bi"ital Catalo" Shoppin" Bi"ital Audio53ideo Beli!ery Collaborati!e ,8, Applications

U/ to 2000

8$

2001 to 2002

8.: $

2003 &nd )%7ond

+$

Source4 International Telecommunication Union

>+

>>

CB7A systems can use a data@only 8.:$ standard, called 1i"h Bata 2ate %1B2&, capable of data rates up to 9.> 7bit5s deli!ered to mobile ireless data customers in a fi6ed mode. 9^2TT, an ad!anced !ersion of IS@<: for mobile users, deli!ers transmission speeds up to 9>> (bit5s. JThe future of +$K, GBN, ,oston. /une ?, 8==9, p. S<. It is interestin" to note in li"ht of this Duestion that JT<;P of operators in an inter!ie by )orrester belie!e that +$ %or U7TS& is important to their business plans.K $odell, *ars. JGuropeCs U7TS 7eltdo nK. )orrester 2esearch 2eport, Becember 8===, p.+.

9<

GSM Case Study

F"- r% 3#2: A St%/-)7-St%/ To+&rd' IMT-2000 1UMTS5

3G
U7TS4 at U7TS4 at+A> +A> (bps and ma6 (bps andaa ma6 speed of speed of887bps 7bps

GB$G4 up GB$G4 up to +A> +A>(bps (bps

2#AG

$-2S4 $-2S4!ariable !ariable speeds, dependin" speeds, dependin" on confi"uration. confi"uration. on VV:? and 99> 9> and 8A(bps (bps 8==9 by mid@ mid@8==9

2G
$S7 at $S7 at <.; (bps <.; (bps

1SCSB4 dial 1SCSB4 dial@up @up access at to access atup up to :?.; (bps :?.; (bps

2G

Note4 This is an illustrati!e fi"ure only. -lease note that a shift to ard additional spectrum occurs after the GB$G component, upon the HleapC to U7TS. There is some debate about the status of HGB$GC as potential eDui!alent of U7TS 5 I7T@8===, "i!en that its data transmission capacity is close to e6pected +$ rates %UFC@9+; or GB$G is reco"ni.ed under the ITUCs I7T@8=== umbrella&N on the other hand, it appears that there may be diminishin" scope for the deployment of GB$G in future.
Source: International eleco!!unication "nion

2#AG

It is interestin" to mention that some feel the Lump from 8$ to 8.:$ ill be more dramatic than that from 8.:$ to +$. JTthe bi" Lob for the operator is not "oin" from $-2S to U7TS, itCs actually "oin" from $S7 into $-2S, because you chan"e completely the business model, "oin" from time@based to !olume@based char"in". Mou also "o from more traditional@type ser!ices to more internet@based ser!ices.K >: Althou"h 8.:$ technolo"ies ere e6pected to smooth the transition to +$, FA- e6periences pro!ed to be less than satisfactory. To a certain e6tent, FA- sho ed the effect of e6cessi!ely hi"h e6pectations on technolo"ies in mar'ets hen they under@perform. It is unli'ely that there ill be a sudden Lump from todayCs $S7 net or's to the +$ net or's of tomorro . $S7@based ser!ices, as mentioned before, rely on di"ital transmission bet een base stations and handsets ith hi"h@speed connections to and from the centers eDuipped ith circuit s itches. At <.; (bit5s, transmission is slo , and the architecture itself is unsuitable for data traffic or streamin" as it is circuit@ s itched rather than pac'et@s itched. Fhile $-2S seems to be an ob!ious mi"ration step for $S7 operators, ne6t steps reDuire further e!aluation. It is also important to note that throu"h the course of the transition, it is not necessarily the case that the early +$ net or's I hen they appear I ill be pac'et@ s itched from their debutN this e!olution to pac'et@based net or's is li'ely to occur o!er some time as systems are tested and pro!en. T&)*% 3#A: D%t&"*%d Co4/&r"'on o( 1'tB 2ndB &nd 3rd G%n%r&t"on T%!$no*o-"%'
T%!$no*o-7 F"r't G%n%r&t"on Mo)"*% S%!ond G%n%r&t"on Mo)"*% A7-S5 N7T Ad!anced 7obile -hone System Nordic 7obile Telephony $lobal System for 7obile Communication 1i"h@Speed Circuit S itched Bata B&nd+"dt$ 1:)"t;'5 <.; F%&t r%' Analo" !oice ser!ice No data capabilities Bi"ital !oice ser!ice Ad!anced messa"in" $lobal roamin" Circuit@s itched data G6tension of $S7 1i"her data speeds

$S7

<.; 9>.>

1SCSB

<.; :?.;

>:

J,rid"e #!er Troubled FaterK, Mobile Matters, 7ay 8==9. p.:;.

8=

GSM Case Study $-2S $eneral -ac'et 2adio Ser!ice <.; 99: G6tension of $S7 Al ays@on connecti!ity -ac'et@s itched data G6tension of $S7 Al ays@on connecti!ity )aster than $-2S Al ays@on connecti!ity $lobal roamin" I-@enabled

GB$G

Gnhanced Bata 2ate for $S7 G!olution International 7obile Telecommunications 8=== 5 Uni!ersal 7obile Telecommunications System

;> +A>

T$"rd G%n%r&t"on Mo)"*%

I7T@ 8===5U 7TS

;> 8,=>A

Source4 )orrester 2esearch

3#1#1 <SCSD 1<"-$-S/%%d C"r! "t S+"t!$%d D&t&5 1SCSB is a natural e!olution of the e6istin" circuit@s itched data capability of traditional 8$ $S7 net or's. Fith todayCs $S7 net or' standards, it is already possible to transmit narro band data and di"ital fa6 o!er the TB7A air interface. The methodolo"y is a'in to settin" up a $S7 !oice call or perhaps to ma'in" a connection o!er a fi6ed line -STN ith the use of a modem. The user establishes a connection %or circuit& for the hole duration of that communication session. To set up the circuit, a call set@up process is in!ol!ed hen diallin" the called partyN net or' resources are allocated alon" the path to the end destination. Fithin the e6istin" $S7 encodin" techniDues, the ma6imum circuit@s itched data %CSB& speed is <.; (bit5s or ith impro!ed encodin", up to 9>.> (bit5s. The $S7 TB7A interfaces can assi"n up to A time di!ision slots per user freDuency, not all of hich are al ays used. Typically one is allocated for !oice, hile other slots may be allocated for fa6 and data. The a!ailability of these time slots ma'es it possible to e6pand the e6istin" CSB into 1SCSB. The transition to 1SCSB is not a difficult one for an e6istin" 8$ operator, and typically only necessitates a soft are up"rade of the ,ase Stations Systems %,SS& and Net or' and S itchin" System %NSS& systems. A potential technical difficulty with HSCSD arises because in a multi-timeslot environment, dynamic call transfer between different cells on a mobile network (called handover) is complicated, unless the same slots are available end-to-end throughout the duration of the circuit switched data call. The second issue is that circuit switching in general is not efficient for bursty data/Internet traffic. The allocation of more circuits for data calls, with typically longer hold times than for voice calls, creates the same problems that fixed line PSTN operators have experienced with the tremendous growth of Internet traffic i.e., too few resources in their circuit switched networks.46 3#1#2 GPRS 1G%n%r&* P&!,%t R&d"o S%r="!%5 J$-2S is seen as a closer step to ards U7TS andT ith increased data speeds I ill sit some here in bet een 8$ and +$ rates I it ill introduce a more functional medium in hich consumers ill see the potential of +$.K>? $-2S is an o!erlay technolo"y that is added on top of e6istin" $S7 systems. In other ords, the $S7 part still handles !oice, and handsets are capable of supportin" both !oice and data %!ia the o!erlay& functions. $-2S essentially supplements present@day circuit@s itched data and short messa"e ser!ices %S7S&, and ser!es as an enabler of mobile ireless data ser!ices, and an optimi.er of the radio interface for bursty pac'et mode traffic. The up"rade to $-2S is easy and cost effecti!e for operators, as only a fe nodes need to be added. Accordin" to the Bec 9<<A5/anuary 9<<< issue of 7obile Communications International, JTthe mo!e to $-2S ill be orth the e6pense because it ill position operators ell for +$. #nce carriers ha!e built a pac'et subsystem for $-2S, they ill be able to add additional +$ ser!ices as needed throu"h co@sited $S7 and FCB7A base station subsystems.K >A GPRS is packet-based and promises data rates from 56 up to 114 Kbit/s, as well as continuous connection to the Internet for mobile phone and computer users. 7ore specifically, pac'et@s itchin" means that $-2S radio resources are used only hen users are actually sendin" or recei!in" dataN a!ailable radio resources can
>; >? >A

JFireless #!er!ie )or Non Fireless -rofessionalsK. Fhite -aper by Nortel Net or's. J,rid"e #!er Troubled FaterK, Mobile Matters, 7ay 8==9, p.:;. JSchedulin" a Bate ith BataK, Mobile Co!!unications International, Becember 9<<A5/anuary 9<<<.

89

GSM Case Study

be concurrently shared bet een se!eral users. This efficient use of scarce radio resources means that lar"e numbers of $-2S users can potentially share the same band idth and be ser!ed from a sin"le cell. The actual number of users supported depends on the application bein" used and ho much data is bein" transferred. ,ecause of the spectrum efficiency of $-2S, there is less need to build in idle capacity that is only used in pea' hours. $-2S therefore lets net or' operators ma6imi.e the use of their net or' resources in a dynamic and fle6ible ay, alon" ith user access to resources and re!enues. GPRS is essentially based on "regular" GSM (with the same modulation) and is designed to complement existing services of such circuit-switched cellular phone connections such as SMS or cell broadcast. GPRS should improve the peak time capacity of a GSM network since it simultaneously transports traffic that was previously sent using CSD through the GPRS overlay, and reduces SMS Center and signalling channel loading. In theory, $-2S pac'et@based ser!ice should cost users less than circuit@s itched ser!ices since communication channels are bein" used on a shared@use, as@pac'ets@are@needed basis rather than dedicated only to one user at a time. It should also be easier to ma'e applications a!ailable to mobile users, and FAor i@mode should be far more attracti!e for the user. In addition to the Internet -rotocol, $-2S supports ^.8:, a pac'et@based protocol that is used mainly in Gurope. $-2S for the time bein" has fallen short of theoretical 9?9.8 (bit5s ma6imum speed, one reason bein" the technical limitations of currently a!ailable handsets. Ne!ertheless, $-2S rollouts are e6pected to help counterbalance pre!ious disappointments associated ith FA-@based ser!ices5technolo"yN hope is not lost, particularly accordin" to the $artner $roup, that FA- can be a primary dri!er for mobile data re!enue "ro th in the ne6t three to fi!e years. $-2S has the potential to Hhelp FA- "et bac' on its feet a"ainC, accordin" to /ohn 1offman of the $S7 Association.>< 3#1#3 EDGEB En$&n!%d D&t& GSM En="ron4%nt Gnhanced Bata rates for $lobal G!olution %GB$G& is a radio based hi"h@speed mobile data standard that allo s data transmission speeds of +A> (bit5s to be achie!ed hen all ei"ht timeslots are used. GB$G as formerly called $S7+A>, and is also reco"ni.ed as HUFC@9+;C under the ITUCs specifications for I7T@ 8===. It as initially de!eloped for mobile net or' operators ho failed to in spectrum for third "eneration net or's, and is a cost@efficient ay of mi"ratin" to full@blo n +$ ser!ices. It "i!es incumbent $S7 operators the opportunity to offer data ser!ices at speeds that are near to those a!ailable on U7TS net or's. GB$G does not chan"e much of the core net or', ho e!er, hich still uses $-2S5$S7. 2ather, it concentrates on impro!in" the capacity and efficiency o!er the air interface by introducin" a more ad!anced codin" scheme here e!ery time slot can transport more data. In addition, it adapts this codin" to the current conditions, hich means that the speed ill be hi"her hen the radio reception is "ood. Implementation of GB$G by net or' operators has been desi"ned to be simple, ith only the addition of one e6tra GB$G transcei!er unit to each cell. Fith most !endors, it is en!isa"ed that soft are up"rades to the ,SCs and ,ase Stations can be carried out remotely. The ne GB$G capable transcei!er can also handle standard $S7 traffic and automatically s itches to GB$G mode hen needed. HGB$G@capableC terminals are also needed, since e6istin" $S7 terminals do not support ne modulation techniDues, and need to be up"raded to use EDGE network functionality. GB$G can pro!ide an e!olutionary mi"ration path from $-2S to U7TS by more e6peditiously implementin" the chan"es in modulation that are necessary for implementin" U7TS later. The main idea behind GB$G is to sDuee.e out e!en hi"her data rates on the current 8== '1. $S7 radio carrier, by chan"in" the type of modulation used, hilst still or'in" ith current circuit %and pac'et& s itches. In addition, the TB7A industry association, the JUni!ersal Fireless Communications CorporationK, has introduced hat it calls GB$G Compact. This is an e!en more spectrum@efficient !ersion of GB$G that ill support the +A> (bit5s mandated pac'et data rates, hilst reDuirin" only minimum spectral clearin". In fact, as a result of this, GB$G has been renamed Gnhanced Bata 2ates for $S7 and TB7A G!olution. GB$G is planned to be commercially a!ailable end of year 8==9. 50 Fhen describin" the ser!ices to hich +$ technolo"ies aspire, it is crucial to bear in mind that there is a difference bet een hat is possible in reality and hat is HhypeC !is@[@!is data speeds. That said, ho e!er,
>< :=

J,rid"e #!er Troubled FaterK, Mobile Matters, 7ay 8==9. p.:;. J Comprehensi!e information about $-2S and Gd"eK. *in'4 http455

.+"@"eneration.com5"prsQandQed"e.htm.

88

GSM Case Study

any reference to HhypeC, is by definition a reference to the e6pectations of +$ created lar"ely from the press and other sources less li'ely to ha!e si"nificant technical mastery of the respecti!e systems. The ITU from the early phases of I7T@8=== de!elopment, has "i!en unambi"uous recommendations for the e6act testin" conditions under hich !arious technical specifications for systems ha!e been de!eloped. 1o these recommendations ha!e been commonly translated for the mass mar'et, ho e!er, has resulted in some hat Hless@than@scientificC e!aluations, hich in turn has contributed to the afore@mentioned HhypeC. Nonetheless, it is an interestin" e6ercise to compare the HhypedC mar'et e6pectations ith HrealityC. In practice, data throu"hput is in!ersely proportional to the si.es of the cells that are co!ered by one transcei!er %base station&. The hi"her the data throu"hput sou"ht, the smaller and more numerous the cells deployed by operators, and hence the "reater the difficulties in reachin" !ery rural areas. )i"ure +.8 illustrates the di!er"ence %in the Guropean case, specifically& bet een HhypeC and reality, by layin" out the deployment of the !arious mi"ration steps to ards U7TS. It appears that relati!e to the +$ HhypeC, HcityC +$ deployment is unli'ely to be reali.ed before 8==+, althou"h launch dates ha!e been set optimistically for 8==8.

F"- r% 3#3: Fro4 GSM to UMTS: L",%*7 P&t$' to 3GA1

2/000 400 350
*andwidt+ ,-b!s. &)!e 'it) realit) $ural realit) %MTS %MTS %MTS %MTS

(G

300 250 200 150 100 50 GSM 0

G#$S &S'S( G#$S %MTS

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: 0orrester 1esearch

#perators runnin" $S7 9A== net or's ill ha!e an ad!anta"e o!er those runnin" $S7 <== net or's because the hi"her freDuency and lo er po er are closer to pro!idin" "ood co!era"e at U7TS freDuencies. 7any $S7 9A== cell sites ill be re@usable. )rom $S7, at <.; (bit5s, to GB$G and U7TS, at +A> (bit5s, the percenta"e increase in data throu"hput is less than the fi"ures su""est. Ne!ertheless, the faster speeds are sufficient for applications such as e@mail, Short 7essa"e Ser!ice %S7S& and access to the Internet and corporate intranets. Net or' operators ill not able to "uarantee customers ma6imum data throu"hput at any instant durin" a call session. 7obile pac'et net or's are headed for Ybest effortY ser!ice, at least for another four to fi!e yearsN hi"h@Duality ser!ices based on U7TS must bear the ca!eat that data transmission may reach any here Hup to 8 7bit5sC. It appears that nothin" is "uaranteed. In terms of the mi"ration from 8$ to +$ ser!ices, o!er half of the operators in a recent sur!ey by A2C $roup belie!ed that $S7 operators in their country ould adopt $-2S, hile only a Duarter e6pected that GB$G technolo"y ould be deployed. :8 ,y 8==8, ;:P of those sur!eyed said that commercial consumer +$ ser!ices ould be up and runnin" in their country, ith >8P predictin" an initial data transmission speed of o!er <=(bit5s, some ay short of the ma6imum 87bit5s e6pected to be a!ailable from U7TS. :+ As as the case ith the introduction of $S7 in the 9<A=s, important re"ulatory issues %e.". licensin", numberin", and freDuency band allocation& for U7TS in Gurope ha!e been addressed in order to create the optimal conditions for in!estment and a predictable en!ironment for the emer"ence of alliances that can de!elop it.
:9 :8

J7obileCs 1i"h Speed 1urdlesK, 7arch 8===, )orrester 2esearch 2eport. J#perators G6press Concern #!er 1andsetsK Arc $roup, /anuary 9;, 8==9. *in'4 http455 cutQconcernhandsets.htm. J#perators G6press Concern #!er 1andsetsK Arc $roup, /anuary 9;, 8==9. *in'4 http455 cutQconcernhandsets.htm. .arc"roup.com5press85 .arc"roup.com5press85

:+

8+

GSM Case Study

3#2

IMT-2000 T%!$no*o-7

The !ision of I7T@8=== %+$& net or's is defined by a sin"le standard comprised of a family of technolo"ies intended to pro!ide users ith the ability to communicate any here, at any time, ith anyone. +$ net or' architecture is based on t o main principles4 one is that mobile cellular net or's should be structured to ma6imi.e net or' capacity, and the other is to offer multimedia ser!ices independently of the place of the end users. The +$ umbrella encompasses a ran"e of competin" mobile ireless technolo"ies, namely CB7A@8=== and FCB7A. Guropean U7TS % hich stands for Uni!ersal 7obile Telecommunications System&, falls ithin the ITUXs I7T@8=== !ision of a "lobal family of +$ mobile communication systems. It includes FCB7A radio access technolo"ies, to"ether ith a core net or' specification based on the $S757A- %7obile Application -art& standard. As reflecti!e of +$ in Gurope and specifically the focus of this paper in $S7 conte6t, U7TS is actually intended to pro!ide the 'inds of data speeds and protocols to allo people ith appropriate handsets to access the Internet, atch mo!ies, e6chan"e lar"e data files and ha!e !ideo conference calls to and from locations of temporary choice and con!enience. The ne net or', impro!in" upon pre!iously described shortcomin"s, has to allo for data traffic, hich comes in unpredictable bursts, !oice con!ersations, hich should not be interrupted, and the streamin" of lar"e contents li'e mo!ies. The "oal for +$ is to pro!ide standard facilities "ood enou"h for mobile de!ices to handle color !ideo. +$ communications are based on standards that are intended to ensure "lobal interoperability and standardi.ed usa"e of spectrum freDuency. Across Gurope, countries ha!e adopted different policies for allo in" the de!elopment of +$ ser!ices4 some, li'e $ermany and the United (in"dom, auctioned the ri"hts to use the desi"nated spectrumN others, li'e )inland and Spain, in!ited applicants and selected pro!iders for !arious features and promisesN and others, li'e S eden, are sharin" the ris' by char"in" a royalty on future +$ re!enue. This is discussed further in Section +.;. I7T@8=== itself offers the capability of pro!idin" !alue@added ser!ices and applications on the basis of a sin"le standard. The system en!isa"es a platform for distributin" con!er"ed fi6ed, mobile, !oice, data, Internet and multimedia ser!ices. #ne of the 'ey aspects of its !ision is the pro!ision of seamless "lobal roamin", enablin" users to mo!e across borders hile usin" the same number and handset. It also aims to pro!ide seamless deli!ery of ser!ices, o!er a number of media %includin" satellite, fi6ed, etc.&. It is e6pected that I7T@8=== ill pro!ide hi"her transmission rates than currently possible, i.e., a minimum speed of 87bit5s for stationary or al'in" users, and +>A (bit5s in a mo!in" !ehicle.

3#3

T$% <"'tor7 o( IMT-2000

In the mid@9<A=Cs, the ITU created the sin"le standard of a family of technolo"ies entitled HI7T@8===C, JInternational 7obile TelecommunicationsK, to ser!e as the base of the third "eneration system for mobile communications. In 8===, unanimous appro!al as "i!en of the technical specifications for third "eneration systems under this same brand name. I7T@8=== is thus the result of collaboration of many entities, both inside and outside the ITU %ITU@2 and ITU@T, and +$--, +$--8, UFCC, etc.&. The U7TS )orum, an international, non@profit, independent body created in 9<<; %based in the U.(.&, is amon" these entities in!ol!ed in standardi.ation and committed to the successful introduction and de!elopment of U7TS5I7T@8===, throu"h the creation of cross@industry consensus. It currently has 8:= member or"anisations dra n from the mobile operator, re"ulatory, supplier, consultant, IT and media5content communities, and or's on issues li'e technical standards, spectrum, mar'et demand, business opportunities, terminal eDuipment circulation and con!er"ence bet een the mobile communications and computin" industries.:> The American counterpart of the U7TS )orum is the CB7A Be!elopment $roup %CB$&, an international consortium based in the U.S., and comprised of leadin" CB7A ser!ice pro!iders and manufacturers, ho ha!e Loined to"ether to lead the adoption and e!olution of CB7A ireless systems around the orld. The CB$ is or'in" to ensure interoperability amon" systems, hile e6peditin" the a!ailability of CB7A technolo"y to consumers. :: The ITU has clearly indicated that at the heart of the I7T@8=== proLect is the obLecti!e to raise a areness of the importance and reach of I7T@8=== as a "lobal, harmoni.ed mobile personal communication system and access platform, ith emphasis on its role in the deployment of the "lobal ireless information society. The
:> ::

The U7TS )orum. *in'4 http455 .umts@forum.or"5. The CB7A Be!elopment $roup. *in'4 http455 .cd".or".

8>

GSM Case Study

ITU is committed to its role as the most suitable and best@positioned or"ani.ation to act as facilitator and coordinator of "lobal standards de!elopment, "lobal freDuency spectrum harmoni.ation, and "lobal circulation of I7T@8=== terminals. #ne of the "oals of I7T@8=== is to pro!ide an e!olutionary path from 8$ systems to +$ systems and to protect e6istin" in!estments in le"acy 8$ systems. Accordin" Br ,ernd Gylert, Chairman of the U7TS )orum, YTthe mar'et has already demonstrated the attraction of "lobal standards operatin" in harmoni.ed spectrum plans @ as seen in the past successes of A7-S and $S7 @ and by adoptin" the same radio plannin" methodolo"y as other ITU re"ions. )urthermore, operators usin" open standards in harmoni.ed spectrum ha!e the opportunity to compete on ser!ice, co!era"e, Duality and price... and this ill al ays benefit the end user.Y :; -roponents of the different approaches to +$ technolo"ies I CB7A8=== %US, (orea&, and F@CB7A %Gurope, /apan& ere not able to a"ree on a sin"le standard I hence the !ariety of Hfla!oursC of ideband CB7A that comprises achie!ement of J+rd "enerationK status. I7T@8=== therefore, as mentioned earlier, consists of a Hsin"le standard of a family of technolo"iesC, hich implies the need for multiple mode and multiple band handsets capable of handlin" !arious optional mode and freDuency bands. The system as a hole is hi"hly fle6ible, capable of supportin" a ide ran"e of ser!ices and applications. The I7T@8=== standard accommodates fi!e possible radio interfaces %or fla!ours& based on three access technolo"ies %)B7A, TB7A, and CB7A&. %See )i"ure +.+& The t o main interfaces fall under the HFidebandICB7AC, and the US@supported Hcdma8===C cate"ories. The F@CB7A standard includes the Guropean usa"e of F@CB7A %"enerally reco"ni.ed in the form of U7TS&, and the /apanese standard used by NTT BoCo7o. Cdma@8=== is a Telecommunications Industry Association %TIA& standard for third@ "eneration technolo"y, that is an e!olutionary out"ro th of cdma#ne from the United States. ,oth F@ CB7A and cdma8=== are mainly based on H)reDuency@Bi!ision@Buple6C %)BB& frame or's. A third interface falls under the TB@SCB7A cate"ory, the radio interface proposed by China and appro!ed by the ITU, hich is based on HTime@Bi!ision@Buple6C %TBB&&. :? The fourth interface falls under the TB7A cate"ory %UFC@9+; %HUni!ersal Fireless CommunicationsC@9+;&&, hich is also other ise 'no n as GB$GN this as de!eloped by CB7A A7-S operators, many of hich ha!e since de!eloped different mi"ration strate"ies. )inally, the last interface falls under the )B@TB7A cate"ory %'no n as BGCT_ for use in Gurope&, hich performs li'e I7T@8===, but is in fact used mainly for indoor en!ironments. Gssentially, it is e!ident that of the fi!e main Hfla!oursC depicted in )i"ure +.+, three are the most prominent in terms of applicability and future potential.

F"- r% 3#D: IMT-2000 T%rr%'tr"&* R&d"o Int%r(&!%'

Value-added services and worldwide applications development on the basis of one single standard accommodating five possible radio interfaces based on three technologies
Source: International eleco!!unication "nion

:;

:?

J,ra.il is -oised to Gmbrace $lobal +$ I7T@8=== #pportunity, Says U7TS )orumK, 7arch +9,8===. *in'4 http455 .umts@ forum.or"5press5article=+>.html. It should be noted that TBB is also used for U7TS % hich is in fact a combination of the components of F@CB7A and TB@ SCB7A solutions&N U7TS more aptly fits under the cate"ory of I7T@TC.

8:

GSM Case Study

3#.

L&7"n- t$% Gro nd+or, (or 3G S !!%''

In order for I7T@8=== to be possible, it has been necessary o!er the past fe years to create the impetus for its reali.ationN part of this, of course, bein" dri!en by the simple fact that e6istin" 8$ circuit@s itched systems ill be inadeDuate for forthcomin" data transmissions. J 2G6istin" systems li'e $S7 are runnin" out of capacityT and the mobile phone mar'et is "ro in" at an annual rate of about ::P T it has been estimated that A=P of the population in the Guropean Union ill ha!e some form of mobile communicator by the year 8=8=TK:A $i!en these fi"ures, some maLor efforts ere underta'en in 8=== to ma'e a Hfirst stepC to ard +$. 3#.#1 Addr%''"n- t$% N%%d (or 3G S/%!tr 4 E9/&n'"on The F2C 8===, the international forum hich ser!es to pro!ide the technical, operational and re"ulatory conditions for the use of radio freDuency spectrum and satellite orbits, as critically important in its mana"ement of radio freDuency spectrum for + rd "eneration technolo"ies. The a areness that more spectrum ould be needed as at the forefront of the F2CCs mission. And it pro!ided, in hat can no be considered as a landmar' decision, the conditions under hich the industry could continue to de!elop and deploy a host of sophisticated ne radio@based communications systems o!er the ne6t fe years. :< Fith +$ mobile systems due to come into ser!ice !ery soon in se!eral countries, it as imperati!e that an increase in a!ailable spectrum be ensured for +$ ser!ices. The e6istin" spectrum identified bac' in 9<<8 for $S7 upon hich licensin" is no ta'in" place around the orld, as based on a model in hich !oice ser!ices ere considered to be the maLor source of traffic, and only lo data rate ser!ices ere considered. In fact, 2esolution 88+ adopted at F2C@8=== found that ITU studies demonstrated the need for appro6imately 9;= 71. of spectrum in addition to that identified at F2C@ <8, and in addition to the spectrum already bein" used for first and second "eneration ireless ser!ices. ;= The need for added spectrum stemmed from three main considerations4 the first bein" that the number of users is e6pected to reach an estimated 8 billion orld ide by 8=9= ;9, the second bein" the rapid "ro th of mobile data ser!ices, mobile e@commerce, ireless internet access and mobile !ideo@based ser!ices, and the third bein" the need to secure common spectrum orld ide for "lobal roamin" and cheaper handsets. All of the spectrum bet een >== 71. and + $1. is technically suitable for third "eneration mobile. The entire telecommunication industry, includin" both pri!ate sector and national and re"ional standards@settin" bodies "a!e a concerted effort to a!oid the fra"mentation that had thus far characteri.ed the mobile mar'et. F2C appro!al meant that for the first time, full interoperability and inter@ or'in" of mobile systems could be achie!ed. Three common bands are a!ailable on a "lobal basis for countries ishin" to implement the terrestrial component of I7T@8===. The three bands identified for use by I7T@8=== include one belo 9 $1., another at 9.? $1. % here most of the second@"eneration systems currently operate to facilitate the e!olution, o!er time, of these systems to third "eneration&, and a third band in the 8.: $1. ran"e. These complement the band in the 8 $1. ran"e already identified for I7T@8===. The Conference also identified the use of additional freDuency bands for the satellite component of I7T@8===. )or the Guropean U7TS %+$& net or' specifically, bands are a!ailable in a 9:: 71. ide spectrum in the 9.< and 8.9 $1. band. ;8 The a"reement pro!ides for a hi"h de"ree of fle6ibility to allo operators to e!ol!e to ards I7T@8=== accordin" to mar'et and other national considerations, and "i!es a "reen li"ht to the mobile industry
:A

:<

;= ;9 ;8

,er", Andreas, JU7TS I Uni!ersal 7obile Telecommunications SystemK. *in'4 http455 .tml.hut.fi5#pinnot5Ti'@ 999.+:=59<<A5esity'set5Umts5U7TS.html. See ITU -ress 2elease on F2C 8=== decisions4 JThumbs up for I7T@8===K, 7ay +=, 8===. *in'4 http455 .itu.int5 ne sarchi!e5press5releases58===598.html. -ro!isional )inal Acts of the Forld 2adiocommunication Conference %Istanbul, F2C@8===&, 2esolution 88+, ` h. JThe U7TS )orum I Shapin" the 7obile )utureK #ctober 8===. p.+. *in'4 http455 .umts@forum.or"5brochures5U7TS.pdf. JThe spectrum is di!ided into : 71. carriers, but, since each carrier could be used either upstream or do nstream, they are paired t o by t o %t o times : 71.&. The band idth in a cell depends on the si.e of the cell. The lar"est cells, called macro@cells, ha!e a radius of about one 'ilometer and are limited to 99> (bit5s. Smaller cells, called microcells, are as small as >== meters in radius and can pro!ide up to +A> (bit5s. To pro!ide hi"her@le!el data ser!ices an operator needs a third layer of e!en smaller cells, called pico@cells, ith a radius of ?: meters. #nly at this distance, and then only to almost stationary users, is it possible to pro!ide 8 7bit5s. In addition, the aforementioned band idths are shared by all users in the cell. If the total band idth is +A> (bit5s in a cell, it can support 8> phone calls %at 9; (bit5s& or si6 lo @end !ideo ser!ices %at ;> (bit5s&. It is unli'ely that data ser!ices abo!e ;> (bit5s ill be offered if a layer of pico@cells is not used. #perators that hold three paired carriers are the only ones that can build all three layers of cells and probably the only ones that ill pro!ide hi"h@speed data ser!ices. The operators that are struc' ith only t o paired carriers ill not play in the same lea"ue.K 7ontelius, /ohan, J$S7 Subscribers to Carry Cost of U7TS *icense )eesK, /upiter 7edia 7etri6, September 9A, 8===, p.9.

8;

GSM Case Study

orld ide in confidently deployin" I7T@8=== net or's and ser!ices. 7a'in" use of e6istin" mobile and mobile@satellite freDuency allocations, it does not preclude the use of these bands for other types of applications or by other ser!ices to hich these bands are allocated I a 'ey factor that enabled the consensus to be reached. Fhile the decision of the Conference "lobally pro!ides for the immediate licensin" and manufacturin" of I7T@8=== in the common bands, each country decides on the timin" of a!ailability at the national le!el accordin" to indi!idual need. This fle6ibility ill also enable countries to select those parts of the bands here sharin" ith e6istin" ser!ices is most suitable, ta'in" account of e6istin" licences. ;+

3#A

T$% 3G M&r,%t

As the path to U7TS in particular is ine6tricably lin'ed to the history of $S7, it is interestin" to loo' at hat factors ere dri!en by $S7 penetration, and ho they ha!e impacted the forecasts and "eneral mar'et conditions for +rd "eneration mobile technolo"ies. (ey dri!ers and Lustification for the e6orbitant sums spent on +$ spectrum licenses lie partly in aspects such as those featured belo . #ne ay of "au"in" the li'elihood of +$Cs success is to loo' at one of its closest forerunners4 S7S !ia $S7. Some consider it to be the best indicator of the money@"eneratin" potential of the mobile internet, assumin" that S7S usa"e can be easily translated to demand for data on mobile de!ices. The idespread success of S7S in Festern Gurope contributed si"nificantly to mobile data re!enue in 9<<< and sho ed that consumers ill use mobile phones for more than Lust !oice. 7ost importantly I in terms of its potential implications for I7T@8=== I it must be recalled that S7S as a !alue@added ser!ice inno!ation hich could not ha!e been predicted hen the ser!ice as first launched in the 9<<=Cs. The $S7 Association estimated that $S7 net or's transported one billion messa"es orld ide in #ctober 9<<<, and S7S re!enue apparently comprised a si"nificant portion of o!erall ser!ice re!enue fi"ures in more mature mar'ets such as )inland and Nor ay. ,y Becember, !olume as up to t o billion, and by 7arch 8=== it as o!er three billion. Some := billion te6t messa"es ere sent orld ide in the first three months of 8==9 aloneN Jsome 8:.+ billion S7S te6t messa"es ere sent in the first t enty@se!en days of /une 8==9.K;> $artnerCs BataDuest e6pects S7S usa"e and re!enue to continue to "ro stron"ly across Festern Gurope durin" the ne6t t o years, thou"h )orrester actually sees a sli"ht decline I from AP to ?P in 8==+ I as other forms of data traffic "ain precedence on mobile net or's. %See )i"ure +.>& $lobal income from te6t and messa"es in 8==9 is e6pected to reach Z9A.< billion on total mobile phone re!enues of Z>== billion, accordin" to research "roup #!um.

F"- r% 3#E: Vo"!% Tr&(("! ='# D&t& Tr&(("! For%!&'t"n1o ill operator re!enues brea' do n in 8=== and 8==+E
8===
3oice Traffic S7S 7obile Internet 2e!enues Bata Traffic Content Ser!ices e @Commerce Commissions Ad!ertisin" )ees <=P AP +P 8P =P =P =P

Bata and 3oice 2e!enue )orecasts, Festern Gurope %billion&

8==+
;AP ?P 8:P 9>P >P +P +P

0160 0140 0120 0100 080 060 040 020 00 1998 1999 2000 2001 2002 2003 2004
Source: Gartner 3ata4uest
(ata 1oice

Source: 0orrester 1esearch

$artner $roup e6pects that by 8==>, mobile data in Festern Gurope ill be a principal dri!er of increasin" re!enue, accountin" for appro6imately ++P of mobile ser!ices re!enue, up from +P durin" 9<<<. %See )i"ure +.>& ,y 8==: 999 million customers I ;+P of all subscribers I ill access the mobile internet at
;+

;>

JForld 2adiocommunication Conference concludes on series of far@reachin" a"reementsK. ITU -ress 2elease, /une 8, 8===. *in'4 http455 .itu.int5ne sarchi!e5press5releases58===59+.html. 3an $rins!en, *ucas. J7obile 0 Satellite4 No'ia +$ "uru cites S7S as 'ey to ireless eb successK. 2euters, /une 8A, 8==9.

8?

GSM Case Study

least once monthly !ia push, pull and *,S, addin" to carriersC top line re!enues. ;: JFithout doubt, data is becomin" increasin"ly important for operators. 3odafoneCs B8, for e6ample, deri!es 9;P of re!enue from mobile data and 99P of SoneraCs mobile re!enues are from S7S. *oo'in" for ard, 3odafone e6pects data ser!ice to account for more than 8:P of re!enues by 8==>.K ;; U'%r B&'% For%!&'t': )urther e!idence of stron" forecasted mar'et "ro th lies in the e6pandin" mobile user base, as illustrated by the ITU belo . As e!ident from analysis of the $S7 mar'et in the pre!ious chapter, it is Duite lo"ical to assume that $S7 de!elopment and "ro th has stron"ly influenced the e6tent of "lobal cellular penetration. The number of orld ide mobile phone subscribers is predicted by some to reach A8= million by 8==9, and there are li'ely to be more than a billion mobile users by 8==+, and more than 8 billion in the ne6t 9= years. ;? Accordin" to the ITU, at the start of the last decade there ere Lust o!er 9= million mobile cellular telephone subscribers around the orld, and this fi"ure had "ro n by almost ?= times to o!er ?8: million by the be"innin" of this year %8==9&. $ro th has been steady at an a!era"e of :=P per year since 9<<;. In Gurope alone, mobile penetration e6ceeded >=P of the adult population at the end of 9<<< a a fi"ure that is li'ely to rise to ?=P by 8==:. ;A Accordin" to yet another source, the mobile penetration rate for Gurope currently stands at appro6imately ;=P and is forecast to "ro to almost A=P by 8==>. ;< At current "ro th rates, the number of mobile subscribers ill surpass that of fi6ed telephones in the middle of this decade %see )i"ure +.:&. There are +: mar'ets I both de!eloped and de!elopin" I here this transition has already ta'en place %see Table +.+&. In de!elopin" countries, competition and pre@paid cards are pro!in" a po erful combination for dri!in" mobile "ro th. The rise of mobile in de!elopin" countries in particular is perhaps most po erfully su""ested by the fact that based on current "ro th, China ill surpass the United States and emer"e as the orldXs lar"est cellular mar'et sometime this year %see )i"ure +.;&.

F"- r% 3#10: F"9%d &nd Mo)"*% L"n%'B FB"- P"!t r%0 &nd FC*o'%r U/0
1200 970 848 Subscribers ,2illions. 800 574 606 645 692 740 794 650 472 319 145 11 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 Mobile cellular subscribers ,2illions. 3i4ed tele!+one lines ,2illions. 16 23 34 55 91 214 906 1'115 1'000 1000

600

520

546

400

200

Source International eleco!!unication "nion

T&)*% 3#2: E!ono4"%' 6$%r% Mo)"*% P$on%' <&=% O=%rt&,%n F"9%d On%'
1EE3
Cambodia

1EED
)inland

1EEE
Austria I!ory Coast 1on" (on" SA2 Israel Italy

2000
,ahrain ,el"ium ,ots ana Chile Gl Sal!ador -hilippines 2 anda Sene"al Seychelles Sin"apore

;: ;;

;? ;A ;<

7cCarthy, Amanda. J7obile Internet 2ealitiesK. )orrester 2esearch 2eport, 7ay 8===. ,ratton, Filliam, /ameson, /ustin, and -entland, Stephen. JAnalysis4 +$ madness I time for some moderationbK otal ele'co!, /uly 9;, 8==9, p.8. JThe U7TS )orum I Shapin" the 7obile )uture.K #ctober 8===. p.+. *in'4 http455 .umts@forum.or"5brochures5U7TS.pdf. ,utler, Andre . JSer!er Selection Strate"ies for FA-K, $artner $roup. /une 9+. 8===. JGuropean #!er!ie K. )rost 0 Sulli!an 2esearch. 8==9, p.8@9.

8A

GSM Case Study

(orea %2ep. of& -ara"uay -ortu"al U"anda 3ene.uela $reece Iceland Ireland *u6embour" 7e6ico 7orocco Netherlands Source4 International Telecommunication Union Slo!enia South Africa Tai an@China Tan.ania United Arab Gmirates United (in"dom

F"- r% 3#11: To/ Mo)"*% E!ono4"%' %8===, millions&

%nited States '+ina :a!an Ger2an) 9tal) %nited -in8do2 3rance -orea ,$e!. 67. S!ain *ra5il

110 85.3 66.8 48.1 42.2 40 29.1 26.8 24.7 23.2

; o7 Subscribers

0
Source: International eleco!!unication "nion

20

40

60

80

100

120

Fhile some e6pect the 8$ pea' to come sooner %bet een 8==9 and 8==8&, others thin' 8$ subscriptions are li'ely to pea' in 8==858==+. The Man'ee $roup e6pects 8.:$ subscriptions to start a slo di!e around 8==>, hile Analysys and +$ *ab see such a decline from 8==A on ards %based on computer modellin" of orld ide 858.:5+$ mar'ets&.?= 7ost analysts seem to identify +$Cs Hcritical massC period as li'ely bet een 8==> and 8==;. %See )i"ure +.?& Insofar as these estimates could be based on subscribership dri!en by factors li'e the a!ailability of handsets, )i"ure +.? offers a compellin" illustration of the potential dynamic bet een the !arious 8$, 8.:$, and +$ technolo"ies.

F"- r% 3#12: 6%'t%rn E ro/%&n C%** *&r U'%r' )7 T%!$no*o-7B 1EE3-200231

350 300 250 200 150 100 50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
2G 2.5G 3G

Source: he 5an%ee Group6 2..1

Some belie!e the demand for mobile internet ill come from corporate clients reDuirin" mobile e@mail, Intranet, customer profiles, credit details and stoc' prices. #thers thin' the transactional capabilities of +$ ill ensure the re!enue@"eneratin" potential. Total mobile internet subscribers are estimated to reach nearly
?= ?9

JFireless4 2idin" its luc' into +$K. Mobile Matters, )ebruary 8==9. p.:+. J+$ in Gurope4 G6pensi!e but GssentialK. The Man'ee $roup. The Man'ee 2eport 3ol.: No.A @ /une 8==9.

8<

GSM Case Study

9?? million by 8==:. %See )i"ure +.A& Correspondin" mobile internet re!enues are e6pected to "ro Z:.+ million in 8=== to Z+.A billion in fi!e years.?8

from

F"- r% 3#13: Mo)"*% B7 t$% N 4)%r': P%n%tr&t"on 2000 G 200A 14"**"on'5

200 180 160 140 120 100 80 60 40 20 0
8.2 0.3 29.4 2.9 17.4 69.6 48.1 103.3 83.8 135.3 119.8 120.1 150.2 152.4 111.2 163.8 176.9 171.1

2000

2001

2002

2003

2004

2005

Mobile data users

Total Mobile 9nternet Subscribers

9nternet< nabled &andsets

Source: 0orrester 1esearch

7obile connections in Festern Gurope are e6pected to "ro from 9:>.9 million connections in 9<<< to +8:.+ million connections in 8==>, and penetration is forecasted to increase from >=P in 9<<< to about A<P in 8==>. %See Table +.>& -repaid customers, as mentioned abo!e, are most li'ely to dri!e "ro th in the forecasted period. *o er prices for !oice ser!ice ill also dri!e connection "ro th as more cost@conscious consumer customers are tar"eted. A recent study into the ser!ice re!enue opportunities o!er the ne6t decade for the +$ mobile mar'et conducted by the U7TS )orum predicts a Compound Annual $ro th 2ate %CA$2& for + 'ey +$ ser!ices I namely Customi.ed Infotainment, 7obile Intra5G6tranet Access and 7ultimedia 7essa"in" Ser!ice I of o!er 9==P durin" the forecast period, ith total re!enues for these + forecasted ser!ices of o!er US Z9;> billion by 8=9=.?+ T&)*% 3#3: S 44&r7 For%!&'t (or Mo)"*% S%r="!% "n 6%'t%rn E ro/% 1to 200.5
Total 'onnections ,t+ousands. >nalo8 'onnections ,t+ousands. (i8ital 'onnections ,t+ousands. #re!aid 'onnections ,t+ousands. #ost!aid 'onnections ,t+ousands. Total Ser?ice $e?enue ,0t+ousands. Total (ata $e?enues ,0t+ousands. Total >?era8e $e?enue #er %nit
Source4 $artner BataDuest %7ay 8===&

1999 154=112.3 5=704.7 148=407.5 75=294.9 78=817.4 064/048/845.2 02/150/111.5 0521.4

2000 2004 211=862.0 325=283.0 3=696.9 36.7 208=165.1 325=246.3 117=899.1 198=590.1 93=962.9 126=692.9 084/558/884.5 0139/899/264.0 06/142/510.1 045/608/645.9 0462.1 0439.4

1o the !arious data and penetration forecasts ill ultimately translate to re!enues, specifically throu"h the facilitation of channels li'e mobile commerce, remains to be seen. ,ased on the information pro!ided belo in Table +.:, it appears that by 8==:, Asia ill be Duic' to adopt m@Commerce %"eneratin" re!enues of USZ<.> million, nearly ;=P of hich ill be led by /apan&, follo ed closely by Festern Gurope %"eneratin" re!enues of USZ?.A million&, and more slo ly trailed by North America %"eneratin" re!enues of USZ+.: million, <>P of hich ill be US@led&. ,y 8==:, it appears that USZ88.8 million dollars of re!enue ill be "enerated "lobally as a result of transactions made possible by mobile de!ices.
?8 ?+

7cCarthy, Amanda. J7obile Internet 2ealitiesK. )orrester 2esearch 2eport, 7ay 8===. Gylert, ,ernd Br. JU7TS4 7a'in" 7obile 7ultimedia 1appen for G!ery NationK. Be!elopment SummitK ITU, GM@p.8.

U7TS )orum, U(.

J-olicy and

+=

GSM Case Study

T&)*% 3#D: G*o)&* Mo)"*% Co44%r!% R%=%n %'B 2000 - 200A 1USD 4"**"on'5 R%-"on 2000 2001 2002 2003 200.
Nort$ A4%r"!& 6%'t%rn E ro/% A'"& L&t"n A4%r"!& Ot$%r G*o)&* US 8&/&n =.= =.= =.> =.= =.= 0#. =.= =.> =.9 =.9 9.+ =.= =.= 1#A =.9 9.8 =.8 =.: 8.; =.= =.9 3#. =.8 8.9 =.? 9.? :.= =.9 =.8 3#2 =.; +.: 9.A >.; ?.> =.8 =.> 1.#A 9.? >.:

200A
+.: ?.A <.> =.: 9.= 22#2 +.+ :.:

Source4 /upiter 2esearch?>

3#2

3G L"!%n'"n- Po*"!"%'

The ma"nitude of +$ HhypeC, aside from its focus on forthcomin" ser!ices, is best e6emplified by the debate o!er allocation methods for the scarce resource desired by e!ery operator @ spectrum. F@CB7A net or's ill operate in a ne ran"e of freDuencies hi"her than most 8$ systems, and thus +$ mobile ireless net or's ha!e ushered in a momentous ne round of spectrum licensin". Therefore, any comparati!e !ie of 8nd "eneration $S7 ith +rd "eneration I7T@8=== is incomplete ithout addressin" this costly aspect of mobile roll@out4 license acDuisitions.?: Any operator ith an established $S7 net or' and a sta'e in mobile mar'ets has been reDuired to obtain a +$ spectrum license. Fith established $S7 net or's and shares of mobile mar'ets, operators ha!e had little choice but to Loin in the race. In terms of license allocation methods, t o ha!e thus far been amon"st the more prominent4 auctions and beauty contestsN the differences inherent in these processes ha!e brou"ht about tremendous !ariation in the prices associated ith spectrum. Auctions ha!e been supported for the full transparency they brin" to the allocation procedure, and for the ei"ht they "i!e to the Xdependable mar'etC as selector of H innersC. -rice is seen in this conte6t as an obLecti!e selection criteria, and one that is supported on the assumption that the money raised is actually close to the real economic !alue of such the license in Duestion. The fact that price is directly oriented upon demand someho lends credibility to e!en the most astronomical of !aluations %at least accordin" to some die@hard economists&, "i!in" the impression that ris' is someho miti"ated amidst mar'et trends Lustifyin" e6tremely promisin" upta'e of mobile ser!ices in comin" years. )inally, auctions are purported to offer more fle6ibility for the operatorsC roll out, co!era"e and mar'et de!elopment. Some economists %clearly proponents, for e6ample, of the aforementioned U( auction& belie!e that the enormous upfront costs of buyin" licenses ha!e .ero impact on the future prices +$ operators ill be able to char"e their customersN they are percei!ed to be the Hsun' costsC that operators should simply absorb as part of their strate"y. ,eauty contests, on the other hand, are easier to follo , as ell as more malleable in terms of bein" used as tools to ard the implementation of special re"ulation %social or re"ional policy& "oals. They "rant more control for "uidance to the re"ulator of the process !is@a@!is itsC result, and also "i!e a more fle6ible definition to the licensin" obLect. Accordin" to an article last year in 2ed 1errin" 7a"a.ine, license allocation based on merit and not price ta" is one that is unDuestionably fa!ored by industry. JT Industry fa!ors this approach, frettin" that hu"e license fees ill slo deployment of the costly +$ infrastructure and hold bac' mass adoption as the added cost is passed on to subscribers.K ?;

?>

?:

?;

*ocated at J$lobal 7ar'et Statistics for 7obile Commerce, -art IIK, *in'4 http455 .can!asdreams.com5!ie article cfmE articleidU<>+. )urther elaboration is presented in +$ or'shop case study4 J*icensin" of Third $eneration 7obile4 ,riefin" -aperK presented by Br. -atric' ^a!ier, School of ,usiness, S inburne Uni!ersity of Technolo"y, 7elbourne, Australia. Cu'ier, (enneth and 1ibbard, /ustin. JSpectrum Shorta"eK. 1ed 7erring Maga8ine, September 9, 8===.

+9

GSM Case Study

3#2#1 T$% E ro/%&n E9/%r"%n!% The race to +$ is undoubtedly about spectrum, and it is notable that this priority as not as contro!ersial hen $S7 as bein" prepared for deployment. 7uch of this has to do ith the fact that the maLority of $S7 licensin" as e6ecuted by -TTCs in a beauty@contest fashion. This past year alone, ho e!er, Guropean net or' operators ha!e for'ed o!er in e6cess of Z9== billion for spectrum in the race to offer ne6t@ "eneration mobile ser!ices, ith the hope that +$ ill be a re!olution to ard stron" "ro th and mar'et stability. It became clear, particularly throu"h the auction method of license allocation, that incumbents ere by and lar"e unprepared to "i!e up their mar'et positions in mobile telephony, at least in main Guropean mar'ets. In the United (in"dom, fi!e companies committed to payin" a total of c88.: billion %Z+:.> billion&. In $ermany, si6 companies committed to payin" B7<A.A billion %Z>:.A: billion&. The e6orbitant prices in the United (in"dom and $ermany ere determined in the end by ho hi"h prospecti!e ne entrants ere prepared to bid. )or smaller operators in smaller mar'ets, the consolation as that the auctions left no funds a!ailable for smaller mar'ets, allo in" for smaller operators to be left alone at least in the short term. G!en the lar"e operators ould hit limits of financin" after committin" hu"e amounts in the main mar'ets. #n the surface, the auction model seems to be a "reat ay for "o!ernments to hand out temporary monopolies on radio freDuency, lea!in" the free mar'etCs Hin!isible handC to point to the Hri"ht priceC. 1o e!er, the burden of responsibility for operatorsC incurred costs and the probabilities for operations in the HredC has potentially dire conseDuences for the seamless inte"ration of +$ ser!ice offerin"s around the orld. Is it so unli'ely, after all, that the hi"h prices of licenses in some countries ill not spill o!er on the countries that decided to part ith their air a!es at more do n@to@earth prices by adoptin" the Hmerit@basedC approachE A maLor feature of $S7, after all, as that it as possible to harmoni.e pan@Guropean deployment in a ay that did not compromise ultimate price offerin"s for the customers. The bottom line ho e!er, as most see it, rests on the ho much the costs incurred by operators ill affect the a!era"e prices that must be char"ed to end@customers, such that operatin" e6penses can be absorbed. %See )i"ure +.<& ,ased on the "raph belo , it is interestin" to note the H a!eC of the price trend o!er time from top to bottom, as countries are listed in the order that they allocated their licenses. Fhile to some it may appear suspiciously similar to the !olatility of recent telecom mar'et sector conditions, to others it is rationali.ed as deliberate and proportional to the tar"et mar'et opportunities of the respecti!e nations. The Gconomist, for one, seems to belie!e that re"ardless of the price pea's, mobile ireless ser!ices ill not be inhibited Jbecause the indebted inners ould Hha!e the stron"est possible incenti!e to roll out ne ser!ices to recoup their money as fast they can.CK??

F"- r% 3#1.: A=%r&-% Co't o( 3G L"!%n'% P%r Po/ *&t"on

00
S!ain 3@2000 %nited -in8do2 3@2000 Ger2an) 7@2000 Aet+erlands 7@2000 9tal) 10@2000 >ustria 11@2000 Aorwa) 11@2000 -orea ,$e!. 67. 12@2000 #ortu8al 12@2000 Swit5erland 12@2000 Sweden 12@2000 'anada 1@2001 Aew Bealand 1@2001 >ustralia 3@2001 *el8iu2 3@2001 074 >uction 010 *eaut) 'ontest 065 *eaut) 'ontest 036 *eaut) 'ontest 016 >uction 05 *eaut) 'ontest 048 >uction 013 >uction 018 >uction 041 >uction 0157 >uction 0176 >uction

0100
011 *eaut) 'ontest

0200

0300

0400

0500

0600

0592 >uction 0558 >uction

Source: International eleco!!unication "nion

??

Cu'ier, (enneth and 1ibbard, /ustin. JSpectrum Shorta"eK. 1ed 7erring Maga8ine, September 9, 8===.

+8

GSM Case Study

)rom another perspecti!e, the hi"h prices paid for licenses reflect simply an intense and artificially@ supported demand based on restricted supply, not ta'in" into the account the profit potential of +$ spectrum after the costs of deployin" necessary net or' infrastructure are met. Bresdner (lein ort ,enson declared of auctions4 Ja capital constraint has been created, inhibitin" the "ro th prospects of the Hmobile multimedia societyC and ele!atin" the business ris's.K ?A Certainly, the "oal of ma'in" ample amounts of spectrum a!ailable for industry as economically as possible is some hat conflictual !is@[@!is "o!ernmentsC "oals to ma6imi.e incomin" re!enues. The allocation of +$ licenses challen"es "o!ernments to mediate bet een di!er"ent public interest obLecti!es4 cashin" in on their role as arbiters of radio spectrum, !ersus promotin" competition and distributin" the resource. Is it feasible or fair to loo' at the financially ra!a"ed operators as simply the bearers of some rather hi"h Hsun' costsCE In other ords, are their e6penditures simply to be absorbed into normal operatin" costsE Is it realistic to consider them the unsuspectin" !ictims of ne6t@"eneration technolo"ies, ithout assumin" that consumers ill be spared this tremendous cost burden, as depicted in )i"ure +.?. Surely, operators ill ha!e to postpone idespread ser!ice offerin"s until scale economies are applicable to rele!ant eDuipment. 1o , ithout some price brea's amidst e6orbitant roll@out costs, ill H innersC be able to Jrecoup their money as fast as they canKE Accordin" to 7artin ,ouy"ues, CG# of ,ouy"ues Telecom, operators face a choice bet een a fast death and a slo death4 JT if they donCt secure a license re"ardless of their price, the stoc' mar'et decimates the companyN if they in, the company bleeds itself o!er the licenseCs lifetime %usually 9: to 8= years& as it stru""les to ma'e a profit.K?< Gssentially, they are Hloc'ed inC to ma'in" tremendous e6penditures. Concerns o!er the ability of telcos to ma'e reasonable 2#I %return on in!estment& ha!e resulted in a si"nificant reduction in the a!ailability of in!estment funds, hich has in turn increased mar'et an"st. This reflects the ma'in"s of a !icious cycle, hich is compounded by articles and commentary comparin" +$ as a potential ri!al to the no @defunct Iridium mobile satellite systems proLect. A= Surprisin"ly, ho e!er, >=P of respondents in a sur!ey of operators conducted by the A2C $roup belie!ed that the +$@licence auction process ould ha!e no effect on the rollout of ne6t "eneration net or's. A9 Interestin"ly enou"h for free@mar'et optimists, it is amidst those countries in hich licenses ha!e been a arded on merit %as opposed to mar'et@based solutions& that ser!ices actually appear set to start sooner. And certainly, the comparati!ely smooth roll@out of $S7 in the early 9<<=Cs confirms the hypothesis underlyin" this point. Such countries include )inland, S eden, /apan, and (orea. #perators in these countries ha!e the lu6ury of usin" the financial resources that they did not ha!e to e6pend on the acDuisition of licenses, for buildin" out infrastructure for +$ ser!ices. %See Section >.+.8 for further discussion of deployment costs&. It is ironic, "i!en a climate characteri.ed by mistrust of re"ulators and "o!ernment inter!ention, that the e6ample of /apan illustrates a country poised to pro!ide ser!ices faster %and potentially cheaper& due to e6actly those inter!entionist policies that run counter to Hfree@mar'et principlesC. /apanCs calculated besto al of three licenses to transmit !oice and data in unoccupied freDuencies upon its three incumbent operators I /@-hone, (BBI, and NTT BoCo7o I as perhaps Lust hat the country needed to "i!e it a chance at a decisi!e lead o!er estern counterparts. None of these operators had to pay up@front feesN they pay only radio@usa"e per subscriber per year, hich add up to nothin" much compared to the soarin" auction prices in Gurope. Naturally, operators in such an en!iable position can defer capital that ould other ise "o to the "o!ernment, and in!est in eDuipment, net or'@buildin" and speedy ser!ice deployment. NTT BoCo7oCs launch delays, thou"h still less far off than others, are still, ho e!er, cause for concern for +$ roll@out in "eneral. Concerns are !alid, as earlier predictions about the ran"e of +$ ser!ices ere premature. As time passes, the ide di!er"ence in the results of license allocation methods becomes more and more prominentN most recently, the *iechtenstein@based Telecom )* actually decided not to e6ercise its ri"ht to a free U7TS license in the country, sayin" that it as unhappy ith the terms of the license and thereby becomin" the first company to decide not to accept its +$ license. A8 The case of 1on" (on" is also an interestin" one4 a royalty@based payment scheme as recently introduced, intended to minimi.e the financial
?A ?< A= A9

Cu'ier, (enneth and 1ibbard, /ustin. JSpectrum Shorta"eK. 1ed 7erring Maga8ine, September 9, 8===. Cu'ier, (enneth and 1ibbard, /ustin. JSpectrum Shorta"eK. 1ed 7erring Maga8ine, September 9, 8===. JThe Findin" 2oad to +$K. \BNet 7a"a.ine. *in'4 http455 ..dnet.com5e ee'5stories5"eneral5=,99=99,8?99>+8,==.html. J#perators G6press Concern #!er 1andsetsK Arc $roup, /anuary 9;, 8==9. *in'4 http455 .arc"roup.com5 press85cutQconcernhandsets.htm.

++

GSM Case Study

burden on operators by creatin" a schedule of minimum payments, hich minimi.es the "o!ernmentXs credit ris', but still allo s it to share in the potentially lucrati!e aspects of the +$ business. Under the scheme, each licensee in 1on" (on" ill pay the same percenta"e royalty on its future net or' turno!erN this represents a compellin" and thus far uniDue compromise. It is also remar'able to note that )inland actually issued their licenses free, representin" a far cry from the $ermany and United (in"dom auctions. It is as yet uncertain ho the conseDuences of these di!er"in" license allocations methods ill be manifested in the I7T@8=== mar'etplace. 3#2#2 T$% A4%r"!&n E9/%r"%n!%

9(e :!ericans are a ;aunty and self<satisfied bunch6 inclined to belie/e that if it ain=t happening here6 it ain=t happening any$here 2 yet there=s one critical area of online technology $here $e=re getting s!o%ed: $ireless'> *3 ? @a!es 3aly6 Ausiness 2'.' 9Industry eBecuti/es and analysts Cin the "'S'D2 Care accusingD2 the go/ern!ent of i!perilling inno/ation6 consu!er choice and econo!ic gro$th by failing to open the air$a/es'>*E

It is of particular interest to elaborate briefly upon the American stance to ard spectrum allocation, for the current implications it represents for "lobal uniform freDuency utili.ation and the American mobile ireless mar'et are not insi"nificant. Althou"h it is not untrue that American technolo"ical pro ess rests on its ability to roll out the ne6t "eneration of ser!ices, the federal "o!ernment has certainly yet to deli!er hat the industry needs most to reali.e its future4 the ri"hts to transmit si"nals throu"h its air a!es. -rior to 9<<+, federal re"ulators ould accept applications from companies loo'in" to use the public air a!es for thin"s li'e tele!ision broadcastin" or radio communications. If the proposed use as deemed to ser!e the public interest, and if there ere no superior proposals from ri!al companies, the "o!ernment simply "ranted the license. After 9<<+, hen Con"ress decided that the air a!es could be better allocated throu"h a more free@ mar'et@style auction process, licensin" spectrum became a multi@billion@dollar "o!ernment business. A: The )CC has thus far postponed three times an auction of air a!es initially planned for last #ctober, to allo bidders to sort out the spectrumCs !alue. This is a process frau"ht ith o!erlappin" claims from tele!ision broadcasters. Auctions no are not li'ely to occur before 8==+. Current spectrum holders, includin" U1) tele!ision broadcasters and the Bepartment of Befense, ill continue to resist the re@ allocation of these air a!es until they can find a ay to moneti.e them. Unli'e Gurope, the U.S. did not desi"nate particular bloc's of spectrum for +$ ireless net or'sN the auctions to come ill sell off spectrum in the ?== 71. band, hich o ners ill be able to utili.e in a !ariety of ays. Bespite -resident ClintonCs e6ecuti!e order in the )all of 8=== directin" federal a"encies to identify and ma'e a!ailable ne spectrum for the oncomin" a!e of sophisticated ne ser!ices, the most attracti!e slices continue to be controlled by the Befense department. The radio bands in the U.S. thou"ht to be most suitable for +$ are controlled in part by the -enta"on, hich uses them for a !ariety of purposes, includin" communications ith intelli"ence@"atherin" satellites. Coa6in" current occupants of these slices of radio spectrum is an e6tremely ei"hty tas'N in April, the Bepartment of Befense reported that it ould ta'e Jas lon" as 8=9= for non@space systems and beyond 8=9? for le"acy space systems to !acate the rele!ant spectrumT band@sharin" is not an option Rfor security and interference reasonsS, nor is relocation unless the ireless industry ma'e comparable spectrum a!ailable and foots the bill for mo!in" costs, hich could total Z>.+ billion.KA;

A8

A+

A>

A:

A;

JCompany declines free +$ licenseK. /uly +9, 8==9. *in'4 http455 .cellular@ne s.com5c"i@bin5database5 search.c"iE ran"eU9=0termUfree_$S7_license0optionU80caseU=. Baly, /ames. JStateside Fireless $affesK, #ctober <, 8===. ,usiness8.=. *in'4 http455 .business8.com5articles 5 eb 5 =,9;:+,9:=?=,)).html. $oodman, -eter S. JA -ush for 7ore )reDuenciesK, (ashington Post, )ebruary 8A, 8==9. *in'4 http455 . ashtech.com5ne s 5telecom5?<9A@9.html. $lasner, /oanna. JFhen Air IsnCt )reeK, (ired #e$s, September 98, 8===. *in'4 http455 . ired.com5ne s5print 5 =,98<>,+A;;<,==.html. JIn!esti"ation of the )easibility of Accommodatin" the International 7obile Telecommunications %I7T& 8=== Fithin the 9?::@ 9A:= 71. ,andK, )ebruary <, 8==9, *in'4 http455 .disa.mil5d+5depdirops5spectrum5Contents5imt@8===report5 G6ecuti!eSummary.pdf.

+>

GSM Case Study

Apparently, federal authorities ha!e made a!ailable only about half as much spectrum as their )rench, ,ritish and /apanese counterparts. Not only does the U.S. ha!e half the a!ailable spectrum of most other countries, but it also has a cumbersome spectrum cap of >: 71. per mar'et, per carrier. As a result, maLor American ireless carriers are no in the midst of a fierce lobbyin" campai"n for ne freDuencies, hile callin" for an end to the federal limits on ho much spectrum can be o ned in a sin"le mar'et. JAccordin" to the CTIA, the number of minutes used by ireless customers multiplied by a factor of 9+ from 9<<+ to 8===, hile the amount of spectrum the "o!ernment released for use less than tripled.K A? Fhile some use this as point of departure a"ainst the spectrum cap ar"ument, others see this lo"ic as fla ed, "i!en the enhanced spectrum efficiencies that di"ital technolo"ies help to create. If nothin" else, this si"nals that maintainin" artificially imposed caps on spectrum o nership may ell ha!e dire conseDuences for the strate"ic positionin" and de!elopment of +$@associated content, applications, and infrastructure pro!iders. Unli'e in Gurope, ith its uniform mobile ireless standard based on $S7, North America %and the U.S. in particular& currently uses TB7A, )B7A, $S7 and CB7AN ith these four e6istin" platforms, the path is nothin" if comple6. Gssentially, North American ireless pro!iders must "amble on hich +$ platform ill be most ad!anta"eous to implement. ,oth CB7A 8=== and FCB7A still ha!e stron" potential. AA 3#2#3 T$% A'"&-P&!"("! E9/%r"%n!% The Asian e6perience ith spectrum allocation has been some hat less problematic than the North American or Guropean, mainly because there ha!e been fe er concerns of o!erlappin" +$ spectrum ith e6istin" allocated freDuencies, and because spectrum has not been fetchin" the types of e6orbitant sums as seen in Gurope. $o!ernments ha!e learned from GuropeXs e6periences, and ha!e been modest in their proposals for spectrum license feesN in turn, operators ha!e been cautious about net or' construction costs and time scales. $o!ernments in Asia5-acific ha!e simply been less ea"er to ma6imi.e re!enue from a ardin" for I7T@8=== licensesN as a result, they ha!e been far less e6pensi!e. Ne \ealandXs auction of 8$ and +$ spectrum, hich started the ball rollin" for the license process in Asia5-acific, netted final bids totallin" N\Z9++.:A million %Z:<.; million& in /anuary 8==9N it as the lon"est licensin" auction at the time %it started in /uly 8===&, and it led to some of the cheapest licenses allocated. Compared ith the number of 8$ users, the total of the proceedin"s represents USZ+:.: per user, a far cry from the amount raised in some Guropean countries. A< Sin"aporeXs +$ licensin" process recently concluded ithout any competiti!e biddin", ith inners al'in" a ay ith +$ licenses by payin" SZ9== million %USZ::.; million& each. In Australia, the total cost of +$ licenses as Lust AP more than the AZ9.=A billion %USZ:>+ million& reser!e price. Accordin"ly, $artnerXs research has re!ealed that +$ license cost in Asia@-acific is about 9= times less e6pensi!e than that in Gurope. <= /apan represents the most attracti!e mar'et for +$ de!elopment, as +$ licenses there ha!e been issued at no cost e!en thou"h cellular A2-U %a!era"e re!enue per user& fi"ures are amon" the hi"hest in the orld. /apan also currently leads the race to pro!ide mobile Internet access in Asia5-acific, ith South (orea close behind. #f the re"ionXs mobile ireless Feb ser!ice subscribers, ?:P are in /apan and 8+P in (orea. The remainin" 8P of users are spread amon" all the other 'ey mar'ets in Asia5-acific.<9

A?

AA

A<

<=

<9

$oodman, -eter S. JA -ush for 7ore )reDuenciesK, (ashington Post. )ebruary 8A, 8==9. *in'4 http455 . ashtech.com 5ne s5telecom5?<9A@9.html. Sprint -CS and 3eri.on Fireless are conductin" field trials of CB7A 8=== 9^2TT, in the hopes to be the first ones to roll out +$ in the US. 3oiceStream and AT0T are ta'in" the FCB7A route. )rom a standards mi"ration perspecti!e, the conseDuences of AT0TCs decision last year to adopt $S7 technolo"y and its e!olutionary path ay to FCB7A a ay from GB$G in the U.S. ha!e been !ery si"nificantN AT0T has had to build a second net or' %o!erlay& based on $S7 technolo"y and follo the $S7 +$ path ay to +$. %This is based on the assumption, ho e!er, that GB$G is considered to be a +$ solution eDui!alent in perception to F@CB7A.& AT0T and their TB7A partners ill essentially be cappin" their in!estments in their TB7A net or's and deployin" ne base stations at their e6istin" cell sites. Oualcomm, hich ould appear to ha!e the most to lose %on the surface& from this F@CB7A dominance, has certainly not been ta'in" these challen"es sittin" do nN 3eri.on and Sprint -CS are also staunch defenders of cdma8===. It should be noted ho e!er, that Oualcomm earns appro6imately >P royalties on all types of CB7A products. ,idaud, ,ertrand. J)irst Asia5-acific +$ Auction Completed4 $artner BataDuest AnalysisK, eleco!!unications ele/ie$s, Issue >, /anuary 8:, 8==9. JAsia@-acificXs lo +$ licensin" costs benefit +$ de!elopmentK. C7-netAsia Team. April 9<, 8==9. *in'4 http455 .asiatele.com53ie Art.cfmEArtidUA;:=0catidU;0subcatU;8. /ohnson, $eoff. J*essons in 7obility from Asia5-acificK. $artner $roup 2esearch, /uly 98, 8==9.

+:

GSM Case Study

Countries in Asia@-acific are at different sta"es on the e!olutionary path to ards +$. ,roadly spea'in", countries li'e /apan, South (orea, 1on" (on", Tai an, Sin"apore, and Australia ha!e been li'ely to be H+$ early adoptersC, as they already enLoy hi"h@cellular penetration rates and ell@de!eloped mobile ireless mar'ets. #n the other hand, less ell@de!eloped countries in hich 8$ demand has yet to be met I such as China, Thailand, the -hilippines and 7alaysia I are more li'ely to constitute a H8nd a!eC of I7T@8=== adoption.

Co4/&r"n- &nd Contr&'t"n- t$% D%=%*o/4%nt o( GSM &nd t$% Ro&d to IMT-2000

The success of $S7 in Gurope as contin"ent upon a number of factors, not the least of hich as the early and timely coordination of industrial actors, the creation of a full specification platform hich allo ed players to tailor their net or's5ser!ices to different mar'ets % ithout losin" compatibility&, the accessibility of essential technolo"y, and stron" political support !is@[@!is spectrum allocation, standardi.ation efforts, and a re"ulatory en!ironment conduci!e to competition. #ther 'ey factors included, of course, the e6pandability of the system %in e!olution to ards $-2S and GB$G&, the self@or"ani.ation of the mobile operators %into bodies li'e the $S7 Association&, and the creation of the open common platforms, hich fostered competition not on systems, but on eDuipment and ser!ices. This helped to brin" about the possibility of creatin" a mass mar'et complete ith lo ser!ice tariffs and options for cheap eDuipment. Fhere $S7 has succeeded, the "round or' for I7T@8=== has been laidN ho e!er here certain aspects of $S7Cs de!elopment cannot be compared ith todayCs I7T@8=== HissuesC, it appears that the success of the 8nd "eneration -an@Guropean system is not to be ta'en for "ranted. No that o!er t enty countries ha!e a arded +$ licenses %:; across Festern Gurope, to be specific& and o!er ?= +$ infrastructure contracts <8 ha!e been si"ned, it is reasonable to belie!e that Gurope is ell on its ay to offerin" +$ ser!ices. Concerns are spread o!er a !ery broad spectrum of doubt I encompassin" fears that +$ ill not be the financial success it as promised to be, and e!en perhaps that +$ may not ma'e it to the mar'et. Analysts from the Man'ee $roup belie!e that +$ ill undoubtedly come to mar'et, and that from a ser!ice perspecti!e, do so e!en arri!e this year. Althou"h anticipated infrastructure and handset delays are e6pected, coupled ith rather leisurely emer"ent returns on in!estment for operators, these factors ill at best postpone the adoption of +$ rather than si"nal its end. ,elo are some factors hich characteri.ed the de!elopment of $S7, and hich are !ery li'ely to be rele!ant for that of I7T@8=== %and hence U7TS&.

.#1

L%''on' (ro4 GSM t$&t A//*7 to 3G

.#1#1 T$% S$"(t"n- D7n&4"! o( M&Cor P*&7%r' As mentioned abo!e, prior to the liberali.ation in the 9<<=s, Guropean telecom mar'ets ere firmly controlled by national "o!ernments and their respecti!e -TT monopolists. <+ Althou"h the Guropean Community in 9<<+ a"reed to fully open GC mar'ets for telephone ser!ices by the start of 9<<A, most national "o!ernments opted to e6tend their state monopolies until the 9<<A deadline to "et themsel!es fit for competition.<> #ne could ar"ue that this period contributed si"nificantly to the focused de!elopment and deployment of the $S7 system in Gurope. Illustratin" the "eneral comple6ity of the case of $S7, it is necessary to bear in mind the fact that the actors in!ol!ed in the $S7 deployment process chan"ed considerably o!er time. Fhile international deliberations be"an on the le!el of the -TT representati!es, the final bar"ain as struc' by national "o!ernments. Supranational institutions and pri!ate corporations had played 'ey roles e!en before the "eneral a"reement as reached, but their importance "re substantially once it came to implementin" the frame or', determinin" technical specifications and rollin"@out ser!ice.
<8

<+

<>

2oberts, Simone. J+$ in Gurope4 G6pensi!e but GssentialKN Fireless57obile Gurope, The Man'ee $roup, 2eport 3ol. :, No. A I /une 8==9, p.8. This is not to say that in the early 9<<=Cs, Guropean business leaders ere not a are of the potential benefits of liberali.ation. The Guropean Community in 9<<+ a"reed to open fully the GCXs mar'ets for telephone ser!ices by the start of 9<<A, and at that time it appeared li'ely that only si6 of the GCXs 98 member@states %,ritain, )rance, $ermany, Italy, Benmar' and the Netherlands& ould definitely meet the date. J#f T:== senior decision@ma'ers in ei"ht Guropean countries Rin 9<<+S, A:P of the respondents thou"ht that telecoms liberali.ation ould reduce business costs, <9P belie!ed that liberali.ation ould impro!e the ran"e of ser!ices a!ailable and <8P thou"ht that competition ould stimulate impro!ed Duality of ser!ice.K )rom an article by Foolnou"h, 2o"er. J*iberal does of TelecomsK, Electronic Engineering i!es, C7- Glectronics )ile. #ctober >, 9<<+, p.8>. ,eardsley, Scott 0 -atsalos@)o6, 7ichael. J$ettin" telecoms pri!ati.ation ri"htK. he McFinsey Guarterly, /anuary 9, 9<<:. p.+.

+;

GSM Case Study

The process of definin" U7TS I as ultimately a component under the I7T@8=== umbrella @ is !ery much influenced by the fact that it is a ser!ice and a system emer"in" in the aftermath of $S7Cs success in Gurope. The emer"ence of the I7T@8=== !ision as a "lobal one has been facilitated precisely because the $S7 !ision as pan@Guropean %and successful&. Althou"h both concepts ere born not !ery far apart in the 9<A=Cs, one had to de!elop before the other could be reali.ed. And certainly, the Guropean Commission had its $S7 interests to protect hile the ITU as plannin" I7T@8===, and hilst the future for $S7 in the +$ conte6t as still under determination. Accordin"ly, the semblance of a frame or' for a ran"e of rele!ant partnerhips, consortia and interest "roups "radually emer"ed by the time the Hne"otiationsC for technical specifications of the +$ standard started to ta'e place. The GTSI, specifically, as instrumental in assertin" the continuin" crucial position of the $S7 system as ell as itself, as the transition to U7TS@oriented "oals as ta'en under ay. J$i!en that U7TS is in many respects a continuation of the $S7 process ith corporate actors ha!in" assumed some of the roles pre!iously played by the public sector, the Duestion hether GuropeCs success in mobile ireless technolo"y resulted from a particularly fa!orable industrial and political constellation, or hether it is the result of a robust and replicable ICT standardi.ation process, still remains.K <: The Guropean CommissionCs pre!ious concept for $S7 as the result of a mutually beneficial cooperation bet een the public sector and pri!ate@sector consortia %in creatin" technical standards& appears to be or'in" a"ain for U7TS. The same coalition of eDuipment manufacturers, net or' operators, telecommunications administrations and supranational institutions that pa!ed the ay for $S7 has lent its support to U7TS. YContrary to $S7, ho e!er, efforts are led primarily by manufacturers and pri!ate operators ith supranational institutions focusin" on the pro!ision of fora for cooperati!e e6chan"e and... le"al bac'in". K<; It is at least in part due to the pre!iously established unity and stren"th of old $S7 Guropean manufacturers and operators %as ell as institutional structures put in place by the GC& that U7TS has had the clout that it had in broader I7T@8=== standards ne"otiations of the early 9<<=Cs. The absence of a political force %li'e the Guropean Commission as for $S7& has been noticeable in this phase of determinin" the definitions of H+$C, and there has been less pressure for standards harmoni.ation as a result. #perators from around the orld ith massi!e international operations ha!e been fi"htin" this time for H"lobal footprintsC, as opposed to Hpan@GuropeanC ones, and the upshot effect for supra@national institutions li'e the ITU has subseDuently been a manifest accommodation for respecti!e operatorsC +$ HdefinitionsC. Unitin" cellular standards for seamless inte"ration of $S7 in Gurope fell far more con!eniently under the Lurisdiction of players %both "o!ernmental and pri!ate sector& ho had "ood clout and did not hesitate to use itN applyin" the same pressures on a proLect of such "lobal ma"nitude has been less feasible. .#1#2 T$% Cr"t"!&* Ro*% o( E? "/4%nt M&n (&!t r"nThe manufacturers of handsets for cellular terminals ha!e played a critical role I both in terms of delayin" launch of ne ser!ices and raisin" costs of roll@outs for operators. This as true for $S7, and is li'ely to be true a"ain for all I7T@8=== systems. In 9<<8, for e6ample, $S7 terminals ere still not a!ailable in commercial Duantities, and their lac' as a maLor reason for delays in the startup of commercial $S7 ser!ices in Gurope. JBelays ere costly for the industry, net or' operators and ser!ice pro!iders ali'e... Rfor instanceS, $erman ser!ice pro!iders ere losin" bet een bet een Z>.: million and Z;.> million orth of business each month...Y<? 7anufacturers of course ha!e historically had an e6tremely hi"h sta'e in the success of their handsetsN in 9<<8, Jaround <=P of the total in!estment already made in $S7@@estimated at around Z9.8 billion@ had come from the manufacturin" industry.K <A

<:

<;

<?

<A

,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Europeanists, Chica"o I*. 7arch += I April 9, 8===, p.9A. ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Europeanists, Chica"o, Illinois, 7arch += I April 9, 8===, p.9?. Filliamson, /ohn. J$S7 bids for "lobal reco"nition in a cro ded cellular orldK. elephony %Intertec -ublishin" Corporation&. April ;, 9<<8. p.+;. Filliamson, /ohn. J$S7 bids for "lobal reco"nition in a cro ded cellular orldK. elephony %Intertec -ublishin" Corporation&. April ;, 9<<8. p.+;.

+?

GSM Case Study

JIn the past, the success of the handset has "reatly contributed to the success of a mobile offerin"...K<< -art of the e!olution of the Guropean mar'ets has been discernible in operatorsX use of handset subsidies. #!er the past decade, operators in S eden, Nor ay, and Benmar' ha!e used handset subsidies to offset the hi"h cost of $S7 handsets, hich in turn ha!e li'ely translated into a hi"her subscriber acDuisition cost model. 9== %See Section >.9.+& The importance of the role of handsets in the deployment of $S7 %both in terms of functionality and cost& is compounded no in the +$ scenario. Fhile handsets for $S7 are at this point hi"hly re"ulated and certified9=9 after years of Htouch and "oC %problems of o!er@heatin", problems ith Hdual@ modeC, etc.&, serious concerns for +$ handsets abound. 7any cellular operators belie!e that a handset shorta"e ill in fact delay the launch of third "eneration mobile ser!ices. There are serious orries that they ill be deli!ered late and ill perform orse than the $S7 phones they are meant to replace. Accordin" to a recent sur!ey of operators by A2C $roup almost <=P ran'ed non@a!ailability of +$ handsets as the primary barrier to the successful introduction of ne6t "eneration ser!ices. 7any companies are still smartin" from problems ith the supply of FA- and $-2S handsets and fear that similar problems ill affect +$ ser!ices ith potentially disastrous conseDuences. 9=8 Critics says a comple6 de!elopment such as I7T@8=== reDuires a "reat deal more time to be completed and tested than the Guropeans ha!e allo ed. +$ base@stations and telephone handsets ha!e had to be created from scratch because of GuropeCs insistence on follo in" its o n !ersion of the CB7A technolo"y. Third@ "eneration handsets ill need to roam bet een 8$, +$, $-2S and $S7 net or's in Gurope, bet een -BC and ideband CB7A %F@CB7A& in /apan and bet een time di!ision multiple access %TB7A&5code di!ision multiple access %CB7A& in the Americas. There may also be a need for roamin" bet een different implementations of the +$ standard, such as Fideband CB7A %F@CB7A& and CB7A@8===.

F"- r% .#1A: 6%'t%rn E ro/%&n <&nd'%t S$"/4%nt Vo* 4%' )7 T%!$no*o-7103

300 250 Millions of !ni"s 200 150 100
157.9 163.11

3G 2.5G 2G
0.02 12.65 2.33 67.52 123.58 13.55

36.56

77.35

130.21

151.72 143.09 124.1

50 0
34.08

110.31 62.1

124.35 74.55 40.24 21.28

1997

1998

1999

2000

2001 2002 Ye r

2003

2004

2005

2006

Source:

he 5an%ee Group6 2..1

As penetration increases, the potential number of ne customers %handset sales& declines, ith handset replacements constitutin" the maLority of ne sales. The Man'ee $roup forecasts that ?>P of all handsets sold in 8==9 ill be replacement handsets. 1o e!er, by 8==; mobile penetration is forecasted to be A:P, and accordin"ly <<P of all handsets sold ill be replacements. A "ood e6ample of the echoin" importance of handsets appeared in /uly 8==9. /apanXs NTT BoCo7o issued Yan ad!isoryY to o ners of 9==,=== Feb@enabled -:=+i i@mode phones after findin" they ere unable to recei!e !oice calls and email at certain "eo"raphical locations. BoCo7o also temporarily halted sales of -anasonic phones %made by 7atsushita&, hile it identified hich handsets ere subLect to the "litch by
<<

J+$ reprie!e for /apan handset ma'ersK, April 8:, 8==9, C##'co!. *in'4 http455 .cnn.com58==95,USINGSS 5asia5=>58:5to'yo.handsetreprie!e5. 9== JFireless57obile Communications GuropeK, The Man'ee 2eport, 3ol.8 No.> @ 7arch 9<<A. 9=9 In 8===, the $S7 Certification )orum %$C)& as launched, representin" a completely independent pro"ramme that aims to implement, !erify and monitor an entirely ne "lobal !oluntary certification process for testin" $S7 handsets and terminals. #!er := operators, representin" a combined subscriber base of o!er 9== million customers, ha!e si"ned Beclarations of -articipation in the $S7 Certification )orum. In addition, all 99 of the primary $S7 terminal manufacturers @ pro!idin" more than <:P of all handsets5terminals sold orld@ ide @ ha!e si"ned Beclarations of -articipation. J$lobal -artnership to ,enefit all @ The *aunch of the $S7 Cerfitication )orumK. *in'4 http455 ."sm orld.com5ne s5pressQreleasesQ>>.html. 9=8 J#perators G6press Concern #!er 1andsetsK Arc $roup, /anuary 9;, 8==9. *in'4 http455 .arc"roup.com5 press85cutQconcernhandsets.htm. 9=+ J+$ in Gurope4 G6pensi!e but GssentialK. The Man'ee 2eport, 3ol.: No.A @ /une 8==9.

+A

GSM Case Study

chec'in" serial numbers.9=> A hold@up of this nature, or, for e6ample, of $-2S handsets, affects replacement cycles as mobile users hold out for the ne technolo"y before replacin" their handsets. The number of $-2S customers operators can hope to in by year@end ill also be impacted. 9=: JSimilar delays are foreseen for FCB7A handsets. ,y the end of 8==8, 8.++ million FCB7A handsets are e6pected to be shipped, constitutin" 9.8P of total handsets shipped. In 8==:, the Man'ee $roup e6pects +$ and $-2S handsets to constitute <9P of all handsets shipped. %See )i"ure >.9& The Man'ee $roup also belie!es that shipments of $S7@only handsets to estern Gurope ill ha!e ceased by 8==;, since !endors ill be 'een to cease production of $S7@only handsets as Duic'ly as possible to reduce production line costs and force subscriber mi"ration to hi"her@"eneration products.K9=; .#1#3 L%&rn"n- (ro4 t$% N 4)%r' 4.1.3.1 The Cost of Acquiring New Subscribers It has been said that GSM success is best observed in the context of escalating penetration rates and high subscriber growth.107 1i"h subscriber le!els for $S7, ho e!er, did not necessarily eDuate to hi"h profit mar"ins4 operators ha!e to face the issue of hi"her subscriber acDuisition costs %SACs& hen attemptin" to attract the less profitable customers of the mass mar'et. In the conte6t of e6aminin" the potential cost burdens carried by users of +$ mobile technolo"ies, it is crucial to briefly consider the subscriber acDuisition costs %SACs& associated ith these consumers. As ser!ices become increasin"ly broad@ran"in" both in terms of breadth and "eo"raphical reach, it becomes apparent that not all consumers %or rather, subscribers& are Hcreated eDualCN in other ords, different users become !alued differently as a result of increasin" acDuisition costs. This is ine!itable, since as mar'ets "et more competiti!e, a "eneral stru""le around price offerin"s becomes discernibleN discriminatin", price@conscious consumers in a fic'le mar'et constantly impose pressure for better !alue for their money. Therefore, ne users are attracted to cellular at the e6pense of "ro in" acDuisition costs hile yieldin" lo er than a!era"e re!enues in all but the lon"est of terms. This is important to bear in mind precisely because predictions of the ta'e@up of +$ are often postulated on the basis of 8$ %$S7& penetration le!els, i"norin" the !aryin" H!alueC of the indi!idual subscribers. That subscriber numbers after a certain threshold %belie!ed to be the first 9=@8=P of subscribers 9=A& ha!e an in!erse relationship ith re!enues is a sad disco!ery since the days of 8$ deploymentN this is unli'ely to chan"e for the ne6t "eneration, particularly as the mar'et nears saturation. JT in the first three to fi!e years of a $S7 net or'Cs life, "i!en a buoyant economy, operators attract the more lucrati!e customers, but HTin their endless search for e6tra "ro th on top of that, they ha!e to lo er their e6pectationsC.K 9=< 7any of the current users of data ser!ices tend to be Hearly adoptersC 99= and therefore not reflecti!e of the typical profile for a subscriberN in turn, re!enue "ro th prospects are reduced as penetration increases. This yields some hat of a counter@intuiti!e result, to hat ould other ise appear as an optimistic "ro th scenario. 8$ re!enues are also e6pected to help fund the de!elopment of +$ net or's and ser!ices, such that any decline in per@subscriber re!enue hits not only current profit e6pectations, but also future in!estment plannin". This is one more reason hy the study of $S7 deployment and penetration is important for understandin" +$. It is essential to understand such lin's bet een "enerations, e!en thou"h upcomin" ser!ice offerin"s may be completely ne and unli'e hat has been offered before. *oo'in" at the positi!e aspects of 8$ $S7 penetration and "ro th cycles does not necessarily mean that comparable absolute re!enue "ro th should be e6pected from +$. There is no certainty as to ho people ill react to data ser!ice a!ailability, re"ardless of ho optimistic cellular penetration forecasts appear to be, nor is their certainty as to the +$@specific threshold abo!e hich I7T@8=== SACs ill escalate.
9=>

JBoCo7o ta'es 8 million minutes to fi6 fla ed i@mode phonesK. Mobile Media @apan, /uly 99, 8==9. *in'4 http455 .mobilemediaLapan.com58==95=?599.html. 9=: Fith No'ia, the orldXs number@one handset !endor, announcin" that its $-2S handsets ill not be a!ailable until the third Duarter of 8==9, operators ill be unable to secure a lar"e enou"h number of handsets to effecti!ely promote $-2S to the mass mar'et before this date. Althou"h No'ia remains optimistic about launchin" dual mode FCB7A5$S7 handsets in the third Duarter of 8==8, other handset !endors ha!e stated that handsets ill not be a!ailable in lar"e Duantities until the second half of 8==+. J+$ in Gurope4 G6pensi!e but GssentialK. The Man'ee 2eport, 3ol.: No.A @ /une 8==9. 9=; +$ in Gurope4 G6pensi!e but GssentialK. The Man'ee 2eport, 3ol.: No.A @ /une 8==9. 9=? JFireless4 ridin" its luc' into +$K. Mobile Matters, )ebruary 8==9, p. >A. 9=A JFireless4 2idin" its luc' into +$K. Mobile Matters, )ebruary 8==9. p. ><. 9=< JFireless4 2idin" its luc' into +$K. Mobile Matters, )ebruary 8==9. p. ><. 99= Garly adopters ith hi"h a!era"e e6penditures on technolo"y ill be the primary tar"et mar'et for ne entrant +$ operators, hereas $S7@pro!ider incumbents ill li'ely capitali.e on their e6istin" customer bases, ha!in" probably already loc'ed in many customers ith their $-2S ser!ices.

+<

GSM Case Study

Althou"h penetration rates in Festern Gurope ha!e increased "reatly, the subscriber acDuisition costs incurred throu"h subsidi.in" less profitable customers seem set to remain hi"h as the mar'et approaches saturation point. Subscriber "ro th is also e6pected to slo , hich analysts consider to be the potential result of compoundin" competiti!e pressure as operators fi"ht more a""ressi!ely for ne subscribers. Fith the prospect of this competition, operators ill ine!itably face an increase in subscriber acDuisition costs as they attempt to oo subscribers from their competitors. This as the e6perience of Festern Guropean operators in the first half of the 9<<=s. 4.1.3.2 Subscriber Revenues The principal dri!er behind the de!elopment of mobile technolo"ies is the potential !alue that ill be created by mobile data ser!ices, especially !ia the mobile internet and m@commerce. An important metric used to illustrate the effects of mar'et penetration and saturation is HA!era"e 2e!enues -er UserC %A2-U&, hich has been used e6tensi!ely in assessin" $S7 mar'et acti!ity and forecasts. $artner BataDuest e6pects that A2-U in the conte6t of "radual I7T@8=== deployment ill be"in to increase in Festern Gurope in 8==+, at hich point Hminutes of usa"eC ill ha!e increased sufficiently to offset a hi"h influ6 of %e6pensi!e& consumer customers and a decrease in !oice call prices. #perators ill use the increase in non@!oice traffic to counter lo erin" !oice tariffs and to increase A2-U. )or no , current data traffic accounts for only a small percenta"e of total re!enues, on a!era"e about ?P in Gurope. %See )i"ure +.8& Bata re!enue is e6pected to "ro , as !oice A2-U has been declinin" steadily and is e6pected to continue to do so. To counteract this do n ard trend, operators are hopin" to increase re!enues throu"h a dramatic increase in the usa"e of hi"her !alue data ser!ices. Some operators e6pect non@!oice re!enues to o!erta'e !oice re!enues by 8==>.999 As operators try to attract ne subscribers %outside the initial 9=@8=P 998&, they may find that their A2-U indices may actually decline. Increasin" the subscriber base has pro!en itself to be a double@ed"ed s ord in terms of a strate"ic mo!e for operators, as pushin" subscriber le!els past this said threshold %in the $S7 scenario& has helped lead to increased SACs. )orrester predicts that despite e6pected increases in mobile internet usa"e, A2-U for Guropean mobile users ill fall by 9:P bet een 8=== and 8==:, from ><= euros %about Z>>A& to >9< euros %about Z+A+&.99+ That this A2-U forecast ill indeed be rele!ant to I7T@8=== deployments is not certain, but it is surely an important point to bear in mind. The most cripplin" costs affectin" e!entual A2-U in most mar'ets are li'ely to be those associated ith handset subsidies, althou"h ad!ertisin" costs can be eDually paralysin" to operatorsC profit and loss statements. .#1#. T"4%*"n% (or D%/*o74%nt

F"- r% .#12: GSM T"4%*"n% - 1ED2 to Pr%'%nt

$S7 accounts for about ;:P of Initial 7oU si"nedN J #ne ne $S7 customer #fficial orld mobile TB7A chosen as e!ery secondK N >> million Commercial subscribers9 access methodN 8< $S7 $S7 customers orld ide @ Gnlar"ement of 7oU and hits 9:=@ GU $reen -aper *aunch of $S7 *icenses 8AP of the orldXs ireless ser!iceN 9st $S7 si"natoriesN F2C 8== million issuedN $S7 > mar'et specifications for 8$ launch in subscribers8 N ser!ices start Spectrum *icensesN )inland Adoption of list of 9== million )inland outside Gurope 9st $S7 9st intC l roamin" a"reement launches recommendations of mar'N ser!ice in 9 $S7 outside Gurope bet een Telecom )inland GTSI made FA-N $S7 "roupN )ield 9st 1SCSB ser!ice in the US and 3odafone %U(& responsible for 9st $S7 9 billion S7S :== tests conducted trials the Africa $S7 ser!ice in messa"es million the Africa milestone+ mar': GSMGSM license a$ards license a$ards GSMGSM launches launches

CG-T establishes $S7 "roupN GC issues directi!e reser!in" <== 7h. band for $S7

9<A8

7id 9<A=Cs 9<A? 9<A< 9<<9

9<<8

9<<+ 9<<+ 9<<> 9<<: 9<<? 9<<A

9<<<

8==9

999 998

JGuropean #!er!ie K. )rost 0 Sulli!an 2esearch. 8==9, p.8@9. -ercenta"es abo!e this threshold imply a li'elihood that subscribers be lo er !olume users. JFireless4 2idin" its luc' into +$K. Mobile Matters, )ebruary 8==9, p. ><. 99+ $odell, *ars. JGuropeCs U7TS 7eltdo nK. )orrester 2esearch 2eport, Becember 8===, p.A.

>=

GSM Case Study

Note: 1See Link: http://www.gsmworld.com/news/media_18.html; 2See GSM Subscribers Hit 150 Million Mark Link: http://www.gsacom.com /news/gsa_020.htm and Link: http://www.gsacom.com/news/gsa_032.htm; 3See Link: http://www.gsmworld.com/technology/sms_success. html; 4See Link: http://www.gsmworld.com/news/press_archives_14.html. 5See Link: http://cellular.co.za/gsmhistory.htm. Source: International Telecommunication Union

A "lance at the creation and e!olution of $S7 %See )i"ure >.8& sho s us that this as a system that too' years to de!elop. $i!en its more recent success, the difficulties of $S7 deployment of the early 9<<=Cs !is@ [@!is troubles ith eDuipment and le"acy systems are often con!eniently for"otten. The comple6 interplay bet een manufacturers of net or' and system eDuipment, the "oals of "o!ernmental directi!es, operatorsC financial priorities, special interest "roups, the demands of consumers, and the ultimate performance of ser!ice offerin"s I all brou"ht to"ether under the auspices of standard@settin" or"ani.ations li'e the ITU I ma'es for a process hich has turned out to be both time@consumin" and e6tremely intricate. If anythin", a healthy perception of the time frame necessary for deployment of any 'ind of cellular ser!ice is !ital I not only for mana"in" Hmar'etC e6pectations, but for the purpose of mana"in" e6pectations amon" consumers as ell. FA- tau"ht a !aluable lesson to mobile internet enthusiasts about the !irtues of patienceN ithout it, the ris' of doomin" a technolo"y to a bad reputation %that can only possibly be undone ith "reat amounts of mar'etin" e6penditure& is increased. In the same !ein, a realistic perspecti!e on the deployment of + rd "eneration systems is crucial. 7any for"et that +$ has been Duite lon" in the ma'in" as ell, althou"h perhaps shorter in HconceptualC timeline than $S7. %See )i"ure >.+& Althou"h perhaps the idea for ireless data deli!ery as concei!ed in "eneral conLunction ith that of ireless !oice ser!ice, the actual processes for the creation of 8$ and +$ respecti!ely ere carried out in mutually e6clusi!e settin"s I at least until the ITU stepped in to create I7T@ 8=== as a standard desi"ned to inte"rate and incorporate le"acy 8$ systems. Indeed, 8 nd "eneration net or's %and $S7 in particular& had to be deployed first before +$ could be reali.ed, and todayCs percei!ed HraceC to ard +$ reflects the harbored illusion of those ho may not reco"ni.e the history of its creation. The HraceC is also ar"uably the creation of those preoccupied ith the panic of recent spectrum prices. The ne6t "eneration is on its ay, but the time necessary for its smooth deployment is somethin" that is not sufficiently accounted for in mar'et analysis and the press.

F"- r% .#13: 3G T"4%*"n%: Fro4 1EDE to Pr%'%nt

F2C 8=== appro!al for e6pansion of spectrum 7an6 NTT BoCo7o Telecom launch +$ capacity for I7T@ 8===N )irst +$ Bemo in e6pected in 9=58==9N launch e6pected late I7T@ 8=== ser!ices ,eyond I7T@8===d !endors platformN ,luetooth adaptors e6pectedN 7an6 Telecom SummerN NTT +$ offeredN 1SCSB becomes specifications *aunch of orldC s first $-2S net or' in China Bocomo launch launch e6pected niche mar'et sometime 8==9 e6pected in #ctober F2C allocations Sprint -CS for +$ spectrum e6pected to launch BoCo7o Critical 7ass4 A>P of first +$ in US I7T@8=== ITU I7T@ 8=== 2adio +$ 9:.: millionpopulation users of +$ introduces +$ Guropean to 7ass )irst concept is born at Interface BefinitionN BoCo7o launches e6pectedN of ser!ice %test& ha!e mobile A>P phoneN9:.: deployment of Isle of 7an the ITU as +$ introduces I@ modeN )inland is Guropean to delayed launch millionpopulation users of +$ I7T@8=== launch 9 system for mobile the first to allocate I7T @8=== ha!e mobile phones :5C=9 e6pected terminals e6pected communications licenses Countries license and grant IM IM <2... licenses Countries license and grant < 2... licenses IM <2...IM launches < 2... launches

9<A<
Note4
1

9<<8

9<<<

8===

8==9

8==8 8==+ Gnd 8==>

8==;

)urther )orecasts for 8==>4 Number of mobile connections4 +8A.= millionN Users of S7S ser!ices4 8=+.; millionN Users of $-2S4 9+;.+ millionN Users of circuit@s itched data4 A8.= millionN Users of +$5U7TS4 9:.: million Users of GB$G ser!ices4 +.8 million. )rom JThe Ne6t $eneration of 7obile Net or's -oses a Z9== ,illion Challen"e for GuropeK. $artner $roup 2esearch. September 9<, 8===. H J,eyond I7T@8===K is the terminolo"y used to refer to hat is other ise 'no n as J>$ net or'sK by the ITU, as the transition from +$ >$ is not considered to be a paradi"m shift eDui!alent to that of 8$ +$N Anythin" J,eyond I7T@8===K is most li'ely to be a continuation of +$ pac'et@based net or's. Source4 International Telecommunication Union

>9

GSM Case Study

.#2

L%''on' (ro4 GSM t$&t Don0t A//*7 to 3G

.#2#1 A <&r4on"I%d A//ro&!$ to L"!%n'% A**o!&t"on Fhen $S7 as bein" de!eloped, national "o!ernments ere free to choose to hom a license ould be issued @ and ith the e6ception of the U( @ issued the first of their $S7 licenses to their national -TTCs. #ne could ar"ue in this case that the success of $S7 I particularly in its harmoni.ed approach to license allocation I has not been replicable %or e!en applicable& to the "lobal +$ case. In Gurope, in preparation for I7T@8===, each country re"ulator as "i!en the responsibility of settin" its o n licensin" conditions and procedures I and this has led to ide cost !ariations in the price of +$ licenses across Gurope. The Council of 7inisters and the Guropean -arliament of the GU adopted a HU7TS BecisionC in 9<<A, aimed to ensure the a!ailability of at least one inter@operable ser!ice in the GU, hile lea!in" the characteristics of that ser!ice to concerned operators and suppliers. The correspondin" +$ licensin" conditions set by most country re"ulators ruled that all license inners should build their o n net or's, and specified a date by hich net or' rollout must be complete and ser!ices launched. 99> This led, as e ha!e seen, to massi!e !olatility in the !aluation of spectrum, as ell as considerable doubt as to the financial !iability of countless Guropean operators. $i!en this, ho responsible should the GC itself be held for the +$ HdifficultiesC currently en"ulfin" GuropeE It is interestin" to see that the US is only doin" thin"s sli"htly differently for +$ than they did durin" the de!elopment of $S7. There are differin" perspecti!es on the American treatment of Duestions around +$ spectrum. YThe lesson from $S7 Rthe predominant technolo"y for mobiles in Gurope and much of AsiaS is that e did it our ay and e "ot left out of "lobal roamin",Y said *eslie Taylor, president of a ireless consultancy in Fashin"ton, B.C. 99: The U.S., from the start, has been opposed to any measures that restrict competition or limit the fle6ibility of ser!ice pro!iders to meet mar'et needs, particularly in order to protect consumers from increased costs. The U.S. "o!ernment has maintained thus far a rather cautious approach to +$ ser!ices in "eneral, hich opts for lea!in" the maLor details of ireless spectrum usa"e Hto the industryC. Some clarification, ho e!er, as recently "i!en to the matter of spectrum in the U.S. upon the announcement that -resident Clinton had issued an e6ecuti!e memorandum4 JTur"in" federal a"encies @ includin" the departments of commerce and defense @@ to or' to"ether to identify spectrum that can be used to implement +$ net or'sK.99; Therefore, the pre!iously mur'y mi"ration path to +$ mobile ser!ices in the U.S. is some hat clarified, althou"h it continues to fall ell outside the boundaries of $S7 mi"ration and F@CB7A solutions. Ne"ati!e perspecti!es on the Duestions of the U.S. deployment of +$ continue to abound4 JTFhile the American laisse.@faire approach to standardi.ation and the resultin" multitude of analo" and di"ital standards created a competiti!e en!ironment that put pressure on prices early on %leadin" to a rate of diffusion initially hi"her than GuropeCs&, the American ireless mar'et Rfollo in" the lo"ic of 7etcalfeCs *a ST is inherently limited in its application potential as a result of incompatibility of net or's and mar'et fra"mentation.K99? 1o e!er, others ar"ue that the United States may in fact Duic'ly find itself on a better path to +$ than anyone else4 they ha!e in!ested in a uniDue standard that can attain Hcdma8=== statusC ithout the need for ne spectrum. Bependin" on oneCs perspecti!e, this could reflect the basis for a si"nificant potential American Hreco!eryC in the race to +$ I and e!en cast pre!iously@respected GC Birecti!es for cooperation on technolo"y standards in a dar'er li"ht. Gither ay, ho e!er, the U.S. position continues to be e6clusi!e and American operators ill continue to face the challen"es of "lobal roamin" plans.

99>

)ines for delayed net or' launch dates in some cases ha!e been ai!ed by re"ulators, one such e6ample bein" Spain %due to launch by Au"ust 8==9, no set for O8 8==8&. 99: J+$ Spectrum Allocation4 The U.S. *ea!es the Industry to Bi!ide.K *in'4 http455 .per!asi!e ee'ly.com5issues5 p! =;=A8===.html. 99; JClinton4 )ind 7e +$ ,and idthK. (ired #e$s6 #ctober 9+, 8===. *in'4 http455 . ired.com5ne s5technolo"y5 =,98A8,+<>:9,==.html. 99? ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Europeanists, Chica"o, Illinois, 7arch += I April 9, 8===, p.9?.

>8

GSM Case Study

.#2#2 T$% Und%r*7"n- P$"*o'o/$7 o( t$% M&r,%t/*&!% 7uch, of course, is related to the underlyin" common philosophy of the mar'etplace at a "i!en point in time. J*iberali.ation has not only led to the !irtual disappearance of the reDuirement to use official Guropean standards in telecom procurement, it has also dramatically increased the number of corporate players in the industry.K99A Fhen $S7 as comin" around, the fear of inter!entionism on the part of "o!ernment as not as acute, and "ripes associated ith, for e6ample @Hbeauty contestC license allocation methods, ere not necessarily percei!ed of as antithetical to creatin" Hfree mar'etC efficiencies. This, as sho n belo , is a bi" preoccupation in particular for American re"ulators. Althou"h national "o!ernments in Gurope in the 9<<=Cs ere in the process of liberali.in" and dere"ulatin", the need for centrali.ed, or"ani.ed efforts on the part of the Guropean Commission in ,russels to dri!e $S7 ere appreciated and encoura"ed. This is certainly not the case in present day. .#2#3 Int%**%!t &* Pro/%rt7 R"-$t' 1IPR'5 &nd L"4"t&t"on' on M&n (&!t r%r' #ne crucial area in hich the $S7 e6perience may not be transposed on the de!elopment of I7T@8=== is that of the application of I-2s to the manufacturin" of mobile eDuipment %i.e., handsets&. This, contrary to many of the abo!e points, reflects an area in hich $S7 failed, and in hich it is hoped I7T@8=== ill succeed. I-2 policies, throu"hout the de!elopment and deployment of $S7, put se!ere limitations on the number of companies that ere accredited ith the ri"ht to manufacture $S7 eDuipment. )or $S7, there ere about 8= companies that o ned the essential technolo"y necessary to reali.e $S7 system. 99< This created not only a cap on the a!ailability of handsets, but potentially a""ra!ated the pace of successful deployments, creatin" imbalances in the industry !is@[@!is those ho could profit from the system, and those ho could not. #perators in countries ho had all the ma'in"s for cost@effecti!e successful deployments, includin" the s'ills and manufacturin" base to produce their o n eDuipment %i.e., ,ra.il&, ere forced to buy from the pri!ile"ed fe Guropean manufacturers, and thereby impose their incurred cost burdens ultimately on their o n customers. Certainly, this put a strain on the attainment of mar'et efficiency for operators in non@accredited countries. Industry is no seein" a paradi"m shift in the comple6ities of intellectual property !is@[@!is the eDuipment manufacturin" sector. It is belie!ed that o!er a 9== companies5or"anisations ill no o n the technolo"y %patents& necessary to realise a +$ system 98=, reflectin" a !ast impro!ement o!er the past. Similar I-2 concerns can also be more broadly applied to manufacturers supportin" competin" standards I for e6ample, F@CB7A and cdma8===. -rotectionist, non@collaborati!e inclinations of manufacturers !is@[@ !is the sharin" of I-2Cs can result in the de!elopment of non@interoperable eDuipment, hich in turn can lead to ne"ati!e re!erberations in a mar'et for years to come. To illustrate this point, 7otorola represents a "ood e6ample in the $S7 conte6t because of its competin" handsets ith No'iaN it as conseDuently considered as somethin" of a Hblac' sheepC in the $S7 era. Indeed, the monopoly of manufacturers of $S7 eDuipment as e6tremely difficult to penetrate by companies li'e 7otorola. Althou"h standardi.ation issues in the +$ conte6t are more "lobal, and despite the fact that many numbers of corporations are no in!ol!ed, t o competin" specifications "roups still remain, and both are mo!in" in their o n respecti!e directions althou"h Hbrid"esC ha!e been built bet een the t o proLects. #ne is the Guropean@bac'ed +$-- 989, and the other is the %US@based& Oualcomm@bac'ed +$--8 988. Thus, despite the e6istence of hundreds of manufacturers, there is
99A

,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Europeanists, Chica"o, Illinois, 7arch += I April 9, 8===, p.9A. 99< J7odern Technolo"y Transfer ApproachK. The +$ -atent -latform, *in'4 http455 .+"patents.com5. 98= J7odern Technolo"y Transfer ApproachK. The +$ -atent -latform, *in'4 http455 .+"patents.com5. 989 The orldXs leadin" telecommunications companies ha!e come to"ether and completed the definition of the +$ -atent -latform for handlin" the intellectual property ri"hts associated ith the +$ standards adopted in the ITUXs I7T@8=== frame or'. Those concerned ith $S7 in the mid 9<<=Xs are fully a are of all the problems and difficulties associated ith the licensin" of $S7 technolo"y. 7any companies could not enter the $S7 mar'et due to e6cessi!e $S7 royalty rates, and because of all the obstacles in the comple6 minefield of ne"otiations ith so many companies claimin" o nership of essential patents. The +$ -atent -latform is an inno!ati!e technolo"y transfer mechanism hich introduces a Duantitati!e approach as to hat is Yfair, reasonable and non@ discriminatoryY licensin" conditions for essential patents. The +$ -atent -latform is about ma'in" the +$ technolo"y more affordable to all players.K The +$ -atent -latform, *in'4 http455 .+"patents.com5.
988

The Third $eneration -artnership -roLect 8 %+$--8& is a collaborati!e third "eneration %+$& telecommunications standards@settin" proLect comprisin" North American and Asian interests de!elopin" "lobal specifications for net or' e!olution to +$. Y+$--8,Y hich, li'e its sister proLect +$--, embodies the benefits of a collaborati!e effort %timely deli!ery of output, speedy or'in" methods&, hile at the same time benefitin" from reco"nition as a specifications@de!elopin" body, pro!idin" easier access of the outputs into the ITU after transposition of the specifications in a Standards Be!elopment #r"ani.ation %SB#& into a standard and

>+

GSM Case Study

unli'ely to be a solution to the broader I-2 dilemmas until the efforts of +$-- and +$--8 are effecti!ely mer"ed to ma'e real collaboration possible. This reflects more on the chan"in" nature of the relationship bet een operators and manufacturers than on the pro!ision of more idely a!ailable access to technolo"y patents. Fhereas this dynamic bet een operators and manufacturers in the $S7 conte6t could be characteri.ed as more HbalancedC in terms of sector mar'et Hdri!ersC, the I7T@8=== conte6t re!eals a situation no in hich operatorsC "oals ha!e since ta'en a bac'@seat to the "oals of manufacturers. The stron" position of operators in the early@mid 9<<=Cs, reinforced by their influence in GTSI, created for an en!ironment in hich operator concerns remained as primary dri!ers of industry acti!ity. This as not contradicted by national manufacturers at the time, for they in turn ere focused primarily on their traditional HprimaryC clients I the national -TTs. Today, by and lar"e, thin"s ha!e chan"ed si"nificantly % ith the maLor e6ception of NTT BoCo7o, hich has been a leader of the Hoperator@ledC paradi"m&. )or the most part, manufacturers ha!e pro!en themsel!es to be rather less moti!ated by issues of standardi.ation@ and more concerned ith their o n Hbottom linesCN the fact that discussions today about issues li'e interoperability are underta'en by +$ manufacturers is somethin" of an indirect confirmation of their enhanced influence and position in the +$ !alue chain. This, if nothin" else, si"nals the importance of rene in" and stren"thenin" not only increased participation of operators in +$ standardi.ation, but also of "reater collaboration bet een operators, manufacturers and content pro!iders in an international forum.98+

.#3

I' 3G Un"? %J

.#3#1 T$% <%&=7 B rd%n o( t$% 3rd G%n%r&t"on G Con'o*"d&t"on Tr%nd' Se!eral aspects of I7T@8=== %U7TS& deployment and license allocation ma'e the story of +$ de!elopment uniDue, particularly here HconsolidationC and the fate of Hne entrantsC are concerned. $o!ernments ha!e had to consider the real possibility that operators ill Loin forces in order to absorb the shoc' of payin" for spectrum. Surely, no such pattern as pre!alent in the early 9<<=Cs. Fhat implications does this ha!e for the ori"inal "oal of creatin" a competiti!e, HhealthyC mobile telecommunications sectorE Already the first si"ns of maLor operator collaboration are discernible, as bidders stru""le to limit commercial ri!alry4 last /uly, Butch operator (-N embar'ed upon a Loint !enture ith /apanCs BoCo7o, and 1on" (on"@based 1utchison Fhampoa. The hu"e cost of +$ has led the maLority of operators to be"in discussions ith their domestic competitors to share net or's in order to reduce build@out e6penses. In most countries li'e S eden, Italy, Spain and the U(, re"ulators are open to this proposition. In $ermany, ho e!er, here the cost of +$ is hi"her than in any other country, the re"ulator is still opposed to net or' sharin".98> The mar'et is currently rife ith such ne s of operators ta'in" !aryin" percenta"e eDuity sta'es in international counterparts around the "lobeN this reflects the ceaseless acti!ity of strate"ic positionin" and re@positionin" in the Duest to attain scaled economies and balanced HproductC and Hser!ice offerin"C HportfoliosC. In the meantime, ne entrants li'e $roup +$ in $ermany and TIF51utchison in the United (in"dom ill not be able to alone ithstand the pressures of ha!in" no or"anic customer base and !ast cost disad!anta"es !is@[@!is incumbents. These financial considerations indicate that by 8==:, consolidation ill ha!e continued in Gurope and operators ill ha!e coalesced or ali"ned themsel!es into fe er, lar"er "roups. Gfficient operators in one country ill be able to impro!e the cost structures of smaller operators in other countries. So far, 3odafone, as an outsider, has been amon" the boldest and most successful in terms of becomin" a pan@Guropean operator. Ne entrants in this sector, accordin" to some e6tremely pessimistic
submittal !ia the national process, as applicable, into the ITU. )or more information, see J+ rd $eneration -artnership -roLect 8K. *in'4 http455 .+"pp8.or"5.
98+

A "ood e6ample of this type of collaboration bet een operators, manufacturers and content pro!iders is e!ident in the case of /apan. GDuipment manufacturers and operators or' hand in hand in closely@'nit "roups to supply the mar'et ith handsets and portable de!ices in line ith end@user needs. The mobile operator actually o ns the handsets. As such, the operatorCs brand is dominant and not the manufacturerCs. The /apanese subscriber first selects the ser!ice pro!ider and then chooses the eDuipment, and the subscriberCs choice of handset is therefore limited to those on offer and branded by the ser!ice pro!ider selected. This differs "reatly from the Guropean case, here the handset brand rests firmly ith manufacturers such as No'ia and Gricsson, as does the responsibility for research and de!elopment. /apanese mobile operators also play a leadin" role in research and de!elopment acti!ities. See Section >.> of the ITU +$ /apan case study, located at *in'4 http455 .itu.int5os"5spu5 ni5+$5casestudies5Lapan5QToc:8+9++?>;. 98> ,oth the GU and the $erman +$ license holders are e6ertin" pressure on re"ulator, and Man'ee $roup e6pects that the re"ulator ill bo to that pressure and concede that net or' sharin" is a necessary step for the success of the $erman +$ mar'et.

>>

GSM Case Study

analysts, are doomed before they e!en be"inN )orrester, for e6ample, e6pects no ne U7TS entrants to be left standin" by the year 8==?. 98: 1o e!er, "i!en the reality of success stories li'e 3odafone and 7annesman, this assertion is Duestionable. In any case, incumbent operators appear @ not unli'e in their old monopoly days @ to be curiously ell@placed to ma'e some money %re"ardless hether or not a fe ne entrants sur!i!e&. .#3#2 3G D%/*o74%nt Co't' 3G operators, aside from worrying about the spectrum licenses, must invest in building or expanding their physical infrastructures. Infrastructure is and continues to be a primary concern in the realm of estimated operator costs, and one common assumption is that these costs will come close to the amounts that operators paid for their spectrum licenses. The truth is that a lot of people do not know how much building a UMTS network is going to cost, and estimates range widely. The Yankee Group, for one, estimates average roll-out (including license, network infrastructure, application and content development) costs at $2.5 billion. 126 An article in 2ed 1errin" from September 9, 8=== cites that buildin" out infrastructure for +$ ser!ices is estimated in the ballpar' of around Z: billion per operator per country. 98? One operator interviewed by Forrester cites an internal estimate at around US$7.3 billion, although others there think it may well cost US$4.5 billion beyond that.128 In the United Kingdom, Vodafone paid nearly US$8.6 billion for its license and then signed up Ericsson to provide the infrastructure in a deal understood to be worth around US$5.8 billion. Similarly, in Germany, Mannesmann committed to a DM10 billion (US$4.6 billion) network upgrade after paying about DM16 billion (US$7.5 billion) for the 3G license. 129 Looking at a typical such UK operator, it is estimated that cumulative costs of approximately $10 billion would be necessary in preparation for data services.130 In essence, estimates are numerous and not necessarily in the same ballpark. I7T@8=== terminals for mass mar'et sale ill not be a!ailable in !olumes until 8==+ at the earliest, pushin" bac' e6pected ser!ice launches at least a year or so. G!en in a country li'e Nor ay ith relati!ely ine6pensi!e licenses and net or's builds, Telecom consultancy Teleplan states that A2-U must double by 8==> to reco!er U7TS costs.9+9 7any belie!e that lon" before +$ net or's are completed, alternati!e solutions I such as the intermediate 8.:$ technolo"ies mentioned abo!e @ could replace them. In any case, spendin" on IT systems and billin" is li'ely to chan"e si"nificantly for the orse. It is e6pected that net or' operators ill ha!e to ta'e into account chan"es in their cost structures, particularly compared to their past e6perience ith $S7 systems. 9+8 Amidst stron" competition and hi"h customer churn rates, )orrester predicts that mar'etin" costs in particular ill increase si"nificantly before subsidin" a"ain after 8==A. 7oney spent on customer retention ill be crucial in order to combat the churn H hirlpoolC. Thus, hi"h capital in!estment is unli'ely to subside, as location@sensin" eDuipment, content distribution facilities, and I- routers ill incent operators to 'eep up ith the pace of chan"e. Certainly, the cumulati!e costs of buildin" a U7TS net or' ill be different for incumbents and for ne entrants. JNe entrants ith no e6istin" R$S7S infrastructure to reuse face T Rhi"hS costs, estimated at USZ;.8 billion, as in the case for the Sonera5Telefonica alliance in $ermany.K 9++ 2e"ulators, reco"ni.in" the ferocity of the mar'etplace particularly for non@incumbents, are reDuirin" transition periods in hich ne
98:

)orrester also predicts that operatin" profits ill disappear in 8==? and ta'e si6 years to return, leadin" to maLor operator business failures and massi!e industry consolidation. $odell, *ars. JGuropeCs U7TS 7eltdo nK. )orrester 2esearch 2eport, Becember 8===, p.9:. 98; JFireless4 ridin" its luc' into +$K. Mobile Matters, )ebruary 8==9, p. :8. 98? Cu'ier, (enneth and 1ibbard, /ustin. JSpectrum Shorta"eK. 1ed 7erring Maga8ine, September 9, 8===. 98A $odell, *ars. JGuropeCs U7TS 7eltdo nK. )orrester 2esearch 2eport, Becember 8===, p.:. 98< ,out, Bir' 7., Baum, Adam, Bei"hton, Ni"el, Belcroi6, /ean@Claude, Bulaney, (en, $reen@Armyta"e, /onathan, 1ooley, 7ar"ot, /ones, Nic', *eet, -hoebe, # en, $areth, 2ichardson, -eter, Tade, Ba!id. JThe Ne6t $eneration of 7obile Net or's -oses a Z9== ,illion Challen"e for GuropeK, Note Number4 2@99@:=:+, $artner $roup. September 9<, 8===. 9+= This ould include USZ;.+ billion on acDuirin" a +$ license, USZ+ billion on buildin" the +$ net or', USZ?: million on up"radin" e6istin" net or's to $-2S and the remainder on content and ser!ice creation. ,ratton, Filliam, /ameson, /ustin, and -entland, Stephen. JAnalysis4 +$ madness I time for some moderationbK otaltele'co!, /uly 9;, 8==9, p.8. 9+9 $odell, *ars. JGuropeCs U7TS 7eltdo nK. )orrester 2esearch 2eport, Becember 8===, p.A. 9+8 Accordin" to the $artner $roup, mobile ser!ices are mo!in" from hierarchical architectures based on circuit s itchin", to distributed and layered architectures based on pac'et routin". As a result, it is estimated that infrastructure costs may not increase in fact as much as other support costs in the lon"@run. 1o e!er, hea!y in!estment in net or' mana"ement, billin" systems, massi!e mar'etin", support ser!ices and handset subsidies are an ine!itable part of the future. Costs of billin" systems in particular ill rise sharply, since Hal ays@onC ser!ices ill !ery li'ely disallo the rele!ance of per@minute char"in". 9++ $odell, *ars. JGuropeCs U7TS 7eltdo nK. )orrester 2esearch 2eport, Becember 8===, p.?.

>:

GSM Case Study

entrants can use some of the incumbentsX infrastructures hile constructin" their o n. $artner $roup analysis of the mi6 of operatorsX costs yields a hypothesis that the mar"inal costs of ser!icin" a thousand ne subscribers ill rise from an a!era"e of Z8== per subscriber for a $S7 net or' to around Z+:= per subscriber on a U7TS net or'. %See Table >.9& -hysical infrastructure costs ill shrin' from ;:P of the total to :<P as other costs double.

T&)*% .#E: E't"4&t%d !o't o( GSM &nd UMTS n%t+or,'

'ore AetworC $adio AetworC Trans2ission DinCs AetworC Maintenance Sales and MarCetin8 'usto2er 'are and *illin8 9T Mana8e2ent Ser?ices %o" l
Source4 Gartner 3ata4uest

&os" )er Subscribers $SM !M%S 020.00 024.50 070.00 0101.50 040.00 080.50 022.00 038.50 016.00 035.00 020.00 042.00 012.00 028.00 *200+00 *350+00

#ercen" &' n(e 22.5" 45.0" 101.3" 75.0" 118.8" 110.0" 133.3" 75+0,

$SM !M%S ()ercen") ()ercen") 10 7 35 29 20 23 11 11 8 10 10 12 6 8 100 100

#n the other hand, e6trapolation leads to an interestin" scenario, herein there is si"nificant potential for a "ood turn of operatorsC fortunes after all. JAssumin" an operator, hich has < million subscribers bet een no and the end of 8=8=, starts to "enerate data re!enues from only 8==+, and e6periences only a slo increase in A2-Us from USZ8 per subscriber per month in 8==+ to USZ8: %in nominal terms&, in 8=98, then the present !alue of the e6pected re!enues from data ser!ices, usin" a discount rate of 98P, is appro6imately USZ99.: billion. Not only does this co!er the initial RaforementionedS USZ9= billion of e6penditure, but the assumptions are conser!ati!e.K134 The Duestion still remains, ho e!er, ho operators are "oin" to mana"e their interest payments on the Z+== billion that ill be sun' into Guropean licenses and eDuipment. Fith a rate of ?P, operators still are "oin" to need to earn Z89 billion a year @ Lust to pay interest. 135 Fhich brin"s us bac', ine!itably, to basic Duestions surroundin" mobile penetration4 ho certain is it that increasin"ly comple6 data ser!ices @ a!ailable !ia 8.:$ and +$ net or's and systems@ ill ha!e hat it ta'es to li!e up to "lobal e6pectationsE

Con!* '"on

To a lar"e e6tent, $S7 can be said to ha!e been Jthe ri"ht system at the ri"ht place at the ri"ht timeK 9+;. ,ased on the analysis of this paper, it appears that the essence of the $S7 story re!ol!es around the concept of cooperation, and the political and economic en!ironment that facilitated it. A main theme throu"hout this paper is that in!estments in the respecti!e I7T@8=== standards are e6tremely hi"h, and that those sustainin" these commitments consist of a number of hi"hly le!era"ed sta'eholders li'e manufacturers, distributors, and standards consortia I all 'een to Lustify their o n paths to ard I7T@8===. Fhile Guropean Community policy and Commission leadership ere indispensable for $S7, fle6ibility and adaptability on the national le!el ere !ital for success. This is one of the 'ey differentiatin" factors bet een the de!elopments of 8 nd "eneration and +rd "eneration technolo"ies. Fe ha!e seen that I7T@8=== has been a roc'y road because the multitude of players that ill benefit from its deployment %includin" "o!ernments& ha!e stood in fact to "ain more indi!idually %or e!en re"ionally& from compromisin" H"lobal standards harmoni.ationC than from smoothly cooperatin". The JSta" 1untK e6ample of "ame theory application reflects the dynamic of this scenario, in hich players face a choice bet een findin" a compromise and reali.in" the "ains from collecti!e action %i.e., closin" in around a lar"e tar"et&, or maintainin" their positions as indi!idual entities and acceptin" the ris' %and ith it, the potentially lar"er "ains& associated ith runnin" alone after another tar"et. Allo in" t o incompatible standards li'e
9+>

,ratton, Filliam, /ameson, /ustin, and -entland, Stephen. JAnalysis4 +$ madness I time for some moderationbK otaltele'co!, /uly 9;, 8==9, p.8. 9+: 3an $rins!en, *ucas. J7obile 0 Satellite4 No'ia +$ "uru cites S7S as 'ey to ireless eb successK. 2euters, /une 8A, 8==9. 9+; ,ach, Ba!id. JInternational Cooperation and the *o"ic of Net or's4 Gurope and the $lobal System for 7obile Communications %$S7&K. Uni!ersity of California G@conomy -roLect, ,er'eley 2oundtable on the International Gconomy %,2IG& I 98 th International Conference of Guropeanists, Chica"o I*. 7arch += I April 9, 8===, p.9.

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GSM Case Study

F@CB7A and cdma8=== to come about as the result of the brea'do n of the Hmutually beneficial collecti!e actionC mentality that characteri.ed the decision@ma'in" dynamic of Guropean nations as they constructed $S7. Ironically, hat is in e!idence today in the +$ mar'et, is the "ro th of consolidation and collaboration bet een operators that has made +$ uniDue from $S7. At earlier sta"es of I7T@8=== de!elopment, such collaboration %i.e., in the form of net or'@sharin"& as unthin'able, "i!en the idely di!er"ent sta'es in differin" types of 8$ le"acy in!estments5commitments, and the "eneral emphasis on the necessity for full and free competition in the mar'etplace. -erhaps this phenomenon of consolidation is reflecti!e of a natural tendency for Hnatural cooperationC intrinsic to the success of the mobile sector %i.e., the same ay that monopolistic tendencies are HnaturalC for the Hlocal@loopC&, and that must ine!itably emer"e in some form as industry e6perience lead to it a"ain and a"ain. In this case, cooperation is perhaps bein" spurred by the or'in"s of the spectrum mar'et, despite the fact that the ability of political entities to brin" it about as diminished. Althou"h there has been some o!erlap in the time de!elopment of 8$ and +$, !arious 'ey differences in the political and pri!ate sector catalysts for cooperation durin" the de!elopment of $S7 ha!e rendered the li'elihood of replication of pre!ious standardi.ation achie!ements on a "lobal scale not "uaranteed. The !alue of the 7oU, for e6ample, as a beacon for industry "o!ernance in the $S7 case, has not been imitable in "lobal telecommunications fora. Incenti!es for "lobal cooperation to ards the creation of a uniform standard for +rd "eneration technolo"ies ha!e been pro!en to be lac'in", as is e!ident by the current ide ran"e of I7T@8=== +rd "eneration Hfla!oursC %althou"h the ITU has made si"nificant achie!ements in the realm of standardi.ation&. Undoubtedly, the lac' of consensus re"ardin" harmoni.ation across !arious I7T@ 8=== technolo"ies is at least in part the result of Hcdma8===@orientedC policy obLecti!es of concerned %mostly non@Guropean& lobbyists. And althou"h the Guropean Commission has pursued and facilitated continuin" collaboration bet een prominent players from the past decade, the fact remains that many conditions that helped render $S7 a success simply no lon"er e6ist. Thus, hile certain HlessonsC from the past can be applied to "enerate some !alue in terms of appraisal, a"ain there is no "uarantee that the actual e!ents that characteri.ed $S7Cs success ill or' for I7T@8===. In the broadest scope, the transition from 8$ to +$ ould ha!e been inconcei!able had it not been for the Lustifications of si"nificant forecasted increases in mobile penetration numbers for the comin" years. Certainly, the impact of tremendous net or' e6ternalities is at its !ery core associated ith this "ro th potential. Bespite hu"e costs, anticipated delays, and unfa!ourable mar'et conditions, the transition is ell under ay, and I7T@8=== is the only ay for ard for RGuropean, and otherS mobile operators 9+?. In an en!ironment characteri.ed by !ery rapid chan"e and unmatched dynamism, it is an interestin" tas' to pic' and choose those factors that can be dra n in parallel from the past, to e6plain hat is to come in the %albeit immediate& future. Thou"h the political roots of $S7 ha!e transformed si"nificantly into more mar'et@dri!en ones for I7T@8===, e ha!e seen that certain trends, metrics, and concepts are still rele!ant, hile others fade into the bac'"round. #ne can but hope that past e6perience I as from the $S7 case @ breeds the types of institutions and leaders that are illin" to learn from their mista'es and impro!e e!en further upon their successes as they see' to ser!e a "lobal mar'et. Abo!e all, the institutions that ha!e shaped these "enerational transformations ha!e been and continue to be !ital for the future of I7T@8===. As a leader amon" them, the ITU continues to confirm its critical role, not only by helpin" to map out the e!olutionary path to ard +$ and reco"ni.in" inherent dilemmas in the process, but by ser!in" as a repository for best practices5benchmar'ed information for I7T@8===, and by helpin" "o!ernments5 operators5re"ulators ali'e deal ith the foremost concerns of harmoni.ation of standards, roamin" and circulation, and "lobali.ation.

9+?

2oberts, Simone. J+$ in Gurope4 G6pensi!e but GssentialKN Fireless57obile Gurope, The Man'ee $roup. 2eport 3ol. :, No. A I /une 8==9, p.9.

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GSM Case Study

A//%nd"9:

T&)*% 2#10: A**o!&t"on o( 3G 4o)"*% *"!%n!%' "n t$% E ro/%&n Un"on

Co ntr7 Austria Australia ,el"ium Canada Benmar' )inland )rance $ermany $reece Ireland No o( *"!%n!%' ; ; > : : > > %8 still to be issued& ; > or more > Mo)"*% In! 4)%nt' > > + > > + + %8 still to be issued& > + + M%t$od Auction Auction Auction Auction Auction ,eauty contest _ nominal fee ,eauty contest _ fee Auction Auction ,eauty contest _ fee Italy (orea *u6embour" Netherlands Ne \ealand Nor ay -ortu"al Spain S eden S it.erland U( : + > : > > > > > > : > 8 8 : 8 8 + + + 8 > Auction ,eauty Contest _ fee ,eauty Contest Auction Auction ,eauty contest _ fee ,eauty contest _ fee ,eauty contest _ fee ,eauty contest Auction Auction #ctober 8=== Gnd 8=== ,y /une 8==9 /uly 8=== /anuary 8==9 No!ember 8=== Becember 8=== 7arch 8=== Becember 8=== Becember 8=== April 8=== 8,:=A.= :9.> >>.A +;=.= 98=.= each >>.=A 99;.= +:,+<=.= D&t% &+&rd%d No!ember 8=== 7arch 8==9 )ebruary 8==9 /anuary 8==9 #ctober 8==9 7arch 9<<< /uly 8==9 /uly 8=== /uly 8==9 April 8==9 Gstimated bet een 99;.= and 9>=.= each 9=,=?=.= +,=A=.= Nominal >,:8=.= >:,A?=.= S 4 /&"d USK 4"**"on ;9=.= +:9.? >9A.A 9,>A8.=

Source4 ITU, Guropean Commission, The Introduction of +$ 7obile Communications in the Guropean Union4 State of -lay and the Fay )or ard, ,russels 8=.+.8==9 C#7%8==9&9>9final..

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