-
EXHIBIT-1
,
Building
networks
At 80% UK population penetration as of December 31, 2002, mobile phones were well into
the mass market. Cellular operators were beginning to introduce third generation (3G) tech-
nology almost three years after the sale of spectrum for 3G telephony (see glossary, Appendix
1). The argument for 3G was that it would enable faster access to the Internet and to associated
services like news, stock prices and trading, buying tickets, and traffic information, using al-
ways 'on' packet switched technology. Analysys, a UK-based consultancy, predicted that there
would be 480 million 3G subscribers worldwide by 2006. For existing and new wireless opera-
tors, the changing landscape was throwing up new challenges.
First, license awardee, Hutchison had launched 3G services in the UK in March 2003, op-
erating under the name '3', and had pre-sold 40,000 sets and expected to get more than
500,000 customers by December 2003. None of the established operators (Vodafone, Orange,
02 and T-Mobile) would be launching 3G services before the end of2003. Second, a new wire-
less technology called Wi-Fi (also known as the Institute of Electrical and Electronic Engineers
(IEEE) 802.11 b) was causing concern among wireless operators; Wi- Fi enabled customers to
obtain wireless Internet access at speeds upto 2 Mbps through 'hotspots' at airports, hotels, cof-
fee shops, college campuses, corporate facilities, convention centres, etc., such a service was
supposed to have been provided by 3G. However, fIxed line telecom fIrms like BT and small
service providers were rolling out Wi-Fi in a big way. In the UK, the fIve 3G licences had cost
the operators a combined total of £22.5 billion I, with the cost of setting up a 3G network esti-
mated at a further 5-8 billion per network (see Exhibit 1).
].f:\P.~ I=vhihif 1 ~•..••.
II •• --'_' ..
UK Cellular Licence Audion
Licensee Amount Paid Spectrum'"
TIW (Hutchison 3G) £4.38 billion Licence A: 35 MHz
Vodafone £5.96 billion Licence B:30 MHz
mm02 £4.03 billion Licence C:25 MHz
T-Mobile
Oranqe
£4.00 billion
£4.09 billion
Licence D: 25 MHz
Licence E:25 MHz
- *The more the spectrum
can deliver.
(in terms offrequency allocation) the higher the (capacity) that the cellular operator
Thus, operators were faced with multiple challenges. They had to hold onto their existing
customers who were on Global System for Mobile Communications (GSM) or General Packet
Radio Services (GPRS). They had to migrate customers to 3G (Vodafone, Orange, 02 and
T-Mobile) without loosing customers or get customers to switch to 3G (3). The history of the
migration from analogue to GSM during the mid-90s suggested that the transition would pro-
vide a strong opportunity for networks to encourage switching. This was, after all, how, Orange
had, in part, risen to market success. The operators also had to decide their approach to Wi-Fi
and where it fIt into their marketing plans for the future.
Evaluating the marketing approach to date and developing and implementing a clear mar-
keting plan for the future to attract and retain customers profItably was going to be an impor-
tant challenge in the forthcoming 12-24 months. An operator would need to position itself by
developing a clear idea of where the competition was, where the competition was going, and
how it would differentiate itself from the competition through its marketing and service strat-
egy. What marketing strategies and tactics would an operator use as a result of the present mar-
ket trends and competitor analysis? How could it leverage its existing market position (if al-
ready operating in the UK) and resources? What position would it aim to develop in the minds
of consumers and business customers?
UK industry development
In 1982 the UK Government awarded Cellnet and Vodafone licences to provide fIrst genera
tion (i.e. analogue) cellular telecommunications services. Cell net was owned 60% by British
Telecoms (BT) and 40% by Securicor but became 100% BT owned in 1999 and changed its
name to BTCellnet, which was spun offfrom BT in November 2001 to become mm02.2 Both
licensees launched analogue services in January 1985, followed by second generation digital
(i.e. GSM services in 1992 (Vodafone) and 1994 (mm02)). In 1991 three PCN licences were
awarded to Unitel, Microtel and Mercury. Mercury and Unitel merged and the resulting com-
pany, a partnership between Cable & Wireless and US West, launched the 'One 2 One' service
in September 1993. One 2 One was taken over by Deutsche Telecom in 1999 and renamed as
T-Mobile in 2002. Microtel had evolved into Orange pic, which was launched in April 1994.
Owned initially by the Hutchison Group of Hong Kong, Orange was bought by Mannesmann
of Germany in November 1999. However, in February 2000, Mannesmann was acquired by
Vodafone. Both UK and European competition authorities cleared Vodafone's takeover of
 EXHIBIT-1
UK Cellular Licence Auction
T-Mobile
Vodafone
mm02
Orange
TIW (Hutchison 3G)
Building
networks
At 80% UK population penetration as of December 31, 2002, mobile phones were well into
the mass market. Cellular operators were beginning to introduce third generation (3G) tech-
nology almost three years after the sale of spectrum for 3G telephony (see glossary, Appendix
1). The argument for 3G was that it would enable faster access to the Internet and to associated
services like news, stock prices and trading, buying tickets, and traffic information, using al-
ways 'on' packet switched technology. Analysys, a UK-based consultancy, predicted that there
would be 480 million 3G subscribers worldwide by 2006. For existing and new wireless opera-
tors, the changing landscape was throwing up new challenges.
First, license awardee, Hutchison had launched 3G services in the UK in March 2003, op-
erating under the name '3', and had pre-sold 40,000 sets and expected to get more than
500,000 customers by December 2003. None of the established operators (Vodafone, Orange,
02 and T-Mobile) would be launching 3G services before the end of2003. Second, a new wire-
less technology called Wi-Fi (also known as the Institute of Electrical and Electronic Engineers
(IEEE) 802.11 b) was causing concern among wireless operators, Wi-Fi enabled customers to
obtain wireless Internet access at speeds upto 2 Mbps through 'hotspots' at airports, hotels, cof-
fee shops, college campuses, corporate facilities, convention centres, etc., such a service was
supposed to have been provided by 3G. However, fIxed line telecom fIrms like BT and small
service providers were rolling out Wi-Fi in a big way. In the UK, the fIve 3G licences had cost
the operators a combined total of £22.5 billion 1, with the cost of setting up a 3G network esti-
mated at a further 5-8 billion per network (see Exhibit 1).
1.C:PQf;vhiflif., #~PU 4 __ '
Licensee £4.03
£4.09
Amount
£4.00
£5.96
£4.38 billion
Licence
Licence
Spectrum· Paid
C:
E:
B:
A:
0: 25
25
35 MHz
30 MHz
MHz
MHz
"'The nwre the spectrum (in terms offrequency allocation) the higher the (capacity) that the cellular operator
can deliver.
Thus, operators were faced with multiple challenges. They had to hold onto their existing
customers who were on Global System for Mobile Communications (GSM) or General Packet
Radio Services (GPRS). They had to migrate customers to 3G (Vodafone, Orange, 02 and
T-Mobile) without loosing customers or get customers to switch to 3G (3). The history of the
migration from analogue to GSM during the mid-90s suggested that the transition would pro-
vide a strong opportunity for networks to encourage switching. This was, after all, how, Orange
had, in part, risen to market success. The operators also had to decide their approach to Wi-Fi
and where it fIt into their marketing plans for the future.
Evaluating the marketing approach to date and developing and implementing a clear mar-
keting plan for the future to attract and retain customers profItably was going to be an impor-
tant challenge in the forthcoming 12-24 months. An operator would need to position itself by
developing a clear idea of where the competition was, where the competition was going, and
how it would differentiate itself from the competition through its marketing and service strat-
egy. What marketing strategies and tactics would an operator use as a result of the present mar-
ket trends and competitor analysis? How could it leverage its existing market position (if al-
ready operating in the UK) and resources? What position would it aim to develop in the minds
of consumers and business customers?
UK industry development
In 1982 the UK Government awarded Cellnet and Vodafone licences to provide fIrst genera-
tion (i.e. analogue) cellular telecommunications services. Cell net was owned 60% by British
Telecoms (BT) and 40% by Securicor but became 100% BT owned in 1999 and changed its
name to BTCellnet, which was spun off from BT in November 2001 to become mm02.2 Both
licensees launched analogue services in January 1985, followed by second generation digital
(i.e. GSM services in 1992 (Vodafone) and 1994 (mm02)). In 1991 three PCN licences were
awarded to Unitel, Microtel and Mercury. Mercury and Unitel merged and the resulting com-
pany, a partnership between Cable & Wireless and US West, launched the 'One 2 One' service
in September 1993. One 2 One was taken over by Deutsche Telecom in 1999 and renamed as
T-Mobile in 2002. Microtel had evolved into Orange pic, which was launched in April 1994.
Owned initially by the Hutchison Group of Hong Kong, Orange was bought by Mannesmann
of Germany in November 1999. However, in February 2000, Mannesmann was acquired by
Vodafone. Both UK and European competition authorities cleared Vodafone's takeover of
 ..•._•._-......--..--.-ra;a· • .....--.a: •.••• -rs:'l:tl.

or mooile services is not expected to abate for at least another nve years, the year 2001 saw tl
nrst setback for many years to the mobile phone industry. Worldwide sales of mobile handse
IlJIrL provides cnronolOgic"alpenetration ngures3• Penetration growth decreased sharply fell from 420 million in 2000 to 395 million in 2001, though sales recovered to 435 millie
in 2001 relative to the previous two years, when purchase of subsidised pre-paid packages had units in 2002. Most analystS expect penetration to go up to 140% in the more develope
produced large increases. In early 1998, London-based consultancy, CIT Research, expected economies where each person has, on an average, more than one handset or other access devie
market penetration of the UK population (then about 15%) to grow to around 23% by 2005.
3G finally made its debut. NTT DoCoMo in Japan introduced limited 3G services in Septen
The operators and industry analysts, however, were far more optimistic predicting that by year ber 2001; in the UK mm02 trialled a 3G service on the Isle of Man with 30 transmission tov
2005,75% of the UK population would use a mobile phone. That level exceeded by December ers and 200 handsets in December 2001 through May 2002. TIW Hutchison had a 'soft' con
31,2002.
mercial3G launch in the UK in March 2003.

EXHIBIT-2

EXHIBIT-3
Mobile Subscribers in the UK since 1985

As at 47,500
24,000
40,040
46,680 450
40 14
24
540
177260
11351054
873
26
54
76
43
95860
7033 2-
16
67
40
120 120
860
260
510
The World's Top Cellular Markets by Subscribers as at December 31, 2001
12,450 Total
47,500
6,580
8,460
46,680
13,000
3,430
6,810
1,430
5,410
3,510
2,000 Growth
24,000
40,040
(000)
(000) 3,380
(000)
(%) 1,870
3,980
3,060
1,960
1,400
1,230
1,140
Digital
Analague 1,370
1,230
1,140 .
63.4*
61.5*
62.5
39.5*
48
78 73
9121,000**
6.9
45
67 3.1
403popula-
9 31-31- 30
40
60
65
42
50
44
28
49
56
50
35
30.
34.4*
58.2*
('000)
31,2001
(%
(% 40,041
24,000
37,200
Subscribers
Penetration
tion 29,000
25,000
lation
Deetion
120,000
46,680of
(%of4,480
7,840
DeeDee
31-2001)
85,000
3,796
4,400
2,100
130,000
Subscribers
Penetration
Penetration
2000)
3,000
6,800
28,000
3,360
ofDee
popula-
popu-
Country
1999)
UK
Japan Germany
Denmark
China
Sweden
Spain
Italy
('000) Dee
Norway 31,2000 Austria
Netherlands
France
USA
Switzerland
Portugal
Finland

Source: Reuters Business Briefing, FT Mobile Communications, Press notes.

Source: FT Mobile Communications / Global Mobile, EMC World Cellular Database.

* May 31,2000.
** Of this, 10 miUion were on first generation analogue (AMPS) networks. All others shown are GSM net-
works (or only in the USA, CDMA and TDMA networks as well).

3 The UK Government announced in 1996 that it intended to phase out analague networks by 2005 and to make the resulting freed
spectrum capacity available far alternative use. By 1999, mm02 and Vodafone had migrated their anatogue custamers anta their
digital networks. New subscribers had been discouraged fram joining analague networks by high prices for both handsets and tariffs.
Existing analogue subscribers had been persuaded to migrate, usually around the time their contracts were due to be renewed. The
The adoption of Global System for Mobile Communications (GSM), the most widespread
ather digital network praviders hod used this migration process as an opportunity to encaurage brand switching. Fram 1996 to 1999, cellular telephony standard has facilitated 'international roaming', where a subscriber in one
reports suggested thai almost half of Orange's new customers had switched from the analogue system of either mm02 or Vodafane.
Migration to digital incurred substantial marketing costs for the network operators; Vodafone, for instance, had paid a digital bonus of
country can make and receive calls over cellular systems in another country. GSM has proved
£ 110 plus additional support (around £50) per migrator. Nevertheless, this had been significantly less than the cost of reacquiring the popular for mobile communications worldwide, with 600 million GSM users now connected.
same customer. By 2000, migration to digital network services was complete.
 VUCTc-..s-l~ers<maJ. Communication Network (PCN)
emented at a higher frequency, around 1800 MHz (1900 MHz in the USA). This means
that PCN's signals have a shorter range, requiring more base stations to achieve the same cover-
age as GSM, but also have a greater call-handling capacity.4However, GSM is likely to continue
to be a major presence till 2005. Appendix 2 illustrates how technologies have been evolving.
With the flattening of voice revenues, and the large investments in 3G licenses, operators
were looking to generate more revenues from data services. By December 2002, data revenues
constituted between 10% and 15% of total revenues of operators population - primarily SMS
and emails.
Competition in the UK market
Exhibit 4 shows the number of subscribers for each network. Differential advantages of cover-
age and price have largely been eroded with the build-out of networks and rapid competitive re-
actions to pricing initiatives. Vodafone and mm02 were the strongest in the business market
with Orange playing catch-up and TMobile in fourth position. T-Mobile's share of business
customers is 6% and it has 10% of the 5 million customers in the UK who spend more than
£60 a month on their mobile bills. Vodafone is perceived as the market leader, even though Or-
ange has surpassed it in the total number of subscribers. TMobile has historically been seen as a
low cost provider that did not have good voice quality (this despite Virgin Mobile scoring high
on voice quality ratings while being on the same network as TMobile). Orange is seen as an in-
novative fIrm that is the customer champion. mm02 (formerly Cell net and BTCellnet) ap-
peared to have had the most diffuse image in the past among customers, though its 02 cam-
paign was perceived to be better focused. The 02 brand is reported to have been particularly
successful in attracting customers in the 18-35 year age bracket. With the launch of Hutchison's
3, a widely held view is that the UK market is not large enough for fIve operators and a Mobile
Virtual Network Operator (MYNO) to survive and prosper.
EXHIBIT-4
Coverage and service quality
mm02 and Vodafone had started with a substantial lead over the PCN networks in terms of
geographic and population coverage. Today, all four established players cover a minimum of
98% of the population. mm02 spent £1 billion on its network of base stations between 1996
and 2001 to increase geographic coverage, add capacity, enhance quality and, especially, to in-
troduce a wide range of new voice and data services. Orange and T-Mobile provide a facility on
their websites for visitors to check their quality of coverage in any of9,000 UK postal blocks.
Hutchison's 3 had a 3G coverage of only 50% of the UK population at the time oflaunch, but
provided voice coverage allover the UK by carrying calls on mm02's network when outside its
3G mast coverage area.
In December 1996, mm02 and Vodafone secured the right to use the GSM 1800 MHz
spectrum to supplement their 900 MHz spectrum. Through this they also expected to achieve
expanded geographical and enhanced 'in-building' coverage and better call quality, as shown by
the agreement between Vodafone and Racal Telecom to combine their expertise and provide
the corporate market (medium and large businesses) with an integrated package of mobile and
fIxed line voice and data services.
With the UK population now effectively 100% covered by all four networks5, operators
have started to advertise their international roaming agreements as a differentiator. Initially, Or-
ange and T-Mobile had very few roaming agreements because the PCN Digital Cellular System
(DCS 1800) technology they used was less common internationally. To overcome this, they
launched dual-band handsets in 1997 that allowed customers to use both a PCN network at
1800 MHz and a GSM network at 900 MHz. Such dual-band phones could be used abroad,
based on roaming agreements that Orange and T-Mobile established, bringing them almost in
line with what the two earlier incumbents offered.
Actual network quality now varies little between networks, but perceived service quality is
an important driver of customer retention and acquisition. Although many users are still tied
into contracts lasting a year or more, dissatisfaction with service is likely to lead to brand switch-
ing. Exhibit 5 describes some usage patterns for mobile phone users.

UK Subscribers - Year Ending December 1992-2001

# At year 550
660700
One20ne
All
11,66060
410
620
260
12,799
4,870
7,940
40,040
4,100
1,920
46,680
9,330
8,320
mm02
2,440
2,880
end 140 2,270
490
890
Networks
Vodafone
1,020
1,810
10,970
2,390
2,730
4,040
6,960
1,730
10,220
1,400 14,900
2,160
9,830
2,181
Virgin
Orange 710
850
12,9901,190
3,940
5,740
7,120
24,000 1,260
1,510 47,500 EXHIBIT-5

Consumer Profiles6
Casual user

Mostly off-peak and locally, as a point contact when you're out and about, which tariff would suit you
best? One 2 One's new Up 2 You Standard is great value for money and there is no expiry date of your
call time. One 2 Anytime continues to be good value for contract users and offers off-peak calls at
only 2 pence a minute once you've exceeded your inclusive minutes. Virgin's service does well too.
Due to its charging pattern, a few long calls will cost you less than a larger number of short calls. Or-
ange's JustTalk with new peak and off-peak rates depending on the cost of your voucher is a much
better deal than the previous ones.

Source: ICC Key Note, Press Notes. OFTEL Market Information.

Source: (2000), The price is right, Mobile Choice, Issue 49, December 2000, Pg 37-40.,
Financial Times, January 24, 29, 30, 2002. 5 All operators are still investing in base stations to increase its aeoarnnhir (no ~nnM."'·- --_ ..•_,,-
hi/ihl nfthA cI,uvol h•.•I__ .J~__ ._~"" ~_-J.'_ •

4 In urban areas. the base station requirements of peN and GSM networks are similar. Hfmr.I'! P('IJ ••••• w". hm - ••• _,..-
advantage in urban areas.
 ~~ mine local off-peak, 30 mln'natlona' off-; Baeed on 800 mine locaf'oR-peak, 400 mine national oR-peak, 120 mine
local peak and 5 ,/~minsnational ,!peak each mo••th local peak and 60 mlns Iiatinal peak ':'ach month!
One 2 One Up 2 You Set.lIda", 1 U5
Virgin
Vodalone Pay as you Talk
One 2 One Anytime 138.00
Vodalone Business Call Saver 154.75
Virgin
Vodalone 750 Call Saver

oranae Talk 500

Higher user Emergency only

For heavy use, time profile favours flat rate tariffs such as One 2 One's Precept. One 2 One's prepay
tariff, Up 2 YouStandard, performs excellently again. Precept does offer additional benefits, which
may be worth the extra for a heavy user.Virginperforms well in this category too, as ifyou are using
the cheaper call rate of 5 pence a minute. Another option isVodafone Businesswith Call Saver which
will give you potentially better coverage than currently available with One 2 One.
The new trend for prepay phones to have no expiry dates to their vouchers really helps those who
just want a mobile to sit in the glove compartment of their car or bottom of their bag for emergen-
cies. Our example shows you just how cheap it is to be safe, not sorry.There is of course the usual
consideration of coverage in your area to take into account - ifyou cannot use the phone where
you need it, you willbe frustrated. Finally,you may also use the phone more than you expect. Both
Virginand One 2 One's call rates fall,the more callsyou make, while Orange call costs are lower ifyou
buy a £50 voucher and Vodafone offers a higher user tariff.

k. and
al of!-pea~,
120 mine121?mlns
n~tional natUJnal of1.-pe~. 120 mins
peak eachllnonth 10»
Pricing
Increasingly competitive tariffs have been one of the main forces driving the growth of the UK
One 2 One Anytime market. In particular, Orange and T-Mobile have tried to use price as a differentiator, with vary-
ing success. Initially, Orange was the only network to offer inclusive airtime with a monthly
One 2 One Precept 360
subscription and to charge on a per second basis. However, its competitors soon followed. For
One 2 One Precept 150
example, mm02 responded by cutting its digital tariffs, increasing the length of its off-peak pe-
Virgin riods, and introducing 'per second' billing. Nevertheless, the fact that Orange was the first to in-
troduce these innovations has contributed to its positive brand associations among UK con-
sumers.
T-Mobile launched as One 2 One in 1993, aimed at non-business users. Management
claimed it was not positioned to compete head-to-head with the two incumbents, but rather
was attempting to break BT's dominance of the domestic telephone market. Price was an im-
Business User portant element of its marketing mix. At launch, T-Mobile offered free off-peak local calls. All
peak calls were charged at 25 pence a minute, while off-peak national calls cost just 10 pence
The mobile as a main business number, One 2 One's Precept 720 offers great value. Virginalso per- per minute. In September 1995 the offer of free off-peak local calls, long considered 'suicide' by
forms well as does One 2 Anytime. However, Precept offers you additional benefits such as a second analysts, was withdrawn and subscribers were offered the choice of three tariffs (bronze, silver
number for priority calls,which could prove valuable to business users.
and gold) all providing free weekend local calls. The tariffs were changed again in July 1997,
Consider also the cost of calls being made to you at a mobile number. Orange offers a geographic when the company decided to address more seriously the business users, given its network ex-
number for your mobile at a cost of £17.63 a month, and incoming calls are charged at 9.4 pence a pansion.
minute. One 2 One offera free 0800 number. Connection cost is £58.75 and the monthly cost is £8.83.
Incoming callsare 17 pence peak and 10 pence off-peak. In September 1996, Vodafone introduced PrePay for analogue customers only, an innova-
tive package which was the UK's first mobile service with no contract or bill since customers
paid in advance for use of their mobile. Also in 1996, during the busy period leading to Christ-
mas, T-Mobile introduced the 'All-In-One' package, where customers paid a one-off fee of
£199 and received a handset, connection to the Bronze Service, and twelve months' line rental.
T-Mobile extended its servirp in Allm.cr 1QQ7 , ••:.\.. _•• _> L ., .. - 11 1
 :lIlows two poones (WItllCfilterent phone numoers)robe run off one account, as well as
EXHIBIT-7
]ustTalk, its pre-paid service. In October 1997, Orange introduced lower charges for interna-
tional calls; after signing agreements to buy bulk spare capacity from network operators like En-
ergis, international calls from the UK cost 20% less than BY's standard rates. Cellular Services: Average Call & Fixed Charge Revenue per Subscriber
The pre-paid service boomed through 1998, 1999 and 2000 and is primarily responsible
for the expansion in the customer base in the UK - unlike Finland where 99% of customers 49.4
62.8
One64.4
55.4
64.3
70.2
60.5
63.4
67.5 0.3
70.4
72.2
75.5
83.6
77.6
75.8
7.6
All
5662.1
58.5
1.3
77.1
68.9
71.2
2.6
6.1
mm02 Year-wise69.07
2 One
Vodafone
Orange 80.85
80.56
69.55
67.6 59.3
62.5
75.4 Operators
are contract-based. Pre-paid has helped take the
*Revenues (£s)mobile phone further into the mass market.
2001/0202
2000/0101
1999/0004
1999/0003
1999/0001
1999/0002 2000/0104
2000/0102
2000/0103
2001/0201 1998/9904
Personal users now significantly
for almost 50% of revenue. outnumber business users although business users still account

Both airtime and handset prices (Exhibit 6), and average revenue per user (ARPU, Exhibit
7) have been falling over the years. Price competition and the increasing proportion oflower-
spending domestic subscribers in the market, have lead industry analysts to predict that the
combined revenue of the four players in the UK market will rise only 10% in real terms over the
next ten years. Pre-paid schemes have been an enormous success and already comprise the ma-
jority of customers for all the networks. In 2000, 80% of new subscribers bought pre-paid
schemes. While the pre-paid customer was an attractive proposition since the acquisition cost
was far lower than for a subscriber (£70 vs. £230), their ARPUs were also much lower. For the
half year ended September 30,2001, Vodafone's ARPU for contract customers and pre-paid
Customers were £300 and £160 respectively on an annualised basis.

EXHIBIT-6
*Orange Average Calls and Fixed Charge Revenue per Subscriber prior to Q4 1999100 will be subject to revi-
sion in the Q 1 2000101 publication. This is due to the omission of pre-pay revenue data. Average retail revenue
Evolution of Prices in the UK Industry
per subscriber figures do not take into account the network's differing usage profiles.
Nominal Airtime Prices (Indexed)
Source: OFTEL Market Information, September 2000, Financial Times,
45
125
40
111
66
48
76
59
62
63
35100
89
96
98
95
60
92
84
30
104
67
69
74
45
50
58
65
87
85
36
67
81
78
2000
1998
1991
1999
1992
1997
1996
1995
1993
1994
Company 100
132
106
1990
January 29, 2002, Operator sites.
price, £

From June 1,2001 Vodafone started selling General Packet Radio Service (GPRS) phones
(beginning with the Motorola Timeport T260) to consumers through retail outlets offering the
bundled option of GPRS 1 for the more frequent Web Access Pattern (WAP) user which in-
cludes 1 MB (1,024 Kbits) worth of data transferral for £7.49 per month. With an average
WAP page measuring between one and two Kbits, GPRS1lets customers access between 500
and a 1,000 WAP pages per month. The other option is the non-bundled GPRS price plan at
£3.99 per month, paying for WAP access pro-rata at two pence per Kbit. mm02's consumer
Source: Reuters Business Briefing, Keynote report. GPRS service (corporate GPRS service was in place from June 2000) was launched in May
NOTE: Handset prices are subsidised to encourage new subscribers.
2001 with the following price structure .
• Basic Service: 3.991 month. Data download at 2p IKb .
• Value Bundle: 7.99 1 month. Allows free download of 1Mb per month. Additional
data charged at 3.99 1 Mb (2.5p/Kb).
Shunchiro Mishima, vice-president of business development for DoCoMo's US subsidiary
had noted during 2001 that consumers are charged for cell phone content in much the same
way as TV 'pay-per-view.' The content charges show up in the subscriber's monthly bill and
DoCoMo gives 91 per cent of the content fee to the content provider, pocketing the remaining
nine per cent.
At the time oflaunch in March 2003 in the UK, Hutchinson's 3 offered the following pric-
ing plans, both of which are based on the customer having a 12-month contract with the
phones being sold in the £399-£450 range ( 635- 715). The handsets available are NECe606,
NECe808 and Mototola A830.
r ·1 11-
 ._.,~rnn,-'nncmQes prerruersnlp goaJS':"'A1ter
the tree minutes are up, voice calls cost 15 pence a minute and video calls cost 50 EXHIBIT-9
pence a minute).

• £99.99 a month (2,000 minutes a month of voice calls, 200 minutes of video calls Mobile Phone Statistics, as at 31stMarch, 2000
and 100asevents
similar above).from a chargeable calendar list. After free minutes are up, prices are
Cellular Network Operators: Call Minutes by Type of Call by Operator
Working on 'average' usage, 02 thinks that residential users wanting to access the Web, 1,593 - - ~- -
11 <1--
')2,018
1730
91,767
361,459
493129
1420
1828
571,379
1Total
One20ne 4356--
306
61,016
81,828
753
66261
22
62
23
69
11
12
18
17
16
985
770
786
958
649
904 1- ~AL
49
57
69
76
82
88
24
26
28
31
21
137
Vodafone All Operators
3,294
1,661
1,393
1,478
1,683
1,7911,778
1,353
1,194
1,302
1,051
1,281
1,053
1,292 mm02
78
92
93
75
119
164
180
173
644
1,678
1,584
1,405
Orange
Orange
mm02 1,564 949
785
79
650
6,663
2,360
2,065
1,801
1,662
1,756
2,473
2,169
1,627
1,726
1,915
1,559
1,469
1,075
5,469
7,582
4,761
4,956
5,727
6,919
7,848
4,481
4,314
1,358 1,513
1,706
Vodafone
T-Mobile
1,154
download music, play games and indulge 1995-1996
in multimedia
100h.1007
1993-1994
1994-1995 e-mails can expect to be charged
1999/00Q4
1999/00Q2
1999/00Ql 1992-1993
UK Calls
Call MinutesInland
(millions) 1999/00Q4
1999/00Q3
1999/00Q1
1999/00 Q1 1998/99Q4
around £40 per month. T-Mobile charged users £20 a month for 350 picture messages on its
All
(Multimedia Messaging Service TypeCallsRoaminq
Whilst
Outgoing
(MMS) Abroad
orInternational
Picture Messaging Service, launched in June 2002.7
of call
Incoming call prices: The price of an incoming call to a mobile phone can be very different
from that of the same call if it is made from the mobile phone to the fixed line phone (Exhibit
8). For this reason, it is sometimes cheaper to call a fixed line telephone from a mobile phone
than the other way around. 8 Most consumers tend to be unaware of this fact. Exhibit 9 provides
data on the number of call minutes by a network operator. Following a Competition Commis-
sion investigation, Office of Telecommunications (OFTEL) announced on January 22, 2003
that the four main mobile network operators (MNOs) will be required to reduce the charges for
making calls to their networks. The Commission supported OFTELs view that customers are
paying too much to call mobile phones and that the MNOs - 02, Orange, T-Mobile and
Vodafone must cut their termination charges for these calls.
Termination charges are those charges which an operator makes for connecting calls to its
network, and are paid by consumers in the retail price to call a mobile phone. The operators
should make a one-off cut of 15 per cent before 25 July 2003, and then charge controls ofRPI
- 15 percent for 02 and Vodafone, and PRI - 14 per cent for Orange and T-Mobile, should
be imposed from July 2003 to March 2004 and for two further years. OFTEL estimates that
the average fixed line consumer should benefit by£18 a year by 2005-6, and that a typical peak-
rate call from a fixed line to a mobile phone should come down by about 2.5 pence per minute
by July 2003.

EXHIBIT-8

Incoming Call Charges = Cost of Calling a Mobile - Charges per Minute,

December 2001:

Calls Weekends
Mon-Fri
4.40p
16.52p Mon-Fri
7.41p
2.29p
6.98p
4.40p
15.59p
18.44p
16.18p
Off-peak 19.97p
23.14p
19.02p
16.52p
21.67p

Source: What Gel/phone. February 2002.

7 New Media Age, July 25, 2002,

8 Note that the pricing in most markets, inctuding the UK operates on the 'catting party pays' principte unlike some other markets (e,g,.
USA and India) where the called party also pays, This and the lack of a national standard are the two main factors that havp. .•/"",orl
dawn mobile oenetmtinn in tho '"''
 targeted new corporate subscribers. Orange also established relationships with selected service 1999 2000 2001
providers. It provided one point of contact for subscribers who could call freephone helplines
for assistance, such as feature usage and billing information . • 40% of cellular users • 77% of UK customers used pre pay
.26% of individual
in W. Europe expected to packages.
users in Europe used
Mobile phone use patterns their phones for less use their mobile phones • 16% used mobile telephony as their
than 5 minutes for all voice traffic in the main telephone.
National Opinion Polls (NOP) conducts an annual survey of mobile phone usage and atti- future, with only one-
everyday compared
tudes. Toplines of the August 2002 findings were: third convinced that they • 61% of small businesses and 85% of
to 6% of business
users. would still use a fixed medium businesses had at least one
• 86% of 14-16 year olds and 24% of7-10 year olds have mobile phones. The 25-54
telephone. mobile phone. 80% of SMEs used post
year old group provides the largest revenue chunk to the operators . • 19% of individual pay packages. ,•
• The market continues to be biased towards South of England - 50% in South, 30% users used their • However, cellular op-
in Midlands, 20% in North. erators would need to • The research took in responses from
phones for more than
30 minutes everyday . work hard to develop the Taylor Nelson Sofres's 13,000-strong
• Women now comprise a majority of mobile phone owners.
right pricing plans to ex- panel of users in Europe and the US,
Satisfaction with services .Average daily use ploit this opportunity - during April and May 2001. The aware-
in Europe was 21 price levels remained the ness of 3G services was highest in Ger-
Despite the overall forecasts, anecdotal and survey-based evidence suggested that many current minutes and the most common complaint many (44 percent) and lowest in the US
subscribers were disappointed with the service being provided. While complaints about cover- largest segment was among users in the re- (10 percent)."
in the 5-10 minutes gion, with 50% of churn
age had gone down with time, users were still not satisfied with the quality of the calls and were • The report says that around 80 per
daily use. That ac- motivated by cost.
looking for new services on their mobile phone. However, call reliabilities have increased. A sur- cent of existing mobile phone or Internet
counted for 32% of all
vey conducted by OFTEL in September 2001 found that more than 97% calls to and from cellular users. • The youth market was users in Europe, and 89 percent of US
mobile phones were successfully connected and completed.' The following tables (Tables 1 and taking the lead in landline mobile phone or Internet users were
.90% of users in substitution, with almost 'unaware' or 'poorly informed' on wire-
2) provide a comparison of satisfaction levels and use patterns across three years.
their first year of cell half of those aged 16-24 less Internet technology - the main-
phone use spent less years planning to use stay of the expected 3G services.
than £30 compared only their mobile phone
to 44% of users who • Even among users who were aware
for voice calls. By con- of what 3G could do for them, interest
had been using it for trast, only around one-
Table/1 Comparison of Satisfaction Levels more than four years. third of users aged over
levels were relatively low - on an inter-
1999 2000 2001 est scale of 1 (low) to 6 (high) - the av-
.According to this 45 years had the same erage for 13 markets in the US and Eu-
report, almost 25% of plans." rope was a shade over 3. Across all
• Just a little above half • Satisfaction with mobile service was • There was dis-
customers left their • The US appeared to markets, male mobile phone or Internet
were very satisfied with high, with 93 per cent of residential cus- satisfaction with
previous provider be- have a different perspec- users under 35 years of age showed the
the network; the remain- tomers satisfied with the service they re- roaming charges
cause they had a pro- tive. Only one out of 500 highest level of interest in using 3G
ing 43%, especially 12%, ceived. Customers appeared to be aware among UK cus- motional offer from a
tomers. UK cus- people had decided to wireless Internet services.
who were very unhappy of the rapidly developing market and the
competing service give up residential wire-
would be open to change. increasing range of deals available, know- tomers paid higher • Only six per cent of mobile phone
~ Level of churn in the indus- ing that there may be cheaper deals now international provider.13 line telephone service to users in the US said they send a text
~ try should therefore in- than when they first got their mobile. roaming charges go completely wireless at message at least once a week. This per-
8 crease. Customers were also satisfied with the than customers in home. Slightly less than centage was extremely low in compari-
l;j range and quality of information available other countries. one per cent had even son with most European markets, with
t::
C) • Network coverage was considered such a
't:> to help them choose." • Usage among 56 per cent in UK, 55 per cent in Ger-
.'
c:
'"
a sore point, despite oper- change, based on a sur-
• Mobiles were being used in place of children, 7-16 year many and 58 per cent in Belgium. Inter-
.§ ~ . 8 ators claiming total cover-
olds now was vey of 1,200 individuals estingly, while text messaging in Europe
:: 1.} ~ ~ age. Only 46% were satis- fixed phones in an increasing number of living in US households
<::> c:t: EO '"
more than 52% of was most popular among those under
(5 ~ ~ § fied with the coverage, situations: the home fixed phone was al- in the first quarter of
~ 0 i} '"-i
ready being used; to use free call minutes; that age group. 25 years of age, in the US its popularity
number considerably 2000.'5
~ ~ ~ ~g
~8 gj,gc lower in North. to make savings on specific numbers or at • Business users was evenly spread across those under
8 v) ~ ~~ certain times of the day. were increasingly 50 years of age.
• One-third of users
~<>-8""...1
~ ~ ~~ • One in 20 people asked had put off using Wi-Fi as an
6 ~ c ~~ found tariffs confusing al-
buying a mobile phone because of difficul- alternative wire-
ID·g~~~ though 20% were baffled. less network at
~ ~ ~ ~~ ties in working out the best deal
;: 6)' t3 ~9::
c 0) § CI):::a...
• 40% of users found • One in 10 said cost was a barrier to airports, hotels,
l::l3 0') -9 l....:.Q and other public
calls more expensive than them getting a mobile phone 13 strategy Analytics Report. May 1999.
~~~~~ expected, dissatisfaction places, especially
~.~~ ~~ • One in 7 put off changing network or in the US.
14 Strategy Analytics Report. May 2000.

~ ~§ -.l~ -..l..c:8
:--.....
,:3
naturally highest among
15-24 year olds and above
package because of difficulties in com- 15 Allied Business Intelligence Inc. (ABI) Report. April 2000.

-------~------
I). "Latest OFTEL Consumer 14-15. (http://www.ottel.gov.
,:,:gti:~~ 55-year olds.'o
paring the services and prices offered by 16 OFTEL News (200
77 hHn .•...
L/www fm:nfrA.f:: rnm
Research, ' December. p. uk/consumer/research)

,g-:EC)<::>~
.t:::o - C\I Q)
'" - - - <>:
different ~pHers.'2
-------···15"]T"'n~n"'On<o_pnonc,s-a:rSlJDemg usea·as an ·accessory' as well as a communica- one-third of UK companies which provide employees with mobile phones and businesses are
. tion device. One customer described her mobile phone as having the'same place in her mind as most likely to consider mobile applications for e-procurement, supply chain, CRM, fleet man-
her handbag - she considered it to be personal and would not readily lend it to anyone else. agement and sales force information. Appendix 4 describes some recent industry practices. Ap-
Nokia has started selling handsets with removable covers with different colours that can be put pendix 5 lists some recent highlights from some UK networks.
on the handset to match the clothing being worn for the occasion. Text messaging is providing
a significant chunk of revenues and profits to the network operators. At an average of nine cents
a message, text messaging provided 10% of the revenues of European mobile operators in E X H I BIT - 1 1 ( a)
2001.18 In the UK alone, users sent more than 1.5 billion text messages per month by late 2002.
Current proflling of customers tends to be more conventional.
Sample Roaming Call Charges for UK Operators (in minutes)
An October 2002 survey reveals customer indifference towards mobile phone bills while
UK annual spend hits £15.8bn. One in five customers believe they are on the wrong service
(Calls from Outside the UK to a UK Number as at January 31, 2000)
plan and almost one third believe that all plans are the same; yet two thirds of respondents have
local Network mm02 Vodafone
,----
T-Moblle
never reviewed their service plan. Just one in four respondents bothered to research their con- Country
tract plan with the majority abdicating responsibility and relying on the advice or recommen- Netherlands 0.29 (Libertel) 0.99 1.17 1.17
dations of friends, family or colleagues before purchasing. 19 Customer apathy towards mobile France 0.34 (5FR) 0.99 1.09 0.94
phone spend is further reinforced by 43% admitting to never considering which service plan Ital 0.34 (TIM) 0.99 1.02 0.65
would be most suitable for them with another third thinking that that all tariffs are the same.
0.56 (Telecom D1) 0.99 1.09 0.97
David Taylor, UK commercial director at Orange commented: "The mobile phone market
0.55 (Proximus) 0.99 1.09 0.89
has moved into the same category as the financial service industry in an incredibly short space
of time. In the same way that people do not review their mortgages, credit cards or bank ac- Source: Company information and INTUG (Peak times call including VA T.
counts, consumers are buying mobile services and never changing them, no matter what." Prices are approximate as commission charges and exchange rates vary.
Confusion has bred apathy with almost three quarters of people saying that mobile operators
offer too many tariff options with more than a quarter citing confusion as the key factor for not
reviewing their service plan. Persistent reports of potential health hazards of using wireless
phones was a disincentive for customers to use mobile phones.
In the 15 months to March 2003, operators had also begun to aggressively promote picture
messaging or MMS, a service that allows users to send small pictures to each other and that can
E X H I BIT - 1 1 -------------
(b)

be viewed on the handset in the same way that they send text messages. The arrival of 'camera' OFTEl Price Index for Pre-pay International Roaming by Visited Country,
phones like Nokia's 7630, Sony Ericsson's T68i, etc., was expected to accelerate adoption of the Based on Two Cheapest Deals During 2001
service. Charles Dunstone, chief executive of Carphone Warehouse, said demand for camera
phones was outstripping supply. In the run up to Christmas, the mobile phone retailers sold as 100
100
100
46
51
57
49
58
73
65
68
76
72 100
100
42100
100
49
4449
57
81
48
56
71
43
CountrySweden
USA 44
43
Holland
81 38 6356
100 42
France
Germany
Average
Spain
Italy
many camera phones and camera attachments
Sweden
UK
Germany
Italy
France as they could get hold 0£20
The business user

Some observers argue that the real prize as the industry boom continues is still the relatively
price insensitive, high volume, peak user and, in general, this means the business user. Industry
analysts suggest that operators should target these high-value users to maintain long-term profit
levels. They predict thatARPU could fall to just £165 for consumers, and this is in fact the case
for pre-paid phones. Source: OFTEL News, Issue 54, December 2001, p. 13.

The corporate customer is estimated to spend between £750 and £1,000 a year compared
to between £250 and £350 for the average private individual. Corporate users tend to use more
peak rate and roaming calls. International calls originating from mobile phones are growing. Churn and network switching
International roaming prices tended to be much higher and have become the subject of an OF- Orange claims to have benefited from a lower annual 'churn' rate 2\ of around 12% against an
TEL investigation (Exhibits 11(a) & 11(b)) - with customer groups alleging that the operators industry average of 30%. Loyal customers are extremely valuable as the cost of acquiring a cus-
were ripping off customers. According to a corporate survey by Institut de l'Audiovisuel et des tomer is high (advertising, handset subsidies, connection bonuses, introductory price-offs). It
Telecommunications en Europe (IDATE) for Cap Gemini Ernst & Young, in mid 2001, about has been estimated that a 1% reduction in the annual churn rate benefits the company by £ 15-
30 per existing subscriber. Multiplying this figure by a subscriber base of millions, it is obvious
why a low churn rate is important. Effective from January 1, 1999, number portability was es-
18
7a.,hftp://www,orange,Co,uk/cgi_
•

LI;IccnICnrWlTIrcne operators to DOOstcompetition. Under this, sub-
scribers can keep their phone numbers if they switch networks. To counter churn, operators
have launched loyalty programmes.
Future outlook
Falling equipment prices and tariffs and increased competition will continue to increase the use
of mobile phones. However, the UK market at 80% penetration is now reaching saturation and
most increases in revenue will come from increased usage of present services, the advent and
adoption of new services and ownership of multiple mobile devices.
Voice quality
All operators are working on enhancing voice quality. In February 1999, mm02 became the
first mobile operator in the world to offer Clearcall technology free of charge to all digital cus-
tomers. Clearcall cuts background noise by up to 75%, amplifies callers' speech and reduces
acoustic echo.
Services in vertical markets
Operators have added content and services such as stock prices and traffic information to their
offerings. Orange aims to be a major Internet access portal site. It has an alliance with Sun-
Netscape-AOL TimeWarner and has launched news, sport, travel, weather and entertainment
information services from these and offers content providers. Orange also has offered Wildfire,
a voice activated intelligent virtual assistant.
Rudimentary banking services are already available on the mobile handset. The benefit to
the customer is convenience. For the banks, this channel also offers potential cost savings. In
2000, Logica found that a retail bank transaction cost $1.07 on an average at a branch, while
telebanking calls cut the cost to $0.54. Logica estimated a mobile banking transaction could be
effected for $0.16. The cost of handling cash for just the banks, let alone, for example, the rest
of the UK economy was over $1.6 billion a year. In the UK, Woolwich and Halifax were the
first to launch banking services over the mobile Internet during the year 2000 using WAP. Hal-
ifax collaborated with mm02 to launch the service. Barclays offered WAP banking through
Vodafone. Consulting firms and cellular equipment providers, among others, have suggested a
large potential market for m-commerce .22
Vodafone offers Vodafone Interactive that enables users to customise the services they want
to receive through their phone. Customers can top up their 'Pay As You Talk' credit, send SMS
messages, check their bank balance, and use personal assistant services. For corporate customers,
Vodafone has its 'Managed Gateway' scheme on WAP that enables the customers to develop
their own set of services such as customer services, 24-hour operational support, site statistics, se-
curity, identity of caller via calling line identification (CLl) and dual branded sites for their cus-
tomers, i.e., Vodafone is acting as a web hosting service provider on the mobile Internet.
Operators are offering different service initiatives. In February 2003, Orange, Telefonica
Moviles, T-Mobile and Vodafone announced that they would provide a new Mobile Payment
Service aimed to deliver an open, commonly branded solution for payments via mobile
phones, designed to work across all operator networks and across country boundaries and
would seek to complement existing industry solutions. The aim is to provide the opportunity
to purchase a wide range of digital and physical goods and services with their mobile phones us-
ing an easy, secure solution. In November 2003, Orange launched Orange Fleet Link that en-
ables fleet controllers to obtain driver and vehicle information, such as vehicle location, alarms
and real time status reports. wirelessly, between the vehicle and the office.
22 For example, a January 200 I, Strategy Ana/yfics Report says that by 2006, worldwide, 325 million
m-commerce revenues of $230 billion. The report also adds, however. that wimlll."< nllh"",/,o M4m'MC
nn/" ?o/ "'~ ~"'I-"'-~-'
Many Western operators were looking to emulate the success ofNTT DoCoMo's i-Mode
service in Japan, easily the most successful mobile Internet type service in the world. However,
it was unclear to what extent the drivers ofi-Mode's success could be replicated in the West (See
Appendix 6).
Mobile phones were also being used for direct marketing. For example, in November 2002,
a UK wireless marketing company signed a deal to secure the first national mobile marketing
campaign across multiple operators with a single short code. The campaign, for Elektra Enter-
tainment Group artist Missy Elliott, promoted her new album Under Construction, supported
by a big cross-media campaign. The deal signified the adoption of SMS by a big US media
brand and showed the benefits the European mobile marketing sector could reap. British
Airways (BA) used an SMS campaign to promote trips on BA during rugby matches during
March 2003.
Roaming: The success of GSM roaming had demonstrated the value to the market of hand-
sets that could connect with different networks. Further development would lead to the intro-
duction of multi-standard handsets able to connect to any local network and, at a later stage,
handsets that would automatically select the most economical call routing.
Third generation wireless network
3G (also called Universal Mobile Telecommunications System (UMTS) and Wideband Code
Division Multiple Access (W-CDMA) in Europe) promises information (email, file transfer)
and moving video images to be delivered to the handset. UMTS potentially offered data rates
of384 Kbps compared to 9.6 Kbps for GSM. Infrastructure providers like Nokia, Ericsson and
Motorola were pushing for the 3G technology to tap the emerging wireless data market. An all
new 3G network in the UK providing 99% population coverage would mean around 15,000
base sites as compared to the approximately 10,000 base sites that the operators had for their
GSM networks. At the pessimistic end, at least two mobile network operators (Vodafone and
Telecom Italia Mobile) had suggested that even 2.5G technology would not happen in large
numbers till early 2002 - a prediction that has come to pass.23 Nokia, the largest manufacturer
of handsets (36% market share worldwide as at December 31,2002) announced its first GPRS
handset only in February 2001 and by January 2002, GPRS handsets were still not available in
large volumes though three of the five operators were providing GPRS services.
Japan launched the first 3G service, called FOMA, using W-CDMA in September 2001
with 4,000 users in the Tokyo area. However, DoCoMo had revealed that only when used by a
few users at a time does W-CDMA do everything its designers promised in terms of data
throughput rates. The limits of available radio spectrum meant that the technology could not
simultaneously provide the very high data speeds needed for video and sound transmission to
large numbers of users over long periods. As the industry migrated to the 3G cellular technol-
ogy, Hutchison would be allowed roaming facilities on the existing networks of cellular opera-
tors to begin with. It had negotiated an agreement to roam on the mm02 network for its GSM
and GPRS services. Dual mode handsets that worked on both the existing GSM network and
on the new 3G network were an important requirement for quick uptake of 3G services.
Hutchinson started to pre-register consumers in December 2002, attracting 90,000 names in
Italy and 40,000 in UK by March 10,2003. Exhibits 12(a) and 12(b) show 3G network cost
estimates and Western European subscriber breakdown by technology.
people will generate
M4 U/,o4/U,,., Mn" ,,-
 The lodestone in 3G for different firms was the content that customers would buy over 3G
because of the high rates of data access. According to Lars Becker, chief executive of Flytxt, a
mobile marketing company, "Any new medium, from the printing press to the Internet, is fu-
3G Network Cost Estimates elled by adult content - cinema in the 1920s, video recorders in the 1970s, DVDs in the
1990s. It's the same pattern." Paul Meyers, managing director ofWippit, a music distribution
28.9
23.1
4.0
1.4
2.1
2.0
3.2
2.8
1.7
4.1
48.7
15.9
28.8
3.5
7.7
Capital 1.3
0.1
0.8
2.0
2.0-3.0
n.a.
2.7
38.0
50.8
0.5
20.0
0.4
Nominal
Cost
The of Licenses
Cost of European 3G (Euro) bn
Expenditure* specialist, agreed: "The one thing that we know people will pay over the odds for, because it is
not something they think about with their heads, is pornography or flirting services. While ob-
servers happily assert that 'girls, games and gambling' are the triple drivers for Hutchinson's 3G
network, 3, pours on cold water. "No, this is not part of our plan," according to 3's Matt Pea-
cock. "Our research says this is not what people want. What they want is football."

Market structure
The UK Government required that the fifth 3G license holder would have guaranteed roaming
rights on one of the existing networks. Hutchison agreed to lease existing mm02 network fa-
cilities at a price for each customer that is a discount to the retail tariffs of mm02. The cost of
setting up the 3G network has been estimated at 5-8 billion per network. Exhibits 12a & 12b
provide estimates of setting up 3G networks (by all operators taken together in those countries
and with at least 90% population coverage) in the different countries and relative penetration
of different mobile technologies. While this competition is more pertinent to equipment sup-
pliers like Nokia and Ericsson, cellular operators would also need to make choices about the in-
strument that they wanted their customers to use (Exhibit 13).

EXHIBIT-13

Mobile Virtual Network Operators (MVNOs); Potential Players

Extend
MotiveIreland
Sweden
Countries
UK multi-platform strategy for delivering itproprietary,
France,
Italy
Considering
Complement
Expansion
Planning
Opportunity
Spain
Expanding
.... ,.for
Germany toofMVNO
MVNOas
MVNO
to use
to
scope fixed
operate activity
of its
existing aexisting
route possible
resale to
onbroadband
opportunities 3Gfixed
afterand
fill
network
for gap network
alternative
in European
offering,
in-vehicle
network
broadbandinPartner
withdrawal
activities. which partner
to
with
carry bidding
the
totelematics,
is
services:
from
(for the ifand
license announced
coverage
objective
mobilemajority
this
E-Plus
resale): com
UMTS of
competi-
Eircell
* Highest estimated cost excluding any possible synergies Company
Telekom
Imagine
Deutsche
Hutchison consortium
branded
Internet
for
pany3G
offerinq traffic
islicenses
stakeholder.content.
also Partner:
Partner:
involved
converged TIW
inwhich Vodafone
3G
a consortium
services is already biddinq
particularly forservice
to business a 3G license
customers
** Pending Colt MotorsEnergis
Telecom
France
General
Kingston
BskyB Telecom
Hutchison tive response to Ford, a mobile provider
B2
Sources: Schroder Sa/oman Smith Barney: HSBC.

EXHIBIT-12(b) ----------
Western European Subscriber Breakdown by Technology
% Share 2000 2002* 2005*
(as at December 31)
GSM 99 67 30
GPRS 27 30
HSCSD
w-CDMA(3G) 5 40
*Estimate

Source: Forrester Research Survey of 22 Operators.

 ___
UKand
UK
Nordic
Italy Australia.Activitiesin
uK=6aseaMVNO
Netherlands.
UK,Australia,
consumer-orientated
Carphone
MVNOintended
•..•-._ Asfor
Expansion actWarehouse
Sainsbury
Europe-wide
Exploitco-branding
Market
3G J. entry
license.
Plans to
Extension
-va'n'O'(l~"'" of
ofPartners:
as
fixed VirginGroup
andMVNO
asresale
(above)
means
activities into
opportunities
MVNO of other
specialising
designed
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international
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One.Tel
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Tesco
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S.E.Asia,US
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established
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core
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advance to
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consortium.
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business of
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minutes. Service control is sub-contracted to Icelandioperator
ValueTelecom the Andala
to open its In the 18 months to February 2003, wireless 'hotspots' (at airports, hotels, railway stations,
VirginGroup
convention centres and coffee shops in particular) had started offering wireless connectivity to
road warriors. These hotspots used a technology dubbed as (IEEE) 802.11 b (also called wireless
fidelity (Wi-Fi» that allowed laptops users to connect to the Internet at speeds upto 10 Mbps
without wires or line of sight requirements using a wireless local area network (WLAN) card.
Wi-Fi is, thus, faster than 3G. Wi-Fi in its current form can run as fast as 10 Mbps. In practice,
it often runs between 512 kilobits per second (Kbps) and 2 Mbps. The actual speed is limited
by the rate of its wired feed (the paradox ofW-Lans is that they require a feed that is almost al-
ways a high-speed wire). 3G runs at about 384 Kbps.
Even with WLAN cards costing between 50 and 70 and new laptops which are Wi-Fi-
ready, Wi-Fi is an inexpensive incremental option to get wireless access that provides full key-
board, full screen and un-tethered Internet access. Mobile operators play down the WiFi threat
and with one voice maintain that it will be 'complementary' to 3G services.24 However, in Jan-
uary 2003, when BT announced ambitious plans for its WLAN services, Dave Hughes, direc-
tor of its mobility services division, was less benign, "3G will be important, but what is it going
to be for, other than voice" he asked? BT said it had started 80 hotspots across the UK with 400
predicted by mid 2003 and 4,000 by 2005.
Intel was also targeting wireless-enabled LANs as a high growth market; it believed that
WLAN would turn round not only its own moribund revenues but also revitalise the weak PC
and communications sectors. In pursuit of this goal, Intel launched the Centrino chip in March
2003. According to Andy Grove, chairman ofIntel, "Centrino was second only to the intro-
duction of the Pentium," and Intel was putting its money where its mouth was. It had ear-
marked $300 million in promotional money to push Centrino. "Covering even a large country
like the USA with WiFi would cost only $2-3 billion," said Sean Maloney, head ofIntei Com-
munications Group - a relatively inexpensive national infrastructure of wireless hotspots,
compared with the tens of billions of dollars the mobile communications companies had spent
Source: Analysys Documents. 2000. to build nationwide networks and buy licences. In more densely urban areas, such as London or
New York, the cost could be less than $1OOm. Supporting Intel's contention was the fact that
laptop computers were the fastest-growing segment in the PC market.
Virgin's launch of its virtual service using the T-Mobile network was indicative of future Connecting broadband users was 10 times cheaper with Wi-Fi. Thus, by promoting the
providers having the opportunity to ride on the networks established by existing operators. Vir- building of hotspots, combined with Centrino laptops that already come with WiFi was almost
gin used the extra bandwidth that was available in the part of the spectrum that has been allo- a 'free' feature, Intel was seeding fertile ground for future chips sales in PC and communica-
cated to T-Mobile. The twist in its offering was that it did not subsidise handsets at all - and tions. Firms like the book store group Borders, the coffee chain Starbucks, Marriot Hotels and
not having had to set up a network from scratch, it could offer relatively low call charges. The MacDonald's were building hotspots for public access. International airports, leading hotels
higher the time usage, the lower was the per minute charge with Virgin. and university campuses offered Wi-Fi access.
New mobile phone instruments like the P800 from Sony-Ericsson and the NEC e668 were
Fixed mobile convergence
mobile video phones and personal organisers as were instruments like the Palm VII and the
Handspring Visor, which were initially just Personal Digital Assistants (PDAs). Equipment The convergence with, and the possible substitution of fixed telephony by mobile services was
providers were grappling with two issues in the transition to 3G. The first was the need to pro- another issue. If customers could enjoy all the additional utility that mobility offered, com-
vide multi mode handsets that would be able to handle existing second generation (2G) net- bined with prices similar to or lower than fixed services (and with similar reliability), many
works and would work on 3G services where available - because in its initial years 3G would would stop using the fixed network. A recent survey reported that 20% of business managers al-
not provide good coverage. The second issue was that of convergence of the mobile phone in- ready thought of their mobile handset as their primary phone as opposed to a fixed line. At this
strument with the PDA. Ericsson's P800 and Handspring's Treo are in the vanguard of this stage, no mobile network had enough capacity to handle all a nation's voice traffic. However,
movement. mobile operators were probably not interested in the total market, but rather in the more lu-
crative parts, which already comprised the bulk of their services. Relative prices of mobile serv-
Finally, there was also the issue of Mobile Virtual Network Operators (MVNOs). Virgin
ices as compared to fixed line services remained an issue for European operators as can be seen
Mobile was one such operator in the UK. High costs of obtaining the licence and of setting up from Table 3.
3G networks would encourage the incumbent networks to recoup part of their investment
through sale of space on the spectrum to MYNQs. Simultaneously, different firms would con-
sider becoming MYNOs as they expanded their business operations. Exhibit 13 lists potential
MYNOs in Europe. There was a pessimistir vip", tr~~ ~- -..
C_L t
 0.14
0.17
0.47
0.52
0.56
1997
1996
0.12
0.13
0.39
0.43
1998
0.11
2000
1999 I"
Benchmarks 1999-2003.
1995 Category
0.64 Source: Strategis Group: European Operators' Operating
0.17
Fixed Revenue
per minuteCUS$)
Mobile Revenue
per minute CUS$»

Developing and implementing a marketing plan with a clear positioning strategy was going
to be crucial for the operators. Given the present positions of each of the operators, how were
these likely to evolve over the next 12-24 months to include the transition to 3G services and
the competition with Wi-Fi?

1. As one of the operators. how would you analyse the competition to refine and
change your own marketing and positioning strategy?

2.. What kind of advertising and pricing would you use to beat the competition?
Why?

3. What competitive strategy will you adopt to maximise value?

Airtime: Actual time spent talking on the cellular telephone.
Analogue: The first technology used for mobile phones. A simple system which uses radio
signals to carry voice in the form of a continuous wave. Not available in the UK after 2005.
Base station (or cell site): The ground-based aerials, transmitter and receiver equipment used
to communicate with mobile phones and the mobile switching centre.
Code Division Multiple Access (COMA): A wideband system developed by California-
based Qualcomm that spreads multiple conversations across a wide segment of the fre-
quency spectrum. Each call is assigned a code that distinguishes it from other calls simulta-
neously transmitted over the same frequency. It claims to offer superior voice quality and
more capacity and coverage than an equivalent GSM system.

Cell: The basic geographic unit of a cellular system and the basis for the generic industry term
'cellular'. An area is divided into overlapping small 'cells', each of which is equipped with a
low-powered radio transmitter/receiver. The cells can vary in size depending upon terrain
and capacity demands. As the user moves between cells, the call is automatically handed
over from one cell to another.

Circuit Switched Technology: When two people are talking or sending data to one another
- that line is fully engaged and cannot be used for anything else. In contrast, in Internet Pro-
tocol (lP), two people may be talking to one another and also be simultaneously using the
connection for receiving and sending emails, or for downloading data.

DCS 1800: A digital network based on 1800 MHz. Also known as Personal Communication
Network (PCN) and used in Europe.

DCS 1900: A digital network based on 1900 MHz. Also known as Personal Communication
Services (PCS)and used in the USA.

Digital: The current type of technology widely used, offering clearer call quality, eliminating
eavesdropping and allowing a range of innovative features, such as SMS.

Enhanced Data Rates for Global Evolution (EDGE): Refers to an intermediate technology
between GSM and 3G Universal Mobile Telecommunications System (UMTS) that offer
higher data throughput rates than GPRSwith transmission speeds upto 384 Kbps.

GPRS (General Packet Radio Services): Refers to the intermediate technology using soft-
ware overlays (2.5 G of 21/2 generation) that will provide packet switched data over mobile
phones. This will enable mobile phones to be used simultaneously for voice calls as well as for
Internet access. It is 'always on' and provides transmission speeds upto 115 Kbps.

Global Standard System for Mobile Communications/Groupe Speciale Mobile (GSM): A

digital network based on 900 MHz. It is a standardisation body created in 1982 to specify a
digital radio communication system in Europe.

High Speed Circuit Switched Data (HSCSD): Is a circuit switched protocol (technology)
based on GSM that enables transmission of data at speeds upto 57.6 Kbps by using four ra-
dio channels simultaneously. Orange launched its HSCSD service in the autumn of 1999.
Nokia is the main provider of PCMCIA ca[ds~fol"-its IdSc.c;:D ,..1;~",±~LL..~~MlJb_."-'~.· -
 tnen
Hr-luCa"[lOn,I.e-:-;-cel.. ~m-arx-L:-f1lstory ot CellularPnones and Underlying Technologies
In 1984, AT&T, owner of Bell Labs where cellular technology was first developed in 1947, ex-
Integrated Services Digital Network (ISDN): Provides the digital connection between user ited the mobile phone business, believing that the market would never develop enough to
network interfaces (i.e., the connection between two network elements). be viable. Ten years later AT&T paid $12.6 billion for McCaw Cellular Communications. To-
day, AT&T is the largest cellular operator in the US. New technologies have had a significant
Office of Telecommunications (OFTEL): The UK telecommunications industry's regulatory impact on the telecommunications industry and have resulted in the development of mobile
and supervisory body.
telephony as a complement to - and in some areas as a superior alternative to - fixed
Personal Communication Network (PCN): A variant of GSM using 1800 MHz. Also known as telecommunications.
DCS1800, it has been adopted in Europe, but was initially launched in the UK. Cellular radio was developed to make more efficient use of the radio spectrum. Whereas the
early radio telephone systems used a single high-powered transmitter to reach 40 miles from
Personal Communication Services (PCS):A variant of GSM using 1900 MHz. Also known as
the base station, cellular divides the coverage zone into smaller, overlapping cells rather like
DCS1900, it has been adopted in the USA.
a honeycomb. A radio tower called a cell site or base station containing radio transmitters
Personal Identification Number (PIN): This is a personal number that may be used to pre- and receivers serves each cell. These transmitters and receivers communicate with portable
vent access to the SIM by unauthorised users. handsets located within the cell. The band frequency is sub-divided and non-adjacent cells
can use the same frequency band, thus greatly increasing the call-handling capacity of the
Public Switched Telephone Network (PSTN): A fixed line telephone network, e.g. BT or system. Base stations are connected by fixed microwave or cable links to computerised
AT&T, or Deutsche Telecom or France Telecom network. The network works through switching centres, which are in turn connected to other switching centres and networks.
'switches' (usually at a telephone exchange) that directs and manages the telephone traffic.
All cellular calls begin as radio waves. When the user makes a call, those waves are received
Roaming: The ability to make and receive calls when abroad, using a digital mobile phone. at the nearest base station. The base station transmits the waves to a mobile switching centre
Using a mobile phone abroad will usually depend on the customer passing a credit check. (MSC) which then routes the call instantly to its destination. Because of the nature of radio
waves, the clarity of a call (or the ability to maintain a call) may be affected by such factors as
SIM Card: The small card with a microchip inside a mobile phone that holds the customer's
service details. topography, a faulty or unextended antenna, or the weather. Each base station handles calls
in a specific geographic area. As the user travels, a call in progress is automatically handed
overfrom cell to cell.
Short Message Service (SMS): This is a feature of digital mobile phones, where SMS com-
patible handsets can send, and also accept and display text messages of upto 160 characters Cellular telephony began on analog technology. Because digital systems have much greater
transmitted from a variety of sources. capacity than analogue systems using comparable bandwidth, the world has largely switched
over to digital technology.25 'Time Division Multiple Access' (TDMA) is the transmission tech-
Switching Centre: The part of the network that switches, routes and controls call charging
and accounting. nology used by most digital systems; TDMA can be implemented using various standards in-
cluding Global Standard for Mobile Communications (GSM) and Personal Communications
(Extended) Total Access Communications System (ETACSand TACS):The UK standard for Network (PCN), a variant of GSM. The first digital cellular network based on the Pan-Euro-
analogue cellular phones. p~an GSM standard was launched in 1992 - 11 years after the launch of the first analogue
network. GSM has been adopted across Europe and most other parts of the world with two
Time Division Multiple Access (TDMA): The frequency is divided into eight timeslots and
notable exceptions - the US, where analogue systems are still present and the digital system
each timeslot is capable of holding one conversation. A channel is a defined sequence of chosen is the US-developed Code Division Multiple Access (CDMA)26,and Japan which has
TDMA timeslots on a set radio frequency to give one-way transmission. A base station trans- developed its own digital system, Personal Digital Cellular (PDC) system and also has exten-
ceiver has eight channels.
sive analogue networks. The presence of multiple standards has slowed adoption in the US
and has prevented a 'seamless' cellular experience across the world.
Universal Mobile Telephony System (UMTS): A third generation mobile phone technology
that is based on Internet Protocol technology and that will enable packet switched flow of In the next generation of cellular technology popularly called 3G, W-CDMA is expected to be
data and voice at rates upto 2 Mbps under ideal conditions. adopted in almost all markets of the world, including the four most important markets cur-
rently - Western Europe, USA, Japan and China. This is expected to facilitate transition to
Wireless Access Protocol (WAP): Refers to the intermediate technology using software and adoption of 3G technology.
overlays (2.5 G of 21/2 generation) that will provide packet switched data over mobile
phones. This will enable mobile phones to be used Simultaneously for voice calls as well as for 25 Cellular systems may use either analague or digital signals. The strength and frequency of audio sounds enlering a telephone mouthpiece modulate ana-
logue signals. In contrast, digital coding of the audio sound permits the transmission of a series of short impulses between handsets and base stations.
Internet access. It provides data access speeds of upto 128 Kbps. In practice, the speeds 26 A variant of GSM, PCS 1900, is used in some areas of the US. There is competition between GSM and COMA as to which digital technology will prevail
achieved are closer to 14.4 Kbps. globally. COMA was implemented by California-based Qualcamm who claim it is superior compared to GSM; however, COMA is more expensIVe than GSM
and has not been used as much. In addition besides the US, the only countries where it has a presence are Hong Kong, South Korea, China, Canada, Thai-
land, Singapore, and Brazil.
GSM is a truly worldwide standord compared to Qualcomm's COMA. However, the 3G cellular technoloav is based on Qual-
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For web-to-mobile personal
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to sendoffers a freefrom
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service, whilst complainant
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handsets), the complainant offers a reduced rate service.
Some competitors do exist, but Genie is not one of the alternative suppliers; for content
provision including mobile alerts, Genie offers a free service, as do a small number of
larger players such as Yahoo! The complainant does not offer such a service.
On August 3, 2000, OFTEL concluded that even if the relevant market definition was ex-
tremely narrow, it did not appear the Genie's free messaging service had an adverse effect on
competition. OFTEL concluded that even if any cross-subsidy were to be established, it
would not be considered unfair under the terms of mm02's license and closed the case. This
was a setback for MVNOs like Virgin.
Genie (www.genie.co.uk)wastheglobalmobilelnternetdivisionofBTOpenworld.BT.s mass
market Internet business. It delivered content via its web and WAP portals to fixed and mo-
bile devices around the world, and aspires to be the world's leading mobile Internet portal. It
delivered mobile Internet access solutions to network operators. The Genie platform has
been developed with Microsoft, Phone.com and LookSmart as core technology partners.
Content partners include Yahoo, 365 Corporation, Lastminute.com, AOL. Freeserve, Excite
and Guardian Unlimited. It launched the UK's first free access Mobile Internet Service
Provider - Genie Internet - and then, with mm02, the Mobile Internet Phone, the first work-
ing, commercial WAP (Wireless Application Protocol) pre-pay service in the UK. Genie then
developed a mass-market global portal, applications and solutions in collaboration with na-
tional operator partners - SmarTone (Hong Kong), Telfort (The Netherlands), Viag Interkom
(Germany) and StarHub (Singapore). As at April 2001, it had more than 4 million subscribers.
With the de-merger of mm02, it was folded into the 02 operations.
Appendix 5: Some Recent Highlights from Each of the
four UK Networks
Orange:
• Peak/Off-peak: In October 2000, Orange started giving its customers the option of
defining a slot of four hours of their choice as their own off-peak hours of the day.
Orange 'Just Talk' customers who decided to choose their own off-peak hours re-
ceived fixed off-peak between 11 p.m.-7 a.m., plus an additional four hours from
one of the following time bands: (1) Morning: 7 a.m. until 11 a.m., (2) Lunchtime: 11
a.m. until 3 p,m. and (3) Afternoon: 3 p.m. until 7 p.m. It followed Vodafone with its
own 'rationalised' international roaming call pricing from February 1, 2001.
• HSCSD: Based on a circuit-switched technology, the user has a dedicated circuit(s)
assigned to the data call being made. It allows the user to have a predictable data _
rate. HSCSD employs a new channel coding scheme that increases the channel bit
rate from the existing 9.6 Kbps /14.4 Kbps to 28.8 Kbps. Other UK network opera-
tors do not at present provide HSCSD - nor do they plan to. In December 2001, Or
ange quietly launched GPRSand hopes to start 3G services in late 2002.
T-Mobile:
• Pricing: First to offer contract calling rates on prepaid phones (10 pence/2 pence per
minute). I
• Connectivity to Devices: First to successfully demonstrate connectivity and inter-
working between a Bluetooth-enabled Palm Pilot and a phone on the Onp. ? nn~
network. Bluetooth enables diff,::>ron+ ~I- -'.-
other without wires and line of sight within limited distances (-20 meters) and i
important emerging standard in wireless connectivity between different electr;
devices.
Vodafone:
• Eurocal/: Enables Vodafone to charge customers a single rate of euro 0/8 per minute w,
making or receiving calls on any Vodafone partner network on Benelux, UK, Germe
Greece, Italy, Austria, Portugal, Spain and Sweden. Announcement was made in Janu
2001 and it was operational in March 2001.
• Joint Venture with Cap Gemini: Will enable Vodafone to offer corporate custom,
mobile access to corporate intranets and to deliver solutions for vertical indus
sectors like banking and transportation. It was announced in November 2000.
• 100 million proportionate customers in January 2002 worldwide - with 12 million in tl
UKmm02:
• GPRS Coverage: First off-the-block, mm02 offered GPRS coverage across the L
from October 2000.
• Banking: In July 2000, mm02 in partnership with Intelligent Finance, a division of Halife
pic, started offering banking services over mobile phones using WAP. This initiative er
abled mm02 to obtain many new customers and to move WAP phones into the market.
• Tested 3G services in October 2001 through its subsidiary Manx Telecom on the Islt
of Man.
• BTWireless rebranded as mm02 in November 2001 after the demerger of BTWireles~
from BT, but the UK subsidiary continues to trade as BTCellnet.
Appendix 6: How Applicable is the Japanese Experience
with i-mode in the UK?
The phenomenal success of i-mode, which had taken Japan by storm since its launch in Feb-
ruary 1999 was driven by its use for downloading pictures, sending text messages and e-
mails, and obtaining information about tickets, programmes and bargains. NTT DoCoMo,
the largest Japanese mobile phone operator, had more than 30 million users in January 2002.
The use of i-mode is at least partly the result of contexts specific to Japan. For example, there
are as many mobile handsets in a Japanese commuter train as in any other rich economy. Yet
in Japan, the telephones are silent. Instead of speaking into sleek silver gadgets, users were
busy sending e-mails or downloading pictures of their favourite pop stars. Unlike the current
billing system in the UK, where a customer was billed by time spent on the phone or online,
the i-mode application is 'always on' and customers are billed by the amount of data down-
loaded.
On the other hand, Europe's WAP and Internet phones had failed to make an impact. The
more European telecom shares were hit by skepticism about WAP and worries about the
debt taken on to pay for new investment, the more European operators turned to Japan for
inspiration and hope. Hence the importance of understanding the reasons for i-mode's suc-
cess - and the worrying possibility that Western excitement about wireless Internet services
may be based on several i-mode myths.
I-mode did have technical advantages. It chose to use a v;:,ri:::>n+ ~+ Wo' AI .,
of thp. Int,::>rno+ r~+h~ ••. 1.-.__
 'i'npetitor to
scnoors to its J-Sky Internet service even though it used
circuit-switched technology.

DoCoMo's rates were very affordable. Services such as the popular dial tone downloading
service orthe virtual dating game costY300 (£1.90) a month, the same as a weekly magazine.
There were 1,200 i-mode sites that had been officially recognised by DoCoMo and 30,000
unauthorised or voluntary sites. DoCoMo was able to encourage content providers to set up
sites for i-mode by making it easy and relatively low risk for them to do so. Its centralised
billing settlement service freed the content providers from having to bill thousands of differ-
ent customers for only Y300 or so a monthY DoCoMo pocketed 9% ofthe payments that cus-
tomers made, with the rest going to the content providers.

27 Financial Times, December 6, 2000, p. 16, "When_SUcce.<.<_AnnQN~ _J 'u,_~·-