Evolution of mobile technology and business models

Su-En Tan
CTI Working Papers, no. 91 Center for Tele-Information

EVOLUTION OF MOBILE TECHNOLOGY AND BUSINESS MODELS Su-En Tan Centre for TeleInformation Technical University of Denmark Building 371, 2nd Floor, Elektrovej, Kgs, Lyngby 2800, Denmark Tel.: +45 45255181 Fax: +45 45963171 Email: sutan@cti.dtu.dk

ABSTRACT This paper looks at the evolution of mobile technology and the evolution of the business models associated with it. Briefly, the different technologies will be examined. More importantly, it will trace the route taken by the mobile network from 2G to 3G and beyond, it will look at the factors that have influenced the decision of mobile operators to switch or upgrade to 3G and also why some others have chosen not to do so. While technology has evolved, so has the business models of the industry. The evolution of the business models from 2G to 3G will be described here. How the mobile industry has changed in terms of market players is part of this description. 1 INTRODUCTION In recent years, we have seen many changes in the mobile industry. Mobile telephony has evolved a great deal since the beginning of the GSM standard. It is thus, of interest to trace this technology change from when we once used the mobile telephone as just a device to make simple voice calls to the multimedia device of today. The different evolution paths that have been taken by different mobile operators will be examined. Reasons for their decisions will be discussed. While technology was evolving, what followed was that of evolution of the business models used in the industry. As services change from voice centric to data centric services, mobile operators have had to adopt different business models. Business models have to evolve and change with changes in technology as old business models will no longer work for industry players. The link between technology and business is tightly coupled. New technology will not work if there is no business case for it and if industry members do not support it. And industry members will not support a technology if they feel it would not contribute to new revenue opportunities. Therefore, when technology evolves to a higher plane, business models describing processes and flows between the companies involved in the supply of the end product will also evolve to a different plane to take into account what the new technology and the services that go with it, can offer. The evolution of the mobile business models will be looked at and discussed. 2 BACKGROUND This section will provide some background technology information about the different mobile platforms involved in the evolution paths from 2G to 3G.

2.1 GSM GSM standardization began in the early 1980s and the main reason for this was to develop a uniform standard that would enable seamless roaming between the countries in Europe and was mainly driven by European telecommunication operators, manufacturers and standardization committees. 1 Today, there are some 1046.8 million GSM users worldwide in countries/areas. 2 This technology now has more than 70% of all digital mobile telephony subscribers worldwide [1]. Table 1 shows the GSM frequency bands with the most frequently used being the 900MHz, 1800MHz and 1900MHz bands. Band GSM400 Range

450.4 - 457.6 MHz paired with 460.4 - 467.6 MHz or 478.8 - 486 MHz paired with 488.8 - 496 MHz GSM 850 824 - 849 MHz paired with 869 - 894 MHz GSM900 880 - 915 MHz paired with 925 - 960 MHz GSM1800 1710 1785 MHz paired with 1805 - 1880 MHz GSM1900 1850 1910 MHz paired with 1930 - 1990 MHz Table 1: GSM Frequency Bands Source: http://www.gsmworld.com/technology/spectrum/frequencies.shtml The GSM standard makes use of both Time and Frequency Division Multiple Access. With the frequency spectrum split in both time slots and frequency channels, it ensures that the limited frequency range is used efficiently. One of the reasons for the introduction of GSM was to address the requirement for increasing the efficient use of available frequency spectrum and to share it as much as possible. 2.2 GPRS GPRS is also known as 2.5G and is seen by many to be an enhancement to the GSM system, which makes increased data rates a possibility. This is done by overlaying a packet based air interface on top of the existing circuit switched GSM network. This means that users have a choice of either using the circuit switched GSM network or the packet switched GPRS data service. 3 Upgrading the network involves the addition of several new network nodes as well as software upgrades to the existing GSM network elements. When GPRS is in use, a user only occupies a time slot or time slots when data is being transmitted. When there is no data transmitted, the time slot will be free and other users who need this resource will be able to make use of it. This is thus more efficient in terms of allocation of channels. Because of this on demand allocation of time slots and new coding within the time slot, higher data rates are achievable. The theoretical maximum bit rate of a GPRS channel is 171.2Kbps when all 8 time slots are simultaneously made use
1
2

Lecture notes from G. Q. Maguire Jr. course 2G1330 Mobile and Wireless Network Architectures, Chapter 3 http://www.gsmworld.com/news/statistics/index.shtml - cited 170504 3 http://www.gsmworld.com/technology/gprs/intro.shtml

of. 4 This is much higher than the normal GSM maximum but rate of 14.4Kbps per time slot [2]. 2.3 EDGE A further enhancement to the GSM network is EDGE, which cannot exist on its own but must work with or be added on to the GPRS network. When EDGE is used with GPRS, the maximum theoretical bit rate is 476Kbps. However, in real world situations, the maximum rate is much lower and some networks have average bit rates ranging from 75kpbs to 135Kbps [3]. With GSM, the modulation scheme chosen was that of Gaussian Minimum Shift Keying (GMSK), which is the most efficient mode of frequency shift keying5. It sends only 1 bit per symbol and thus is not as sensitive to noise and interference from the surroundings. With EDGE, the bit rate is 3 times more than that of GSM. And the modulation sceme used here is known as 8-PSK or 8- Phase Shift Keying. With 8-PSK, 3 bits are sent per symbol. Therefore, we see a 3 times increase in the bit rate, but with noise and interference becoming more of a problem because of the increase of phases and decrease in distance between them [4]. 2.4 WCDMA In Europe, 3G generally means UMTS, and the UMTS air interface is comprised of two access modes, one of which is FDD (Frequency Division Duplex) mode. This is also called WCDMA. CDMA has its origins as a military transmission scheme which is able to securely transmit information as noise. WCDMA is one of the standards under the IMT-2000 umbrella for 3rd Generation networks. The figure below shows the IMT 2000 standards. WCDMA operates with paired spectrum, making use of 2 x 5MHz carriers. Frequency bands used in FDD are 1920 to 1980 MHz Uplink and 2110 to 2170 Downlink [2]. Some parameters of WCDMA are provided in Table 2 below. Parameters Carrier Spacing Downlink RF Channel Structure Chip rate Data Modulation Theoretical Maximum Data Rates 5MHz Direct Spread 3.84Mchips per second QPSK (Downlink) BPSK (Uplink) 384Kbps (Outdoors) 2Mbps (Indoors)

Table 2: WCDMA Parameters Source: Third Generation Mobile Communication Systems [5]
4 5

IBID http://gsm.argospress.com/gaussiminimushiftykeiin.htm

Efficient use of the available spectrum means that users must be able to share a 5MHz range and to transmit and receive at the same time. This concept is not new and was introduced with GSM. WCDMA uses orthogonal spreading codes which are unique to each user and hence ensuring interference is kept to a minimum. Only the right spreading code is able to de-spread the data and retrieve the original data. 2.5 CDMAOne CDMAOne is based on the IS-95 family of technologies and is considered a 2G standard. This includes both IS-95A and IS-95B. One way to think of this is that it is the parallel technology to GSM. IS-95A is considered to be the first CDMA cellular standard and was first deployed in 1996. With the first form of CDMAOne, mobile operators were able to provide its users a maximum circuit switched data connection of 14.4Kbps. IS-95B is a revision of the IS95A standard. The user data rates offered by IS-95-B are either 9.6 to 76.8 kb/s at RS1 or 14.4 to 115.2 kb/s at RS26. More plausible rates average around 64Kbps. 2.6 CDMA2000 1x EV Also based on CDMA technology, as is obvious by its name, CDMA2000 1x-EV is a 3G technology and is optimized for packet data services. CDMA2000 1xEV-DO provides a peak data rate of 2.4 Mbps within one 1.25 MHz CDMA carrier. The 1x refers to CDMA2000 implementation within the existing spectrum allocations for CDMAOne 1.25 MHz carriers. When CDMA2000 evolves beyond 1x, it will be referred to as CDMA2000 1xEV. 1xEV will be divided into two steps: 1xEV-DO (1x Evolution Data Only) and 1xEV-DV (1x Evolution Data and Voice). CDMA2000 1x EV-DO is optimized for very high speeds in its first phase of operation. In its second phase, integrated voice and data rates of up to 3.09Mbps will be achievable. 1xEV-DO uses a separate carrier for data, but this carrier will be able to hand-off to a 1x carrier if simultaneous voice and data services are needed. The allocation of a separate carrier for data services enables operators to deliver peak data rates of 2.4Mbps.7 3 EVOLUTION OF MOBILE TECHNOLOGY Now that we have looked at most of the technologies involved in the migration paths from 2G to 3G, the migration paths will now be discussed. On the road to 3G, all mobile operators have had to consider the best path for upgrading to the new technology platform. There are several factors that had to be considered on this road to upgrade. One of the factors that had to be considered by mobile network operators was their original 2G or 2.5G network infrastructure. The most common 2G network that existed
RS refer to the rate sets. Modulation schemes that produce either 8Kbps (RS1) or 12kpbs(RS2) user data rate in a Walsh channel using 1/3 or convolutional coding rates respectively. 7 http://www.ericsson.com/cdmasystems/3gcdma2000.shtml
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was that of GSM and for 2.5G, it was GMS enhanced with GPRS to enable higher speed data transfers to and from mobile terminals. Most TDMA systems have been upgraded or incorporate GSM systems and will follow the same upgrade route as other GSM operators. IS-95 systems using CDMA (CDMA-One) air interface will use another upgrade path. The diagram below shows how these two networks maybe upgraded to 3G networks. As seen in Figure 1, GSM operators and TDMA operators have first chosen to upgrade to GPRS in their existing network. In the beginning, GPRS services, from a network operators point of view, gave them an indication of how advanced data services will be taken up by its customers. Since then, making use of GPRS to access data services has grown to be an essential part of many users lives. After GPRS had been introduced, two ways in which to make to upgrade to a fully 3G network are available. The first way is to deploy a WCDMA network directly. This 3G network will, however, have to inter-work with the existing GSM/GPRS network with issues such as seamless security and smooth call handovers taking place between the networks. The alternative to this, which has been adopted by several operators, was to introduce and intermediate EDGE which gives enhanced data services. EDGE is a cheaper alternative for mobile network operators and this gives customers enhanced data rate. WCDMA can then be deployed at a later date. The end product would be a network that is a combination of GSM/GPRS/EDGE/WCDMA. A combination network is required in the beginning because not all users would migrate immediately to the newer platform and also, deployment of the new network would probably take place in stages, making use of the older platforms to fill in the gaps in the new network.

Figure 1: Migration paths for different mobile platforms Adapted from http://www.umts-forum.org

IS-95 operators, i.e. operators who currently have CDMAOne networks have followed a different path to upgrade their networks to a 3G network. Most operators in the Americas have deployed CDMAOne networks and to enhance this, the first step towards a fully operational 3G network is to introduce CDMA2000-1x technology. CDMA2000 1x is evolved from CDMAOne, hence the cost of upgrade is kept to a minimum. Subsequent to this would be to enhance the1x network by introducing data services. With CDMA2000 1x EV-DO, mobile network operators are able to provide users with data services in addition to their voice services. And with CDMA2000 1x EV-DV, even higher data speeds will be available along with voice calls being on the same channel. This is in comparison to EV-DO where voice and data calls are made on different channels. Following EV-DV, the next step will be move to CDMA2000- 3x, which is another ITU approved 3G standard which will operate in the 5MHz spectrum using 3x 1.25 MHz channels to give speeds of 2 to 4 Mbps. It is interesting to note that some CDMAOne operators in the Americas actually chose to deploy a GSM/GPRS network. The table below shows the data speeds achievable with each technology. As can be seen, with each progression to 3G and beyond, the data rates obtainable is increasing, allowing even more bandwidth intensive services to be introduced. Technology Standard Data Rates Obtainable GSM 9.6Kbps GSM/GPRS 40Kbps-144Kbps EDGE 474Kbps UMTS (WCDMA) 384Kbps-2Mbps CDMA-One 9.6Kbps to 76.8 or 14.4 to 115.2 CDMA-2000 1x 144Kbps CDMA 2000 1x EV-DO 384Kbps 2.4Mbps CDMA 2000 1x EV-DV 3.09Mbps CDMA 2000 3x 2Mbps 4Mbps HSDPA 8Mbps 10Mbps (up to 20Mbps with MIMO system) VSF-OFCDM 100 Mbps downlinks and 20 Mbps uplinks. Table 3: Technology and data rates achievable A second consideration of mobile network operators was that of their license requirement. Most regulators, when awarding licenses were not specific as to which platform and technology was implemented by the operator. There are no requirements regarding which platform the licensed operator is to use. However, there were some regulators in certain countries, which have specified which type of 3G technology platform the user has to deploy its 3G network on. In these cases, the operators have to pay close attention to the requirements set out by the regulator. Other considerations to deploying either a WCDMA network or a CDMA2000 network included that of how coverage of a required or desired region would be done. In the early days of network deployment, many areas will likely not have 3G network coverage, but only that of the older, existing network.

This means that network operators have to ensure inter- connectivity and inter-operability between the new and existing network. Different network operators may work together in order to provide a wider coverage to users. In order to do this, roaming issues between networks will also have to be considered to some degree, together with billing and charging issues. Other than technical reasons for consideration, mobile network operators will also have to take into account economic reasons when choosing which evolution path to take. What is most important for these operators is to achieve the highest revenue generation possible from the introduction of the new services. However, the path to upgrade plays an important part because it determines how much spending must be put into upgrading the network in terms of infrastructure and other peripherals. Network operators have to ensure that while they upgrade to the new network, that existing services are continued and not in anyway compromised while the upgrade is in progress. Continuity of service is of the utmost importance and when rolling out 3G services, there should be seamless handover between the new 3G network and the existing 2G/2.5G for uninterrupted voice and data sessions. Operators will also have considered which technology will provide them with the highest economies of scale. Popularity of UMTS as a 3rd Generation technology exceeds that of CDMA2000. On a global scale, around 60% of subscribers are GSM users. It is predicted that in the future, more than 75% of users will belong to the GSM/GPRS/EDGE/UMTS family of systems [6]. This means that operators who choose to follow the evolution path to UMTS will benefit from having a large base of users and having many other networks on the same platform will be beneficial as well. The availability of handsets and other mobile terminals suitable for usage under this technology will give network operators more variety to offer to their users. This ready market also ensures that handset manufacturers will supply handsets which are of specifications suited for interoperability between the new network and the existing legacy network. On other 3G platforms, there may not be as many handsets available and thus, these operators will be at a disadvantage. In deploying a CDMA2000 1x EV-DO network, operators are able to reuse their CDMAOne spectrum. However the move by operators in South Korea in Japan towards a WCDMA network is due to several other reasons. One of the reasons is that with obtaining a licence to operate a WCDMA network, operators were allotted additional spectrum by the licencing authorities. Since the operating frequency of WCDMA is higher than that of CDMA2000, this will enable higher bit rates and thus higher information rates. Another reason for operators to deploy a WCDMA network is to enable easy roaming. The majority of operators in the world now operate GSM/GPRS networks. In the future, they will move towards a UMTS/WCDMA network. For operators who have chosen an alternative platform, this poses interoperability problems and also leads to inability to roam by their users. Therefore, to be able to obtain revenue from roaming users and to ensure service continuity and interoperability, operators such as SK Telecom and Korean Telecom are deploying WCDMA networks, which will coexist, at least in the short run, with their CDMA2000 networks.

On the other hand, we see that not all network operators obtained 3G operating licences. Some have even chosen not to bid for these highly costly licences. Instead, they have chosen to wait it out and to deploy EDGE over their GSM/GPRS network. Since EDGE is able to offer sufficient quality for most data services, it is not necessarily a requirement to invest millions of dollars in licences and infrastructure for 3G networks. Also, 3G has taken such a long time to move forward, technologies beyond 3G are already in the development process. Operators who have decided to deploy EDGE instead of 3G are probably considering these new technologies for future deployment. 4G mobile telephony has already been defined by some and it would allow data rates of 100Mbps globally and up to 1Gbps locally. 8 NTT DoCoMo, for example, has been looking Variable Spreading Factor - Orthogonal Frequency Code Division Multiplexing (VSF-OFCDM)9 technologies for their 4th Generation network.10 HSDPA, which is part of 3GPP Release 5 specification, is expected to be launched in Japan next year.11 Something that mobile operators did not earlier take into account was that of WLAN. WLAN services are increasing in popularity and are considered by some as a cheaper alternative to mobile services. WiFi services, as we know it today, make use of mainly the 802.11b and 802.11g standards, offering 11Mbps and 54Mbps rates respectively. Mobile network operators now see WLAN as another source of revenue and the benefits of combining mobile and WLAN services offerings. Data cards offering GPRS/UMTS/WLAN connectivity12 are already on the market. These will give users the ability to be always best connected [7] at any place. The continued evolution of mobile technology will no doubt take into consideration WLAN and its more recent standards, 802.16 (WiMax) and 802.20. These two standards will offer even higher data rates than is possible today and 802.16e [8] will include a mobile version of the standard. Increasingly, technologies that bypass the traditional mobile network are being developed and researched. Handsets that combine both WCDMA and WiFi will on the market soon. This shows the growing importance of integrating wireless technology onto the mobile device platform. 4 EVOLUTION OF MOBILE BUSINESS MODELS As technology has evolved and transmission rates have become faster and include data services, changes have also occurred with the mobile industry business models. The interrelationships between the different companies that work together to provide services to users have undergone changes as technology and the possibilities that came with new technologies has itself changed.

http://www.4g.co.uk/PR2004/May2004/2021.htm http://www.3g.co.uk/PR/March2002/2055.htm - cited 170604. 10 VSF-OFRCDM is said to mitigate the impact of severe multipath interference and thereby achieve a broad-bandwidth, large-capacity wireless system. 11 Keynote address Research Activities and Technical Development to 4G at 5th World Wireless Congress 2004 by Kota Kinoshita. Executive Vice President and CTO, NTT DoCoMo. 12 http://www.3gnewsroom.com/3g_news/jun_04/news_4600.shtml - cited 170604
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Business models are very popular nowadays and used frequently to describe the interrelationships between firms engaged in producing a particular product. The concept of a business model is often confused with that of a business plan and is not really understood today. Paul Timmers [9] defines a business model to be the organization of product, service and information flows, and the sources of revenue and benefits for suppliers and customers. Another definition is by Faber et al. [10], who have described a business model as the way a network of companies intends to create and capture value from the employment of technological opportunities. Generally, it can be said to be a representation or a description of how a group of companies interact with each other in order to produce product value for customers. As there are many different planes with which to study business models, from a political plane, to a social plane, it is often difficult to decide where to stop the analyses of the business model. In the cases stated here, a purely techno-economic plane has been employed to understand the processes and partnerships that take place between different business entities in their pursuit of delivering a product. In this section, we will explore how the business models of the mobile industry have progressed and evolved with the introduction of data services. 4.1 EXISTING BUSINESS MODEL IN THE MOBILE INDUSTRY With 2G, the model was a rather simplistic one in which the mobile operator was the focal point of the industry. The mobile operator owned the network infrastructure and provided voice services and simple data services such as SMS (Simple Messaging Services) to customers. The mobile operator was and still is the customer-facing unit of the industry in that it was the only one who really interfaced fully with customers and clients. In Europe, mobile phone manufacturers have always had a good brand standing and it has been the norm to advertise this brand together with the mobile operators in many comarketing campaigns. This has proved to be very favourable to both as customers are used to hearing both the phone manufacturers name as well as the mobile operators name when buying a new subscription. However, while the mobile phone manufacturers produced the mobile phones, they still used the mobile operator as their main distribution channel. Large volume sales of mobile phones were achieved through these distribution channels while revenue flowed from the sales of the products and mobile services to users to the mobile operator. During the rollout of GSM networks, there was competition amongst platform vendors, as is the case today with 3G. The key players then were Nortel Networks and Ericsson. Provision of the network meant business opportunities for the vendor and of course, without the network, the mobile operator would not be able to function. Being the key customer-facing player, the mobile operator could often control the interactions with other players such as their suppliers and collaborators.

The 2G or GSM mobile industry business model can be represented with the figure below, Figure 2. As seen, the mobile operator is the main actor, with other industry players playing support roles.

Figure 2. Business Model of the 2G Mobile Industry. As the mobile industry evolved from 2G to 3G, the business model too had to evolve to something new. The 3G business model is best illustrated with the NTT DoCoMo business model. Being the first country to introduce 3G services, Japan and its operators had a head start in working with new partners. Although the most famous business model is that of i-mode, which, strictly speaking, is still not a 3G service but is nonetheless considered by some to be a high speed packet data service, it is similar to the 3G business model that has been adopted by Japanese operators since then with their 3G services. In the Japanese business model, the mobile operator still remains fundamental to the flow of activities. It was realized from the start that in order to move to the next generation of mobile telephony that the mobile operator would have an important, guiding role to play. For example, NTT DoCoMo, established that in order to provide good quality and sufficient amount of content and applications to their users, partnerships and other cooperations had to be formed with different members of the mobile industry. Relationships with the mobile phone manufacturer had always been close but with data services, this was even more so. With data services, the mobile operator now demanded even more in terms of types of applications and usability of the mobile phones. To mobile phone manufacturers, the mobile operator is the biggest distribution channel and hence revenue from sales of handsets came predominantly from the mobile operators, who in turn could negotiate better prices with volume purchase. Consequently, mobile phones were offered in attractive packages to users. It was not uncommon to offer mobile phones at no charge when customers subscribed to certain tariffs. NTT DoCoMo was able to gain industry support through its close relationships with content and data providers as well as application and portal vendors to offer quality

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services to users. It made sure that all the services and applications were in place before marketing the product and that the services and applications to be offered were of a certain quality to meet the expectations of customers. The revenue share model that NTT DoCoMo had with its partners such as the content providers is in monetary terms a very fair one, in that the percentage of revenue that is earned by the content providers is a significant amount compared to the total revenue earned. This of course was a pull factor for content providers and other service providers to provide quality services. However, NTT DoCoMo is also very strict with the quality of data that is published on the official NTT DoCoMo pages. This meant that only if quality of content met their stringent criteria, were they allowed to be on the official pages. If they did not meet the criteria, they are still allowed to be used but not on the official sites. This is in contrast with early data services that were provided in Europe. Although the structure of the model was the same, that is, the mobile operator was the central figure in the business process; the revenue share model was not there. This did not compel content developers to have any services on the portal and thus led to the initial failure of data services with WAP. The mobile operator in Europe kept a large portion of revenue to themselves and what was passed on as revenue to content providers was not significant and therefore did not attract many content/data providers. This led to insufficient content being available and ultimately to the failure of early data services in Euorpe. Although co-marketing strategies existed in the European mobile market, there was, in a sense, competition between the mobile operators brand and the mobile phone manufacturers brand, where brandings of both parties were almost equally weighted. In Japan, this is not the case. All phones are sold to users with only the mobile operators name on the phone. Though it is usually known who produced the phone, it is the usual case that as the provider of a one-stop-shop service, the mobile operator is as the mobile phone distributor. In Europe, this was not the case until recently. Mobile phone manufacturers in Europe have always had a good brand standing and therefore, mobile phones sold in the European market always had the manufacturers brand on them, sometimes with the operators brand as well. Manufacturers have in the past refused to put only the operators brand on their devices. As mobile phone manufacturers from Asia started to market more aggressively in the European market, and as they were quite willing to forego their brand name on products, European manufacturers have had to reconsider their initial refusal in light of falling sales and competition. 4.2 3G BUSINESS MODEL Figure 3 shows the business model of the 3G mobile industry. This is based on the imode business model but it is also applicable to UMTS. With 3G services, the major mobile industry players are as shown in the figure. The central member is still the mobile operator, who now has to work closely with content/data providers, application/portal vendors, platform vendors and the mobile device manufacturer 13 in providing quality voice and data services to users. The relationship has changed from that of the earlier 2G
13 The mobile phone manufacturer has been renamed the mobile device manufacturer as new handheld mobile devices, not necessarily mobile phones are commonly found in the 3G market.

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model in that revenue sharing between the different service providers and the mobile operator have to be in place and interoperability between the platforms must be established by the mobile operator through their platform vendors to provide seamless roaming between their older 2G network and their new 3G network. The 3G business model is thus more complicated than that of the earlier 2G business model. Now, more parties are involved in the process of providing 3G services and applications to users.

Figure 3. General Business Model of the 3G Mobile Industry. Source: I-mode business model, NTT DoCoMo14 The previous two business models see things from the mobile operators point of view. It is also a good idea to look at the industry inter-relationships from the mobile device manufacturers point of view. Today, Figure 4 represents the mobile device manufacturers business model. It shows the interactions between the mobile device manufacturer and other entities in its community. In order to produce a phone or other mobile device, the manufacturer has first to have a good team of designers and developers, and also good logistical processes to ensure that the products can be manufactured and delivered. But other partners are also required for parts of the device that cannot be done in house. Close co-operation work takes place between the mobile device manufacturer and the chip/processor manufacturer. While a small number of phone manufacturers such as Samsung and Motorola also have chip/processor manufacturing facilities, this is not always the case. Most of the mobile phone manufacturers will have to work with external chip/processor manufacturers who will deliver processors and chips to them. While design work may take place in a co-operative
14

http://www.nttdocomo.com

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fashion, production of the chips is undertaken solely by the chip manufacturer. Revenue exchanges hand when the chips/processors are delivered to the mobile device manufacturer. The operating system that is used on the mobile phone or device has been getting some publicity recently with what is seen as competition between Symbian and Linux. Symbian, Mircosoft as well as Linux are all comparatively similar as mobile phone operating systems. It is seen in the industry that whichever operating becomes the dominant operating system provider will gain huge growth in terms of users and also development. The operating system chosen of course has to function well with the requirements of the mobile device. Things such as display format management and battery management issues are fundamental requirements of mobile devices and the operating system chosen will have to control these and other functionalities well enough to be adopted. Motorola has sold off its share in the Symbian alliance and have introduced mobile devices with the Linux operating system. This could be seen as to be a politically motivated move for Motorola to enter and obtain a strong position in the huge Chinese market as the Chinese government has in the past expressed its views on Symbian and would be most likely to support open source software and systems.15 Software and application development for the chosen operating system is either done in house or through external partners. In most cases, this can be outsourced to specialized software and application developers, who will deliver the required applications and software to the mobile device manufacturer and receive payment for this. So far, the three mentioned partners are in actual fact, providing hardware or software, which are integral to the workings of the mobile phone. The other partners mentioned from now on provide different types of service. Mobile device manufacturers must make certain interoperability with the mobile platform exists. Conforming to standards ensures this. As mentioned in the earlier case, the mobile operator is the main distribution channel for mobile device manufacturers. Revenue from products comes mainly from the mobile operator. Nowadays, there is a proliferation of different standards alliances, made up of mainly industrial members. These alliances work towards a common goal in standardizing parts of processes, hardware or interfaces. One such example is MIPI, which looks at standardizing mobile interfaces amongst manufacturers and suppliers in the industry. The main goal is that future mobile devices and modules will have standard interfaces, thereby increasing the number of suppliers and also decreasing time to market for such products. Standards alliances rely on contribution from the industry players such as the mobile device manufacturer in research and development work.

15

http://www.eweek.com/article2/0,4149,1239105,00.asp cited 080904

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Figure 4. 3G Business Model from Mobile Device Manufacturers Point of View. 4.3 EVOLVED 3G BUSINESS MODEL The business model is naturally evolving as new technologies are developed and introduced into the industry. It is possible that in the near future, the current business model will evolve into something like that shown in Figure 5. This shows the case where in addition to the players in the previous model, there is the additional new wireless player. This player could be a WiFi operator, a WiMax operator or a Mobile-Fi operator; any operator of a non-cellular but nonetheless wireless network is a potential wireless operator. With the addition of the wireless operator, the business model becomes more complicated as new relationships between old and new members are developed. The mobile device manufacturer must now cater to the requirements of the wireless operator, in addition to the mobile operator. Devices will increasingly come in dual or triple or even quadruple mode, encompassing the different types of access technologies and communication modes available. Typically, a mobile device would be cellular enabled (both 2G and 3G systems) and also with WiFi capability and maybe WiMax or Mobile-Fi, when these two technologies become more mature. It is already possible to find devices with both cellular and WiFi access in the market today, but devices of tomorrow will offer even more than just access. They would be able to choose the best (or cheapest) network available, customized to the users preferences. Personalisation will play a key part in future devices. To the mobile device manufacturer, the wireless operator will represent a new

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distribution channel for their devices. The wireless operator will offer new services and this is a key point to their success. Options to services that bypass the mobile operators network are seen to be ways that the wireless operator could gain a foothold in this market. As with the mobile operator, co- marketing strategies should be established to promote both brands. Other distribution channels will emerge as the mobile market evolves. Revenue through volume sales will flow to the mobile device manufacturer. Between the mobile operator and the wireless operator, interconnectivity and interoperability issues will have to be solved so that users from each network are able to roam seamlessly between the different types of networks. Quality of service and the ability to provide an end to end quality of service, irregardless of the type of network in use would be paramount in the future of mobile and wireless communication. Certainly, in a 3rd dimension, between different mobile operators, interconnectivity and interoperability issues would also have to be solved and roaming agreements in place for such activities to take place and likewise amongst different wireless operators. On the device end, it is really up to the mobile device manufacturer as to what technologies are available from handsets and devices. Of course, it could be a trend in the future that number of accesses (both cellular and wireless) could be a type of benchmarking or comparison tool used by operators and users alike when choosing suppliers for mobile devices. One technology that is quite popular these days, and has been for some time is that of software defined radio and this could prove to be the future of mobile devices whose channel modulation waveforms are defined in software.16 In the future, as seen by the inclination today by industry to work in consortiums or alliances, mobile device manufacturers and chip/processor manufacturers alike will work together in standards setting for mobile devices. These alliances would be made up of mainly industry members with some memberships from university and other research organizations. Contribution to research and development work would be given by all members of the alliance in the aim of establishing a list of working standard interfaces and modules for mobile devices and its peripherals. Alliances are formed to establish standards that allow for open solutions and also fast time to market products. In the United States, among the fastest growing companies, 48% more alliances exist today than 3 years ago.17 As new networks are added, the platform vendor will have the added task of ensuring backward compatibility between the old and new networks and also between different new networks. It is essential that new networks are compatible with older ones so that firstly, there may be full coverage while the new network is still being rolled out and secondly so that existing users who have not switched to the new network will still be able to make use of services. It is likely that most users will not switch immediately to the new network so are still reliant on the older network. Therefore, in the evolved 3G network, the number of entities in the mobile industry is seen to have increased from previous models. The industry will rely more heavily on
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http://ourworld.compuserve.com/homepages/jmitola/whatisas.htm - cited 211104 http://www.entrepreneur.com/article/0,4621,228326-7,00.html - cited 240904

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industry based standards alliance to have conformity in interfaces and modules and wireless technologies (non cellular) are seen to play a big part in the future mobile world. Changes in the type of access technology will change the regulatory framework and also the way the regulator will work. What will continue is the close relationship between certain members of the industry that will ensure the future of mobile devices will evolve to suit the network technology available.

Figure 5. Evolved 3G Mobile Industry Business Model. Business models are a good way of describing the way business is done within a company, or more commonly, within a particular industry. Business models are never the same as they are developed for different situations that are valid only when viewed in that light. [11] Any changes in the industry or relating to the industry will result in changes in the business model and therefore, business models are said to be dynamic in nature and influenced by internal and external factors. The resources of a company or a group of companies will determine its output product. Innovation and new concepts will also lead to changes in the business model of companies. Technological changes provide opportunities to firms that are able to take advantage of it. The mobile scene as we know it will evolve to include more types of access technologies and other short-range communication protocols such as Ultra-WideBand (UWB) will be
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used in device-to-device communication. As the different new and existing wireless technologies evolve and develop, companies will adopt new strategies and business models. Business models exist for different products and must be adopted in a dynamic fashion to take into account any new innovations, be it incremental, discontinuous or disruptive. The faster a company adapts its business model to new technologies and the faster internal and external processes can adopt to changes, the faster it is able to distribute the value product to customer. The goal of the business model really is to deliver value to the user of the end product. [12] 5 CONCLUSION When looking at the evolution and upgrade paths presented earlier, it seems that perhaps, in reality, these have not been necessary. Indeed, 3G is what many thought of in the past as an over hyped technology. While technology is necessary for mobile telephony to move forward, technology alone is not sufficient reason for evolution. As technology has evolved from 2G to 2.5G and finally to 3G, we saw a move from voice only mobile telephony to mobile telephony that encompassed both voice and data services. Data services transmission rates have increased substantially since the early circuit switched data services. The considerations that went into the different technology evolution path taken by the different mobile network operators were examined. Reasons such as high licence fees and the type of existing network were a few of the factors influencing their decisions. Competition between mobile handset manufacturers and political reasons probably had a large part to play in the differences in standards between Europe, Asia, and the United States. Also, several different business models that emerged with the evolution of mobile technology have also been described. As technology has progressed, so have the business model and the way groups of companies work together to provide the required services. As the mobile industry now moves on to technologies beyond 3G, the advent of other wireless technologies will merge with the existing mobile technologies available and the business model that describes industry relationships must evolve to meet the new requirements of future generations of mobile and wireless telephony services. New players will enter the market and these new players will have to work with existing and other new players in the provision of valuable services to users. Therefore, as technology changes and evolves, the way business is done and the relationships between different business entities in the industry will also change and evolve. 6 REFERENCES

[1] UMTS Forum. A UMTS Forum white paper- Mobile Evolution Shaping the Future. London, August 2003. [2] Jochen Schiller. Mobile Communications. Addison Wesley, London, 2003. [3] CDMA Development Group. The Truth about EDGE. CDG, November 2003 [4] Rasmus Rnn, Peter Scholdan Knudsen, Bjarke Srensen, Rene Dueholm. From GSM to UMTS. Project report for Future Mobile Communication Systems and Services course, Technical University of Denmark, 2003.

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[5] Ramjee Prasad, Werner Mohr, Walter Konhuser, Editors. Third Generation Mobile Communication Systems. Boston, Artech House, 2000. [6] Siemens AG. Siemens white paper- Taking the Right Path Towards 3G. Germany, 2002. [7] E. Gustafsson and A. Jonsson. E. Always Best Connected, IEEE Wireless Communications Feb. 2003, pp. 49-55, February 2003. [8] Adrian J J Drury. Wi-Fi versus 3G Reloaded. Blueprint Wi-Fi, ARChart Ltd. London, 2004. [9] Paul Timmers. Electronic Commerce: Strategies and Models for Business to Business Trading. Chicester, Wiley and sons Ltd, 1999. [10] Edward Faber et al.. Designing Business Models for Mobile ICT Services. 16th Bled Electronic Commerce Conference. Bled, Slovenia, June 2003. [11] MAGNET, WP1 Task 4, First Deliverable, September 2004. [12] Chesbrough, Henry and Rosenblooom, Richard S. , The role of the business model in capturing value from innovation: evidence from Xerox Corporations technology spinoff companies Industrial and Corporate Change, Volume 1, No. 3, pp 529-555.

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