Mobile Internet: Seeking a suitable laboratory?

 

Draft Editorial for GBA Inside Billing,

Prepared by Dr Tim Kelly, Coordinator, Strategies and Policy Unit, ITU[1]

 

To anyone visiting the ITU’s TELECOM 99 exhibition in Geneva last year, it quickly became apparent that Mobile Internet is likely to be the “next big thing”. While one can read endlessly about the convergence of mobile communications and the Internet, it is only really when you have chance to hold in your hand a prototype of the new generation of devices that the business and consumer potential becomes clear. With the licensing of third generation (3G) mobile operators, those devices will spring to life.

 

But is this just another case of the technology pushing the market? Just because something is technically possible does not mean that consumers actually want it or that it can’t be provided more effectively and more cheaply in a different way (Iridium is a case in point here). There are at least three main obstacles that mobile Internet faces:

 

• The first barrier is that the service is highly substitutable. Most people using the Internet for the first time do so on a fixed-line connection, so inevitably that experience forms the baseline against which the level and pricing of services provided from a mobile connection will be compared. Given the spread of cybercafés and portable software applications that can meet the needs of the most Internet-hungry traveller, what does mobile Internet offer which is not currently available?

 

• A second barrier underlies the battle for screen real estate. The vector driving the mobile terminal market up to now has been towards ever-smaller, lighter handsets. But Internet users want bigger, higher-resolution screens and the input device of choice is still the keyboard. Won’t an IP-ready mobile device inevitably be an unhappy compromise?

 

• Thirdly, and most relevant here, is the question of pricing. The mantra of “information wants to be free” has driven the Internet up to now: free browsers, free e-mail accounts, free website hosting, even “free Internet” with metered local calls and advertising. Mobile Internet can only offer “free” services if the interconnect arrangements with the fixed-line network are also free, or are so low as to be available for a fixed monthly charge. Will mobile Internet users be willing to pay for content that is perceived to be free elsewhere?

 

These obstacles suggest that getting mobile Internet from the exhibition floor to the consumer’s pocket will take more than just a technology push; it will require serious market research. And given that the market for mobile Internet needs to be global if the investment in establishing a 3G infrastructure is to pay off, the market research also needs to be global in nature. Currently, much of the stock market’s enthusiasm for mobile Internet is based on the rapid take-up of Internet data services such as I-mode in Japan, where there are currently more than five million users, or Short Message Service (SMS) in Finland, which provides around 20 per cent of total mobile revenue.

 

But how representative are Japan and Finland of the world as a whole? Will the trends that are becoming apparent there be repeated in the rest of the world with a lag of three to five years, or are those countries and their citizens somehow “different” from the rest of the world? Building a business case for, say, mobile Internet in Asia-Pacific, one would not want to rely solely on market research from Japan. Look, for instance, at how PHS briefly flowered and then wilted among the notoriously technophile Japanese consumers? Similarly, Finland, with its long nights and famously taciturn inhabitants, may not be a good model for the rest of Europe. Neither Japan nor Finland is necessarily a good model for Africa or Latin America.

 

So where should aspiring mobile Internet companies look for their market research? Fortunately there is now a growing list of countries where mobile subscribers outnumber fixed-line ones. These countries may be regarded as the precursors for the situation in five year’s time when, globally, there will be more mobilephones than telephones. The list is diverse, numbering countries like Cambodia, Uganda and Rwanda, where teledensity (as traditionally measured by the number of telephone lines per 100 inhabitants) is below one, as well as countries such as the Republic of Korea, Portugal, or Italy where it is over 40. In between are middle-income countries such as Paraguay or Venezuela that have also crossed the “mobile mobiles than fixed” threshold.

 

Looking at the prospects for 3G in a country with a low teledensity, like Uganda, provides some interesting insights into what the 3G future might hold for countries of the developing world. Uganda licensed a “second” full-service operator—MTN Uganda, a joint venture between MTN of South Africa and Telia of Sweden—in 1998 and within 18 months of starting operations, it had already surpassed the number of subscribers of the incumbent fixed-line operator, UTL. While UTL’s fortunes may revive, once the initial stage of it’s privatization process is complete in June, UTL’s new owners are more likely to invest in becoming a third mobile operator, (after MTN and Celtel) rather than in further rolling out the fixed-line local loop. Already the primary form of business access to the Internet from wireless ISDN, provided by microwave, rather than over copper of fibre. And despite its limited bandwidth, GSM is also being used to provide Internet access to many subscribers. Indeed, in the rural areas of Uganda, even HF radio is used to provide e-mail connectivity. Thus, Uganda is a true laboratory for mobile Internet.

 

What the case of Uganda shows is that the introduction of third generation mobile is just as likely to mean ‘wire-less’ access to the Internet from fixed locations as much as ‘mobile’ access. In countries such as Uganda, which are effectively bypassing the wired stage of network evolution, the dynamics of market evolution are likely to be quite different from those of a Finland or a Japan. But arguably Uganda is more representative of the wider unwired world than either of those two technological hothouses.

 

Consider this: a future consumer in a country like Uganda will go into a shop and buy a communications ‘device’ off the shelf. It will not come with an instruction manual or a set of cables, but will instead sport bright colours and a large screen. The consumer will just need to connect the device to a power supply and then it will automatically find its local 3G base station, its over-the-air TV and radio stations, and its local MP3 distributor. Once the connections have been made, the latest software and upgrades will be automatically downloaded and the consumer will then have a box providing access to the Internet, TV and radio stations, voice communication networks and which is still hip enough to be used as a boom box when friends come round. Sure, it will be mobile Internet, but so much more as well.

 

But how will you bill for such a device? The most likely approach will be a sort of “prepaid”, for basic access, combined with “pay-per-view” for everything else. Much of the broadcast-type traffic (such as web-browsing or streaming media, as well as conventional TV and radio) will be advertising-funded. Low-bandwidth local calls and email might be bundled into the pre-paid access price. But the consumer will be bombarded with opportunities for impulse buying of everything from pizza delivery to a first-run movie to a discounted international telephone call. If enough vendors from different market sectors get together, the cost of the device itself could be subsidized by usage. But here’s the rub: a billing model that is based on impulse buying depends on widespread ownership of credit or debit cards, which are almost unavailable in countries like Uganda. If the 3G revolution is to reach the unwired world, then the plastic money revolution must get there first.