Note: The links below were valid as of 4 October 1999.
Chapter 1: The mobile revolution
This report specifically focuses on mobile cellular communications. While there are other mobile communication services such as radio paging, private and specialized mobile radio networks or mobile satellite systems, they are less significant than mobile cellular in terms of market size, industry change and societal implications.
Vodafone in the United Kingdom, for instance, since its merger with AirTouch, currently has a market capitalization of US$ 128 billion which makes it the largest company in the UK telecommunications market, bigger for instance than BT, the UK incumbent, which is capitalized at US$ 104 billion. These market capitalizations were valid as of 26 August 1999, source: http://www.ft.com.
The rapidity with which mobile networks can be installed is due to both technical and market reasons. In many countries, competition and private sector operation of cellular mobile provide an incentive for new players to install networks quickly. Furthermore, mobile networks are not slowed down by the need to install local wired lines, and can use the existing fixed-line network for interconnection and for links between cell sites.
Millicom International, a Luxembourg-based company with investments in over two dozen cellular companies in developing countries, highlights the positive impact prepaid has had on its Latin American operations where 57 per cent of subscribers were pre-paid by the end of 1998. It notes: "These are people who would not normally otherwise be economically eligible for telephony service." It also notes the success of pre-paid in its African operations where market segments have been targeted that " would previously have been denied credit facilities", Millicom International, 1998 Annual Report, available at: http://www.millicom.com/investor/index.htm.
"The pressure for operators to evolve is being led by the regulators, with an eye to the proceeds from spectrum auctions, and infrastructure developers looking for network expansion contracts", Paul Ramussen, "Services will dictate pace of 3G adoption", Global Wireless, July-August 1999. http://www.rcrnews.com/index.html.
Brazil's sales of mobile licences brought in revenue which was also not far behind the US$ 19 billion raised through privatisation of a 21.3 per cent stake in Telebras, the incumbent operator, in 1998. The fact that a sale of speculative opportunities brings in almost as much revenue as a sale of assets accumulated over tens of years show the faith the market has in mobile communications.
Iridium and Motorola (one of Iridium's financial backers) provided free handsets to the United Nations High Commission on Refugees for humanitarian use during the crisis. See "Iridium and Motorola provide satellite phones for use by Balkan refugees," Washington, DC, 13 April 1999, http://www.iridium.com/corporate/news/1999/april/docs/991304.html.
To achieve frequency reuse, cells are arranged into clusters and available channels are organized into groups in such a way that the number of cells per cluster matches the number of channel groups. Each channel group may then be allocated to a cell in each cluster so that adjacent cells never have the same channels.
A cell site interacts with many mobile terminals at the same time by using one channel per user. Each channel uses a pair of frequencies, one frequency for transmitting from the cell site, and the other for receiving calls.
Limitations of AMPS include low calling capacity, limited spectrum, inadequate data communications, limited privacy and poor fraud protection. Narrowband Analogue Mobile Phone Service (NAMPS) was developed as transient solution to deal with low calling capacity. NAMPS couples voice processing with digital signalling, which increases the capacity of AMPS systems threefold. Some 35 US and foreign markets use NAMPS.
This move later proved to be beneficial for equipment manufacturers, Nokia and Ericsson, which are now among the world's leading mobile handset manufacturers.
The first NMT system was, however, not started in the Nordic countries but in Saudi Arabia in the summer of 1981; Sweden and Norway adopted it in the autumn of 1981 and it was introduced in Finland and Denmark in 1982.
CDMA Development Group. "Future of wireless on fast track as cdmaOne subscribers near 30 million worldwide. Fastest growing wireless technology increases more than 300 percent in one year," May 12, 1999, at http://www.cdg.org.
A cordless phone operates without a wire between the handset and the base unit, which is connected into an electrical outlet and the telephone line. Cordless phones offer a coverage area around a short distance from the phone's base. Analogue technology has been long used for cordless phones; however, today many cordless phones use digital transmission technology. The main difference between cordless phones and wireless phones is that wireless phones allow phone use wherever there is a
compatible transmission network.
The ITU project was originally called Future Public Land Mobile Telecommunication Systems (FPLMTS) which later became IMT-2000. The name IMT-2000 was chosen not only to link to the date when the system was expected to be available, but also to refer to the 2 GHz frequency band allocated to it. http://www.itu.int/imt/.
The key to the compromise was the agreement that the three separate standards would be interoperable: cdma2000, based on Qualcomm technology (CDMA IS-95); W-CDMA, to be deployed in Europe and parts of Asia, such as Japan; and TDMA (earlier D-AMPS) supported primarily by the AMPS community and their industry association, the Universal Wireless Communications Consortium, to be used in the Americas and parts of Asia.
The UMTS Forum predicts that the 230 MHz allocated today will provide enough capacity only until 2005, whereafter an extra 185 MHz will be needed. As disagreement is likely across the Atlantic,
CEPT seems to support regional extension bands instead of global ones.
Before full-blown 3G technologies are operable offering high speed packet-switched data capability, intermediary technologies have been designed to bring improved packet transmission capabilities, with data speeds as high as 384 kbit/s. These intermediary technologies for GSM include High Speed Circuit Switched Data (HSCSD), General Packet Radio Services (GPRS) and Enhanced Data Rates for GSM Evolution (EDGE). Most GSM and TDMA networks are predicted to evolve into EDGE through new software and equipment. For CDMA, a step-wise evolution is also planned. With cdmaOne, a data speed of 14.4 kbit/s is already available, the next step allows 64 kbit/s as part of IS-95B. After that an extension is planned, known as 1XRTT enabling data rate of 144 kbit/s. Before the arrival of the 3G cdma2000, still one more upgrade is possible that allows data rate of 300 plus kbit/s. For TDMA, the evolutionary steps are UWC-136, UWC-136+ and UWC-136HS. UWC-136 is planned to
merge with GSM as it will use both GPRS and EDGE technologies.
While for instance GSM enables data speeds of up to 9.6 kbit/s and now 14.4 kbit/s, HSCSD offers data service speed of 57 kbit/s. HSCSD achieves higher rates because it enables combining (four) time slots, but still uses a circuit switching connection. HSCSD is likely to be a short-term solution. It only demands a software upgrade so it can be put into place without substantial investment in the existing network. On the other hand, once wideband service is finally offered, this intermediary solution may be inefficient, as it is based on circuit switching, makes sub-optimal use of spectrum and has limited price flexibility. It does, however, enable operators to fulfill the data demands of early adopters (mainly for corporate users). Sonera of Finland will launch HSCSD service by the end of 1999 while GPRS is planned to be introduced by
General Packet Radio Services (GPRS) enables packet-based services, and is the first phase in transforming GSM networks to true 3G functionalities. It will provide data rates of up to 115 kbit/s, although initially the speed is likely to be lower. GPRS also demands a number of software upgrades. In 1999, many European carriers (Cellnet, Sonera, T-Mobil) announced their intention to offer a General Packet Radio Service (GPRS), which should enable wireless phones to be used for transmission of data and for browsing the Internet. In Asia, the first operator that has announced plans of implementing GPRS is Hong Kong Telecom.
Enhanced data for GSM evolution (EDGE) is an enhanced version for GSM still under development. The maximum data rate for the TDMA frame will be 384 kbit/s. EDGE will use different modulation framework from 2G networks and will thus require considerable upgrades of software and hardware. EDGE will be attractive for network operators that do not experience capacity shortage within existing spectrum allocations and for those operators that wish to offer 3G-like services, but have not obtained a licence. When comparing true 3G services with both GPRS and EDGE, the difference does not appear dramatic. 3G networks are planned to reach 2 Mbits/s in stationary conditions while maximum speed in moving vehicles will be up to 384 kbit/s. However, it is unknown whether EDGE-enhanced 2G services will have enough capacity to support high level of data traffic within the current spectrum allocations. Also 3G services are likely to provide a wider combination of services and a better quality of service than EDGE.
Wireless banking is already available for instance in the Czech Republic, Finland, France, Germany, Hong Kong, Portugal, Singapore and the United Kingdom. Banking transactions include checking account balances, transferring funds.
Mobile operators will be able to track where their customers are situated and thus provide customized, location-specific services, such as information on hotels or restaurants in the neighbourhood. Location tracking is also becoming useful for emergency services. In 1996, the US Federal Communications Commission (FCC) released a report on how wireless emergency services should be implemented. According to the report, all operators must have the capability to offer to emergency telephone operators information on the location of the user calling the emergency number. By April 1998, operators were required to be able to indicate the nearest cell site to the caller and the caller's number. By the year 2001, operators have to be able to track the location of the emergency caller with an accuracy of 400 feet (122 meters). See http://www.fcc.gov/e911.
Wireless operators, including NetCom in Norway and Radiolinja in Finland, offer services through their GSMinfo and AskIt offerings. For Radiolinja's AskIt service, the user only sends a search word as a short text message to the AskIt number and will then receive a menu of services broken into themes: News, Sport, Games, Movies and Television, Culture, Free-time, Travel and Tools (the last one
includes, for example, a currency and metric converter, and a dictionary). The AskIt service is outsourced from a company called WapIt which produces the services itself or obtains them from content providers and also maintains the service. NetCom has contracted TV2, a Norwegian TV station, as a content provider, and it also serves as its marketing channel. Netcom offers such services as stocks, weather, sports reports, games and jokes.
Study for EC DGXIII, by Squire, Sanders & Dempsey L.L.P. and Analysys Ltd. Consumer Demand for Telecommunications Services and the Implications of the Convergence of Fixed and Mobile Networks for the Regulatory Framework for a Liberalised EU Market. June 1999, available at: http://www.ispo.cec.be/infosoc/telecompolicy/en/fmc.pdf.
WAP uses WML (Wireless Mark-up Language), which works with extended versions of HTML (HyperText Mark-up Language), such as XHTML (eXtensible HyperText Mark-up Language).
In a parallel move to the WAP Forum, Microsoft has invested US$ 600 million in Nextel, a US mobile operator, with an agreement to set up a mobile Internet service, Nextel Online, which will use a MSN portal specifically designed for wireless users. Nextel targets the business segment and had over 3.1 million mobile subscribers in March 1999.
In Hongkong SAR, SmartTone, Celestial Asia Securities Holdings and Gemplus offer a wireless stock trading service that enables receiving account information, selling and buying stocks. Fidelity Investments in the United States and eQ Online in Finland (with Sonera) also offer a stock trading service.
"Korea strives to Reduce Dependence on Qualcomm for IMT-2000 Development; Seoul emerges as Global Power in Telecom Industry". Korea Herald, Seoul, October, 28, 1998. http://www.koreaherald.co.kr.
Nokia is planning to launch CDMA phones in South Korea in 1999. And other Japanese manufacturers, including Panasonic, Toshiba and Fujitsu, have also expressed interest in entering the South Korean market.
For example, the Japanese Personal Handyphone System (PHS)
standard has not been successfully transplanted abroad. NEC supplied a Thai operator with the first and largest PHS system outside Japan. However it has yet to receive payment and the network appears close to collapse. See Sampatananda, Vinyarat, "Three-way talks to decide fate of PCT service in Thailand," Global Wireless. January-February 1999. http://www.rcrnews.com/globalwireless/index.html.
For example, as of September 1998, Lucent had agreed to provide over US$2 billion of financing to mobile operators for purchasing its equipment, something it would like to do less of: "Network operators, inside and outside the United States, increasingly have required their suppliers to arrange or provide long-term financing for them as a condition to obtaining or bidding on infrastructure projects. These projects may require financing in amounts ranging from modest sums to over a billion dollars. Lucent has increasingly provided or arranged long-term financing for customers. As market conditions permit, Lucent's intention is to lay off these long-term financing arrangements..." Lucent. Annual Report, 1998. http://www.lucent.com/news/pubs/annual/98/.
One study examining the impact of mobile competition finds that higher growth rates have been achieved in openly competitive markets compared to those with duopolies and monopolies. See OECD, Mobile Cellular Communication: Pricing Strategies and Competition, 1996, France. See http://www.oecd.org/dsti/sti/prod.
"Moreover, the relationship between the level of tariffs and the competitiveness of national markets is unclear. The cheapest markets do not always appear to have the most competitive market structures. For example, the Scandinavian countries tend to do well in price comparisons but, according to Financial Times Mobile Communications', Finland had, until recently, only two mobile operators (a third launched in March 1998), Norway has only two and Sweden three, compared to the UK's four (which of course may also illustrate that the number of firms alone is not an adequate indicator of the competitiveness of markets)." See
OFTEL, Competition in the mobile market, February 1999. Available at: http://www.oftel.gov.uk/competition/cmm0299.htm.
During the course of 1998, competition was introduced in the three remaining West European OECD member countries that were cellular monopolies: Luxembourg (May), Iceland (May), Switzerland (December). Mobile monopolies remain in several smaller West European countries and territories (e.g., Andorra, Liechtenstein, Channel Islands).
"The licences were granted on the basis of the applicant's financial resources, reliability and safety of operation, quality and
technological development of services, and competitive framework". "Finland is the first country in the world to grant licences for 3G mobile networkstechnology will be determined by the future ITU standard", 18 March 1999. http://www.mintc.fi/www/sivut/english/default.html.
Governments may also find that licence winners will later be unable to pay high licence fees, embroiling the licensing procedure in controversy. In India, a number of mobile operators have refused to pay their licence fees. They are lobbying for converting them to a revenue-sharing agreement with the government. See: "India: Cellphone operators refuse to pay second year licence fees", 2 February 1999, at the Regulatory Colloquium site: http://www.regulate.org.
For example, one block of digital mobile cellular frequencies was set aside in the United States for "small business
entrepreneurs" (companies with a maximum revenue of US$ 40 million) to bid on. Eighty-nine of these companies were awarded 493 regional licences. See FCC, Fact Sheet, Auction #5. Broadband PCS: C Block Auction. http://www.fcc.gov/wtb/auctions. In Germany, local wireline service providers are pressuring the government to allocate regional licences for the upcoming third generation licence tender. They argue that if they want "to compete with Deutsche Telekom as full service providers, we really need to have a mobile offering in our portfolio". See John Blau. "Tension, confusion at 3G starting gate". tele.com, 5 July 1999. http://www.teledotcom.com/.
The drawbacks of issuing regional as opposed to nationwide licences is illustrated by Tanzania. The country had been divided into four zones with plans to issue two licences for each service area. Up to now, service is only provided in the Coastal Zone because there has been little interest in regions without large urban centres. See United Nations Economic Commission for Africa, Private sector participation in telecommunications in the United Republic of Tanzania, November 1996. Available at http://www.un.org/Depts/eca/divis/rcid/docs/tanztel.htm.
See "Council Resolution of 14 December 1990 on the final stage of the coordinated introduction of pan-European land-based public digital mobile cellular communications in the Community (GSM)", which also called for " in the context of general relations between the Community and the countries of Central and Eastern Europe and their development, promotion of the use of the GSM system in those countries which aimwithin the reconstruction of their economiesat rapidly building up their mobile systems". http://www.ispo.cec.be/infosoc/legreg/docs/90c32909.html. European Union promotion of third generation mobile cellular within the Community is outlined in Strategy and policy orientations with regard to the further development of mobile and wireless communications available at: http://www.ispo.cec.be/infosoc/telecompolicy/en/97513.html#par.4.3.
The FCC, the US telecommunications regulator, has consumer protection measures in mind in its recent ruling and Notice of Proposed RuleMaking when it states the need for a uniform, nationwide notification announcement which warns the fixed-line subscriber that there will be an additional charge incurred for making a call to a mobile. (See Federal Communications Commission, Declaratory Ruling and Notice of Proposed RuleMaking in the Matter of Calling Party Pays Service offering in the
Commercial Mobile Radio Services, Washington DC, 7 July 1999, WT Docket 97-207). http://www.fcc.gov/Bureaus/Wireless/Notices/1999/fcc99137.pdf.
A recent example comes from France where the price of a fixed to mobile call is 3 French Francs per minute (peak rate, including taxes). By rerouting the call overseas, a service provider can charge around 1.50 FF a minute and still make a profit (it pays France Telecom 0.50-0.60 for terminating the call and 0.30 to the mobile operator ). See: ART, Les consommateurs et la téléphonie mobile, January 1999. http://www.art-telecom.fr/publications/index.htm.
David Molony and Joanne Taaffe, "Roaming study reveals scale of over-charging". CommunicationsWeek International, 15 March 1999. http://www.totaltele.com/cwi.
See NERA and Smith System Engineering, Feasibility study and cost-benefit analysis of number portability for mobile services in Hong Kong, Final Report for OFTA, London, May 1998. http://www.ofta.gov.hk/report/mnp-fin.pdf.
Of the five mobile operators providing service in the first quarter of 1999, three waived the charge, one charged the maximum and one charged the maximum only for new pre-paid subscribers. See Mark Giesbers, "Number portability for prepaid servicesa new entrant's perspective", IIR Prepaid Mobile Services '99, London, 15-16 June 1999. http://www.iir-conferences.com/telecoms.html.
Universal access refers to all inhabitants being within reasonable distance of a telephone while universal service refers to the goal of achieving high household telephone penetration. For more on universal access and service, see ITU World Telecommunication Development Report 1998. Geneva, Switzerland. 1998. More information available at: http://www.itu.int/ti/publications/index.htm#wtdr98.
Even in developed countries with high levels of coverage, there is still competition among operators to extend coverage to areas such as subways, parks, tunnels, railways, etc.
According to one Filipino Senator: "There are 2 million phone customers in the Philippines who are bearing the cost of maintaining an oversupply of 4.4 million phone lines." See "Philippines bears costs of idle lines", Total Telecom, 3 September 1999. http://www.totaltele.com.
MTN started service in Uganda on October 21 1998 and had 15'000 subscribers in the first 12 weeks of operation. See Thomas Bragaw, "Case Study: Cellular Technology for Basic Telephony Service", Afritel '99, Capetown (South Africa), 11 February 1999. http://www.ibcuk.co.uk.
Two related issues that may require regulatory involvement are the circulation of handsets and licensing of global mobile satellite services.
The difference in coverage is not just between urban and rural. Even in urban areas, one competitor can claim superior coverage over another through denser base or pico stations that provide coverage in elevators, subway stations, etc.
"Cambodia may skip right over fixed line technology and the recent interconnect deal will be a further deterrent to the development of a fixed network". See Debra Boyce, "GSM competition heats up in Cambodia", Mobile Communications International, June 1999. http://www.mobilecomms.com/index.html.
"The joint venture Libancell in Lebanon reached the 250'000 subscriber limit that is defined in the company's licence. This factor significantly limited the company's growth possibilities". Sonera, Annual Report 1998, Helsinki, 1999. http://www.sonera.fi/investor_en/publications/annualreports/index.html. Bezeq, the fixed-line operator in Israel, another Middle Eastern country with a high substitution rate, is moving to combat growing mobile use which is causing a drop in fixed-line calling time: "Bezeq has been running an intense
advertising campaign against wireless substitution". See Allan Richter, "Israel's Bezeq combats substitution", Global Wireless, September-October 1998. http://www.rcrnews.com/globalwireless/index.html.
For example the award of two GSM licences in Romania put pressure on the companies to quickly install their network. The first to introduce service, MobiFon, did so just 18 weeks after being awarded the licence. One of the investors in MobiFon claims "This is the fastest GSM launch from scratch ever, reaching market two months ahead of the competition". See TIW website: "MobiFon launches GSM service in Romania in record time". http://www.tiw.ca/en/world/index.html.
While the privatization of fixed-line operators has grown, opportunities are still limited. Furthermore, the cost of purchasing an incumbent fixed-line operator is considerably greater than investing in a cellular start-up.
7. The first cellular telephone call in Africa was made in 1987 on a Telecel network. Around 20 per cent of sub-Saharan Africa (excluding South Africa) mobile cellular subscribers are on Telecel systems. In December 1998, the company spun-off its operations in Democratic Republic of Congo, Guinea and Madagascar. This information comes from a background document provided to ITU by Telecel.
Commenting on its investment in Brazilian cellular operators, Portugal Telecom (PT) notes: "These operations have enabled PT to make a firm commitment in promising markets, with huge growth potential, in which it possesses distinct, relevant advantages, deriving from it cultural and language affinity and knowledge of the business". See Portugal Telecom, 1998 Annual Report. http://www.telecom.pt/empresa/financeiras/relatorios/rel98.
For example BellSouth has launched a regional marketing programme, exploiting its brand name: "BellSouth, Latin America's leading wireless communications provider, unveiled its first pan-regional branding campaign, BellSouth...Alguien en quien confiar (BellSouth...Someone you can trust). The campaign will appear in regional print and broadcast media beginning today in BellSouth markets throughout Central and South America. it was created to raise awareness of the BellSouth brand in
Latin America, which has been of strategic importance to BellSouth for more than a decade, and marks the company's first efforts to uniformly brand its services across markets." See "BellSouth launches first pan-regional ad campaign in Latin America", at: http://www.bsi.bellsouth.com/news/news.htm.
In the Philippines an applicant for subscription-based mobile cellular must have an annual income of PhP 120'000 (US$ 2'934) more than three times the average per capita income. There is no such requirement for pre-paid service. See Globe Telecom website at http://globe.com/ph/globe/hsusrq.htm.
For example AirTouch, the large international mobile cellular investor, reports that more than half of its new international customers were pre-paid in 1998, accounting for 30 per cent of the customer base. See AirTouch, Annual Report 1998. http://www.app.airtouch.com/pdf/investor/fact_book98/annual_report_1998.pdf. Millicom, the largest international cellular investor measured by number of countries (18), reports that 91 per cent of its new subscribers were pre-paid in 1998 accounting for 46 per cent of all its cellular customers. See Millicom, Annual Report 1998. http://www.millicom.com/investor/annual/main.htm.
For example, one can purchase pre-paid mobile packages in supermarkets all over the United Kingdom: "Over 2000 UK supermarket outlets sell Vodafone pay as you talk'", Vodafone Press Release, 6 June 1999, http://www.vodafone.co.uk . Like supermarket products, mobile operators are keen to gain
brand name recognition: "CONNEX, MobiFon's branded service, became a household name in Romania, with recognition approaching well-known global brands in the fast-food, soft drink and clothing industries. See TIW, 1998 Annual Report, http://www.tiw.ca/en/finance/q/AnnRep98A.pdf. Packaging mobile service like a commodity product is not limited to developed countries. In the Philippines, the leading operator has had "good
success" with its service where "customers can purchase at retail shops shrink-wrapped handsets that have been pre-activated." See First Pacific annual report, at: http://www.firstpacco.com/ar98/telecom.htm.
"In retrospect, if Escotel had done this, we would have launched service with the pre-paid card and not later All our new town launches are with pre-paid." See Rajiv Burman. "Cellular industry in India: pre-paid the great potential", Prepaid Mobile Services '99, London, 15-16 June 1999. http://www.iir-conferences.com/telecoms.html.
To be more accurate, and to go beyond the narrow point being made here, mobile service can sometimes be cheaper than fixed-line service for certain calls, and for certain services (e.g., connection) in a few countries. These examples are discussed later in this chapter. But the basic point is still true.