ITU Internet Reports 2002:   The Internet for a Mobile Generation   Executive summary       September 2002 INTERNATIONAL TELECOMMUNICATION UNION

This Executive Summary gives a brief résumé of the main conclusions of the ITU Internet Reports 2002: Internet for a Mobile Generation. It includes a selection of charts, tables and boxes and a table of contents of the full Report.

The full Report (240 pages) gives an in-depth technical background to the history and current development of the mobile Internet including an analysis of market and regulatory trends. It contains the latest data on the licensing and deployment of third-generation mobile systems and services. Individual country case studies serve to illustrate these various aspects. Finally, the Report contains an 80-page statistical annex with data on over 200 economies worldwide.

The ITU Internet Reports 2002: Internet for a Mobile Generation was written by a team from the ITU Strategy and Policy Unit (SPU) led by Lara Srivastava, including Joanna Goodrick, Tim Kelly, Tad Reynolds and Yoshihisa Takada. The statistical tables were compiled by Tad Reynolds, with the assistance of Esperanza Magpantay and Nathalie Delmas. The report was edited by Joanna Goodrick, and formatted by Yolanda Azélart. The cover design is by Jean-Jacques Mendez.

Most of the data contained in the report is taken from the ITU World Telecommunication Indicators Database. The database is available on CD‑ROM, or via the Internet as a subscription service.

The Internet Report may be ordered by using the order form included at the back of this summary, or electronically from the ITU website at www.itu.int/osg/spu/.

The views expressed in the report are those of the authors and do not necessarily reflect the opinions of ITU or its membership.

  

Ó ITU, Geneva 2002

International Telecommunication Union (ITU), Geneva

1              The Big Gamble

“It requires no great leap of the imagination to believe that the convergence of mobile communications and the Internet will produce something big… but it may take longer than you think”

Mobile communications and the Internet were the two major demand drivers for telecommunication services in the last decade of the twentieth century. Combine the two—Mobile Internet—and you have one of the major demand drivers of the first decade of the twenty-first century. That’s the theory, at least.

As Figure 1 shows, the two industries have exhibited remarkably similar growth patterns since the start of the 1990s, but with a lag of about two years. So, it requires no great leap of the imagination to believe that the convergence of mobile communications and the Internet will produce something big, perhaps even the mythical “sum that is bigger than its parts”. In this view, the convergence of mobile communications and the Internet would produce innovations, new applications and new services that would not otherwise be possible. For instance, the service of knowing the location of a particular mobile user, combined with the service of targeted advertising, should theoretically make it possible for local businesses to attract users that are passing by, within a certain radius. Similarly, multimedia messaging services will open up visual, more exciting person-to-person communications. Thus, the mobile Internet could give birth to a whole new family of services.

Exploiting the new opportunities offered by the mobile Internet will require high levels of capital investment, possibly higher than ever before in the telecommunication industry. Investors want to see proof that a market for mobile Internet services exists. But operators can’t provide that proof until they build the networks. Because of this “chicken and egg” conundrum, the mobile Internet is potentially the biggest gamble the telecommunication industry has ever taken on. The lesson so far is that the pioneers get burnt fingers: to date, more than US$ 100 billion has been invested in acquiring 3G licences, even before network construction and service roll-out costs are taken into account. The timing of 3G investment could hardly be worse, with venture capitalists running scared of anything that has the word “telecom” or “Internet” in it. Consolidation is on their menu, not expansion.

As previous waves of technological convergence have shown, we should not necessarily expect to see the commercial fruit of the mobile Internet for some ten or fifteen years yet. It will not happen straight away, but that does not mean it will never happen. It is worth remembering that the “hype” generated by a particular technological development often falls flat before market development begins to take off. Consequently, the popular view is that a particular development has “failed”, whereas the more accurate explanation is that market development has not yet got going properly. Those who forget their history are condemned to repeat it. So it is with some caution—and long-term vision—that the pioneers of this new wave of convergence must prepare their business plans.

2              Towards convergence and interoperability

“We have learned from 2G that person-to-person messaging, simple interfaces and timely content delivery will be the key to 3G success… On a technical level, continued efforts towards the interoperability of radio interfaces and the evolution to an IP-based core network will be crucial”

Although the shift to 3G is a radical one, in most cases entailing the construction of new networks, the transition from 2G to 2.5G services is likely to be accompanied by a more significant conceptual shift than that from 2.5G to 3G, introducing the concept of “always-on” mobile communications. This is already beginning to bring the Internet and mobile communications onto a more common ground. The shift to 3G mobile will take this concept even further, but will essentially involve convergence and interoperability.

Although mobile data services are already available on 2G platforms through WAP, i‑mode and short messaging service (SMS), it is through the advent of 2.5 and 3G that users will begin to fully reap the benefits of the mobile Internet, through high-speed communications and multimedia applications. Figure 2 shows possible migration paths from 2G to 3G technologies. What we have learned from the success and failures of 2G technologies is that person-to-person messaging, simple interfaces and timely content delivery will be the key to future service development and revenue generation. A mere simulation of the fixed-line Internet experience will not compel users to take up mobile data services. The development of an adequate payment system for mobile devices is also crucial: for “always-on” applications, per-minute billing may have to give way to volume-based billing.

The combination of mobile and Internet technologies—for instance in the form of SMS messaging—is already transforming the way people interact and the way business is done. Some 24 billion SMS messages were sent worldwide in the first quarter of 2002. Messaging services have also brought information technology closer to groups that have traditionally had limited access to it, such as children and the deaf community. High-speed data services combined with additional functionality, such as location technologies and improved security, will further enhance the user experience.

On a technical level, the viability of future 3G services will rely on continued efforts towards the interoperability of radio interfaces, the evolution to an IP-based core network and the harmonization of formats for content delivery. At the service level, convergence between the fixed and mobile Internet is already happening, through services such as mobile instant messaging and fixed-line SMS. This interoperability will eventually encompass complementary and alternative network technologies, such as wireless LANs, short-range connectivity technologies, fixed broadband networks, etc. Regulators and industry players alike need to realize that there are a number of different options for providing mobile Internet services, and that 3G services must be considered in their global context. As Figure 2 indicates, 3G technologies are only a part of the overall picture.

3               Market trends

“The mobile Internet should not be considered as a substitute for the fixed-line Internet…”

There are a number of factors that will enable the rapid and successful development of the mobile Internet. First and foremost, the rapid deployment of high-speed 3G networks will be crucial to the facilitation of mobile multimedia services. Second, the availability and affordability of adequate Internet-enabled handsets will be a prerequisite for users. Third, unrestricted and non-proprietary mobile Internet content needs to be fostered; players should be discouraged from imposing commercial restrictions on content providers or establishing “walled gardens” of content. Finally, simple and transparent billing models are required, taking into account the difference between voice and data services and the growing importance of content. In all cases, the mobile Internet should not be considered as a substitute for the fixed-line Internet.

Nevertheless, valuable insights can be gleaned from the evolution of the fixed-line Internet, notably relating to its early development.  Initially, users were charged per-minute for browsing the Internet.  In most countries, operators then moved to a subscription model with call charges for time spent online.  In countries where local calls are unlimited, like the United States and Canada, flat-rate plans were introduced in December 1997. Countries in Europe and Asia soon followed suit. It can be said that the mobile Internet is following a similar trajectory.  In the early days of WAP over GSM, users were billed for every minute they spent online. Services such as i-mode combine monthly subscription with volume or packet-based billing. Always-on GPRS billing models have evolved with the introduction of volume-based charges. With high-bandwidth applications and increased spectrum efficiency, will flat rates become the norm for mobile data, as they have done for fixed data? Flat-rate schemes for data services are already being considered by a number of mobile operators. But users will have to wait some time before these become widely available.

With regard to content, the fixed-line Internet established a tradition of largely free and non-proprietary information access, though this is now changing.  In particular, virtually unlimited messaging (e-mail) is still available free of charge. Mobile communications, by contrast, have always come at a premium. Users seem quite willing to pay per message for SMS, per packet for i-mode content and premium rates for voice calls while roaming. Moreover, a direct relationship exists between the individual user and the mobile operator, facilitating billing for a variety of add-on services. This was not typically the case with fixed Internet access. On the whole, this bodes well for the future of paid digital content services on mobile devices. Combined with high worldwide mobile penetration and short-range technologies, it may mean greater success for mobile business-to-consumer commerce than has hitherto been seen over the fixed-line Internet.

Figure 3 shows 3G subscribers and handset sales of the two earliest 3G pioneers, Japan and the Republic of Korea.

4              Regulatory and policy aspects

“Regulators’ first mission is to ensure fair competition throughout all stages of the licensing process… but the story does not end with licensing”

Fair competition policy has been what has worked best in the development of both the mobile and Internet markets. In the mobile Internet era, it will still be regulators’ first mission to secure fair competition throughout all stages of the licensing process. During licensing, when selecting the participants in the mobile Internet market, regulators should ideally select operators using market-based methods. Table 1 shows the third-generation licensing methods applied in selected countries worldwide, illustrating the wide range of fees charged and methods used, including auctions, “beauty contests” (comparative selection), and mixed or “hybrid” approaches.

But the story does not end with licensing. After licences have been awarded, regulators have a crucial role to play in a number of ways. One of these is the need to monitor the mobile market structure so as not to allow dominant operators to abuse their market position over less established operators. The introduction of Internet access into the mobile market creates potential new bottlenecks such as portals, and new breeds of billing system. Mobile operators have a strong potential influence on the market for Internet platforms, and regulators are responsible for ensuring that platforms are as open to competition as possible.

Regulators also need to cooperate and harmonize approaches to global roaming and terminal circulation capabilities internationally. In an increasingly globalized economy, both these capabilities will be necessary for the mobile Internet market to flourish. International and regional organizations have a role to play in guiding regulators in this regard.

Security is also a key issue, both in terms of network vulnerabilities and of data privacy. As interconnection between wireless, and wired networks becomes easier, so hitherto controlled and traceable information becomes more vulnerable to malicious usage.

With mobile data services, including future m-commerce services, providers have more information than the average user, and therefore have greater bargaining power. Marketing tools, such as spamming, can overstep the line of acceptability and become a nuisance to users. Assuming that most mobile users have little knowledge of mobile technology and legal issues, it is imperative that consumer rights be protected by appropriate measures. Regulators should therefore establish recognized consumer protection rules, for example by providing charters or guidelines on protection of consumers’ legal rights. The Organisation for Economic Co-operation and Development (OECD) has, for instance, produced a set of Consumer Protection Guidelines, outlined in Box 2.

5              Worldwide lessons for a new generation

“Many of the operators in the countries that have yet to initiate 3G deployment are taking a more gradual, or cautious approach”

The major Asian economies are the clear first movers in 3G licensing, with Japan and Korea being the first to actually deploy 3G services. But Hong Kong, China also awarded 3G licences early on, in an exemplary licensing process. Singapore, another ICT-friendly economy, may not make the move to 3G as rapidly as might be expected (see Box 1 on page 5). Some of the less developed Asia‑Pacific economies, such as China, the Philippines, and Thailand, are less ripe for 3G roll-out, and are in no rush to award 3G licences owing to their particular market contexts.

In Europe, many countries opted for an auction approach to licensing, and sold them off at prices that might have seemed justified at the height of the mobile boom during 1999 and 2000, but which have since been crippling to operators left with huge costs to recoup. In Latin America, a number of countries have fully embraced mobile telephony (see the examples of Chile and Venezuela in Figure 4, top chart), experiencing a mobile boom in relation to fixed-line growth. Africa has also seen high mobile growth rates, testifying to the capacity of mobile to substitute fixed-line telephones in developing economies, where fixed-line infrastructure is often lacking (see Figure 4, bottom chart).

Although the experience of Japan and Korea would suggest the huge potential of the mobile Internet, the high hopes for 3G have been somewhat dampened by the slump of recent years in the telecommunication sector as a whole, as well as evidence that some mobile markets are reaching saturation. Many operators in countries that have yet to initiate 3G deployment are taking a more gradual or cautious approach, concentrating their efforts on new multimedia-type applications over existing 2G platforms. Many are choosing to upgrade their systems to support higher data transmission speeds needed for images. This approach may be a useful way to “test the waters” for 3G, or to exploit more fully the potential of 2.5G technologies without the need to invest heavily in new 3G networks.  

But driving mobile growth alone is not enough: Internet content also needs to be accessible, and relevant, and efforts need to be made to lift language barriers. Thailand is one example of a country where the limited knowledge of English has been an obstacle to SMS use. This is in contrast on the one hand with Singapore, where English is widely understood, and on the other hand with Korea, where efforts to develop Internet content in Hangeul, and the availability of handsets that support the language characters, have contributed significantly to the success of mobile data applications.

In a number of countries, SMS has been the unexpected “killer application” that has sometimes—ironically—effectively delayed the introduction of 3G services. Prepaid schemes have also played a part, as exemplified by the case of the Philippines, but also borne out elsewhere. The “SMS phenomenon” shows that finding the elusive “killer application”, along with ensuring affordability of services, will be key factors for the success of 3G.

Source: ITU World Telecommunication Indicators Database

6               Towards a mobile information society

“In the future, we may each own dozens of miniaturized mobile communication devices. A new era of pervasive computing is dawning with huge implications for our personal lifestyles and values”

The mobile revolution is changing the way we live and work. Mobile phones are already pervasive in all major developed economies and in an increasing number of developing ones too. But with the advent of the mobile Internet, wireless gadgets are set to invade new areas of personal life and work. The mobile Internet is a powerful enabling technology that will make possible new services and applications. But it may also threaten traditional values of privacy, security and courtesy. The mobile Internet is an intrusive technology.

In the 1980s and 1990s, the microchip spread from the computer into hundreds of other devices, from computers to washing machines to cars. The average car, these days, has as much computer power as some of the early Apollo rockets. Most families in developed nations already own dozens of microchips embedded in different devices. The next stage in this process of pervasive computing is for those microchips to gain the ability to communicate and to report on their location and status. The technology to make this happen is already available—for instance, nanotechnology, cellular communications, cheap processing power, location-tracking systems—but the networks and the billing systems are not yet in place. The mobile Internet will make that possible.

But are we ready for a world in which an intelligent fridge sends out the grocery-shopping list, or a mobile phone tells parents that their children are not yet home from school? In the mobile information society, the amount of data about our personal lives that could theoretically be collected, stored and traded will increase dramatically. We may want to use that data ourselves, for instance for improved health or security, but who else do we want to have access to it?

The major uses of the 2.5G mobile Internet are likely to be messaging (see the example of China, Figure 5, bottom chart), but the extra bandwidth of 3G will allow for download, video streaming and multiplayer games (as in Korea, Figure 5, top chart). Initial experiences with 3G mobile Internet services, in Korea and Japan for instance, indicate that it is teenagers who are driving the market. In Korea, for instance, although teenagers have lower disposable incomes than older age groups, they are spending around three times more per user on mobile data services. In Japan, video messaging has proved immensely popular among young people. What this suggests is that the younger the user, the more likely they are to be comfortable with the intrusive nature of mobile communications. Youngsters also have more time for playing games and sending frivolous or flirtatious messages. The key question is whether they will continue to use the mobile Internet when they are older and have more spending power. If they do, then the 3G gamble will seem like money well spent for the operators. If not, then it is time for investors to start worrying.