Mobile Futures - beyond 3G 9781845442231, 9781845440596

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info Volume 6, Number 6, 2004

ISSN 1463-6697

Mobile futures ± beyond 3G

Guest Editors: Erik Bohlin and Jean-Claude Burgelman

Contents 342 Access this journal online 343 Abstracts & keywords 345 Guest editorial Mobile futures ± beyond 3G Erik Bohlin and Jean-Claude Burgelman 348 Japan's mobile internet success story ± facts, myths, lessons and implications Sven Lindmark, Erik Bohlin and Erik Andersson

363 Scenarios and business models for 4G in Europe Pieter Ballon 383 Developments for 4G and European policy Arnd Weber, Erik Bohlin, Sven Lindmark and Bernd Wingert 388 Wireless R&D in the EU: a review Erik Bohlin and Erik Andersson 399 Note from the publisher

359 Prospects beyond 3G Carlos RodrõÂguez Casal, Jean Claude Burgelman and Erik Bohlin

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Prospects beyond 3G

Abstracts & keywords

Carlos Rodrı´guez Casal, Jean Claude Burgelman and Erik Bohlin Keywords Mobile communication systems, Europe, Innovation, Design and development 3G in Europe faces not only the challenge of recouping the huge cost of licenses, but also the possibility of being overtaken by the emerging new broadband and wireless technologies. These may coexist or even compete with 3G. IPTS carried out two studies that looked at the milestones for future mobile communications systems, taking into account both the short- and the long-term prospects. The first study addressed success factors for 3G networks, gathering insights from successful experience in other regions of the world, notably Japan. The second covered the influence that alternative technologies might have for the diffusion and uptake of 3G. This paper concludes that, despite competition, universal mobile telecommunications system will lead the future of mobile communications in Europe. It presents the final recommendation to stimulate 3G commercialisation by consolidating 3G as a solid platform for 4G development, integrating co-existing applications and continuously incorporating emerging standards.

Mobile futures – beyond 3G Erik Bohlin and Jean-Claude Burgelman Keywords Mobile communication systems, Design and development, Europe Introduces five papers which provide a comprehensive picture of recent developments and challenges in the European telecommunications industry. Believes that both regulators and managers will find these papers insightful and useful in policy and strategy discussions.

Japan’s mobile internet success story – facts, myths, lessons and implications Sven Lindmark, Erik Bohlin and Erik Andersson Keywords Mobile communication systems, Internet, Standardization, Competitive strategy, Innovation, Japan The paper investigates the evolution of the successful mobile internet service i-mode in Japan, identifies the relevant explanatory factors, and provides implications for the further development of mobile data communications in Europe. In conclusion, the paper argues that there must be a balanced and efficient mix of industry coordination, service experimentation, and dynamic competition in order to provide a foundation for mobile data success in Europe.

Scenarios and business models for 4G in Europe Pieter Ballon Keywords Mobile communication systems, Europe, Business development This paper investigates the main trends and uncertainties that will define fourth generation mobile systems and services (4G) in Europe. It outlines two divergent visions on 4G: the so-called “immediate” 4G vision, consisting of wireless local area networks (WLANs) combined with other wireless access technologies, competing with 3G in the short term, and the so-called “linear” 4G vision, in which the 3G standard is not replaced until the end of its life cycle by an ultra-high speed broadband wireless network. Which of these visions will materialise, and what this means for the competitiveness of the main 4G stakeholders in Europe, will be to a large extent determined by which business models are feasible for 4G.

Developments for 4G and European policy Arnd Weber, Erik Bohlin, Sven Lindmark and Bernd Wingert Keywords Mobile communication systems, Europe, Design and development

info Volume 6 · Number 6 · 2004 · Abstracts & keywords q Emerald Group Publishing Limited · ISSN 1463-6697

This paper addresses the potential need for European public policy actions in the area of mobile

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Abstracts & keywords

info Volume 6 · Number 6 · 2004 · 343-344

communications, in particular of developments towards 4th generation networks (4G). The paper is based on work conducted for the EC/JRC/IPTS/ ESTO project “The Future of Mobile Technologies in EU: Assessing 4G Developments”. The paper first reviews developments of 3G and 4G technologies in Japan, Korea, China and the USA. It briefly addresses potential costs and benefits of competition in infrastructures. The paper states that initiatives in Europe for technologies beyond 3G tend to address research issues, while players in Asia and the USA are aiming at sales of 4G-equipment supposed to start as soon as possible. In conclusion, nine options for policy makers are presented, such as to stimulate 2.5G and 3G data markets, to analyse actual spectrum use, to continue analysing approaches competing with UMTS, to estimate costs and benefits of new approaches to spectrum regulation, and to evaluate steps towards frequency allocation.

Wireless R&D in the EU: a review Erik Bohlin and Erik Andersson Keywords Mobile communication systems, Europe, Research and development This paper examines Europe-wide research initiatives co-ordinated on a European Union level through the successive EU Research Framework Programmes (FP), particularly through its sub-programme Information Society Technologies (IST). The IST vision of future wireless systems is described, and an overview of research activities concerning mobile communications of IST in FP6 and FP5 is presented, including project problem and technology areas, and specific projects that are of particular interest in the 4G context are highlighted. The paper concludes with an outlook on future mobile research priorities.

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Guest editorial Mobile futures – beyond 3G Erik Bohlin and Jean-Claude Burgelman

About the Guest Editors Erik Bohlin is Head of Department and Associate Professor, School of Technology Management and Economics, Chalmers University of Technology, Go¨teborg, Sweden. Jean-Claude Burgelman is based at IPTS, DG Joint Research Centre, European Commission, Seville, Spain.

Keywords Mobile communication systems, Design and development, Europe

Abstract Introduces five papers which provide a comprehensive picture of recent developments and challenges in the European telecommunications industry. Believes that both regulators and managers will find these papers insightful and useful in policy and strategy discussions.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-6697.htm

info Volume 6 · Number 6 · 2004 · pp. 345-347 q Emerald Group Publishing Limited · ISSN 1463-6697 DOI 10.1108/14636690410568614

With third generation (3G) telecommunications under implementation in Europe, technology research focus has already turned to what comes next, the fourth generation (4G). Today, no clear consensus exists as to what 4G will eventually be and which technological challenges must be solved, however. Originally, 4G was considered to follow 3G sequentially and to emerge in the 2010-2015 time period as an ultra-high speed broadband wireless network. This vision is not yet very precise and not standardized; despite the fact that industry collaboration fora such as the WWRF and ITU, and IST supported conferences devote sessions to the long-term development of mobile communications systems. Moreover, these 4G networks are assumed to operate seamlessly and interconnected with other mobile devices. Generally, the 4G networks are assumed to have a cellular structure, building on the fundamental architecture of prior mobile generations. Meanwhile, a different vision of the future mobile communications system has emerged, with hotspot architecture and manifold standards that complement and compete with 3G. There seems to be a wide-spread notion that the next communications generation will be a multitechnology environment characterized by seamless interaction between and among terminals and networks, providing very high data rates (exceeding 100 Mb/s). However, the developments are characterized by high degrees of uncertainty regarding technology developments as well as markets and industry dynamics. This special issue of info presents five papers relating to conditions for future European success in telecommunications, both 3G and beyond. The papers move from present technologies toward the future, and treat such diverse areas as success factors in Japanese 2.5G mobile data services (Lindmark et al.), management perspectives on beyond 3G perspectives (Rodrı´guez Casal et al.) and 3G and 4G business models (Ballon), European policy issues for 4G telecommunications (Weber et al.), and finally an overview of European Union technology research on areas relevant for 4G (Bohlin and Andersson). Most empirical work for this special issue was conducted in the EC/JRC/IPTS/ESTO projects “Prospects for the third generation mobile systems” and “The future of mobile technologies in EU: assessing 4G developments”. These studies provide well-researched reports on the current trends and strategic positioning of the stakeholders

The opinions expressed are those of the authors and not necessarily of their respective organizations.

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driving the creation of a mobile Europe (see the Appendix for an overview of project publications). There is a general consensus that data transmission will be of increasing importance for operators’ traffic and revenues in next generation telecommunications. In this light, a detailed understanding of what has made mobile data successful in e.g. Japan, is vital in the design of corporate strategies and regulatory policies in the mobile data field. To this end, Lindmark et al. thoroughly examine the Japanese i-mode case. The paper looks into explanatory factors provided by previous research, and accentuates the importance of a strong coordinating actor (NTT DoCoMo), healthy competition, and innovative service experimentation. The authors compare the i-mode technology with General Purpose Technologies, suggesting that the i-mode platform plays the role of “enabling technologies” opening up opportunities rather than offering complete solutions. The most immediate issue for the European telecommunications industry is the ongoing and imminent introduction of 3G telecommunications technologies and services. With enormous sums spent on licenses, research, and network infrastructure, 3G success is of crucial importance for the industry to recoup investments. The paper by Rodrı´guez Casal et al. presents success factors for 3G, mainly building on the Japanese 3G case. In addition, The Authors look at the technology competition situation, and the role 3G will play in future network generations. The paper concludes that, despite competition, UMTS will lead the future of mobile communications in Europe. It presents the final recommendation to stimulate 3G commercialization by consolidating 3G as a solid platform for 4G developments, integrating coexisting applications and continuously incorporating emerging standards. The authors present a strong argument for an organic evolution from 3G to beyond 3G into 4G. The following paper, by Pieter Ballon, investigates the main trends and uncertainties that will define 4G mobile systems and services in Europe. The author sketches two scenarios for 4G developments: the so-called “immediate” 4G vision, consisting of wireless local area networks (WLANs) combined with other wireless access technologies, competing with 3G in the short term, and the so-called “linear” 4G vision, in which the 3G standard is not replaced until the end of its life cycle by an ultra-high speed broadband wireless network. Ballon concludes that which 4G business models are feasible will determine which scenario will materialize, and how the competitiveness of European actors will be influenced. The identified uncertainties are

analyzed in three stages: current and emerging 3G and WLAN offerings in Europe, an overview of different and competing long-term visions and strategies regarding 4G of the main stakeholders in Europe and other regions, and an assessment of the relative position of Europe with respect to the USA and Asia for both the “immediate” and “linear” scenarios. The uncertainties in relation to 4G developments are also treated in the paper by Weber et al. – albeit from a policy perspective. Determined to make up for lost ground and establish strong positions for their respective industry actors in 4G communications, China, Korea (Republic of) and Japan have announced focused research efforts. In addition, the USA, currently leader in large parts of the wireless data communications industry (including WLAN), invests heavily to profit on 4G. Through reviews of 3G and 4G technology developments in Japan, Korea (Republic of), China and the USA, nine options for policy makers are presented. These include stimulating 2.5G and 3G data markets, analyzing actual spectrum use, continuing to analyze approaches competing with UMTS, estimating costs and benefits of new approaches to spectrum regulation, and evaluating steps towards frequency allocation. Strategic European research and development (R&D) is further discussed in the final paper (by Bohlin and Andersson), which looks into completed and ongoing European-wide research initiatives aiming at technology advances relevant for 4G communications infrastructures and terminals. After a presentation of the IST vision of future wireless systems is described, an overview of research activities concerning mobile communications of IST in FP6 and FP5 is presented. The review indicates that 3G will remain a strong base for mobile communications in the coming years. European research efforts are clearly building on 3G as a backbone infrastructure around which a multitude of applications will co-exist and co-evolve. Although there is major uncertainty regarding future wireless generations, and planning for 4G has proceeded further in other regions, the centrality of 3G in current European research activities reflects an ambition to consolidate efforts around this generation of mobile communications in the coming years, incorporating other emerging standards and technologies to the greatest extent possible. European research on future wireless systems can thus be characterized as an evolutionary path towards UMTS integration. Taken together, these five papers provide a comprehensive picture of recent developments and challenges in the European telecommunications

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industry. It is our belief that both regulators and managers will find this info special issue insightful and useful in policy and strategy discussions.

Information Research (CIC), Stockholm School of Economics. Bohlin, E., Ballon, P., Bjo¨rkdahl, J., Lindmark, S., Weber, A., Wingert, B. (2004), Rodriguez Casal, C., Burgelman, J.-C. and Carat, G. (Eds), “The future of mobile technologies in EU: assessing 4G developments”, IPTS Technical Report prepared for the European Commission Joint Research Center, forthcoming, available at: www.jrc.es Bohlin, E., Ballon, P., Bjo¨rkdahl, J., Burgelman, J.-C., Lindmark, S., Rodriguez Casal, C., Weber, A., Wingert, B. (2004), “UMTS integration and framework program priorities”, paper presented at the IST Mobile and Wireless Communications Summit, June 27-30. Bohlin, E., Bjo¨rkdahl, J., Lindmark, S., Dunnewijk, T., Hmimda, N., Hulte´n, S., Tang, P. (2003), Burgelman, J.C., Carat, G. (Eds), Prospects for the Third Generation Mobile Systems, EUR 20772 EN, IPTS Technical Report prepared for the European Commission Joint Research Center. Lindmark, S. and Bohlin, E. (2003), “What are the lessons from Japan’s mobile internet success story?”, paper presented at the M-business 2003 International Conference, Vienna, June 23-25. Lindmark, S. and Bohlin, E. (2003), “The i-mode success story - towards a systems explanation”, Communications & Strategies, No. 52, 4th Quarter, pp. 193-214. Lindmark, S., Bohlin, E. and Andersson, E. (2004) “Japan’s mobile internet success story – facts, myths, lessons and implications”, info, Vol. 6 No. 6. Rodriguez Casal, C., Burgelman, J.-C. and Bohlin, E. (2004) “Prospects beyond 3G” info, Vol. 6 No. 6. Weber, A, Bohlin, E., Lindmark, S., Wingert, B. (2004) “Developments for 4G and European policy” info, Vol. 6 No. 6. Weber, A, Bohlin, E., Lindmark, S., Wingert, B. (2004) ”4G radio developments without Europe?“, paper presented at the 14th Biennial Conference of the International Telecommunications Society, Berlin, September 5-7.

Appendix. Bibliography: publications and papers building on the JRC/IPTS projects on 3G and 4G Ballon, P. (2004), “Business models and scenarios for fourth generation mobile (4G) in Europe”, paper presented at the Euro CPR Conference 2004, Barcelona, March 29-30. Ballon, P. (2004), “Scenarios and business models for 4G in Europe”, info, Vol. 6 No. 6. Ballon, P. and Bohlin, E. (2004), “4G mobile in Europe: business scenarios and implications for research policy”, paper presented at the eChallenges Conference 2004, Vienna, October 27-29. Bjo¨rkdahl, J., Bohlin, E. (2003), “Competition policy and scenarios for European 3G markets”, Communications & Strategies, No. 51, 3rd Quarter, pp. 21-34. Bjo¨rkdahl, J., Bohlin, E. and Lindmark, S. (2004), “Financial assessment of fourth generation mobile technologies”, paper presented to the EURO CPR 2004 Conference, 29-30 March 2004, Barcelona, Spain, published in Communications & Strategies, No. 54, 2nd Quarter, pp. 71-96. Bohlin, E. and Andersson, E. (2004), “Wireless R&D in the EU: a review”, info, Vol. 6, No. 6. Bohlin, E. and Burgelman, J.-C. (2004) “Mobile futures: beyond 3G”, info, Vol. 6 No. 6. Bohlin, E. and Lindmark, S. (2003), “Japan’s mobile internet success story - facts, myths, lessons and implications”, paper presented at the 14th European Regional Conference, International Telecommunications Society, August 24-25. Bohlin, E., Bjo¨rkdahl, J., Lindmark, S. and Burgelman, J.-C. (2003), “Strategies for making mobile communications work for Europe: implications from a comparative study”, paper presented at the EuroCPR 2003, March 23-25, 2003, Barcelona, and at the Stockholm Mobility Roundtable 2003, May 22-23, organized by Center for Communication and

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1 Introduction

Japan’s mobile internet success story – facts, myths, lessons and implications Sven Lindmark Erik Bohlin and Erik Andersson

The authors Sven Lindmark, Erik Bohlin and Erik Andersson are all based in the Department of Innovation Engineering and Management, Chalmers University of Technology, Gothenburg, Sweden.

Keywords Mobile communication systems, Internet, Standardization, Competitive strategy, Innovation, Japan

Abstract The paper investigates the evolution of the successful mobile internet service i-mode in Japan, identifies the relevant explanatory factors, and provides implications for the further development of mobile data communications in Europe. In conclusion, the paper argues that there must be a balanced and efficient mix of industry coordination, service experimentation, and dynamic competition in order to provide a foundation for mobile data success in Europe.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-6697.htm

info Volume 6 · Number 6 · 2004 · pp. 348-358 q Emerald Group Publishing Limited · ISSN 1463-6697 DOI 10.1108/14636690410568623

A number of challenges have been posed recently regarding Europe’s lead in mobile communications and the prospects for the so-called third generation mobile systems (3G)[1]. Also, the regulatory conditions for 3G in Europe have become severely fragmented, despite the long-standing efforts to achieve a common market, and extraordinarily high license fees have been paid to governments in some member states. The deepest concerns at European level are whether competitiveness will be compromised in the long run, and whether Europe’s lead in mobile communications only becomes a thing of the past. On the other hand, there are some encouraging signs of 3G development – and more generally mobile internet development – in other parts of the world. (In our definition of mobile internet we include both so-called 2.5G and 3G mobile communication standards.) Most notably, the so-called i-mode service offered by NTT DoCoMo in Japan has been highly successful, and although this service originally was not based on 3G (but rather 2.5G), the service development has outpaced expectations. (Since 2001, i-mode is also offered over WCDMA-based 3G.) However, DoCoMo’s competitors have not been dormant, but also started to offer other advanced mobile networks, both with 2.5 and 3G standards. The competing 3G standard (CDMA2000) has this far been much more successful, with more than 14.7 million subscribers compared to 4.5 million for NTT DoCoMo’s FOMA service (and 199,500 for Vodafone Japan’s WCDMA service launched in December 2002) (as of June 2004). Thus, there are some promising signs in the mobile internet era, at least based on 2.5G successes. Simultaneously, Japan’s lead in 2.5 and 3G may enable Japanese players to challenge Europeans for the lead in mobile communications. The aim of this paper is to bring together these two issues – the challenge to 3G success in Europe vs the success in Japan (in mobile internet more generally) – and to provide some policy implications on a European level on this basis. The experience in Japan provides several interesting lessons for Europe, where 3G success is still uncertain. The lessons from Japan are based on an in-depth case study of the various mobile internet developments in Japan. On a more general level, this paper aims to contribute in the discourse on the conditions for growth and decline in telecommunications. Several recent papers have sought to formulate This article is based on a paper submitted to ITS 14th European Regional Conference, Helsinki, Finland, 23-24 August 2003.

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hypotheses and theory on why we are seeing a downturn in telecommunications, and on the long-run implications of an emerging cyclicity in this industry (see Bohlin et al., 2003; Fransman, 2002a; Noam, 2002). More critical thought and research-based investigations are to be expected in this direction, as the explorations have just started. The structure of the paper is as follows: first, we give a brief overview of the mobile internet development in Japan; then, we provide some of the main lessons of the Japanese case; finally, some policy conclusions and implications for research are suggested.

Since i-mode has been the most successful mobile data service solution, this article concentrates on analysing the i-mode services, while competing services are only briefly treated.

2 Mobile internet in Japan 2.1 Introduction The mobile telephone market grew tremendously in Japan during the 1990s and is nearing saturation[2]. This led the operators, DoCoMo in particular, to search for other sources of revenues in the mid- and late 1990s. DoCoMo had been early in introducing a packet-switched service (DoPa) already in 1997. The same year, J-Phone pioneered mobile messaging with its Sky Walker messaging services. Messaging became widely used by teenagers, in paging and PHS networks, and these services paved the way for comprehensive mobile internet services, such as i-mode. In 1999, DoCoMo, KDDI and J-Phone separately launched three cellular mobile internet services named i-mode, EZweb and J-Sky. DoCoMo’s i-mode managed to grab some 60 per cent of the mobile internet market. The development of i-mode started in 1997, and the service was launched in February 1999. Market growth was rapid. More than 20 million users were attracted in only two years. It also enabled DoCoMo to (temporarily) break a long-term trend of rapidly declining ARPU (see Table I). I-mode, J-Sky and EZweb are built on different network, browsing, and mark-up language technologies. For instance, until 2002 J-Sky services were provided over a circuit-switched network. However, fairly similar solutions for business models, service provision, terminals, customer billing, revenue sharing, etc. have been chosen. I-mode is the leading mobile internet service, but compared to European services, the competing J-Sky and EZweb services are also extremely successful. In 2002, i-mode still had the: . highest market share; . lowest churn rates; . highest handset replacement rates; . lowest commission levels; and . highest ARPU.

2.2 I-mode I-mode is a wireless internet connection that enables users to browse internet pages and send and receive e-mail. For the customer, i-mode consists of a cellular phone with a screen that can display text and small graphics (some 100 characters can be fitted to the screen). By pressing a special “i” button, the user is logged on to a central gateway server operated by DoCoMo. The initial default text displayed consists of menus linking to official NTT DoCoMo i-mode content sites. The major technical components of the i-mode service are: . PDC-P, a 9.6 kbps (later upgraded to 28.8 kbps) packet-switched network; . the i-mode server, which functions as a gateway between PDC-P and the content provider sites; . terminals including micro-browsers; . portal; . official and unofficial content provider sites; and . micro-payment system. The packet network allows i-mode users always to be connected, and also allows more flexible billing schemes. Messages are cached on the i-mode server, which also manages and stores customer information and content provider information and calculates i-mode usage fees for billing purposes. Thus, it constitutes a basic prerequisite for micropayments. The service also requires that www site providers format the information for display on the handset. The i-mode protocol stack is composed both of internet standards and proprietary ones. The internet pages are written in compact HTML (cHTML) – a subset of HTML, with some addons, which makes it useful in the limited wireless environment. Content providers gain access to i-mode either directly through the i-mode server or via the internet. The former are called official sites. To become official content providers, applicants have to undergo an extensive screening and evaluation process. These sites can be accessed directly from a menu on the i-mode handset. In addition, users can access so-called unofficial content sites by inputting the desired universal resource locator (URL). In March 2003, there were some 3,450 official sites, grown from 67 when i-mode was launched. These official sites initially generated most traffic. Unofficial sites cannot take advantage of DoCoMo’s portal or billing system. Therefore

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Table I DoCoMo and i-mode – key figures

Cellular subscribers (million) DoCoMo’s market share (%) i-mode subscribers (million) Churn rate (%) Aggregate ARPU (JPY/month) Voice ARPU (JPY/month) i-mode data ARPU (JPY/month) i-mode data ARPU/aggregate ARPU (per cent) Official sites Unofficial sites

3/99

3/00

3/01

3/02

23.897 57.5 N/A 1.75 9,270 9,270

29.356 57.4 5.603 1.61 8,740 8,620 120

36.026 59.1 21.695 1.39 8,650 7,770 880

40.783 59.0 32.156 1.18 8,480 6,940 1,540

67 , 500

1.4 600 8,000

10.2 1,500 42,000

18.2 3,000 54,000

3/03 45.760 58.0 37.758 1.22 8,120 6,370 1,750 21.6 c.3,450 c. 64,000

3/04 45.927a 56.3 41.077 1.37 7,610b 5,640b 1,970b 25.9 4,144c 74,605

Notes: a Includes FOMA subscribers; b PDC + FOMA; c Does not include 927 i-appli sites; ARPU figures are yearly averages Source: DoCoMo homepage

they must use other means to get paid and to market themselves. One advantage is that they can offer services, for instance communication (dating) and adult services that are not allowed on DoCoMo’s portal. Initially there were less than 500 unofficial sites, growing to more than 70,000 at this writing (spring 2004). Initially, the unofficial sites did not account for much traffic, but their share of the total traffic increased rapidly. By September 2000, the unofficial traffic was higher than that of the official ones. Search engines, portals, marketing in other media, and users sending URLs to each other aided this process. The dominant application of i-mode has been e-mail, accounting for around one third of traffic. On the official sites, “entertainment services” have been overwhelmingly popular, accounting for more than 70 per cent of the total official-site traffic, followed by information/news services (13 per cent), database access and transaction services (4 and 5 per cent respectively). Among entertainment services, downloading screen-savers and ringing tones has been most popular, followed by entertainment information and games/ horoscopes. DoCoMo controls the terminal market, specifies the terminals, and decides when they should be launched, i.e. simultaneously with launches of new services. Japanese terminals are much more technically advanced and capable (in terms of weight, screen performance, polyphonic sound etc.) than European terminals. Although manufacturing costs are higher (because they are more advanced and because the Japanese market is smaller), street prices are lower, since Japanese commissions are very high (in the range of e300). These low prices enable the large young-consumer market to purchase advanced internet phones. The typical i-mode user is accordingly younger than the population in general, although i-mode is starting to diffuse also to others.

For DoCoMo, i-mode has become a very profitable service. The rapid decline in ARPU has been retarded. In fiscal 2003 (ending in March 2004), around e14 or 26 per cent of DoCoMo’s subscriber ARPU came from i-mode data services (see Table I). Most of the revenues come from packet charges. Among content providers, most have been claimed to be unprofitable, especially among the unofficial ones. A few content providers such as Cybird, Bandai and Index have grown very large and are expanding internationally. Also DoCoMo is expanding by introducing i-mode in cooperation with partners in a number of European and Asian countries. 2.3 The i-mode business model One of the key explanatory variables for the success of i-mode is that DoCoMo created a viable business model where all actors, including operators, content providers, terminal manufacturers, portal/search engine providers and distributors, cooperated and had possibilities to run a profitable business. For an overview of the business model see Figure 1. The model of activation commissions to retailers is the same as in Europe, but amounts differ. DoCoMo collects 9 per cent of the charging as a handling charge, a far lower amount than that typically charged by European mobile operators. Note, though, that this charge is only levied on the official content providers; unofficial content providers charge end-users directly. Official content providers are allowed to charge between e1 and e3 for the contents. 2.4 Terminal market The Japanese cellular handset market is very competitive, perhaps the most competitive handset market in the world. When i-mode was introduced in 1999, there were more than 30 handset suppliers present. Panasonic (Matsushita) was the

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Figure 1 Payment flows in the i-mode actor system

leading supplier with about 31 per cent market share, followed by NEC (17 per cent), Mitsubishi (13 per cent), Kyocera (11 per cent), and Toshiba (12 per cent). The remaining suppliers, led by Sharp, held 18 per cent of the market. Terminals are, as a rule, branded by the operators, although some suppliers have begun marketing their terminals directly. The model lifecycle of a terminal is short, with rapid price reductions over the cycle. Handsets are sold to dealers at much higher prices in Japan than in Europe (e270 vs 170) partly as a result of less economies of scale, partly because of high technical sophistication. Subsidies are, however, much higher in Japan (e350) compared to Europe (e140). In Japan, the handset market is very much driven by technological features, technical performance, and personal appearance. It has not been segmented the way the European market has been. In Europe, manufacturers introduce highend models with high prices and many features, aiming primarily for the business segment, keeping prices at high levels for a long period of time. Simultaneously, low-cost models are launched often based on the same platforms as the high-end models, but priced much lower. In Japan there is instead basically one market segment. In this segment manufacturers competed primarily on weight (until 1999). This is why Japanese terminals are so small. With the introduction of mobile internet, manufacturers instead compete on the basis of screen size and quality, new features and weight.

But there is still primarily one segment only. Although most stores keep 50 different phones or so, most of them look the same. For example, after an initial growth in screen size, manufacturers seem to have settled a “standard size” (2.2 inches) in 1999, due to the popularity of an NEC model, and operator influence. This standard size, like all standards, has facilitated development of complementary products – content. Replacement cycles have been much shorter in Japan than in Europe. Already in 2000, 86 per cent of terminal sales were replacements compared to 40 per cent in Europe (Northstream, 2001). Replacement cycles have traditionally been short, but recent statistics show a trend to longer cycles. As mentioned before, the operator, in the sense that it heavily exerts design influence, controls the handset market. This is especially so for DoCoMo. DoCoMo has been accused of anti-competitive behavior, by refusing to let suppliers launch stateof-the-art technology to competitors, and by withholding necessary specifications and technology. This has been claimed, for instance, about the transition from four-chord signals to 16-chord signals. DoCoMo has also been accused of exerting similar kinds of influence on information providers. Still, terminal suppliers and information suppliers are attracted to DoCoMo. As one analyst put it, “DoCoMo is notoriously hard to work with, but impossible not to work with”. Although no systematic comparison has been conducted here, it seems probable that Japanese terminals have been more advanced than European

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ones in almost every respect, throughout the relevant time period (1999-2004) (see Table II).

2.5 Status of 3G Japan, and DoCoMo in particular, has pushed hard for a rapid 3G implementation for three major reasons: (1) a lack of frequencies that calls for making use of the IMT 2000 band; (2) the industry-political failure of 2G that called for pro-active measures with the aim of strengthening the Japanese mobile communications industry; and (3) a need for international roaming. The 3G licenses were awarded to the three incumbents in a frictionless process that was finished in June 2000. The perfect match between demand for and supply of licenses is undoubtedly due to some tacit administrative control. NTT DoCoMo was the first operator to launch its FOMA 3G services based on W-CDMA. The commercial launch was delayed because of an immature network and lack of terminals. In October 2001, FOMA was commercially launched in high-population areas with moderate success. In the spring of 2002, KDDI launched 3G services based on cdma2000 1X, an upgrade of cdmaOne, having less expensive roll-out costs, a larger number of cheaper terminals, and roaming with cdmaOne. Accordingly KDDI’s services took off much more rapidly with more than 14 million subscribers compared to 4.5 million for NTT DoCoMo’s FOMA service (and 199,500 for Vodafone Japan’s WCDMA service launched in December 2002) (as of June 2004[3]).

3 Analysis – lessons for Europe In order to identify the important lessons for Europe to be learned from the Japanese

developments, we need to first establish if i-mode is a true success story from which something can be learned. This will be done in Section 3.1. In Section 3.2 conventional explanations will be challenged, and finally, in Section 3.3 the important lessons to be learned are outlined.

3.1 Is i-mode a success? For NTT DoCoMo, i-mode has become a profitable service and the rapid decline in average revenue per user (ARPU) has been retarded. In Spring 2004, i-mode data services generated, about e14 monthly, corresponding to 26 per cent of total revenues. Corresponding figures in Europe were in the range of e3-4, and about 16 per cent[4] (with large variation between different countries and operators). In Europe, these revenues come almost exclusively from SMS – short message services[5]. Thus, in terms of revenues i-mode is much more successful than European mobile internet offerings. In addition to generating revenues to operators, it provides users with much richer product and service offerings. On the official DoCoMo portal only, there are some 4,000 content sites, with another 74,000 unofficial ones. Of the firms present on the official sites 50 per cent are claimed to be profitable. For unofficial sites this figure is much lower, 10 per cent is an often quoted figure. All in all content generated revenues of e1 billion in 2002. Thus, i-mode has created a new fast growing industry of mobile internet content provision. More to it, terminals were provided with much higher functionality than European ones and a majority of the Japanese was actually using mobile internet services. No European operator or country is even close to matching these figures of mobile internet revenues, level of use, variety of services or quality of terminals. These advantages may prove to be more than temporary, and transfer to becoming sustainable first-mover advantages. For instance, it

Table II Five generations i-mode phones’ typical performance Feature

501i

502i

Series 503i

504i

505i

Launch Colours

Early 1999

December 1999

Early 2001

May 2002

B/W 1 (?) ,2.2 80 N/A N/A N N/A 9.6

256 4 2.2 80 300 2h N N/A 9.6

4,096 16 2.2 100 400 2h Y 88-210 9.6

65,536 40 2.2 110 400 2h Y 88-210 28.8

May 2003 262,144 (main) 65,536 (sub) 64 2.2 120 520 2 h 15 min Y N/A 28.8

Chords Screen size, inches Weight Stand-by time (h) Talk time JAVA capabilities Japanese characters on screen data rates Camera (M pixels)

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is not an unlikely scenario that Japanese terminal manufacturers, being capable of delivering technologically advanced mobile internet and 3G terminals, will increase their market shares substantially when such terminals will be demanded in Europe. However, it is also possible to learn from the Japanese experience, provided we learn the right lessons.

Japanese should be more prone to use mobile internet than, for instance, Europeans. Many observers have argued that the success of messaging and entertainment services is a result of Japanese culture. In fact, pretty much the same services (although more advanced) have been successful in Japan as in Europe – messaging, personalisation of mobile phones, etc. These observations suggest that such communication needs are universal, not phenomena specific to Japan. Moreover, although public transportation usage is high in Japan, according to Funk (2001) there are very small differences between i-mode usage in rural and urban areas. Since public transportation is sparsely used in rural areas, this would imply that such an explanation is inadequate. Some services may admittedly be specific to Japanese circumstances, but this is not the key observation. The similarities are probably more important. With this orientation on the factor of culture, it is easy to miss the important conclusions that can be drawn, and the lessons that can be learned regarding business models, services and strategies. Hence, the implication that only Japan will use mobile internet due to its culture is misleading, and likewise the implication that mobile internet success is based on a specific culture. If we are to address culture at all, the lesson from the Japanese case is that services need to be locally adapted. Services need to be profiled against the user preferences and user behaviour of a particular community, taking into account that communication needs are general.

3.2 Myths – the inadequacy of conventional explanations The i-mode success has received much attention and accompanying explanations, such as: . lower fixed line penetration; . socio-cultural differences such as commuting intensity and cultural factors; and . technological choices. At closer scrutiny these explanations seem less valid or at least incomplete, and we boldly disregard them as myths. 3.2.1 Myth one: low fixed internet penetration explains the i-mode success It has often been claimed that the i-mode success is due to underdeveloped fixed internet and low PC penetration in Japan. Such statements require, as a minimum, further evidence. At least two objections could be made. First, the fixed internet penetration in Japan (13.4 per cent penetration in 1998 according to ITU (2003)) has not been much lower than major European countries such as France (6.3 per cent in 1998) and Germany (9.9 per cent in 1998). More importantly perhaps, such an explanation suggests that the substitutive effects between fixed and mobile internet should be strong and complementary effects should be weak. Instead, there is a complex interplay of complementary, substitutive and neutral relations between the fixed and mobile networks. In fact, in i-mode, the most popular services (beside e-mail) have been mobile-specific ones (ring tones etc.), which are not substitutes for the fixed internet services. The implication for any actor should be to exploit complementarities with the fixed internet, for instance the services used there (such as e-mail). 3.2.2 Myth two: Japanese culture A second set of myths involves socio-cultural factors, such as commuting intensity, small housing, different communication patterns, readiness to adopt new technologies and even mentality including a higher propensity for entertainment services. It is difficult to assess in what way Japanese cultural, social, demographic or other factors have affected the success of mobile internet. There is no convincing evidence that the

3.2.3 Myth three: technological choices A third myth concerns the role of services vs the critical role of a certain standard or technology. It has been claimed that technological choices, e.g. cHTML as mark-up language, have been instrumental for the i-mode success (see, e.g. Natsuno, 2003). However, since the competing services J-Sky and EZweb have been almost as successful as i-mode, we may hypothesise that success factors can be found among similarities, and not among the differences, between these services. Since i-mode, J-Sky and EZweb are built on different network, browsing and mark-up language technologies, it may be concluded that differences between these technologies are not very important. The competing services have, however, chosen fairly similar solutions for providing services, terminals, billing customers, sharing revenues etc. Thus, the conclusions that these are important success factors are strengthened. Yet the differences between the competitors’ networks, mark-up languages, JAVA APIs and location-based

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solutions create incompatibility problems for content providers that want to choose a multioperator approach. Such incompatibility problems should be avoided in Europe. Another observation is that DoCoMo’s early packet-switching system seems to have had little impact. J-Phone’s success, in spite of having delivered services over a circuit-switched network most of the time, presents another technological anomaly since packet switching has often been claimed to be the key to the success of mobile internet.

platforms or enabling technologies. This has, in turn, two important implications: (1) the necessary generic complementary subsystems have to be in place and sufficiently functional in order for any services at all to be developed; and (2) application specific complementary sub-systems have to be developed.

3.3 Lessons 3.3.1 Lesson one: coordination needed A first set of lessons deals with DoCoMo’s dominance and coordination strategies. It could be speculated that in the emergence of new generic complex technical systems such as the mobile internet, i.e. systems that are dependent on a large number of complementary subsystems, there may be a coordination problem. Mobile internet, or more broadly and correctly mobile data communications, is an inherently generic technical system. Generic technical systems are characterised by providing a generic function (mobile data communications) with a potential for use in a wide range of applications. In that respect it resembles General Purpose Technologies (see Bresnahan and Trajtenberg, 1995), which play the role of “enabling technologies” opening up opportunities rather than offering complete solutions. They display large innovational complementarities, i.e. the productivity of research and development (R&D) in downstream sectors increases as a consequence of innovation in the generic technical system, in turn raising returns to invention in the generic technical system, creating opportunities for new applications, and so on. However, generic technical systems not only give opportunities, but also call for complementary developments in production and in developing applications. The wide dispersion of these technologies, in combination with time gaps and sequentiality, makes it difficult to coordinate innovation activities. The diffusion process is clearly affected by the availability and performance development of complementary subsystems (see, e.g. Rosenberg, 1976). These complementary subsystems may in turn be more or less generic. Some complementary sub-systems, such as a terminal may be necessary for any application, while others, such as application specific software have to be developed for each application. In between there are complementary subsystems that are common to a range of applications. These are often labeled

Starting with the generic complementary technical systems, for i-mode, these were all in place from the start of the service, including: . a packet-switched network; . a service gateway; . terminals supporting i-mode services (including micro-browsers and with standard screen size facilitating for content providers to develop content); . content development tools and support; . micro-payment system; . a simple fairly html-compatible mark-up language; and . a portal. This is in stark contrast to mobile internet offerings in Europe, where parts of the technical systems have been missing or ill-performing, notably when wireless application protocol (WAP) was launched Standards and coordination seem to be crucial in early stages in order to start the bandwagon rolling, i.e. to create positive feedbacks. It just may be a wiser strategy to coordinate delivery of fully functional solutions based on available technology rather than, as in the European case, uncoordinated delivery of non-fully functional system parts (WAP/GPRS etc.). According to these observations, European actors could start similar coordinated introductions based on 2.5G services. One reason for this happening in Japan, but not in Europe, was DoCoMo’s ability to coordinate the introduction. DoCoMo controlled the entire value chain. It dictated terminal design and launch schedules. To become official content providers, applicants have to undergo an extensive screening and evaluation process. It largely controlled the customer relationships. It gave large commissions to dealers, which led to low street prices for i-mode phones and opened up the consumer market, and as a consequence entertainment services flourished. Thus, while arguing that there is a need for coordination in Europe, we recognise at the same time the complexities of such an approach. Because of anti-competitive concerns the European innovation system cannot be controlled by a single actor. The window of opportunity may be closing for 2.5G because of uncoordinated

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launch delays and too much focus on 3G services. In addition, coordination in Europe is harder, with a more fragmented pattern of population, culture, language, supplier structure and operator structure. This fragmentation not only leads to more difficult coordination, but also makes it more difficult to achieve economies of scale. These circumstances put much higher pressures on cooperation in a number of areas such as standardising networks, platforms and other forms of mobile internet enablers. Although strong coordination seems to have been instrumental for mobile data service success, this achievement was not due to a premeditated policy or special regulatory measure for mobile communications. Instead, Japan has been rather late in liberalising telecommunications in comparison to other countries, despite the fact that it was first to launch a public cellular network (1979). The fact that Japan was a follower rather than a leader in regulatory policy for mobile communications has implications for other regions. Surprisingly, it can be argued that the success in Japan’s mobile internet market was founded on a policy failure. The success was founded on an unexpected side-effect of the failure of the Ministry of Posts and Telecommunications (MPT) to divest NTT in connection with the NTT Review in 1990. This side-effect was that while MPT failed to implement a full-scale divestiture of NTT, it was able to get an agreement that NTT would divest (partially) what were then called peripheral services, mainly NTT Data and NTT Mobile Communications. For NTT Mobile Communications, divested in 1992 and renamed into NTT DoCoMo in 1993, the separation from NTT headquarters had the important consequence of increased managerial freedom. The separation facilitated an experimental attitude, and innovation along several dimensions. The development of i-mode was critically influenced by experimentation, perhaps not possible under the traditional NTT management style. With this arm’s-length relationship, DoCoMo gained the benefit of managerial freedom, allowing an experimental attitude and innovation, while concurrently keeping its dominant market position and influence over standards and other actors (notably terminal manufacturers). This was a major prerequisite for the successful launch of i-mode. NTT DoCoMo’s ability to maintain and even strengthen its dominant position is a result of, e.g. first-mover advantages, extensive R&D and service development, and influence over standards and terminal manufacturers[6]. .

Thus, we would caution against a simplistic adoption of a regulatory or policy mind-set to find a solution for Europe. In this case, we find that unexpected side-effects of policy measures contributed to the success[7]. 3.3.2 Lesson two: innovative experimentation essential The second lesson to learn from the i-mode case is the power of innovative experimentation from multiple actors. As elaborated in lesson one, we would argue that the main managerial innovation for i-mode has been its business model in which third party content providers receive access to DoCoMo subscribers, enabled by a micropayment system. In this model, DoCoMo collects 9 per cent of the charging as a handling charge, a far lower amount than that typically charged by European mobile operators. With this charge, the official sites can make a reasonable business case for their own business. Note, though, that this charge is only levied on the official content providers; unofficial content providers charge endusers directly. However, the official sites were critical for creating mobile internet momentum, and these sites initially generated most traffic. The business model had several important features, one of which is its “non-monopolistic” nature. The monopolistic temptation of short-run profit maximisation needed to be tempered by a more long-run service growth orientation, as the DoCoMo revenue-sharing scheme conveyed, in contrast to what many European operators first considered. The i-mode concept has proven flexible enough to allow for extensive service experimentation, and a variety of complementary services have been developed by firms other than those which are established. DoCoMo provided economic incentives for content development (91 per cent of content charges were kept by content providers). It created a fertile ground of positive feedback throughout the innovation system. For instance, the initial success of entertainment services attracted new entertainment content providers, and further stimulated take-up of entertainment services, etc. A stepwise introduction of more sophisticated features (colour phones, JAVA, etc.) and business models further stimulated and strengthened these positive feedbacks. It could also be noted that prices were set low (for terminals and for content) and services were easy to sign up for, easy to start using and easy to use. This was especially so for the official sites in the beginning, implying that these factors are particularly important to consider in order to start positive feedback effects. When the packet service DoPA was released in 1997, it aimed at the business users (Funk, 2001). In the i-mode introduction, business users were at

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first considered as the main target group (Fransman, 2002b). Service experimentation possibilities soon led content providers away from the business segment – which was the original target segment – towards the consumer segment. The Japanese success is very much the success of activating the young consumer market segment. The relevant implication for Europe is then to provide opportunities for both the consumer and business segments (including vertical customised applications) to develop, and let the market decide, just as the Japanese market decided on the consumer segment after i-mode was launched and service experimentation had begun. For the business market less can be learned from i-mode. For instance, the business market in Europe may require seamless European services and servicespecific roaming (just as for voice), something DoCoMo has little experience of. Thus, while the Japanese experience suggests that creating momentum among lead-users is central, the implication is not necessarily that consumers should be the first lead-users. 3.3.3 Lesson three: dynamic competition essential The third lesson concerns the competition that drove DoCoMo to innovate in the mobile data service field. In the period leading up to mobile data services introductions, the Japanese mobile operators’ market had become more competitive with increasing pressure on voice communications prices. The decrease in margins affected all actors, but, due to its size, DoCoMo was probably least affected. Eventually the competitors merged into two main ones, KDDI and J-Phone. Then, it took a few years for these competitors to realise the potential of the merged operations, to cut costs etc., and to take advantage of being part of a larger international setting. KDDI was able to distinguish itself by using the cdmaOne and cdma2000 standard. J-Phone became part of the Vodafone group (J-phone has been renamed Vodafone Japan), a fact that provides opportunities for economies of scale, more effective service development and roaming, and bargaining power versus suppliers (of networks and terminals). As a result, although the number of competitors became fewer, rivalry in the Japanese market intensified. Thus, competition has provided the incentives for service innovation in order to retain and acquire subscribers, at the same time allowing the operators and content providers to generate profits. On the hand, DoCoMo’s early success in coordination came not only from its positive contributions, but also was strengthened by the relative weakness of the competitors. Without a strong actor as DoCoMo it is likely that necessary investments in mobile data enabling infrastructure would not have been made as early as they were in Japan.

4 Conclusions European actors and institutions have found it a cumbersome task to create successful mobile data markets. In contrast, Japan has in a relatively short time period moved into a world-leading position in mobile data services. What can be learned from the Japanese success case, and what can be transferred to a European setting? This paper argues that there must be a balanced and efficient mix of industry coordination, service experimentation, and dynamic competition in order to provide a foundation for mobile data success in Europe. The emergence of a new generic and complex technical system – such as the mobile internet – may suffer from coordination problems. Standards and coordination seem to be crucial in early stages in order to create the necessary momentum, i.e. to create positive feedbacks. It just may be a wiser strategy to coordinate delivery of fully functional solutions based on available technology rather than, as in the European case, uncoordinated delivery of non-fully functional system parts (WAP/GPRS etc.). However, the European innovation system cannot be controlled by a single actor. Coordination in Europe is more complex task, with a fragmented pattern of population, culture, language, supplier structure, and operator structure. This fragmentation not only leads to more difficult coordination, but also makes it more difficult to achieve economies of scale in service and content provision. These circumstances put much higher pressures on cooperation in a number of areas such as standardisation of networks, platforms and other forms of mobile internet enablers. So far, the European market seems to have been unable to coordinate this complex development. A “European DoCoMo” taking a de facto industrial policy role, is neither feasible nor desirable. The Japanese experience with i-mode suggests that the most critical success factors revolved around sufficient size for the dominant actor to take risky steps in getting the new market started, and on “non-monopolistic” revenue-sharing schemes for new mobile internet services. Indeed, the business model of NTT DoCoMo can be said to be the main managerial innovation for i-mode. Admittedly, there were also a number of service innovations, such as for entertainment and messaging, but similar ones have been contemplated by other mobile operators, even in the WAP context. The monopolistic temptation of short-run profit maximisation needed to be tempered by a more long-run service growth orientation, as the DoCoMo revenue-sharing scheme conveyed, in contrast to what many European operators first considered. There is

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certainly some similarity to critical decisions during the launch of 1G in successful European country markets, e.g. it was decided early in Sweden and the UK that the mobile operator should not own or sell handsets, but should let others supply this market, at the time also a “nonmonopolistic” decision. Japan, on the other hand, delayed its handset liberalisation until 1994, after which mobile growth took off (see, e.g. Lindmark, 2002). Moreover, the new service platform, enabled by i-mode, would not have been deemed credible by the market community without the size and dominance of NTT DoCoMo. The Japanese case suggests that fundamental success factors for i-mode have been the credibility, long-run strategies and size of NTT DoCoMo. Essentially NTT DoCoMo had an industrial policy role. Although Japan does appear to be successful in the extensive take-up of mobile services, caution should be exercised against simply trying to replicate the Japanese menu of service offerings. It will not be possible or desirable to repeat the Japanese path due to the wide differences in initial conditions. However, some elements, as creation of an infrastructure allowing experimental innovation, seem to be transferable. Simplicity also seems to be a keyword that should be emphasised in early phases. Our view is that operators should start with simple business models, simple charging, simple interfaces, and simple start-up of services. Sophistication can be added later on. As has been stressed above, one critical area where Europe can learn from the Japanese success story consists of the pricing and revenue-sharing models that Japanese operators have adopted, which have led to an innovative diversity of content provision that appeals to a wide range of users. In conclusion, a trade-off between competition and coordination must be found, which seems to have succeeded in Japan. Implicitly, this means that an overview of European regulatory policy instruments is needed. Today’s focus on competition as the solution for all problems needs to be counter-balanced by an explicit coordinative role for government. Examples could include improved conditions for roaming, creation of standards (e.g. for cross-border micro payments). The fragmented market structure in Europe, with national boundaries still constituting network border-lines, provides obstacles for cross-national service provision and effective roaming for micropayments-based services. The European market place, with its multitude of market players and license conditions, will need to be supported by increased policy and regulatory coordination in order to develop a similarly credible institutional framework as in Japan. At present there is no other actor than the European Commission, which is able to take the industrial policy role. For the

Commission to take an industrial policy role in this field, top-level political consensus needs to be reached about the future role of subsidiarity versus internal market considerations in this field. 4.1 Research implications It is safe to say that comparatively little socioeconomic analysis has been carried out to address the pan-European opportunities and challenges for 3G, 4G and beyond. There is a need for an extensive analysis of the whole European mobile situation in both an economic and a political context. Deep analyses of the consequences, for European competitiveness, of growth or failures in mobile should be carried out. There is a future research need to adopt a systems perspective on the European business landscape and policy options for mobile communications, and on future impacts. There is a need to look at the whole web of intertwined relationships between actors in the complex field of mobile development in Europe – not only market players, but also local and regional governments, and financial institutions. Local governments, for instance, have been seen to be playing an increasingly important role for the rollout of 3G, due to the administrative approval processes in site construction. As has been shown in this report, “secondary” sectors are also critical in the mobile web – such as financial institutions and regulation, both as enablers and as inhibitors of micro-payments in mobile commerce. Furthermore, future research should be closely related to the e-Europe agenda and action plan, which seeks to bring all Europeans into the information society by advancing the take-up of internet services. As part of that agenda, research should also address e-Europe objectives relating to inclusion and social cohesion. For instance, the diverse auction fees will have implications for pricing which in turn may affect universal coverage and access to 3G. Moreover, the diverse licensing conditions will have long-term effects on the uptake of 4G. Additionally, future research could address some possible impacts on sustainable development from mobile, based on uptake forecasts. (See Bohlin et al. (1999) for an early overview of sustainability and information society research.) Finally, this study has shown the value of comparative studies, building on experience from regions outside Europe. Obviously, the large research needs and opportunities that have been elaborated on require a detailed proposal and prioritisations, which are not the aim here.

Notes

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1 This paper is based on contributions to the EC/JRC/IPTS/ ESTO project “3GE: Prospects for the third generation

2

3 4 5

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mobile systems”. For more information on EC/JRC/IPTS/ ESTO and the complete 3GE report, see www.jrc.es. This paper is closely related to Bohlin et al. (2003), Lindmark and Bohlin (2003a, b) and Lindmark (2002). This part of the paper summarises a comprehensive overview of the Japanese mobile internet market conducted in the EC/JRC/IPTS/ESTO project “3GE: Prospects for the Third Generation Mobile Systems” (with data updates in spring 2004). That overview does, in turn, draw on a number of mainly secondary sources such as books on the subject (e.g. Funk, 2001), other qualitative analyses (e.g. Fransman, 2002a), overviews of the Japanese market, annual reports from NTT DoCoMo, Japan Telecom and KDDI (and DDI), statistics available at web sites, newsletters specialising in the Japanese market, press releases etc. http://www.tca.or.jp/eng/database/daisu/yymm/ 0406matu.html (accessed 26 July 2004). Figures for Europe are proxied by Vodafone Germany, Italy, and UK average. It could be noted that in North America, which lacked fully functioning and compatible SMS services, data revenues were much lower than in Europe (US$1 per month), corresponding to some 2 per cent or so. The research theme related to the NTT divestiture has been ongoing and reported in various papers, being based on interview series carried out in 1992, 1994, 1996, 1997 and 2002. See, e.g. Bohlin (1997, 1998). It should also be pointed out that success of i-mode referred to here, is the success in Japan. I-mode has been launched in a number of European countries as well, but with more disappointing results. The reasons for this relative failure centre around the weaker role played by DoCoMo in Europe, lowering its coordinative power and legitimacy, in turn resulting in poorer service and terminal offerings.

Bresnahan, T. and Trajtenberg, M. (1995), “General purpose technologies ‘engines of growth’?”, Journal of Econometrics, Vol. 65 No. 1, pp. 83-108. Fransman, M. (2002a), “The telecom boom and bust, 1996-2002: puzzles, paradoxes, and processing”, paper presented at the 14th Biennial Conference of the International Telecommunications Society, Seoul. Fransman, M. (2002b), Telecoms in the internet Age: From Boom to Bust to?, Oxford University Press, Oxford. Funk, J. (2001), The Mobile Internet: How Japan Dialed up and the West Disconnected, ISI Publications, Hong Kong. International Telecommunications Union (ITU) (2003), World Telecom International Database, ITU, Geneva. Lindmark, S. (2002), “Evolution of techno-economic systems – an investigation of the history of mobile data communications”, PhD thesis, Department of Industrial Management and Economics, Chalmers University of Technology, Go¨teborg. Lindmark, S. and Bohlin, E. (2003a), “What are the lessons from Japan’s mobile internet success story? Implications from a comparative study”, paper presented at the Second International Conference on Mobile Business “m.Business 2003”, Vienna, June 23-24. Lindmark, S. and Bohlin, E. (2003b), “The i-mode success story – towards a system explanation”, Communications & Strategies, 52, 4th quarter, Special Issue ICT Market Dynamics and Development Models in Asia. Natsuno, T. (2003), I-mode Strategy, John Wiley & Sons, Chichester. Noam, E.M. (2002), “The emerging cyclicality of the telecom industry”, paper presented at the 14th Biennial Conference of the International Telecommunications Society, Seoul. Northstream (2001), Lessons from I-mode II, Baskerville Strategic Research, London. Rosenberg, N. (1976), “Factors affecting the rate of diffusion”, in Rosenberg, N. (Ed.), Perspectives on Technology, Cambridge University Press, Cambridge, MA.

References Bohlin, E. (1997), “Restructuring Japan’s telecommunications: editorial”, Telecommunications Policy, Vol. 21 No. 2, Special Issue on Restructuring Japan’s Telecommunications, Bohlin, E. (Guest Ed.). Bohlin, E. (1998), “Digitization and strategic opportunities – on the roots to the NTT Divestiture Debate”, Keio Communications Review, No. 20. Bohlin, E., Frotschnig, A. and Pestel, R. (Eds) (1999), “Information society and sustainability”, IPTS Report, No. 32, special issue, pp. 4-45, available at: www.jrc.es Bohlin, E., Bjo¨rkdahl, J., Lindmark, S. and Burgelman, J.-C. (2003), “Strategies for making mobile communications work for Europe: implications from a comparative study”, paper presented at the EuroCPR 2003, Barcelona, 23-25 March.

Further reading Bohlin, E. (2001), “The European 3G paradox”, info, Vol. 3 No. 6, pp. 451-7. Srivastava, L. and Kodate, A. (2004), “Shaping the future mobile information society: the case of Japan”, paper presented at the ITU/MIC Workshop on Shaping the Future Mobile Information Society, Seoul, 4-5 March 2004, available at: www.itu.int/osg/spu/ni/futuremobile/general/casestudies/ JapancaseLS1.pdf Yazaki, H., Hirokodama, I., Sasahara, Y., Tsutsumi, M. and Chiba, K. (2001), “Overview of advanced i-mode mobile phones”, NTT DoCoMo Technical Journal, Vol. 3 No. 1, June, pp. 9-14.

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I. Introduction

Prospects beyond 3G Carlos Rodrı´guez Casal Jean Claude Burgelman and Erik Bohlin

The authors Carlos Rodrı´guez Casal and Jean Claude Burgelman are both based at the Institute for Prospective Technological Studies, European Commission, DG-JRC, Seville, Spain. Erik Bohlin is Head of Department, Department of Innovation Engineering Management, Chalmers University of Technology, Gothenburg, Sweden.

Keywords Mobile communication systems, Europe, Innovation, Design and development

Abstract 3G in Europe faces not only the challenge of recouping the huge cost of licenses, but also the possibility of being overtaken by the emerging new broadband and wireless technologies. These may coexist or even compete with 3G. IPTS carried out two studies that looked at the milestones for future mobile communications systems, taking into account both the short- and the long-term prospects. The first study addressed success factors for 3G networks, gathering insights from successful experience in other regions of the world, notably Japan. The second covered the influence that alternative technologies might have for the diffusion and uptake of 3G. This paper concludes that, despite competition, universal mobile telecommunications system will lead the future of mobile communications in Europe. It presents the final recommendation to stimulate 3G commercialisation by consolidating 3G as a solid platform for 4G development, integrating co-existing applications and continuously incorporating emerging standards.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-6697.htm

info Volume 6 · Number 6 · 2004 · pp. 359-362 q Emerald Group Publishing Limited · ISSN 1463-6697 DOI 10.1108/14636690410568632

Advanced wireless platforms, such as 3G, are an essential building block for achieving the goals set by the Lisbon European Council in March 2000 “to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. However the great expectations associated with the introduction of a new mobile communications generation contrast significantly with the difficulties in making 3G a commercial reality in Europe. In order to asses opportunities for wireless communications in Europe, the Institute for Prospective Technological Studies (IPTS) has carried out two studies through its scientific network, the European Science and Technology Observatory (ESTO): Prospects for the Third Generation Mobile Systems (Bohlin et al., 2003b) and The Future of Mobile Technologies in EU, Assessing 4G Developments (Bohlin et al., 2003a). These studies aimed to provide well-researched reports on the current trends and strategic positioning of the stakeholders driving the creation of a mobile Europe. The conclusions are presented here with other findings on leading technical and social trends in mobile communications.

II. Current trends A. 3G 3G is a cellular system that follows on from the 2G mobile communication system, extending its capabilities through a new communication infrastructure. The name “3G” implies a new generation. However the gap between 2G and 3G is not as marked as it was between 1G and 2G with the shift from analogue to digital. This smaller gap between 2G and 3G, or between global system mobile (GSM) and universal mobile telecommunications system (UMTS), is further diminished by the variety of 2.5 generation systems building on 2G infrastructures. European 3G businesses are concerned by the apparent “vicious circle” created by doubts about demand which arise from an unclear picture of the kind of content (services and applications) that customers want. The many actors involved in the planned roll-out of 3G networks and services also face challenges that are the result of a complex interaction of influencing factors, not all of which are directly related to the mobile sector itself. One The views expressed in this paper are purely those of the authors and do not necessarily reflect those of the European Commission.

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of these is the downgrading of credit ratings in the sector coupled with a significant erosion of the market capitalisation of both operators and manufacturers. Additionally, the technology is not entirely ready to allow full compatibility; and there are wide differences in terms of 3G licensing conditions, the outcomes of which are now being discussed. The IPTS study shows that operators should not try at this point to decide which services are the “killer applications” and then offer these in “closed gardens”. Neither should they just deliver a “data pipe” and let the market decide. However, the adaptation of business structures to a new value chain, establishing pricing, revenue-sharing and micro-payment models could lead to an innovative diversity of content provision that appeals to a wide range of users. This would develop new patterns of consumer behaviour and provide opportunities for both the consumer and business segments. The roll-out of high-speed internet connections, using broadband technologies, was also highlighted as a top priority in the e-Europe 2005 Action plan launched at the Seville European Council in June 2002 and endorsed by the Council of Ministers in the eEurope Resolution of January 2003 (European Commission, 2002). The Commission presented its new strategy to promote the take-off of high speed internet and third generation mobile phones in a Commission Communication on 3 February (European Commission, 2004). It is based on the fact that the information and communication technologies (ICT) sector is experiencing growth again and the development of new services is now needed to introduce financial resources into the sector. The next steps in the process should be to: . stimulate user demand by increasing competition to reduce prices; . achieve geographical coverage, bridging the digital-divide between regions that are underserved and those that have high coverage; and . ensure a full and effective implementation of the new regulatory framework for electronic communications by all member states.

rights – could be powerful drivers for the roll-out of 3G.

In order to boost the 3G sector, the Commission is now looking for new services to move from voice exchange to data exchange over mobile handsets. In particular, the transmission of images and sound from sports events via mobile telephony handsets could give 3G an essential advantage over previous generation infrastructures. The Commission has therefore launched a sector inquiry into the sale of sports rights to internet and 3G mobile operators with a view to having as clear and wide a view as possible of the availability of audiovisual sports rights in the European Union (EU, 2004). Sports rights – particularly football

B. New services Caller location systems in mobile communication networks are expected to become widespread in the coming years and support Galileo’s successful integration. The huge commercial prospects for location-based services (LBS) are expected to drive the market forward. It is expected that this market will develop rapidly due to favourable returns on related investment and competitive incentives. The industry is hoping that different services based on location information will be killer applications for 3G. These services could range from those that support health, transport or entertainment to those that support data-mining to obtain information for non-solicited communications, as described in Rodrı´guez Casal and Cabrera (2004) and Rodrı´guez Casal (2003). The ability to determine where a person is at any particular time would be of considerable use, for instance to the emergency services, as it could enable them to reach the injured or sick more rapidly. In the context of the ageing European society, the use of location-based e-health services is set to become an important part of healthcare delivery. Positioning technologies could make it possible to track vulnerable individuals in real time to ensure their safety. They could also remind people suffering from Alzheimer’s disease to do the right things in the right places and would generally enhance the overall quality of life of the ageing population, by facilitating daily activities, travel, social networking, leisure and safety. The vast majority of uses for location-based mobile technologies are likely to be commercial, involving the provision of specific services adapted to individual profiles and their location. These services will inevitably lead to an increase in the number of actors gathering, having access to, and making use of citizens’ personal and location information. Private companies are interested in data collection, the commercial value of which is even higher when related to other databases. The resulting data can be used for direct marketing. Business to consumer (B2C), is just one example where this kind of powerful information could be aggregated by a carrier or a service provider for marketing purposes. Perhaps it is too early to say how information from different fields such as location, telecommunications, banking, health, insurance, entertainment and shopping may be merged. Out of context, it may seem that the threat of big brother is exaggerated – nonetheless, the possibilities are there. Concerns about health, or the economic advantages to be had in exchange for personal data, or the fear of terrorist attacks may

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lead people to exchange their privacy for a feeling of security. In these circumstances, the adoption of the right code of conduct is required, rather than further regulation. This would boost the take-up of location services and avoid delays in the deployment of new technologies and services at the heart of the FP6 programme, within the AmI, Ambient Intelligence paradigm (European Commission, n.d., ISTAG, 2001, 2003). As a result of the integration of information and communication services, applications for the remote and automated control of the environment have proliferated. For example, lights can be switched on and off automatically, calls forwarded from one room to another, and temperatures maintained according to user preference. Other daily tasks such as checking which yoghurts in the fridge are past their “sell by” date and ordering foods that have run out, can also be automated. These applications fit within the just mentioned concept of AmI (still in its infancy). This embraces ubiquitous computing, ubiquitous communication and intelligent user-friendly interfaces, providing and enhancing the users’ context. “Context aware systems” sense and remember information about the person and the situation and simplify the automation process by gathering and interpreting this information. Many aspects of the physical and conceptual environment can be included in the notion of context. Even though they are difficult to identify and measure, and may vary a lot during use, it is common to include location, time, history, expected reaction, preferences, or available personal information. Services using location information are usually known as “location aware services” (Kaasinen, 2003). They are LBS enriched with additional information. They are particularly useful in the emergency services, in unfamiliar environments, when specific services are needed such as information regarding accessibility for the disabled, and in new forms of entertainment (Intille et al., 2002; Ljungstrand, 2001).

appears that these technologies will not substantially change the 3G landscape. The most significant emerging technology is WLAN, a threat to 3G that could also make the traditional view of 4G development irrelevant. However, 3G’s advantages over WLAN in areas like QoS, coverage and security are such that WLAN could only prove to be a substitute for 3G in two contexts: supporting fixed operators providing mobile access and differentiating mobile operators. The business possibilities of WLAN are limited to these two services due to their security problems, dependence on the incumbent network operators for the backbone network, limited coverage, high demands on battery power, the different ownership of hotspots and the potential congestion of WLAN access points. Other emerging technologies and standards should not be ignored. On the contrary, UMTS integration should be the priority in the coming years, encouraging compatibility of other standards with UMTS, promoting its enhancement and ensuring the removal of any barriers to its adoption. It should include provisions for micro-payments, spectrum regulation harmonisation and interconnection issues, which would allow investments in 3G infrastructure to be recuperated without missing the opportunities stemming from technological innovation in other areas. From a regional point of view, European actors need to take measures to compensate for the firstmover advantages obtained by Japan. When Japan successfully developed a 2.5G mobile market, it cultivated the whole innovation system (in terms of usage, operating networks, terminal supply, content development, etc.). Europe needs to create a dynamic and sophisticated market for advanced mobile data and voice services based on 3G technologies, building up a critical mass of users demanding advanced mobile data services. European operators should also exploit their existing strength – i.e. the customer relationship in terms of access provisioning, billing and branding, which will allow them to act as a trusted point of payment. In Asia several countries are aiming for a leading role in 4G and Europe runs the risks of being a late starter in the 4G race. Mobile telecommunications equipment can be built cheaply in Asia, and this could cause Europe to fall behind in the production and deployment of mobile communications systems.

III. Beyond 3G Owing to delays in rollout, 3G runs the risk of being bypassed by alternative technologies. New broadband wireless technologies that could coexist with 3G or even compete with 3G are emerging in the market. Technologies such as WLAN, Bluetooth, Home-RF, UltraWide Band could interact, either among each other or with GSM and evolved GSM. IPTS has carried out a study analysing emerging technologies and their business models and it

IV. Conclusions Although 3G in Europe is not “looking good” at the moment, this should not discourage providers

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and operators from capitalising on the extant European strengths. After all, Europe is well on the way in the big shift to mobile technology, and the accession countries also reflect this encouraging trend. This paper stresses the importance of developing a critical mass of users and services for mobile data communications. Examples of services that could lead the way in the coming years are location services, eHealth, data mining and AmI in everyday life. These applications could easily become drivers for the roll-out of 3G. Looking ahead, the conclusion so far is that there are no business models for substitutes to cellular technology (considering technical possibilities, organisation and service values, as well as financial issues). Therefore the main recommendation is to stimulate 3G commercialisation so that it can evolve towards 4G, consolidating 3G as a backhaul infrastructure supporting a multitude of co-existing applications, and continuously incorporating emerging standards and technologies.

Generation Mobile Systems, JRC-IPTS ESTO-Report, JRC-IPTS ESTO, Seville, available at: http://fiste.jrc.es EU (2004), Commission Launches Sector Inquiry Into The Sale of Sports Rights to Internet and 3G Mobile Operators, EU Institutions Press Release IP704/134, European Commission Brussels, 30 January. European Commission (2002), eEurope 2005: An Information Society for All, COM 263, European Commission, Brussels, 28 May. European Commission (2004), Connecting Europe at High Speed: Recent Developments in the Sector of Electronic Communications, COM 61, European Commission, Brussels, 3 February. European Commission (n.d.), “EU sixth framework programme, 2002-2006”, European Commission Brussels, available at: http://europa.eu.int/comm/research/fp6/index_en.html Intille, S., Larson, K. and Kukla, C. (2002), Just-in-time ContextSensitive Questioning for Preventative Health Care, American Association for Artificial Intelligence, Cambridge, MA, available at: http://web.media.mit.edu/ , intille/ ISTAG (2001), “Scenarios for Ambient Intelligence in 2010”, available at: www.cordis.lu/ist/istag.htm ISTAG (2003), “IST research content”, ISTAG in FP6, Interim Report Working Group 1, available at: ftp://ftp.cordis.lu/ pub/ist/docs/istag-wg1-final_en.pdf Kaasinen, E. (2003), “User needs for location-aware mobile services”, Personal and Ubiquitous Computing, Vol. 7 No. 1, pp. 70-9. Ljungstrand, P. (2001), “Context awareness and mobile phones”, Personal and Ubiquitous Computing, Vol. 5 No. 1, pp. 58-61. Rodrı´guez Casal, C. (2003), “Location and personal information for direct marketing: third generation killer application”, info, Vol. 5 No. 2, pp. 45-50. Rodrı´guez Casal, C. and Cabrera, M. (2004), “Location-based healthcare services”, IPTS Report, February, available at: www.jrc.es/home/report/report_main.html

References Bohlin, E., Lindmark, S., Bjo¨rkdahl, J., Weber, A., Wingert, B. and Ballon, P. (2003a), The Future of Mobile Technologies in EU, Assessing 4G Developments, JRC-IPTS ESTO-Report, available at: http://fiste.jrc.es, JRC-IPTS ESTO, Seville. Bohlin, E., Bjo¨rkdahl, J., Lindmark, S., Dunnewijk, T., Hmimda, N., Hulte´n, S. and Tang, P. (2003b), Prospects for the Third

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Scenarios and business models for 4G in Europe Pieter Ballon

The author Pieter Ballon is Senior Consultant, TNO Strategy Technology and Policy, Delft, The Netherlands.

Keywords Mobile communication systems, Europe, Business development

Abstract This paper investigates the main trends and uncertainties that will define fourth generation mobile systems and services (4G) in Europe. It outlines two divergent visions on 4G: the so-called “immediate” 4G vision, consisting of wireless local area networks (WLANs) combined with other wireless access technologies, competing with 3G in the short term, and the so-called “linear” 4G vision, in which the 3G standard is not replaced until the end of its life cycle by an ultra-high speed broadband wireless network. Which of these visions will materialise, and what this means for the competitiveness of the main 4G stakeholders in Europe, will be to a large extent determined by which business models are feasible for 4G.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-6697.htm

info Volume 6 · Number 6 · 2004 · pp. 363-382 q Emerald Group Publishing Limited · ISSN 1463-6697 DOI 10.1108/14636690410568641

In this paper, a business model is defined (following Hawkins (2003)) as a description of how a company or a set of companies intend to create and capture value with a product or service by linking new technological environments to business strategies. Some of the main uncertainties related to 4G in Europe concern potentially viable business models which exist for both the “immediate” and the “linear” 4G vision, which stakeholders may be expected to play a dominant role in these models, and the timeframe of 4G developments. This paper addresses these uncertainties in three stages: (1) The first stage is to analyse current and emerging third generation (3G) and wireless local area network (WLAN) offerings in Europe in terms of the main actors and markets concerned, the service portfolio, the business roles involved and the resulting business models. This results in a set of scenarios outlining the potential influence of WLAN on 3G, and how this relates to the “immediate” 4G vision. (2) The second stage is to present an overview of different and competing long-term visions and strategies regarding 4G of the main stakeholders in Europe and other regions. This results in a set of scenarios for the “linear” 4G vision. (3) The third stage is to assess the relative position of Europe with respect to the USA and Asia for both the “immediate” and “linear” scenarios.

1. Current and emerging business models for mobile services 1.1. 3G mobile networks Based on the successful, Europe-led, standardisation cycle of GSM, the This paper is based on the author’s contribution to the ESTO research project “The Future of Mobile Technologies in EU: Assessing 4G Developments” for the European Commission – Joint Research Centre/IPTS (to be published as Bohlin et al., forthcoming). The author would like to thank Silvain De Munck and Richard Hawkins (TNOSTB) for their assistance and comments, and also Michel Berne (INT) and Simon Forge (SCF Associates) for commenting on an earlier version. Also, acknowledgements go to the project partners: Erik Bohlin, Sven Lindmark and Joakim Bjo¨rkdahl (Chalmers University of Technology), Arnd Weber and Bernd Wingert (ITAS), Jean-Claude Burgelman and Carlos Rodriguez (IPTS). This paper reflects the author’s views, and not necessarily those of the European Commission.

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telecommunications world has taken to planning an interval of approximately ten years between each new generation of mobile systems. Following this timeframe, universal mobile telecommunication systems (UMTS) systems and services were supposed to come on the market by 2002/2003. They were supposed to mark the transition from the voice-centric 2G to the datacentric 3G world. Meanwhile, GPRS, as an upgrade from GSM, and subsequently labelled 2.5G, offered the first real market experience with mobile data services, at least in Europe. However, the “mobile internet” concept based on the wireless application protocol (WAP) largely failed. In contrast, the messaging service SMS proved to be a success. Following the success of i-mode services in Japan, a new generation of mobile data services in Europe (exemplified by the i-mode and Vodafone Live services) does appear to be able to raise ARPU, but only to a limited extent. In any case, growing doubts over the market potential of mobile data and mobile multimedia have depressed the expectations for 3G. Major problems associated with 3G in Europe are (see, e.g. Wallage, 2003): . Deployment is stalling because of the changed investment climate due to high license costs and high infrastructure costs. . 2.5G seems to be adequate for mobile services at the moment. There are still doubts if there is a mass market for mobile multimedia. . Latency is too high for voice over IP; data speeds are, at least initially, less than predicted. . Vendors still struggle with basic problems such as interoperability, availability of devices, network performance and reliability. . Battery life of terminals is a bottleneck.

(December 2002) was J-Phone (owned by the Vodafone Group), which claimed 65,800 subscribers by July 2003. Also, South Korean SK Telekom and Japanese KDDI have started offering 2.5G/3G services based on standards belonging to the competing CDMA family. The first introduction of 3G in Europe was in Italy. Hong Kong-based company Hutchison Whampoa first introduced 3G services through its subsidiary “3” in Italy and the UK. By March 2003, the company reported 50,000 subscribers in Italy and 10,000 subscribers in the UK. By June 2003, the company had approximately 520,000 3G subscribers world wide (i.e. in Italy, Austria, Sweden, UK and Australia). At the end of August 2003, the number of subscribers had risen to 155,000 in the UK, and 300,000 in Italy. In February 2004, Vodafone launched a limited 3G data service in Germany, The Netherlands, Sweden and the UK. Meanwhile, Telefonica, Telestet and T-Mobile have also launched 3G services in Spain, Greece and Austria respectively. The geographical coverage of the 3G service offerings is still often quite restricted. A number of other European mobile operators have announced the launch of 3G before the end of 2004. These include T-Mobile UK and T-Mobile Germany, TIM, TeliaSonera Finland and TeliaSonera Sweden, O2 Germany and O2 UK, E-Plus, Orange France and KPN Mobile. However, it is still uncertain what date these companies are aiming for exactly, and to which extent services and networks will be available.

As a result of these problems, a number of major European mobile operators have already written off the cost of their 3G licenses. The massive rollout of 3G has been delayed, and the linear, phased approach to new mobile generations seems to be under pressure. However, for the time being, 3G deployment is still announced to go forward, even though launch dates have been pushed back considerably. The following paragraphs assess the influence of current developments on potential business models for 3G in Europe. Actors and markets In Europe, 2.5G systems and services are widely in operation. Meanwhile, Japan has taken the lead world wide in the introduction of 3G. NTT DoCoMo introduced commercial 3G services in Japan in October 2001 and had over 1 million subscribers by October 2003. The second operator to employ 3G services based on the WCDMA standard (i.e. part of the GSM-family) in Japan

Services In Japan, multimedia services offered with 3G technology were already accessible in 2G on handsets equipped with large colour screens and built-in digital cameras that can take photographs or videos (notably with the sha-mail and moviemail services). Mobile subscribers there can download screensavers and polyphonic ringtones. DoCoMo’s FOMA services do not presently provide additional generic innovations besides bitrates and video telephony. It appears that the dissemination and adoption of these services has been gradual, and not marked a break with existing services. In the European Union (EU), the situation has been somewhat different (see also Manero, 2003). 3G services were introduced in the UK and Italy as bundles of a wide range of services, with considerable emphasis on video. Because of disappointing take-up, the operator cut its rates considerably, particularly for voice calls, and was then accused by its rivals of having instigated an aggressive price war. This latter strategy is in line with the argument (see, e.g. Odlyzko, 2001) that the investments being made in 3G may not be

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necessary, as 2.5G would have been sufficient to relieve network congestion, but that, once made, they will provide much greater voice capacity and thus an incentive to charge substantially lower rates for voice calls. As the intensity of usage of mobile phones is still way below the intensity of fixed phone usage, there seems to be ample room for stimulating a quantum change in customer behaviour. Other features beside video clips, video messaging and cheap voice calls, which have been emphasised as part of the 3G service portfolio are information services, gaming, and the simultaneous use of voice and data. Also, a number of applications tailored specifically to the business market are envisaged, such as high speed access to company networks (e.g. intranet, sales and service information). For instance, the recent Vodafone 3G launches are targeted at corporate users, offering 3G data cards for laptop PC users. In general, however, such applications are emphasised less, because of the higher requirements posed by the corporate market, and the identification, since a few years, of the youth market as the main driver of innovation in the mobile market. Of course, the above observations are only based on a limited amount of evidence as they currently reflect only a few operators’ strategies. However, they already provide a number of indications as to the nature of 3G business models and service offerings that may be expected. Next to video applications as an attractive novelty, 3G will likely be just as much about relieving congestion, so as to be able to support and/or combine better existing applications and services, and offer cheap mobile voice calls. In terms of the value proposition, a divergence is apparent between positioning 3G as a complement, or rather as a substitute for 2.5G. The demand for mobile broadband services seems to be one of the main factors influencing the eventual outcome of these divergent strategies. If a strong uptake of mobile broadband services (such as video services) is expected or experienced, 3G will be more likely to be positioned as complementary to 2.5G. If this uptake is not expected or perceived to be strong, 3G will be more likely to be positioned as a substitute of 2.5G, e.g. offering cheaper voice calls.

comparison of mobile business models on the value network level is still lacking. This constitutes an important challenge for any research into current and future wireless business models. The most striking difference between the 2.5G/3G value network and the traditional mobile value chain is that the latter is characterised by linear sequential dependencies, while the former is organised in the form of parallel, but interlinked, tracks of different chains and systems. The Yankee Group (2000) describes a mobile value network existing of five major value chains. They refer to: (1) Network transport. Network operators have traditionally integrated the whole network operating value chain, consisting of spectrum brokerage, mobile network transport, and mobile service provisioning. They are often labelled as gatekeepers, both in terms of customer ownership and in terms of ownership of limited resources such as spectrum and operating licenses. With the subdivision of telecom groups into fixed and wireless operators, and the advent of so-called mobile virtual network operators (MVNOs), some fragmentation of this value chain can be expected. (2) Applications operation. The application environment includes application developers, systems integrators, and applications operators. Companies that bundle these activities are also labelled wireless application service providers (WASPs). WASPs may develop and host applications for end-users, but they may also concentrate on providing solutions for mobile network operators. This means that there are strong links with middleware/platform providers (see below). (3) Content provisioning. This value chain consists of content providers, content aggregators and portals. Portals also serve as wireless internet service providers (WISPs), as they become the gateway to internet content. (4) Payment processing. Traditionally, network operators have had the only billing relationship with the client. With the possible advent of mobile commerce, requiring a number of mobile financial services, other parties, such as banks, specialised billing companies, and mobile commerce platform vendors, have opportunities to get involved in this activity. (5) Providing device solutions. Handset vendors are a well-established part of the mobile value system. As they provide hardware as well as software solutions, they not only have access to the user because of the direct buying relationship, but they can also preset the operating and browser systems running on the handsets to their own advantage.

Roles As the success of Japanese i-mode services has been attributed largely to i-mode’s supposedly superior business model, the particularities of this model and the roles constituting the i-mode value network have been well documented (see, e.g. Bohlin et al., 2003). However, as far as the whole field of mobile services is concerned, a systematic taxonomy and

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In addition, there are two “enabling” value chains involved: (1) Network equipment provisioning. Companies providing network equipment are, e.g. Ericsson, Nokia, Motorola, Alcatel, Nortel. Traditionally, infrastructure vendors provided a relatively standardised product. However, this is changing as new applications and middleware (see (2) below) are being developed by these companies. (2) Middleware/platform provisioning. This is becoming an ever more important part of the wireless value system. Examples are WAP gateways, SMS gateways, mobile portal platforms, mobile commerce platforms, and other applications platforms.

the point of enquiry for service requests and problems, typically also incorporating the billing and collections provider role) to the customer. These business models are labelled as follows: . Network operator centric service provider. In this model, the customer has a direct relationship with the network operator. The network operator sets the prices of the services and handles the payments. Content is normally acquired wholesale from content providers or is “home-made” by the operator itself. The network operator effectively bundles the content aggregator role. Services are in many cases offered as bundled packages as part of subscriptions. Network operators will use this model to increase ARPU and to retain their customers. . Content aggregator/m-portal centric service provider. This model is not limited to providing physical access to services through a mobile portal, but rather includes a range of value added services. Added value that might be offered on top of access and transport services could include authentication, security, simplicity and payment aggregation. In this model, the customer has an agreement with the content aggregator, but may still also have a relationship with the network operator. Content charges and access charges might thus be separated. . Content provider centric service provider. This model is similar to the content aggregator model. The difference is that the content provider has a considerable portfolio of its own and wants to align itself with a network operator, and thus take up the content aggregator role. The customer may have a relationship with many content providers in this model. The diversity of service offerings is likely to be very high, while the number of transactions per buyer-seller combination is probably rather low.

A lot of speculation has been put forward about the precise configuration of these interdependent chains in the 3G wireless value network. In general, it can be argued that business models for mobile services have traditionally been characterised by an important dependency on the underlying technological infrastructure, resulting in a rather closed model with a central “gatekeeping” role for the mobile network operator. Recent research (Ballon et al., 2002; Fransman, 2002; Wehn de Montalvo et al., 2002) shows that this constellation is, in general terms, still valid with the advent of new services over 2.5G/3G systems, although there are a number of profound underlying changes which are becoming visible: . The increased centrality of handset and network vendors in the core value network, even more so as they are providing more and more of the platform and middleware functionality. . The billing relationship with the customer is still largely held by the mobile operator, although it is no longer restricted to this role. . There is no well-defined content provisioning model yet, with the i-mode model and the messaging model being the most successful ones at this stage. . There is a large and growing gap between the high R&D expenditure of handset and network manufacturers and the continuously decreasing R&D expenditures of network operators. . There is increased attention to the active role of users in the process of value creation.

Business models The UMTS Forum (2002) has put forward three potential generic business models for 3G. These business models are differentiated according to which role acts as the main service provider (i.e.

The business model typology described by the UMTS Forum effectively points at the dilemma of so-called walled garden versus open models, which has occupied a central role in the debate over mobile internet business models since its very beginning. However, it can be argued that this typology is biased towards third party content services with the neglect of peer-to-peer services, and that it focuses too much on the operatorcontent provider dichotomy, thereby neglecting the increasingly decisive role of both handset vendors and platform providers, two “enabling” roles that, as was described above, have moved into the core of the mobile value network. Therefore, this paper adopts another typology of potential 3G business models, which does take

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into account these decisive shifts. It distinguishes three typical “approaches” or models to new mobile services, service architectures, and network concepts, depending on the prominence of specific roles within the value network, functional characteristics, and dominant application types (apart from voice telephony). Adapting from Tee (2003), these may be labelled service-centric models, protocol-centric models and platformcentric models: . Service-centric models. These models are driven by mobile operators, following the example of the Japanese i-mode service. The dominant, or at least most characteristic application type is third party content, provided by subsidiaries or partners of the mobile operator, or by independent content providers adapting their content to the operator’s platform. In these models, the operator acts as a co-ordinator in terms of the standardisation of service design, protocols and billing models. The operator also plays a defining role in the branding of the service package. This goes contrary to the European tradition of vendors being able to innovate around a number of voice and open standard protocols, and to the tradition of branding of handsets, rather than of services, which has prevailed in the EU. Recently, the most notable examples of service-based models in the EU have been i-mode (Telefonica, E-plus, KPN), Vodafone’s Live services and T-zones (T-Mobile). Vendors have been clearly reticent to support these services, as can be shown from the initial refusal of Nokia to build handsets supporting i-mode. Vodafone, having a larger scale on the EU market, has found it easier to convince handset makers to support Vodafone Live specifications. This has in turn led T-Mobile, TIM and Telefonica to bundle a number of their handset activities as a way to increase their bargaining power visa`-vis the vendors. . Protocol-centric models. These models are driven by mobile phone manufacturers. They are based on more or less open protocols such as WAP, SMS and MMS, which are in principle agnostic of operators, but may differ slightly between handset vendors. The dominant application type in these models is messaging (SMS, MMS). Since Vodafone Live and increasingly also i-mode supports MMS, it may seem as if these models have converged. Still, MMS is partly complementary, but also partly in competition with the service-based models, as it may form in itself an alternative to many i-mode and Live functionality. It is publicised as a peer-to-

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peer medium rather than a content driven medium such as the service-based models. But of course it can be used for multimedia versions of today’s SMS third party content services. It has no portal structure, so users must know the address of these third party content providers, as is the case with SMS third party content services. Finally, it is branded as a feature of phones, rather than of operator’s networks. The Open Mobile Alliance (OMA), to which the crucial player Nokia has pledged its allegiance, is currently attempting to push forward MMS and to enlarge the scope of open standards such as MMS. Platform-centric models. These models are driven by platform providers such as Microsoft and the Symbian group. They are based on a new generation of mobile handsets that run on powerful operating systems which have the ability to provide strong links with the fixed internet, intranet and extranet. The most characteristic application types in these models are mobile office applications. The O2 XDA and the Orange SPV Smartphone, both running on Microsoft operating systems, have initiated this approach. As it risks reducing device manufacturers to the role of white branded hardware producers, selling an increasingly commoditised product, an alliance of mobile handset manufacturers has teamed up under the name of Symbian to counter this strategy. With the goal of creating a joint, open mobile platform, the Symbian alliance was set up and headed up by Nokia as early as 1998, when it became clear that Microsoft was increasingly targeting mobile devices with its OS Pocket PC. In 2002, the first open Symbian platform was released, which is the Series 60 developed by Nokia. This has been licensed to most major handset makers. Its link with the manufacturers also ensures that the Symbian software is compatible with telecommunications operators’ back-end equipment. Also, the Symbian Series allows customisation so that each vendor’s cell phone is unique. The use of wireless Java (J2ME) on top of the operating system creates the possibility to change the upper layers of the platform substantially. Still, Symbian is not undisputed because of its strong Nokia ties. For instance, Motorola has announced that it will equip 80 per cent of its handsets with the license-free Linux operating system. This is motivated by the expectation that as prices of colour screens go down, the operating system will account for a major portion of the cost of a phone. As of

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late, the Symbian coalition seems to be crumbling further, as both Samsung and Motorola have announced the release of a Microsoft-powered phone by the end of 2003. Moreover, mobile operator Vodafone has announced that it will work closely with Microsoft in the area of its Office applications and mobile web services standards, but that it has no plans at present to use the MS wireless operating system. While protocol-centric models dominate for the time being, the competition between these models is still open and is not expected to be settled within a short timeframe. In the short term, the protocolcentric, and to a lesser extent the service-centric models, are expected to remain the most important models for 3G on the European market. Recent market forecasts on smartphones suggest that platform-centric models are not expected to gain any significant market share in the short-tomedium term. This means that 3G innovation will most likely be driven by “traditional” mobile (cellular) players. The transition from 2G to 2.5G and to 3G will be marked by evolutionary change in business models, but also by potentially disruptive developments caused by technological, strategic and demand factors. The uptake of WLAN might be one of those disruptive phenomena. 1.2. WLAN WLAN has emerged as a family of standards from the IT- and internet-community. Based on IEEE standards (i.e. IEEE 802.11), it operates in unlicensed spectrum. As Lehr and McKnight (2002) point out, while 3G offers a verticallyintegrated, top-down, service-provider approach to delivering wireless internet access, WLAN offers, at least potentially, an end-user centric, decentralised approach to service provisioning. WLAN offers wireless access characterised by high data rates at low cost. This is possible because the infrastructure cost of WLAN is only a small percentage of the cost of 3G infrastructure. Also, it does not require a massive, centralised roll-out. As it is possible for anyone to set up a single WLAN “hotspot”, WLAN can be rolled out much more gradually and/or by many more actors. All of these characteristics have led WLAN to become hyped as the “immediate 4G” option. However, there are also a number of problems associated with WLAN. Major bottlenecks for WLAN business models are (see, for example, Liddel, 2003; Briere and Bacco, 2003; Pau and Oremus, 2003): . Security. WEP encryption is generally used, but has been reported to be flawed. A lot of public attention has been dedicated to this

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aspect of WLANs. User authentication is a similar problem. Backhaul. One of the major flaws in the “independent” hotspot business model is that the hotspot operator must lease a terrestrial circuit from an incumbent network operator to provide connectivity between the hotspot and their network operations centre. The cost of these backhaul circuits (T-1 or even simply DSL connections) represents a fixed cost that significantly outweighs current hotspot revenues. In addition, as usage increases, hotspot operators are entirely reliant on the incumbent network operator to dimension these circuits in a timely and cost-effective manner. Solutions that combine the WLAN access point and a wireless backhaul solution in a single unit are not yet effectively realised. Coverage. Traditionally, to receive coverage from an 802.11b access point a user must be within 50 metres and often within line-ofsight. This means that users have to “schedule” their visit to a hotspot, which significantly lowers the utility of the WLAN service. Roaming across hotspots is also an issue. Batteries and devices. IP Talk (Mitsubishi) has announced a WLAN phone designed for hotspots which also offers web browsing and e-mail. Other producers such as Cisco, NEC and Samsung are also working on WLAN phones. However, as a recent Forrester study has pointed out, it is unlikely that mainstream mobile phones will be WLAN-enabled in the short to mid-term future. The huge demands of WLANs on battery power even render it practically unworkable to incorporate WLANcapabilities into anything else but laptops, which constitute only a small part of all mobile devices. On top of this, there is uncertainty over the market demand for public WLAN access via laptops outside of a limited number of prime locations such as airports; Different owners. Besides the positive points of spreading risks and costs, this also creates problems of non-ubiquity, large administrative and transaction costs, and technological heterogeneity. Potential congestion. WLAN access points compete with each other for space within the 2.4Ghz range. On top of this, even a single WLAN access point may congest the connecting T-1 line if it is used intensively.

From this short overview it may already be concluded that WLAN presents both major advantages as well as disadvantages compared to 3G. The following paragraphs assess to which extent these technologies and the associated

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business models will overlap and influence each other. Actors and markets WLAN has entered the EU market in the form of office and private home solutions and public hotspots. Hotspots are locations such as hotels, airports and restaurants where users may wirelessly connect to the internet, their e-mail account or their corporate network. This access can be offered either as a paid or as a free service. Owing to the lack of transparency in this market, it is impossible to assess the precise development of WLAN hotspots world-wide (see also Stone, 2003). According to some sources, there were over 50.000 hotspots world-wide by July 2003. Other estimates are as low as 10.000 or 20.000. In any case, it can be said that the amount of hotspots is small, but growing quite rapidly. According to most analysts, there were little over 1.000 hotspots in Europe at the end of 2002. As of September 2003, this number has grown to an estimated number of just over 2.750 public hotspots in the EU, most of which are operated by Telia Homerun and Swisscom Europort. Another major player is BTOpenZone, which has announced the opening of about 1,700 hotspots within a short time frame. Estimations for the future vary considerably as well. Some market forecasts predict that Europe will have 32,500 hotspot locations by 2007. Other estimations claim that there will be up to 100,000 hotspots in Europe alone by 2005. World-wide, a conservative estimate shows that in September 2003, the US counted over 4,500 hotspots, about half of which were provided by T-Mobile. In total, Asia counted over 11,000 hotspots, of which more than 50 per cent were located in South Korea. The major driver behind the WLAN “success story” in South Korea is fixed incumbent Korea Telecom, offering public WLAN access bundled with the popular ADSL subscription, requiring users to pay a relatively small amount (about e8) on top of the monthly subscription fee. Currently, it is reported that there are over 150,000 WLAN users in South Korea. As far as other countries are concerned, however, the number of users and the profitability of WLAN is low (see, for example, Gneitig, 2003; Rafer, 2003). It has been estimated that between one and two percent of hotel clients use WLAN access when it is offered. The typical usage of a current commercial WLAN hotspot is between 0 and 1 users per day. Even at standard commercial rates for WLAN access of between e4 and e8 per hour, this does not cover the estimated daily operating expense (mainly associated with billing and support functions) of over e25 for a single commercial WLAN access point. Even free

WLAN offerings attract only limited amounts of users. As an example, a recent experiment with free WLAN access in the Paris underground resulted in only 1,700 users in three months. Public commercial hotspots in Europe are in general not very user friendly according to recent research. They are characterised by high tariffs, difficult registration and charging procedures, an unclear overview of operators, exclusivity deals between operators and locations, a lack of roaming agreements and so on. Comparisons indicate that prices for WLAN access in Europe are considerably higher than those in the USA or Asia. The companies initially driving the WLAN public hotspots offer in Europe were specialised WLAN operators and the associated WISPs. There are already some consolidation tendencies among specialised WLAN providers. One of the reasons seems to be the entry of fixed and mobile telecommunications operators in this market. For instance, in The Netherlands, the commercial WLAN access market is more or less split between national telecommuications incumbent KPN and Swiss telecom operator Swisscom, after the acquisitions, in 2003, of the formerly independent WLAN providers HubHop (by KPN), and Aervik and Megabeam (by Swisscom). Swisscom followed the same strategy to enter the German and UK markets, by acquiring, respectively, British Megabeam and German WLAN AG in March 2003. Public free WLAN has a very limited scope in the EU. A small number of cities are said to have plans to offer public free WLAN access. The Freenet movement, consisting of individuals offering free WLAN access, is also limited in Europe. There are as yet very few so-called hospitality providers (i.e. hotels, cafe´s or camping sites) offering free WLAN access as part of their ordinary service offering. Private WLAN solutions consist of an in-house or in-company solution, which is generally restricted to teleworkers or smaller companies. The typical service offering is wireless internet/ intranet access. Hardware manufacturers and fixed operators and other DSL providers are driving this offering. The WLAN options mentioned above are aimed at providing wireless services, but not mobile services. The type of access can be characterised as “nomadic” or “serially stationary” rather than mobile. The remaining option is to integrate WLAN into a 2.5G/3G network, or even to construct an entire “mobile” network using WLAN technology. In order to use WLAN for broadband services that are really mobile, it appears that WLAN hotspots need to be integrated into a cellular network. However, such an integrated WLAN/

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cellular network is only a feasible option if a number of major caching and synchronisation problems can be solved. Currently, no real integration (for instance in terms of roaming, or even billing) between WLAN and cellular networks has been realised (see also the next section on services). As a future option, however, this will be addressed in the section on future visions for 4G systems. There are only very rare examples of cellular networks based solely on WLAN. In New Zealand, the company RoamAD has deployed a WLANonly demonstration network, consisting of 47 access points and covering 3 square kilometres. It has announced a commercial 100 square kilometre roll-out soon. The University of Twente in The Netherlands operates a large hotspot network on its campus consisting of 650 access points. However, most observers agree that a complete WLAN “cellular” network offering mobile services is not commercially feasible. To connect WLAN hotspots owned by a single operator to form a cellular network is hardly feasible because of, for example, the huge number of access points required, synchronisation and interference problems, and high operating expenses. In addition, to connect WLAN hotspots owned by different owners creates high transaction and coordination costs, which would probably outweigh the cost of transmission-based solutions. Some future visions point to so-called mesh networks (i.e. networks consisting of WLANaccess points or WLAN-enabled terminals working together in an ad hoc fashion) as an alternative means of creating entirely WLANbased networks. In this vision, network components would be fully distributed and individually owned, interactions between the nodes being “regulated” by tacit or explicit conventions between all participants. However, the long-term commercial feasibility of such solutions is quite problematic, for example, because of the well-known “Tragedy of the Commons” problem affecting shared public resources. A potentially more viable version of this vision, involving the possibility for each user to become a commercial service and/or network provider, is still very futuristic. The section on future 4G visions will come back to this option.

At this moment, predominant WLAN services are internet access, intra-/extranet access, and to connect to other in-house devices. In addition, services (to be) offered are shared internet access, multiplayer gaming, voice telephony (VoIP), SMS and MMS-WLAN-services. The growing interest of telecommunications operators in the provision of public WLAN access seems to indicate that some sort of convergence between public WLAN and telecommunications networks is on the agenda. More futuristic cases will be dealt with in the next section. On a shortto-medium-term timescale, two types of WLAN offerings by telecom operators are in place or emerging: (1) Telecommunications operators, including mobile operators, that have taken over public WLANs from specialised WLAN operators, have in general “inherited” a strategy in which WLAN access is positioned as a specific service, separate from and parallel to 2.5G services, and in which the WLAN market is treated as a separate market from other wireless data markets. However, there are clear signs that this strategy is being modified. First of all, the previous situation in Europe, in which there were no roaming agreements among WLAN providers, is being turned around. A number of operators have already signed roaming agreements so that WLAN users may use one another’s networks. EU market leaders Telia Homerun and Swisscom have been among them, announcing a European-wide roaming agreement in October 2003. Second, joint GPRS and WLAN mobile data service are being announced and/or launched by, for instance, T-Mobile, Vodafone and KPN. These services typically do not include roaming between the cellular network and the WLAN hotspot or integrated billing yet, but such a convergence is clearly intended (Boogert, 2003; Kewney, 2003a). While remaining open to subscribers of other mobile networks, T-Mobile USA is now offering its WLAN service for a reduced tariff to its own mobile phone subscribers as a bundled option on their monthly wireless voice and data bill. South Korean KT is working on a single-password service that enables advanced mobile phones and PDAs to access seamlessly either its cellular infrastructure or its WLAN hotspots. (2) In addition, fixed operators might be further driving public WLANs in Europe, as may be witnessed from the plans by a number of fixed incumbents to equip public payphones, where the fixed infrastructure is in place already, with WLAN access points. For instance, BT has announced that it will offer wholesale access to

Services The previous paragraphs already outlined the main forms in which WLAN access is offered and how it may be used. Currently, WLANs are used by laptop or PC owners for either internet access in public spaces or as a substitute to fixed LANs. In addition, WLAN might operate as (part of) a mobile broadband network in the future.

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its public wireless broadband network. BT Openzone will market the wholesale service to mobile operators, ISPs, fixed line operators and even “virtual mobile operators”. The company plans to put BT Openzone Wi-Fi access points in many of the thousands of payphones across Britain. In sum, WLAN is at this point still positioned as a specific service, separated from other wireless data services, or as a complement to fixed networks (whose business case is not threatened by, but rather strengthened by WLAN). The question of whether these public WLANs might operate as substitutes to 3G access is still unclear. Private WLANs act mainly as a complement to fixed (often DSL) lines, and may be substitutes to short range wireless technologies such as Bluetooth. In the case of public WLAN being integrated into cellular networks, WLAN is used as a complement to mobile cellular networks (2.5G or 3G), and might be a substitute to 3G access in the case of being combined with 2.5G. Roles In terms of the value network, five business roles can be distinguished in the provision of WLAN access: (1) Location owners. These are owners of attractive locations. (2) Operators. They manage a number of hotspots. (3) Aggregators. They link “networks” of hotspots together and provide access for the customer. (4) Service providers. They formulate a proposition for the client, of which WLAN access may be only a part. (5) Vendors. WLAN equipment producers and vendors constitute an enabling role, but are nevertheless very important in driving the market. In the case of private WLAN solutions, they constitute, together with the retailers and the users themselves, the core of the WLAN value network. In the case of public WLAN, actors within each of the four primary business roles, i.e. location owners, operators, aggregators and service providers, are experimenting and moving downstream or upstream to integrate other roles. Actors originating from any of these roles have integrated the service provisioning role and thus the customer relationship. However, telecommunications operators, having the resources, the experience and the customer base to sustain the customer relationship, are becoming increasingly predominant in this area. Notwithstanding the fact that some telecommunications operators may become WLAN operators without retailing the service themselves (see the example of BT in the previous

paragraph), telecommunications operators are, as a rule, entering this market as service providers and/or aggregators of WLAN services. In the specific case of mobile operators, various strategies can be observed in the market as to which other roles they are integrating. Some mobile operators only act as service providers, relying on specialised WLAN operators and aggregators; others have integrated these roles, typically by acquiring WLAN operators as subsidiaries. Operators such as Telia and T-Mobile are even becoming location owners, by installing WLAN access points in their stores. Integration of roles seems to be positively related to ambitious WLAN expansion strategies. As a rule, mobile operators try to close exclusivity deals with location owners. However, prime locations such as airports usually adopt a multi-service provider model. Other location owners are even offering WLAN access themselves, independently of any specific operator. The German rail company Deutsche Bahn, for instance, is planning to offer “rail&mail” WLAN access in most train station lounges and in its firstclass carriages. According to a study by the BroadGroup, new roaming and billing platform structure players may be expected in Europe by 2004, and will start to displace the role of aggregators. In Germany, the clearinghouse Eco-Forum already offers a roaming platform between different public WLAN operators and takes care of the charging between them. Business models In general, three potentially viable WLAN business models can be distinguished in the shortto-medium term: (1) Private WLAN model. In this case, WLAN is positioned as complementary to ADSL, and as a substitute to short-range wireless technologies such as Bluetooth. Hardware manufacturers and ADSL providers (including fixed operators) drive this offering. The use of WLANs as a strictly private home or in-company solution is generally restricted to teleworkers or smaller companies. The typical service offering is wireless internet/ intranet access. Next to the fixed internet subscription, there is only a hardware sale, of which the costs are relatively small. (2) WLAN hotspot model. In this case, WLAN is positioned as complementary to fixed networks, and perhaps as a substitute to mobile networks. It has been argued earlier in this paper that free hotspots, which are operated by (networks of) individuals, have a limited long-term potential, in spite of the large amount of publicity that the free access phenomenon has received. Free hotspots

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operated by public authorities, or by hospitality providers, are still very limited in numbers. Commercial hotspots are operated by fixed operators, mobile operators, specialised WLAN operators or service providers, or even by location owners themselves. In general, high rates are charged for access to these hotspots, in order to cover operating expenses or, as might be the case for mobile operators, not to cannibalise other services. These high rates limit the use of hotspots to the business market (which in turn limits the number of attractive locations) or as a “last resort” option. Generally, public WLAN access is positioned as a separate offering, even though there are signs of bundling the service with other services such as ADSL (e.g. in the KT case) or with GPRS. (3) Integrated WLAN-cellular model. This model may be seen as a potential evolution of the WLAN hotspot model. In this case, WLAN is positioned as a complement to 2.5G/3G, and potentially a substitute to 3G access points, as it might make it unnecessary to upgrade from 2.5G to 3G, at least in some locations. Mobile operators will drive this model. The first signs of integrating WLAN into cellular networks can already be witnessed today. However, full integration is still a futuristic option, which will be dealt with in the next chapter on future 4G visions.

1.3 Conclusions: current and emerging business models and the “immediate” 4G vision The previous paragraphs have reviewed potentially viable value propositions and value network configurations defining current and emerging 3G and WLAN business models in Europe. In order to outline potential scenarios for what was labelled the “immediate” 4G vision, some of the main factors which were identified as defining the emerging 3G and WLAN business models have been brought together. These were: . whether there will be high or low demand for mobile broadband services; and . whether WLAN will be positioned and experienced as complementary to mobile networks, or rather as a substitute. An assessment of the cross-impact of these factors, in line with the trends and developments described earlier in this chapter, results in four scenarios of the potential interdependence of WLAN and 3G, which in turn determines the potential of the “immediate” 4G vision. These scenarios are outlined in Table I.

2. 4G visions and strategies The previous section outlined potential crossimpacts of business models for 3G and WLAN and the resulting scenarios for the “immediate” 4G vision. Regarding the “linear”, long-term 4G vision, developments are not sufficiently far to be able to assess potential business models involved. Instead, this section examines the visions and public statements on strategies of the main European stakeholders relating to long-term 4G developments. It will concentrate on telecom operators, telecommunications vendors and IT companies, as these have been identified previously as potential drivers of future mobile business models. Data were gathered from official statements, vision documents and R&D white papers, from individual players as well as from research fora, standards organisations and interest bodies. Naturally, it is difficult or even impossible to select truly representative visions, as there are a multitude of players and organisations involved. Also, it is problematic to assess real strategies from vision documents. Therefore, this analysis should be seen as indicative rather than representative, and is only meant to give a general view of divergent visions and of strategic potential relating to long-term 4G developments. The introduction to this paper already stated that the “linear” 4G vision was originally considered to sequentially follow 3G and to emerge in the 2010-2015 time period as an ultrahigh speed broadband wireless network. The objective of this section is to see if this vision still holds for the different stakeholders involved, to assess the drivers in business terms attributed to 4G by the stakeholders, and their view on the timepath towards 4G. The result is a set of scenarios for the “linear” 4G vision and an assessment of the position of Europe with respect to the USA and Asia.

2.1. Visions of 4G-related organisations At a world-wide level, the International Telecommunications Union (ITU) has taken the initiative to start working on a general 4G vision and reference model. It has also put forward a general timeframe for 4G, in the sense that it has stated that it does not see a need for 4G as a new wireless access technology until 2010. One of the considerations for this is the need to ensure that the operators and developers of 3G have enough time to make a return on their investments in 3G. Besides the ITU, a whole range of existing and emerging, world-wide and regional, general and sectoral, standardisation organisations and research fora are dealing with 4G-related topics.

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Table I Four scenarios for “immediate” 4G Low demand for mobile broadband services

High demand for mobile broadband services

WLAN substitute to cellular networks

Scenario EU (A). In this scenario, there is low demand for mobile and wireless broadband services in general. WLAN is attractive for private and limited public use. If 3G is introduced at all, it is used for relieving congestion in the 2G and 2.5G networks. In this case, “immediate” 4G remains a niche solution for mostly private use

Scenario EU (B). In this scenario, demand for mobile broadband is high and 3G is a success as a result. WLAN is either eclipsed or serves as a niche solution in selected prime locations. In this case, “immediate” 4G is insignificant or establishes itself as a niche market in prime locations

WLAN complementary to cellular networks

Scenario EU (C). In this scenario, WLAN is integrated into 2.5G networks. It satisfies the demand for wireless data in selected locations. UMTS roll-out is delayed or even put off. In this case, “immediate” 4G has severely diminished the value of 3G

Scenario EU (D). In this scenario, UMTS is introduced successfully, but is not able to satisfy all market demands in terms of bandwidth and speed. Heterogeneous networks consisting of UMTS combined with WLAN hotspots are rapidly introduced. In this case, “immediate” 4G has almost instantaneously succeeded 3G in the form of 3.5G

The following review of vision documents concentrates on organisations with a European emphasis. These include ETSI, Eurescom, UMTSForum, WWRF and WSI. As neither ETSI or the UMTS Forum have released major vision documents relating to 4G, the review will limit itself to Eurescom, WSI and WWRF. Vision documents and statements of other regional fora such as mITF have been analysed for comparative reasons only. Eurescom: the operators’ vision on 4G As was stated before, European network operators are generally characterised by low R&D expenditures. Most long-term innovation activities are executed by other actors in the telecommunications’ value network. Operators rather invest in short-to-medium term research related to network management, business and service modelling, markets and users, etc. Still, network operators participate in different research organisations and other bodies with a more long-term horizon, notably Eurescom. Eurescom, the European Institute for Research and Strategic Studies in Telecommunications, was founded in 1991 by major European network operators and service providers. Members include Deutsche Telekom, France Telecom, British Telecom, Telefonica, Telenor and Swisscom. Eurescom provides research management services related to large-scale innovation trajectories in the telecommunications industry. In 2001, Eurescom published a study on the research challenges connected to 4G for operators. The results were elaborated in a followup project outlining the operators’ vision on systems and services beyond 3G (see Eskedal, 2003; Eurescom, 2003; Kellerer, 2002, 2003). The terminological shift from 4G to “beyond 3G” may be regarded as indicative of operators’

anxiousness to present this future vision as in no way a disruptive alternative to 3G, but rather as a natural and incremental migration path. Eurescom’s main vision of systems beyond 3G (B3G) consists of systems encompassing heterogeneous access networks to provide the highest availability of mobile connectivity. These systems are not only expected to integrate several network platforms, but will also encourage richness of services and applications on a global scale. Services and applications which are envisaged include using the mobile phone as an authentication and security centre within a user’s distributed device network, enabling open wireless access to the fixed network, and creating personalised value-added service packages. Eurescom identified four main drivers of B3G mobile systems: (1) Personalisation. The increasing heterogeneity of devices will drive the need for service personalisation, i.e. seamless service usage across communication environments and applications that are adaptable to individual users’ contexts. The requirements on the architecture go beyond storage and access of digital content via traditional database systems, implying an extensive personalisation architecture enabling information exchange between system components in all layers. (2) Seamless access. This concept extends the concept of roaming to a wide range of access technologies and access networks with minimal input from the user. This entails requirements such as universal authentication (most operators see this as SIM-card related) and network integration based on IP. (3) Quality of service (QoS). In a heterogeneous network environment, end-to-end QoS becomes a major issue. The lack of robustness (particularly when using unlicensed

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spectrum) and intrinsically limited capacity (due to the finite radio spectrum) of the access network is identified as one of the biggest bottlenecks. It is noted that there is a trade-off between quality and price which has to be balanced and may vary between users and contexts. (4) Intelligent billing. For operators, billing is one of the most crucial aspects determining their relationship with the customer. The need for more intelligence in billing systems will be driven by, for example, the variety of access modes, the increasing popularity of non-time based services, more complex value chains and the evolution towards an IP-based infrastructure. It also implies a return from pre-paid to subscription models.

operators’ view of 4G as a slow and incremental process. The most pressing requirements on operators identified by Eurescom include optimisation of resources through flexible network configuration and access type selection, efficient and flexible QoS, charging and security handling with single authentication, smooth service migration from existing systems to B3G, and a reduction of cost of terminals and network equipment based on global economies of scale. It is striking that the operators’ vision, as put forward in the Eurescom studies, hardly mentions any needs for greater data rates, or for any new access infrastructures. Rather, their long-term 4G (or B3G) vision is concerned with solutions for coping with different existing access networks, and strengthening the ties between the service provider, access network provider and the user of mobile or wireless services by service integration and personalisation. In terms of timing, Eurescom sketches a migration path adding functionality to 3G from 2005 onwards, with a move to a B3G system after 2008/2010.

In terms of the business models supporting B3G systems and services, the Eurescom studies envisage building on the operators’ existing strength, i.e. the customer relationship in terms of access provisioning, billing and branding. Drivers such as personalisation and intelligent billing should serve to strengthen the link between operators and users, and to ensure the orchestration role for operators in the B3G value network. According to the Eurescom reports, the most important roles in the B3G value network will be the access network provider, with wireless access being predominant, and the service provider, hiding the complexity of the networks. The operator will be forced to move away from competition on geographical coverage and price, towards competition on services. As the operator is in an advantageous position to act as a trusted point for payment for transport and service provisioning, he/she is advised to take care of providing personalised service packages. An increasing involvement in service provisioning also implies (renewed) co-operation between operators and content providers, for instance through partnership and venture activities. Despite their assets in terms of customer relationship and access networks, it is foreseen that existing operators will face tough competition from numerous new service providers entering the market, from unlicensed wireless access providers, and because of regulators insisting on network operators to open their access networks to competitors. As a result, market players will be more cautious to invest in expensive new infrastructures without carefully investigating the market shift of services, regulations, upcoming network technologies, etc. For most types of investments, the return on investments will have a shorter time scale. This is again supportive of the

Wireless Strategic Initiative and Wireless World Research Forum The Wireless Strategic Initiative (WSI) was an R&D project sponsored by the European Commission under the 5th Framework Programme (IST) 2000-2003. Its aim was to provide a focus for the conceptual work of future wireless systems and to open up a range of advanced research prototypes and testbeds from other research projects with a wireless component. WSI comprised the four major European telecommunications manufacturers (Ericsson, Alcatel, Siemens and Nokia) and four European academic partners. In 2001, the WSI founded the Wireless World Research Forum (WWRF) as an open forum for discussion and research between academics and industry researchers on 4G. Since then, the WWRF has grown to about 150 members, mostly in Europe, but also in the USA and Asia. At the end of 2001, the WWRF Book of Visions (WWRF, 2001) was published, with the objective to set the agenda for 4G research in Europe and abroad. In 2002 and 2003, a number of leading members of the WWRF, including the WSI-partners, created the Wireless World Initiative (WWI), which has initiated a series of research proposals for the European 6th Framework Programme. In the same period, WWRF working groups have started to produce a series of white papers, indicating a further implicit shift of the forum towards a pre-standardisation organisation. As indicated by the labelling of 4G as “wireless world”, the 4G vision of both WWRF and WSI

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(WWRF, 2001; Arbanowski et al., 2002; Mo¨ssner et al., 2002) puts an emphasis on heterogeneity of networks and new service paradigms, rather than on increased bandwidth per se. It identifies nine building blocks of future 4G systems: (1) Augmented reality/cyberworld. This refers to new types of user interactions, such as wearables, deviceless communication, avatars and augmented reality. (2) Semantic aware services. 4G services should be aware of users’ preferences, profiles, history, context and, accordingly, be able to anticipate in an intelligent fashion. (3) Peer discovery. This refers to addressing schemes that work across network boundaries, and service discovery mechanisms put in place. (4) End-to-end security and privacy. Transactions via mobile devices imply the provision of universal, easy-to-use, secure and cheap payment services across the system. (5) Co-operative networks and terminals. This refers to a continuous service area ensuring seamless use of heterogeneous networks and terminals. An all-IP architecture could be the common basis for co-operation. (6) Heterogeneous ad-hoc networking. Additional ad hoc communication links such as WLAN, but also ad hoc networks between terminals themselves, are also part of the WWRF/WSI 4G vision. (7) 4G radio interfaces. This includes mechanisms for spectrum sharing, new air interfaces, and so on. (8) Smart antennas and basestations. This refers to technological innovations such as high altitude platforms and smart antennas. (9) Software defined radio. This refers to reconfigurable, downloadable protocol stacks of mobile stations, thus ensuring that network architectures are future proof.

relaying information through them, are scenarios envisaged within this sphere. The fourth level consists of radio accesses, referring to current as well as new mobile communication infrastructures. The fifth level refers to interconnectivity, meaning the ability to wirelessly and universally connect to any other device, as in today’s mobile internet core networks. The sixth and final level is called the cyberworld, indicating the sphere most remote from our immediate real world, i.e. self-created service or gaming spheres with virtual presence and semantic agents. The most particular features of this multisphere model are the integration of a multitude of heterogeneous and until now separated communication environments into a single system concept, and the fact that it is centred around the individual (“I-centric” in the terminology of the WWRF). This means that there is ample room for ad-hoc and peer-to-peer elements (following the philosophy that all network nodes are equal - there are no client or server nodes, and there is no central element of control) within the WWRF’s 4G vision. In this view, open, distributed service platforms need to be put into place to manage the device and network heterogeneity. This comprehensive, long-term vision, including very innovative approaches to wireless systems architectures is in contrast with the more short-term, network management-oriented view expressed by operator-driven organisations such as Eurescom. Furthermore, other than in the Eurescom reports, the predominance of manufacturers and academics involved in technical research within the WSI and the WWRF has created an emphasis on technical R&D issues, mainly related to networks and radio interfaces, rather than on service or business-related issues. In terms of timing, the WWRF and WSI have put forward a timeline and roadmap for 4G, aiming at a first agreement on specifications by 2004, followed by major R&D trajectories running until approximately 2007, an integration phase resulting in prototypes by 2009, followed by enhancements and finally the commercial introduction expected in 2011/2012.

The WWRF (2001) Book of Visions 2001 outlines a broad array of research topics connected to these 4G building blocks, including research on future service and business models. As a reference for this work, it introduces a multisphere model, consisting of a number of concentric spheres around the individual user. At the first level sits the personal area network (PAN), or even body area network, a concept which is already feasible today, but is not well integrated within the overall wireless and mobile systems yet. The second level consists of the immediate or ambient environment surrounding the individual, which is expected to react to and interact with users in an intelligent way on a much larger scale than today. At the third level instant partners are situated, i.e. close-by people or close-by complex technological systems such as cars. Easy and rich interaction, or just

Non-Europe-based organisations This section provides a succinct overview of 4G visions of non-European based, i.e. Asian or US-based organisations. Relating to Asia, it briefly reviews the visions and approaches of a number of national research fora. Relating to the USA, it is harder to identify 4G initiatives gathering most of the potentially involved stakeholders. Instead, vision documents or statements from a number of selected companies, along with the IEEE, are reviewed.

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In Asia, three countries are taking on a proactive role vis-a`-vis 4G: Japan, South Korea, and China. Each of these countries has its own 4G co-ordination initiative, which in turn collaborate in the CJK 4G Project (Yabusaki, 2003). Another common characteristic is the active involvement of the national governments of these countries, which are pushing this research with the objective to set early 4G proprietary standards. In China, the Future Technologies for Universal Radio Environment (FuTURE) project was established in 2001 within the National High Technology Research and Development Program. It focuses on the wireless transmission technology for B3G/4G, self- organisation mobile network technology, and technology in the multi-antenna wireless telecommunication environment. One of its aims is to establish core patents relating to B3G/ 4G systems early on in the development stage (You, 2003). In South Korea, the 4G VISION Studies Committee, founded in February, 2002, unites 30 mostly domestic experts with the aim of guiding the national 4G R&D efforts. It emphasises Broadband Cellular (100 þ Mbps access) next to ubiquitous access, all-IP networks and reconfigurability as the major building blocks for 4G (Han, 2002; TTA, 2003). In Japan, the government established its “e-Japan” strategy in January 2001, which sets the objective to realise “the most advanced high speed wireless internet-connection in which the wireless access network will be efficiently connected with the internet (IPv6)”. A 2001 report on future mobile communications systems, drafted by the ministry in charge of telecommunications, estimated the size of the markets to be created by 4G mobile systems and the development of services at 42 trillion yen. The Japanese Government’s IT policy guidelines for 2003 have confirmed 4G mobile communications as one of the nation’s most important areas of strategic research. The ministry in charge of telecommunications is co-funding the development of key 4G technologies, scheduled by 2005, aiming at commercial deployment in around 2010. In a report entitled Future Prospects for New-Generation Mobile-Telecommunications Systems, it has outlined faster speed and seamlessness as the major objectives of a new 4G system (Fujisawa, 2002; Miyashita, 2002). The Japanese telecommunications and IT industry, from its part, established the Mobile IT Forum (mITF) in June 2001, which published its own 4G vision document in 2003 (mITF, 2003). In this document, ten application scenarios are presented (e.g. rich voice applications, remote patient monitoring, real-time video, and advanced mobile commerce applications), for which the user

acceptance factors, business model characteristics and technical requirements are outlined. Finally, four major research domains are listed: high-speed and large-capacity wireless transmission technologies (e.g. frequency refarming, multiplexing techniques), network constructional technologies (e.g. radio access networking techniques, ad hoc networks), high-performance and advanced function terminal technologies (e.g. circuit and device technologies, software defined radio), and mobile system technologies (e.g. mobile multicast techniques, security techniques). The Asian 4G visions as reviewed here have many points in common with the European visions, but as a whole, they tend to be more in line with the original “linear” vision of 4G. The 4G visions developed in China, Korea and Japan focus more on a large increase of the data rates of mobile systems, and on developing new systems or system components, and less on seamless use of existing systems, even though this latter element tends to be more and more included as the visions are further developed. Also, the governments’ active role in driving the domestic manufacturers to set early 4G standards is a typical element in the Asian 4G “ideology”. The US situation tells a completely different story. Owing to the US tradition of competing standards, and the variety of potentially interested companies and sectors, there is no representative body expressing any “US vision” on 4G. Considering statements of individual US IT companies, US telecommuncations operators and standards organisations with a US emphasis, three observations can be made: (1) Some US mobile operators, such as Nextel, who are “trailing behind” in the development towards 3G, are said to consider 4G as a way of “leapfrogging” to next-generation mobile networks. AT&T is also working on a so-called 4G solution, combining 2.5G EDGE technology with advanced multiplexing techniques (i.e. orthogonal frequency division multiplexing (OFDM)). As a whole, there is no clear picture as to what is considered as 4G in the US telecommunications market, or as to which approach to standardisation is followed. (2) A number of US-based IT vendors, such as IBM, Oracle, Sun and Microsoft, as well as a number of start-ups, have explicitly identified the mobile market as a strategic target market (Kewney, 2003b). As middleware platforms become increasingly important in a vision of heterogeneous networks and devices, converging standards mean that mainstream IT-vendors can increasingly sell to operators, without necessarily having to support a multitude of telco-specific standards and technologies. Also, operators may fear that a

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further reliance on vendor-owned device platforms will further commoditise the role of the network, and of the network operator. The 4G visions of US IT companies, besides pushing WLAN equipment sales, therefore generally emphasise the need to overcome problems associated with the increasing heterogeneity of networks and devices by implementing integrated middleware platforms. (3) Some standards organisations, such as the IEEE, have been active in the field of 4G. The IEEE has published a number of special issues on 4G and is involved in the 4G Mobile Forum conferences. IEEE is working on its own standards to accommodate “cellular-like” mobility (i.e. the IEEE 802.20 standard, which aims at providing data rates of up to 4 Mbps, and mobile users supported at up to 250 km/h). However, the structure of IEEE as a collection of individuals leads in general to slow decision making. Also, this structure makes it less suited to be an organisation actively promoting specific 4G concepts or visions.

2010 starting date, aiming to set the de facto international standard. However, it is not clear whether this is the official NTT DoCoMo viewpoint. In South Korea, there have also been talks of introducing 4G well before 2010, as fixed operators and mobile operators are competing against each other for mobile and wireless broadband users. WLAN technologies play an important role in these strategies. Korean manufacturer Samsung has set up 4G research laboratories in Korea and the UK, as well as hosting the Samsung 4G Forum and announcing the development of powerful cell phones capable of 4G video downloads. In Europe, individual companies have been far more reticent to announce long-term 4G plans. Mobile operators in particular have been silent about 4G; no EU operator has publicly announced any plans towards 4G. As was already mentioned in the previous chapter, most EU operators are in the middle of rolling out 3G. A number of operators are, in addition, building up an additional WLAN offering and are slowly recognising the need to integrate this with the current offering, mostly in commercial rather than in technical terms. European telecommuinications vendors have taken a more proactive stance towards 4G, as may already be witnessed from their involvement in, for example, the WSI, WWRF and WWI initiatives and subsequent research activities. One of the aims of these activities is to position the EU vendors at the forefront of mobile and wireless innovation. Besides these efforts, a number of them have also announced co-operation deals for joint 4G R&D with other stakeholders, seemingly recognising that 4G will not be driven by the EU manufacturers and the EU markets alone. In April 2003, Nokia and Samsung established a co-operative tie aimed at developing a 4G standard capable of using both the WCDMA and CDMA2000 standards. Some observers have interpreted this move as a sign that Nokia is forced to acknowledge the importance of the CDMA standard, which is mostly used in parts of Asia and the USA. Ericsson, for its part, which has been conducting research into 4G since the late 1990s, has founded a 4G research centre in May 2003 along with Microsoft and Swedish operator Telia. Both short-term and long-term research related to 4G is being conducted by the EU vendors, but all have presented 4G as a solution which will not be commercialised before 2010/2012.

2.2. Individual players’ 4G strategies This paragraph reviews a number of individual stakeholders’ strategies relating to 4G as they are publicly known today. World-wide, the most concrete plans towards 4G have been announced by Asian mobile operators and manufacturers. Japanese operator NTT DoCoMo in particular has proclaimed itself as the world’s leading operator in terms of 4G development, in line with its successful piloting of the i-mode service and its 3G FOMA service which has been running since October 2001. NTT DoCoMo has been working on 4G since 1998. In December 2000, it started a joint research effort with Hewlett-Packard aimed at developing a multimedia architecture for 4G wireless broadband networks called MOTO-Media. In October 2002, NTT DoCoMo announced that it had successfully conducted a 100 Mbps-downlink and 20 Mbpsuplink transmission experiment indoors, using a 4G mobile system. In May 2003, NTT DoCoMo started a series of outdoor experiments of this system, merging OFDM (used by WLANs) and 3G technologies. DoCoMo also announced the opening of a 4G research and development laboratory later in 2003 in Beijing, China. This is to become DoCoMo’s second laboratory to focus on such research after the company’s main research and development laboratory in Japan. It has also been repeatedly stated that the company is moving its commercial launch of a 4G system, delivering maximum data speeds of 20 to 30 Mbps, to 2006 instead of the widely targeted

2.3. Conclusion: 4G visions and strategies In conclusion, it can be said that the distinction made in this paper between the “immediate” and the “linear” vision is, while being still useful

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conceptually, becoming increasingly blurred in worldwide discourse relating to 4G. Most or all “linear”, long-term 4G visions now also include heterogeneity of networks and interoperability or even integration between WLAN and cellular networks. This indicates that these “linear” 4G visions have started to converge with some of the scenarios for the “immediate” 4G vision (i.e. the scenarios in which WLAN is regarded as a complement to cellular networks). However, “linear”, long-term 4G visions of stakeholders in different regions of the world are still not the same. They diverge as to the emphasis they place on 4G as a new architecture connecting existing networks, vis-a`-vis on 4G as a completely new system, with very high bandwidth and data speeds and so on. This also means that there is no coherent longterm 4G vision yet. It may be argued that 4G consists at this point merely of a set of technology wish lists (McKay, 2002) for technologies left out of 3G or for 3G promises that have not come true, such as broadband-like data rates, Mobile Voice over IP, always-best-connected capabilities, software defined radio, the integration of WLAN, etc. It is clear that the different “wish lists” and the associated timeframes are indicative of divergent commercial interests. In general, four scenarios for “linear”, long-term 4G can be distinguished. These are summarised in Table II.

potential European scenarios for both the “immediate” 4G vision (i.e. scenarios EU (A), EU (B), EU (C) and EU (D) - see previous section) and the “linear” 4G vision (i.e. scenarios EU (I) and EU (II) – see above) have been plotted on a timeline and compared to the long-term views and developments in Asia and the US. This has resulted in Figures 1 and 2. Figure 1 shows estimated timelines for the “immediate” 4G scenarios based on the data gathered for this paper. In line with the arguments presented earlier, it indicates that WLAN developments in the USA, if quite uncertain still, may lead to early integration with mobile networks, or, alternatively, might be dominated by strong WLAN deployment. Similarly, the projected timeline for Asia (in this case for forerunner South Korea) shows early convergence (and competition) between WLAN and mobile networks. The alternative timelines for Europe all indicate that developments are expected to take longer, for example, because of the slower uptake of WLAN. Figure 2 shows projected timelines for the “linear” 4G scenarios. It indicates that Asia is moving faster towards 3G, and that in the most likely case this will also mean that it will be faster to deploy new 4G systems. The EU telecommunications vendors’ scenario has a similar timeline compared to the Asian one, but with some delay. The estimated timeline for the EU operators’ scenario is of a more gradual and slow conversion to 3.5G. The potential US timeline shows a slow launch of 3G systems, but includes the possibility of US telecom operators “leapfrogging” to 3.5G or 4G. In sum, these

3. Implications for Europe By means of a final conclusion, the question inevitably arises what the implications of these scenarios for Europe’s relative position are. The Table II Scenarios for the “Linear” 4G vision Long-term 4G scenarios EU-operators

Scenario EU (I): European mobile operators are still predominantly occupied with making 2.5G a success, and with the planned roll-out of 3G. In the European operators’ scenario, there is no large-scale integration between cellular networks and other networks before 2008/2010. 4G, or rather Beyond 3G (or 3.5G) is mainly an architecture managing heterogeneity (i.e. fixed-mobile networks together) and providing personalised services to the user

EU-vendors

Scenario EU (II): European telecommunications vendors have set ambitious research goals regarding 4G. In their scenario, 4G is characterised by large-scale heterogeneity of networks and devices, user centric services, distribution of intelligence, etc. The timeframe for this scenario consists of pre-standardisation activities until 2005, standardisation activities from 2005 onwards, and commercialisation in 2011/2012

Asia

The Asian 4G scenario focuses on a large increase of the data rates of mobile systems, and on developing new systems or system components linking heterogeneous networks. The aim of companies and governments involved is to set early proprietary 4G standards. The timeframe for commercialisation is 2010, although there have been talks of an even earlier launch, e.g. in the case of South Korea, where the “linear” and the “immediate” vision overlap quite strongly

US

The US scenario is one of heterogeneous networks, of competition between market-defined de facto standards, and an emphasis on WLAN technologies. Main stakeholders are US telecommunications operators, some of which consider WLAN technologies as a way of “leapfrogging” to 4G, and IT companies developing WLAN equipment and integrated middleware platforms

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Figure 1 Potential timelines for the “immediate” 4G scenarios

Figure 2 Potential timelines for the “linear” 4G scenarios

projected timelines indicate that Europe risks losing momentum vis-a`-vis both the “linear” and the “immediate” 4G visions and developments. Taking these time-paths into account, how may the position of Europe regarding 4G be characterised in terms of strengths, weaknesses, opportunities and threats? First of all, as stated earlier 4G is not a uniform concept, but often still rather a “technology wish list” and a term used for strategic reasons. As was amply demonstrated,

there are different 4G trajectories imaginable. This chapter has shown that even within the “immediate” and the “linear” 4G visions, a number of diverging scenarios are possible. However, it also became clear that mobile data, under whichever term it is presented, has developed its largest user base in Asia (i.e. Japan and South Korea), through successful introductions of 2.5G, 3G and WLAN access and services. This seems to demonstrate the

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continuing success of co-ordinated and integrated approaches in stimulating uptake of mobile communications. Also, the large Asian user base for mobile data is likely to stimulate further innovations in this field at a more rapid pace than in other continents. Regarding the European position relating to the “immediate” 4G vision, this chapter investigated a number of potential substitutes and hindering factors for 3G. An analysis of current 2.5G and 3G offerings showed that 3G services may be positioned either as add-ons to 2.5G services or as a completely new set of services, according to whether the demand for mobile broadband services is perceived as low or as high. It was discussed to which extent this will influence, and possibly delay, the speed of 3G roll-out in Europe. Three potential business models for 3G in Europe were outlined and assessed. These models lead to the conclusion that 3G in Europe will be driven by “traditional” telecommunications players, i.e. mobile operators and telecommunications vendors. However, a growing divergence between these stakeholders may be expected. In addition, evidence on WLAN developments in Europe was scrutinised. This chapter discussed three potential business models for WLAN and four scenarios for the cross-impact of WLAN and cellular networks. It was concluded that at this point, WLAN is mainly complementary to fixed networks, i.e. in the form of private in-house WLAN, or public hotspots for “nomadic” internet/intranet access via laptops. It was argued that these kinds of WLAN offerings may only marginally substitute 3G. However, WLAN is also increasingly integrated with cellular networks, and being positioned as a complement to 2.5G mobile telecommunications networks. In this case, WLAN does have the ability to function as a substitute for 3G access. It may be said that WLAN may be a threat to 3G under certain circumstances, but is not likely to be a real threat to mobile operators except as a niche solution. Regarding the European position relating to the “long-term” 4G vision (i.e. 4G as a successor to 3G), it was stated that it is still too early to analyse potential business models. Instead, the visions and strategies of 4G-related collective bodies as well as a number of individual stakeholders, the drivers in business terms attributed to 4G, and the different views on the time-path towards “long-term” 4G were identified. It was concluded that in the typical European operators’ 4G vision, there is hardly any need for greater data rates, or for any new access infrastructures. Rather, their “long-term” 4G scenario is concerned with coping with different existing access networks, and

strengthening the ties between the service provider, access provider and user by service integration and personalisation. The typical European telecommunications vendors’ 4G scenario has a more ambitious scope, and envisages 4G as a very heterogeneous, allencompassing and user-centric wireless world. The Asian 4G scenarios as reviewed in this paper focus on a large increase of data rates and on setting early proprietary 4G standards. They are also characterised by active industrial policies and a high degree of coordination. In contrast, the US “long-term” 4G scenario emphasises WLAN technologies and competition between marketdefined standards. It is at this moment still unclear whether users will favour broadband capabilities, which are emphasised in the Asian 4G vision, or seamlessness across heterogeneous networks, which is stressed in the European vision, or WLAN functionality, which is emphasised in some of the US visions. Each of these strategies may be considered as an opportunity at this moment. In any case, this paper has pointed to potential benefits arising from the European evolutionary approach, e.g. allowing better recuperation of past investments and opportunities for evolved 3G systems. However, it also pointed to the risk of lagging behind inherent to such a cautious approach. Table III summarises these points in the form of a strengths, weaknesses, opportunities, threats (SWOT) analysis of Europe’s position regarding 4G. This summary of strengths, weaknesses, opportunities and threats to Europe’s position indicates that the current European approach, which emphasises 3G evolution and the integration of heterogeneous networks, constitutes a definite opportunity and a potential strength. However, it also indicates that the slow speed of developments in Europe leads to a risk of Table III SWOT analysis of Europe’s position regarding 4G SWOT analysis of Europe’s position regarding 4G Strengths

4G visions take into account installed base and past investments Strong position of European telecommunications vendors expected in 3G

Weaknesses

No large user community for advanced mobile data applications yet Growing divergence between telecommunications vendors and operators

Opportunities

Evolutionary approach may yield opportunities for evolved 3G Emphasis on heterogeneous networks capitalises on past investments

Threats

Faster rate of developments in other continents Strong policy support in Asian countries

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losing momentum regarding both the “immediate” and “long-term” 4G. Also, the growing divergence between operators and vendors, and the resulting lack of coordination and integration, may harm the competitiveness of the Europe telecommunications sector vis-a`-vis other regions.

Kewney, G. (2003b), “Nokia set to clash with Microsoft in new ‘wireless middleware’ code market”, NewsWireless.Net, 30 January. Lehr, W. and McKnight, L. (2002), “Wireless internet access: 3G vs WiFi?”, working paper, MIT Center for E-business, Cambridge, MA. Liddel, C. (2003), “Wifi’s new clothes”, New Zealand Wireless Data Forum, available at: www.wirelessdataforum.co.nz/ article.php?sid¼453 McKay, N. (2002), “4G – turn-on, tune-in, no dropout”, The Feature, available at: www.thefeature.com/ article?articleide ¼ 15014 Manero, C. (2003), “The 3G services era has arrived at last in Europe”, IDATE News, 270, 1 September. mITF (2003), Flying Carpet: Towards the 4th Generation Mobile Communications Systems, mITF Brochure, mITF, Tokyo. Miyashita, Y. (2002), “NTT DoCoMo successfully completes 4G mobile-communications experiment including 100-Mbps transmission”, nG Japan, 25 November. Mo¨ssner, K., Arbanowski, S., Pabst, R., Pulli, P., Zheng, X., Schieder, A. and Lipka, M. (2002), “WSI deliverable D11: roadmap and timeline for the coming of the Wireless World”, available at: http://paula.oulu.fi/Publications/ Cube/WSI_D11.pdf Odlyzko, A. (2001), “Talk, talk, talk: so who needs streaming video on a phone? The killer app for 3G may turn out to be – surprise – voice calls”, Forbes, 20 August. Pau, L.-F. and Oremus, M. (2003), WLAN Hot Spot Services for the Automotive and Oil Industries: A Business Analysis or: “Refuel the Car with Petrol and Information, Both Ways at the Gas Station”, Report, EUR Rotterdam, Rotterdam. Rafer, S. (2003), “VC returns – do they exist in Wi-Fi?”, Always On, 25 July, available at: www.alwaysonnetwork.com/comments.php?id ¼ 686_0_1_0_C Stone, A. (2003), “Counting the hotspots that count”, Wi-FiPlanet, 15 January, available at: www.wi-fiplanet. com/columns/article.php/1569951 Tee, R. (2003), “Contextualizing the mobile internet”, Master’s thesis, Department of Information Science, University of Amsterdam, Amsterdam, May. TTA (2003), “IMT-2000 and beyond IMT-2000 in Korea”, paper presented at GTSC/GRSC Pleanry, Ottawa, 28 April. UMTS Forum (2002), Charging, Billing and Payment Views on 3G Business Models, UMTS Forum Report No. 21, UMTS Forum, London. Wallage, S. (2003), “Forget about 4G networks for ten years”, The Feature, available at: www.thefeature.com/ printable.jsp?pageide¼35280 Wehn de Montalvo, U., Ballon, P., van de Kar, E., Maitland, C., “Business models for location-based services”, paper presented at the AGILE Conference, Salt Lake City, UT, 24-26 April. Wireless World Research Forum (WWRF) (2001), The Book of Visions 2001 – Visions of the Wireless World: An Invitation to Participate in the Making of Future Wireless Communications, WWRF, Marcoussis Cedox. Yabusaki, M. (2003), “Asia Pacific viewpoint and activities: introduction”, paper presented 4G Forum, London, 27 May. (The) Yankee Group (2000), The Wireless Access Report, The Yankee Group, Boston, MA. You, X.H. (2003), “FuTURE Project: toward beyond 3G”, paper presented at WWRF 9th Meeting, Zurich, 27 June.

References Arbanowski, S., Pabst, R., Mo¨bner, K., Pulli, P., Zheng, X., Raatikainen, K., Uusitalo, M., Lipka, M., Ott, K. and Scheider, A. (2002), “The WSI reference model”, WSI project deliverable, available at: www.ist-wsi.org/ WSI_Summit03_final_copyright.pdf Ballon, P., Helmus, S. and Van de Pas, R. (2002), “Business models for next-generation wireless services”, Trends in Communications, No. 9 (Mobile internet), p. 2002. Bohlin, E., Bjo¨rkdahl, J., Lindmark, S. and Burgelman, J.C. (2003), “Strategies for making mobile communications work for Europe: implications from a comparative study”, paper presented at EuroCPR 2003, Barcelona, 23-25 March. Bohlin, E., Lindmark, S., Bjo¨rkdahl, J., Weber, A., Wingert, B. and Ballon, P. (forthcoming), The Future of Mobile Technologies in EU: Assessing 4G Developments, Burgelman, J.C. and Rodriguez, C. (Eds), IPTS Technical Report prepared for the European Commission – Joint Research Center. Boogert, E. (2003), “KPN: Voor eind 2003 wifi-GSM abonnement”, Planet Multimedia, 4 August. Briere, D. and Bacco, C. (2003), “Untangling the hotspot backhaul mess”, Network World Fusion, available at: www.nwfusion.com/edge/columnists/2003/ 0526bleed.html Eskedal, T.G. (Ed.) (2003), The Operators‘ Vision of Systems beyond 3G: Business Modelling for Systems B3G, Eurescom report, Eurescom, Heidelberg, May. Eurescom (2003), Project P1203: The Operators’ Vision on Systems beyond 3G, Eurescom brochure, Eurescom, Heidelberg. Fransman, M. (2002), Telecoms in the Internet Age: From Boom to Bust to?, Oxford University Press, Oxford. Fujisawa, I. (2002), “The dawn of 3.5G, 4G and new-generation mobile-communications systems”, nG Japan, 22 April. Gneitig, S. (2003), “Wifi-hotspots – Geldgrab oder Goldgrube?”, Zdnet, available at: www.zdnet.de/mobile/supercenter/ wireless/tests/200308/wlanroaming_01-wc.html Han, K.C. (2002), “A study on systems beyond IMT-2000 in Korea” ETRI presentation, 28 May, available at: www.itu.int/osg/imt-project/docs/4.2%20lim_han.pdf Hawkins, R. (2003), “Looking beyond the.com bubble: exploring the form and function of business models in the electronic marketplace”, in Bouwman, H., Preissl, B. and Steinfield, C. (Eds), E-life after the Dot-com Bust, Springer, Berlin. Kellerer, W. (Ed.) (2002), The Operators‘ Vision of Systems beyond 3G: Systems beyond 3G – Operator’s Vision, Eurescom report, Eurescom, Heidelberg, December. Kellerer, W. (Ed.) (2003), The Operators‘ Vision of Systems beyond 3G: Operators‘ Key Drivers for Systems beyond 3G, May, Eurescom report, Eurescom, Heidelberg. Kewney, G. (2003a), “Vodafone asks for wireless data guinea-pigs”, The Register, available at: www.theregister.co.uk/content/69/30719.html

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Chakraborty, P. (2001), “Korean companies leapfrogging to 4G”, Wireless Week, 25 June. Faber, E., Ballon, P., Bouwman, H., Haaker, T., Rietkerk, O. and Stern, M. (2003), “Designing business models for mobile ICT services”, paper presented at Bled E-commerce Conference, Bled, 9-11 June. Houghton, T. (2003), 3rd Milennium Networks and Services: Where’s the Money? Business, Customers and Users Perspective, BTexact, London. Li, F. and Whalley, J. (2002), “Deconstruction of the telecommunications industry: from value chains to value

networks”, Telecommunications Policy, October/ November. Mylonopoulos, N., Sideris, I., Fouskas, K. and Pateli, A. (2002), Emerging Market Dynamics in the Mobile Services Industry, IST-MobiCom Project White Paper, IST-MobiCom Project. Ponsioen, C. (2003), Mobile Beyond 3G: Integratie van mobiele en draadloze communicatienetwerken, TNO-FEL report, TNO-FEL, Delft. van Bemmell, J., Teunissen, H., Plas, D.-J., Peelen, B. and Peddemors, A. (2002), A Reference Architecture for 4G Services, Lucent Technologies & Telematica Institute Paper, Lucent Technologies & Telematica Institute, Murray Hill, NJ.

Further reading

Erratum info, Vol. 6 No. 5 Owing to an error in the production of the Rearview feature “The battle for the Latin American mobile space”, in the above issue, several errors – the omission of the footnotes, and misalignment of some columns – were published in Table I. The table is reproduced correctly below. Table I Gross/proportionate subscribers: Telefo´nica and BellSouth, 31 December 2003 Total subscribers

Telefo´nica Mo´viles % ownershipa Proportionate subscribers

1,824,000 20,660,000 2,270,000

97.9 Variousb 43.6

1,786,000 5,714,000 [990,000]

248,000 157,00 3,454,000

90.3 100.0 92.0

224,000 157,000 3,178,000

1,507,000

98.0

1,477,000

175,000

49.9c

[87,000]

[2,681,000]

6.9

[185,000]

30,295,000 [32,976,000]

12,536,000 [12,845,000]

Country Argentina Brazil Chile Colombia Ecuador El Salvador Guatemala Mexico Nicaragua Panama Peru Puerto Rico Uruguay Venezuela Total

Total subscribers

BellSouth % ownership Proportionate subscribers 65.0d

1,487,000

967,000

1,301.000 1,920,000 816,000

100.0 66.0 89.4

1,301,000 1,267,000 730,000

252,000

60.0

151,000

229,000 420,000 642,000

89.0 43.7 97.4

204,000 184,000 625,000

146,000 3,107,000

46.0 78.2

67,000 2,430,000

10,320,000

7,926,000

Notes: a The main totals strictly relate to where the assets are held by Telefo´nica Mo´viles, and the Latin American totals in brackets are accordingly not counted as these are owned by parent Telefo´nica – via CANTV in Venezuela while Mo´viles manages the networks in Chile (which it has offered to buy) and Puerto Rico. Parent Telefo´nica owns 92.4 per cent of Mo´viles, so the first total in brackets comprises 92.4 per cent of the assets owned by Mo´viles plus those owned directly by Telefo´nica. The second total in brackets adds to this 92.4 per cent of the total for Morocco and Spain. However, Telefo´nica also owned 4.7 per cent of Portugal Telecom at the end of 2003, subsequently raised to 8.17 per cent in April 2004; b The economic interest in Vivo is 50 per cent, but the proportionate subscribers need to be calculated on a network by network basis and represent much less than 50 per cent of the gross figure. Thus we have Cellular CRT (25.3 per cent), Global Telecom (32.6 per cent), Telesp Celular (32.6 per cent), Tele Centro Oeste (9.5 per cent), Tele Leste Celular (13.9 per cent) and Tele Sudeste Celular (41.9 per cent); c Telefo´nica obtained a licence in Uruguay in May 2004; d During 2003, BellSouth sold its controlling interest in BCP in Brazil to Ame´rica Mo´vil

The Production Department sincerely apologises to the author and readers for these errors.

382

I. Introduction

Developments for 4G and European policy Arnd Weber Erik Bohlin Sven Lindmark and Bernd Wingert

The authors Arnd Weber is Senior Researcher, Forschungszentrum Karlsruhe, ITAS, Karlsruhe, Germany. Erik Bohlin and Sven Lindmark are both Heads of Department, both at the Department of Innovation Engineering Management, Chalmers University of Technology, Gothenburg, Sweden. Bernd Wingert is based at the Forschungszentrum Karlsruhe, ITAS, Karlsruhe, Germany.

Keywords Mobile communication systems, Europe, Design and development

Abstract This paper addresses the potential need for European public policy actions in the area of mobile communications, in particular of developments towards 4th generation networks (4G). The paper is based on work conducted for the EC/JRC/IPTS/ESTO project “The Future of Mobile Technologies in EU: Assessing 4G Developments”. The paper first reviews developments of 3G and 4G technologies in Japan, Korea, China and the USA. It briefly addresses potential costs and benefits of competition in infrastructures. The paper states that initiatives in Europe for technologies beyond 3G tend to address research issues, while players in Asia and the USA are aiming at sales of 4G-equipment supposed to start as soon as possible. In conclusion, nine options for policy makers are presented, such as to stimulate 2.5G and 3G data markets, to analyse actual spectrum use, to continue analysing approaches competing with UMTS, to estimate costs and benefits of new approaches to spectrum regulation, and to evaluate steps towards frequency allocation.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-6697.htm

info Volume 6 · Number 6 · 2004 · pp. 383-387 q Emerald Group Publishing Limited · ISSN 1463-6697 DOI 10.1108/14636690410568650

This paper is based on work done for the European Commission Directorate Joint Research Centre. Reasons for starting the work are issues such as wireless local area networks (W-LANs) as a threat to universal mobile telecommunications system (UMTS), and developments towards 4th generation ($G) telecommunication systems in Asia. In a somewhat technology-driven approach it has been anticipated that 4G will provide about 100 Mbps or even more, but currently it can be expected that more immediate systems will emerge with a smaller capacity. Objectives of the work for the European Union (EU) were to explore the relevance of such developments and to propose options for European policy makers for achieving a lead in both research and deployment. The methods used to meet these objectives were to: . analyse the use of 2.5 and 3G systems; . evaluate technology roadmaps; and . explore the current state of technologies and research. The work was done through desk research, expert interviews, and improved through reviews of earlier work. This paper is organised as follows: first we review some developments in Japan, Korea and China. Subsequently, developments in the USA are addressed. Finally, after a look at Europe, some conclusions are drawn.

II. Regional comparisons A. Japan Japan’s 2.5G data market is known to be extremely well developed (see i-mode, Sha-mail, Chaku-Uta etc.) and the country is very advanced with This paper is based on contributions to EC/JRC/ IPTS/ESTO project “The Future of Mobile Technologies in EU: Assessing 4G Developments”. For more information on EC/JRC/IPTS/ESTO and the official report, se Bohlin et al. (2004a) and www.jrc.es Special acknowledgements for criticism and comments on earlier drafts are to the IPTS staff leading the project (Jean-Claude Burgelman, Carlos Rodriguez). The authors have also benefited from comments on the project report and on earlier drafts of this paper by Walter Adamson, Digital Investor; Michel Nerne, INT; Arthur Drewitt, BWCS; Simon Forge, SCF Associates; Martin Fransman, University of Edinburgh; Andy Jeffries, Nortel Networks; Tadashi Matsumoto, University of Oulu; and Werner Mohe, Siemans. The paper reflects the authors’ views, not necessarily those of the European Commission or of the commentators.

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deploying 3G. NTT DoCoMo has more than 4 million users of its FOMA WCDMA service. KDDI has about 14 million subscribers of its CDMA 2000 1X network, as of May 2004. KDDI offers, at least to students, a cheaper 3G-service than NTT DoCoMo, while the latter appears to be unique regarding an increasing ARPU (Bohlin et al., 2004a, b, 2003; Mobile Economy, WirelessWatchJapan.com, 2003). KDDI has already implemented its CDMA2000 1xEV-DO service with up to 2.4 Mbps and offers it with a flatrate. Most handsets sold today include digital cameras, with resolutions of 2 megapixels and higher in the future. This not only changes the consumer camera market, but may also produce many bits to be transferred on future networks. Japan also has more than 4 million (fixed) IP-telephony users (e.g. Softbank). Several types of new systems, beyond 3G, are currently emerging. DoCoMo plans to rollout a 14.2 Mbps system (HSDPA “3.5G”). Its vice president Tsuda said that the company aims at a future 4G system costing about be one-tenth of a 3G system (ZD Net Mobile News, 2003). Tachikawa (2003) even mentioned costs of 1/100th, per bit, compared to 3G. DoCoMo has already tested a 130 Mbps-system. The Ministry of Public Management, Home Affairs, Posts and Telecommunications wrote of “establishing the necessary technological elements for 4G by 2005” (MPHPT, 2003a, b). Deployment of HSDPA is planned to take place in 2005; DoCoMo plans for 4G after 2007. Vodafone has announced a trial of Flarion Technologies’ FLASH-OFDM with up to 1.5 Mbps. We believe actual deployment will depend on the development of the competition between the operators. In parallel, efforts can be observed to provide mobile Wi-Fi telephony, such as by IP-Talk and BMC. Batteries permitting, in areas of hot-spots, this may lead to very low communication costs. Also plans for inclusion of Wi-Fi into normal 3G handsets are well advanced. For example, Net2Com Corp and Fujitsu Laboratories have jointly developed a wireless IP mobile phone handset capable of automatic switching between WLAN and public wireless networks and maintaining continuous voice and data communications (Nikkei Electronics Asia, 2004). EAccess has been awarded a trial license for Navini Networks’ TD-SCDMA (MC). Such technologies with high spectral efficiency are discussed as a possible means to bring voice prices down through wireless voice over IP. In conclusion one can say that different types of systems beyond 3G are emerging. NTT DoCoMo is pursuing a more traditional approach, with an orderly transition from 2G to 3G and from 3G to

4G. Other market players are investigating more immediate approaches. Furthermore, there are plans to integrate WLAN-technologies as well as digital TV with cellular technologies. It appears competition on the infrastructure level increases the general level of competition, at least regarding prices per bit. Japan is rather advanced in the technology development compared to Europe. Whether equipment makers can achieve sufficient economies of scale, and whether all 3G, 3.5G and 4G approaches will be viable, remains to be seen.

B. Korea Korea is very advanced regarding 2.5G/3G implementation and use (based on CDMA 2000 1X and EV-DO). Also, it is the world-wide leader regarding W-LAN, with some 12,000 hotspots. Samsung aims at becoming global leader in 4G systems sales by 2010. The Ministry of Information and Communication plans to invest a total of $104 million in the first stage of 4G mobile communications to develop technologies by the year 2005. Thus, there is a government policy for Korea to become 4G leader. Samsung’s goal is to take the initiative in shaping international standards in co-operation with global industry leaders such as Nokia and NTT DoCoMo. Korean and Japanese company and government representatives have indicated discontent with standards setting processes for 3G, as the developments on the largest markets did not really drive them and as there was a lack of consensus after years of discussions (Adamson, 2003). Currently, there are plans for a mobile broadband system called highspeed portable internet (Hpi) or wireless broadband (WiBro (Latta, 2004)). Such a system could be used by wireline providers, as these are currently losing business to mobile operators.

C. China China is the largest mobile telephony market with about 270 million users. The country is currently catching-up successfully in 2G/2.5G. The 3G situation is still unclear, possibly China might move directly to 4G, but there are also indications that TD-SCDMA will be deployed from 2005 on. Regarding 4G, 2002 became a starting point when the Ministry of Science and Technology invited public bids for the 10th Five-year Plan Research Program 863 (High-tech Research and Development Program) on research for the new generation of cellular mobile telecommunication system technology (4G). Wuhan Hannetwork High-Tech Co., Huazhong University of Science and Technology, and Shanghai Jiangtong University co-won the bid.

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The Chinese Government aims at global leadership and hopes that China will receive own intellectual property rights through research and development in the primary stage of a new technology (Elixmann and Stappen, 2003). China plans large-scale field trials leading to a commercialisation around 2010. If China succeeds in developing 4G systems, it can be anticipated that these will be offered at very competitive prices. There are ambitions to offer systems that are even cheaper than fixed line systems (Lu, 2003). Indeed, the PHS-like Xiaolingtong system, with 30 million subscribers, already offers mobile telephony for costs as low as 1.3 US cents per minute. China itself will of course be the initial main market, followed by other developing markets. European use of future Chinese equipment is more uncertain, but sales of handsets have already started.

2003). The Spectrum Policy Task Force, established by the FCC, has recommended the provision of incentives for efficient spectrum use through flexible rules and facilitation of secondary markets. The Task Force argues that this will enable spectrum users to take market factors such as consumer demand, availability of technology and competition into account (National Association for Amateur Radio, 2002). It can be expected that flexibilisation of spectrum regulation and the provision of unlicensed spectrum in the USA will increase. WiMAX players are not talking about commercialisation beyond 2010, but are rather aiming at sales during the next years. If the new approaches lead to lower communication costs, pressure to deploy similar technologies elsewhere will rise. Besides, the USA has also a good position with Qualcomm’s cdma technologies. These are constantly being improved and seem to have contributed significantly to KDDI in Japan gaining more 3G-users than NTT DoCoMo with WCDMA. In summary, US actors are innovating quickly and aim at rapid sales of new, more powerful radio technologies.

D. USA The USA is leading the way in the deployment of potentially disruptive technologies such as public WLAN. The US seems to be more in favour of outdoor W-LAN usage than Europe (TIA, 2003). There is a boom of applications over unlicensed spectrum, such as Wi-Fi, as well as over licensed spectrum (e.g. Cisco Aironet with a reach of up to several hundred feet; Airgo with IEEE 802.11-like solution with 108 Mbps/channel and large area covered; Mesh with 500 Kbps at 115 km/h; Vivato enhancing the reach of 802.11 by using phased array beams, etc.). Mobile Wi-Fi phones have started to emerge, e.g. from Cisco, Spectralink and Motorola, largely for campus use. Wi-Fi does not appear to be a threat to voice telephony due to the limited number of channels, it may, however, reduce the profitability of 3G data services. The IEEE 802 standards will continuously be improved, as in group 802.16. The group addresses broadband wireless access (see the WiMAX initiative by Intel and others (http:// wimaxforum.org/about/index.asp)). Future WiMAX technology is hoped to provide up to 70 Mbps over up to 50 km, likely with a line of sight connection, on 2-11 GHz. Particularly important is the work of the 802.16e group. It aims at providing the quality of service needed for voice communication. The initial WiMAX products will operate in licensed spectrum of 2.5 and 3.5 GHz, and in unlicensed 5.8 GHz (Gabriel, 2003). Studies made in the USA have shown that actual use of available spectrum often is 5 per cent, or even less. Taking into account that spectrum usage varies not only by frequency, but also by space and time, there is ample unused spectrum which could be used for communication (Kolodzy,

E. Europe In Europe, the Wireless World Research Forum (WWRF) has been founded by European manufacturers. It has by now become a global forum. Based on the work in WWRF and some preceding strategic European research projects, the ITU framework recommendation (ITU-R M.1645, 2003) on the future development of systems beyond 3G has mainly been influenced by European contributions. The ongoing research projects (Wireless World Initiative (WWI) projects) in the 6th Framework Program of the European Commission are addressing the development of systems beyond 3G and contributing to international standardisation (mainly ITU-R towards the preparation of WRC 2007). All these activities have in the meantime established liaisons with the activities in other regions. For the time being, the European markets for data services are not yet well developed, at least if compared to Japan and Korea, except for SMS. Also, the uptake of UMTS services is very slow. The returns of using a unified UMTS/GSM standard still appear to be in some distance, nevertheless HSDPA will likely also be deployed in Europe. European policy makers today have a cautious attitude towards providing more spectrum before UMTS has taken up. Deployments of any “beyond 3G” technologies are widely anticipated to take place after 2010. This is in line with the recommendation ITU-R M.1645.

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Thus, however, European research may not lead to products soon. To the authors, it appears that catching up with the USA and Japan in their respective leads will require significant efforts by Europe players.

(2) Further analytical work: . Investigate how, at a European level, the spectrum is actually used, for identifying the scope for future deregulation. Is the spectrum as “dead” as it reportedly is in the USA? How is the situation in the 25 countries now belonging to the EU? . Investigate whether competition to UMTS would make sense, whether economies of scale in equipment production would really be hindered, and how such competition could be supported. Explore, for example, on which licensed bands could IEEE 802.16 and 802.20 be used. Which plans exist in other countries, or by the manufacturers, to deploy WiMAX technologies on licensed spectrum? Does Romania have good experience using CDMA 2000 over 450 MHz (see Hanganu, 2002)? Re-check whether competition in infrastructure in the USA turned out to be to the disadvantage of the customer. Are there any ways to have such competition, also have the possibility to make trans-border calls or even global ones, and still have a potential for profitability with new entrants (e.g. European-wide licenses, restriction of competition to a few technologies)? . Update knowledge about industry plans in Asia and in the USA (possibly by taking our report (Bohlin et al., 2004a) as a start). . Explore how the share of European components in handsets could be improved, e.g. in the area of cameras and lenses, a field in which Europe once was leading the consumer market.

III. Conclusions Currently, there is no world-wide agreed definition of 4G. Some players aim at a deployment of “beyond” 3G-technologies after 2010, as agreed in ITU, others aim at a faster deployment of technologies more capable and/or cheaper than 3G technologies. Given the developments sketched above, there is a risk of Europe falling behind due to slow take-up (compared to, for example, Japan), lack of pushing the sales of unlicensed systems, and rising price competition from other Asian manufacturers, most notably China. It is in the long-term interests of the European telecommunications industry to remain up-to-date with emerging trends in the mobile communications field, even if that may involve difficult choices about how to best recoup their past investments. Europe runs the risks of being a late starter in the race to deploy 4G. Europe may become an island of high mobile tariffs; currently, 2G prices are high enough for the operators to pay for the high 3G auctioning prices, but competition may create pressure for lower tariffs. An island of high prices will not be sustainable in a globalised economy characterised by high price pressure, and pressure is already building up. European policy makers could pursue some of the following options: (1) Stimulate 2.5G and 3G markets; trigger operator push of technology development: . Investigate means to stimulate the mobile telecommunication markets, as a step to get beyond the current slow development in 2.5G and 3G. How could Europe achieve lower prices per bit and more competition in data prices? A good example is Japan. If European private and business/public users used more mobile data services, this could help both 2.5 and 3G service providers, as well as content providers. Could governments support advanced use, e.g. by designing mobile internet compatible web sites? . There is clearly a need to abandon the technology push approach that has so far characterised European mobile communications in favour of a more user-focused perspective. Policy makers could encourage operators to lead developments and to focus more on business models.

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(3) Evaluate further steps in frequency allocation: . Produce estimates of the costs and benefits of new frequency regulations for the different parties involved, which are: mobile operators; potential mobile operators (“have-nots”); equipment manufacturers; other industries using mobile equipment in their products, e.g. car industry; business customers in general, e.g. those who might use mobile internet technology in maintenance work; and last but not least private citizens. . Evaluate steps towards allocation of frequencies for new technologies, for creating a perspective for equipment sales. This could give European developers, operators and users a perspective for production, sales and use. The “havenots” could get an opportunity in frequency allocation, and the owners

.

.

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would have to speed up exploiting their existing licenses. This could make operators continuously search for new applications, as in Japan. Which bands could possibly be made available for new spectrum management approaches Europe-wide (military, television)? Consider changing national frequency allocation plans to allow European-wide competition. How can an efficient competition take place if an operator has to get hold of 25 licenses for providing a service in all EU countries, or even more, if one considers the other European countries? Would it make sense to re-allocate certain frequencies in a co-ordinated way all over Europe? Investigate possibilities for opening regulation for more outdoor use of unlicensed spectrum, such that future W-LANs can be accessed outdoors both on licensed and on unlicensed spectrum. This market may have a large potential, consumers could, e.g. use overcapacity in other users’ networks. Investigate to mirror elements of Asian industrial policies, e.g. to create large government-supported projects for producing new mobile technologies.

References Adamson, W. (2003), “Asian broadband cooperation to lead standard-setting”, available at: www.digitalinvestor. com.au/?b1K12&Xoi&hbh&vP4 National Association for Amateur Radio (ARRL) (2002), “FCC Spectrum Policy Task Force presents recommendations”, available at: www.arrl.org/news/stories/2002/11/07/103/ Bohlin, E., Lindmark, S., Bjo¨rkdahl, J., Weber, A., Wingert, B. and Ballon, P. (2004), “The future of mobile communications in the EU: assessing the potential of 4G”, Rodriguez Casal, C., Burgelman, J.C. and Carat, G. (Eds), forthcoming as IPTS Technical Report prepared for the European Commission – Joint Research Centre, available at: www.jrc.es Bohlin, E., Bjo¨rkdahl, J., Lindmark, S., Dunnewijk, T., Hmimda, N., Hulte´n, S. and Tang, P. (2003) in Burgelman, J.C. and Carat, G. (Eds), “Prospects for the third generation mobile systems”, IPTS Technical Report prepared for the European Commission – Joint Research Centre, EUR 20772 EN, available at: www.jrc.es Bohlin, E., Ballon, P., Bjo¨rkdahl, J., Burgelman, J.-C., Lindmark, S., Rodriguez, C., Weber, A. and Wingert, B. (2004), ”UMTS

integration and framework program priorities”, paper presented at IST Mobile Summit, Lyon. Elixmann, D. and Stappen, C. (2003), Entwicklung der IT- und TK Technologie-Industrie im Grobraum China (VR China, Taiwan, Hongkong) – Chancen fu¨r die deutsche Wirtschaft in diesem Zukunftsmarkt, Bad Honnef (WIK), Bonn. Gabriel, C. (2003), WiMAX: The Critical Wireless Standard, ARCchart, London. Hanganu, M. (2002), “Mobile banking on low-cost networks in Romania”, interviewed by Arnd Weber, ePSO-N 15&2, available at: http://epso.jrc.es ITU-R M.1645 (2003), “Framework and overall objectives of the future development of IMT 2000 and systems beyond IMT 2000”, available at: www.itu.int/rec/recommendation. asp?type¼items&lang¼e&parent¼R-REC-M.1645-0200306-I Kolodzy, P. (2003), “The role of cognitive radio on novel spectrum management”, paper presented at the Workshop “Advanced Wireless Technologies: Implication for Spectrum Management”, Brussels, 10 October. Latta, J. (2004), “Broadband World Forum 2004 – Seoul”, Wave, 6 April, available at: www.wave-report.com/other-htmlfiles/BroadbandWF2004.htm Lu, W. (2003), “4G mobile research in Asia”, IEEE Communications Magazine, March, pp. 92-5. Mobile Economy, WirelessWatchJapan.com (2003), “Mobile network operators: the big three 3G race”, paper presented at Seminar “Mobile Kaizen in Japan”, Frankfurt, 4 November. MPHPT (2003a), MPHPT Communications News, Vol. 14 No. 8, 29 July. MPHPT (2003b), MPHPT Communications News, Vol. 14 No. 14, 31 October. Nikkei Electronics Asia (2004), “Net-2Com, Fujitsu Lab develop wireless IP phone handset for public wireless networks”, 28 June, available at: http://neasia.nikkeibp.com/wcs/leaf/ CID/onair/asabt/news/316106 Tachikawa, K. (2003), “The future of mobile communications”, paper presented at the 10th Deutsch-Japanisches Symposium, Tokyo, 2 and 3 April, available at: www.muenchner-kreis.de/deut/verak.htm TIA (2003), “Standards update: ITU recommendations”, PulseOnline, August, available at: pulse.tiaonline.org/ print.cfm?id¼1805 ZD Net Mobile News (2003), “Why DoCoMo cannnot begin a flat-fee system”, 7 February (in Japanese), available at: www.zdnet.co.jp/mobile/0302/07/n_foma.html

Further reading Walke, B. (2001), “On the importance of WLANs for 3G cellular radio to become a success”, Proceedings 10th Aachen Symposium on Signal Theory 9/2001, pp. 13-24. Weber, A., Bohlin, E., Lindmark, S. and Wingert, B. (2004), “4G radio developments without Europe?”, paper presented at the 15th Biennial Conference of the International Telecommunication Society, Berlin, September.

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