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93 1405 1811
This is to certify that the
thesis entitled
THE DEVELOPMENT OF CELLULAR TELEPHONY
IN FRANCE: A COMPARATIVE ANALYSIS
BETWEEN FRANCE, GERMANY AND THE UK.
presented by
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_ _ _ ,
THE DEVELOPMENT OF CELLULAR TELEPHONY IN FRANCE:
A COMPARATIVE ANALYSIS BETWEEN FRANCE, GERMANY AND THE UK.
BY
Arnault Thouret
A Thesis
Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of
MASTERS OF ARTS
Department of Telecommunication
1996
ABSTRACT
THE DEVELOPMENT OF CELLULAR TELEPHONY IN FRANCE.
A COMPARATIVE ANALYSIS BETWEEN FRANCE, GERMANY AND THE UK.
BY
Arnault Thouret
The objective of this thesis is to understand how the
shaping of market, regulatory and socio—cultural factors has
resulted in the current development of the French cellular
market. It compares and constrasts this development with
respective ones in Germany and the United Kingdom.
French cellular market laggs behind developments in Germany
and above all the United Kingdom. A regulatory and market
analysis of the ‘market helps to understand this uneven
development. Also, this thesis emphasizes the relevance of
the socio-cultural environment in the France’s case, and how
this specific environment has prevented the market from
developing before late 1995.
To my mother and father.
ACKNOLEDGEMENTS
I gratefully acknowledge the guidance provided by my thesis
advisor, Dr Steinfield, in the preparation of this thesis,
and Dr Mody and Dr Bauer for their advice and their
availability. I would also like to thank my academic
advisor, Dr Steinfield, for his help and encouragement
throughout my stay at Michigan State.
TABLE OF CONTENTS
LIST OF TABLES .......................................... Vii
LIST OF FIGURES ........................................ viii
Chapter 1
INTRODUCTION .............................................. l
1.1 The key factors affecting ..................... 2
telecommunications
1.2. A historical background ...................... 5
1.3. Method ....................................... 7
1.4 Outline ...................................... 10
Chapter 2
LITERATURE REVIEW ........................................ 13
Chapter 3
A MARKET ANALYSIS ........................................ 22
3.1. A statistical analysis ...................... 23
3.1.1 A price analysis
3.1.2 The coverage
3.2 The impact of these minor variables on
mobile service penetration in France, Germany
and the UK ....................................... 27
3.2.1 The analog market or the first generation
3.2.1.1 The prices
3.2.1.2 The coverage
3.2.1.3 Conclusion
3.2.2 The digital market or the second
generation
3.2.2.1 The prices
3.2.2.2 The coverage
3.2.3 Conclusion
Chapter 4
THE REGULATORY FRAMEWORK ................................ 43
4.1 The regulatory policy ....................... 43
4.2 The key factors of regulation ............... 45
4.2.1 Spectrum management
4.2.2 Competition
4.2.3 The technology and the standards
4.2.3.1 The first generation of cellular
telephones
4.2.3.2 The second generation of cellular
telephones
4.2.4 The distribution structure
4.3 Conclusion .................................. 63
Chapter 5
THE SOCIO-CULTURAL FACTOR ............................... 70
5.1. France and the centralizing tendency ....... 71
5.2. Perception about cellular telephony ........ 75
5.3. Relevance of the socio-cultural factor
by way of a social event and critical mass
theory .......................................... 77
5.3.1. A basic model
5.3.2. The French example
5.4 Conclusion .................................. 84
Chapter 6
CONCLUSION .............................................. 88
ANNEX ................................................... 94
vi
LIST OF TABLES
Table 1 — Different prices in France, Germany and
the UK in 1991 .......................................... 28
Table 2 — GSM tariffs in France, Germany and the
UK and Mercury one20ne tariffs in 1995 .................. 33
Table 3 - French and German operator tariffs in
1994 and 1995 in US$ .................................... 34
Table 4 — Coverage of the GSM in France, Germany
and the UK .............................................. 35
Table 5 - Allocation of spectrum bands below 1 Ghz,
1992 .................................................... 47
Table 6- Regulatory structure in France, Germany
and the UK .............................................. 63
Mi
LIST OF FIGURES
Figure l — Key factors affecting the development
of mobile communications .................................. 3
Figure 2 - Schematic structure followed during the
study ..................................................... 8
Figure 3 - Penetration rate of mobile communications
and GDP per capita in 16 European countries, 1992 ........ 14
Figure 4 — Evolution of subscribers 1985-1995 ............ 23
Figure 5 - Penetration rate and subscriber growth
in France, Germany and the UK from 1985 to 1995 .......... 38
Figure 6 - Mechanisms creating scarcity rent ............. 57
Figure 7 - Marketing channels in the UK .................. 60
Figure 8 - Marketing channels of Radiocom 2000 in
1991 ..................................................... 62
Figure 9 - GSM coverage in 1993 .......................... 73
Figure 10 — Critical mass in a mobile network ............ 80
viii
Chapter 1
INTRODUCTION
In only a few years, mobile communications have become one
of the fastest growing areas within the entire
Telecommunication industry. This development has been
shaped by a wide array of technical, economic, regulatory,
market and socio—cultural factors. The goal of this thesis
is to explain how this shape of different key factors has
led to the current situation in the development of cellular
telephony in France. This development will be compared to
the respective ones in Germany and the UK. Despite a
relative dynamic market in France (more than 3% monthly
growth in 1995), its situation on the European cellular
market is deteriorating. Second digital market in the
beginning of 1995, it has been exceeded by the UK and Sweden
at the end of 1995. This report is even more unfavorable to
France considering' penetration rate. In .April 1995, the
penetration rate for 1000 inhabitants was respectively
15.91, 34.97, 70.36 in France, Germany and the UK.
Before any tentative study of the specific factors that
explain the uneven development of mobile communications in
France, Germany and the UK, an overall view of these key
factors is provided in the first section of this chapter.
Then, a second section is devoted to a brief historical
background. about the evolution of cellular telephony in
France with respect to other European countries. The third
section presents the method that has been used for the
study. Finally, the fourth section outlines the different
steps that were followed to explain the slow development of
cellular telephony in France.
1.1 The key factors affecting mobile communications
The field of telecommunications in general, and the sector
of mobile communications in particular, is affected by a
wide array of technical, economic, regulatory, market and
socio-cultural factors. They all, to greater or lesser
extents, participate in the shaping of mobile communications
systems (see Figure 1W.
__. SPECtruln . Manufacturers ‘ \
Management N
t User Groups,
-—> Technology. I Trade
_ . . Associations.
.Regulatory Policy T 0'”an \
‘——> Standards
Distribution
——-> drcult _ 7 W
l 4 Service
providers
Figure 1 - Key factors affecting mobile communications
Original Source : Michael Paetsch, Mobile communications in
the US and in Europe, 1993. Author’s adaptation.
Regulatory policy
Regulatory policy aims to insure a harmonious development of
the sector. It implies an arbitration role on numerous
aspects such as interconnection tariffs, frequency
allocations, market structure and technology.
Technological factors
The main technical difficulty that remains is the scarcity
of the spectrum. Since the most useful part of the spectrum
is already allocated, the development of cellular telephony
depends upon the introduction of technologies that use the
less crowded and higher frequency bands. Also,
technological evolution makes new communication services and
new features possible.
Manufacturers
Due to rapid technological evolution, equipment
manufacturers often allocate funds to the development of new
services before the allocation of spectrum frequencies. In
this way, they attempt to impose a.
100%) and
the penetration rate is low(<3%).
2. A second period when the curves reach a
critical period (the curve of curb).
37
3. A third period of stabilization. The
penetration rate increases while the growth
remains constant (between 20% and 40%).
Reality reveals a more chaotic structure. Nevertheless it is
relevant to compare the price and coverage of the French
network in 1995 with the ones in Germany and the UK at the
same penetration rate (i. e. 15 per 1000, in 1992 and 1988
respectively). One notes that France should experience a
more important growth because the market factors are mmme
favorable to France (total price is really higher in Germany
in 1993 in comparison with France in 1995, and the coverage
is better in France in 1995 than in Germany in 1993). But
figure 3.1 reveals that this growth is stronger for Germany
and the UK. It means that even in a most favorable market
environment, the French market still does not reach the same
expected growth.
38
"l
Penetration rate per 1000
Figure 5 - Penetration rate and subscriber growth in France,
Germany and the UK from 1985 to 1995.
Note: this 1£5£3 figure with three dimensions (subscribers
growth, penetration rate and time). For example, in 1995,
the penetration rate in the UK was 70 per 1000, and the
annual growth from 1994 to 1995 was 58%.
More specifically, in 1993, the monthly growth of the GSM
subscribers was around 15% in Germany until it reached a
million subscribers. Then it decreased until 1995 at around
4% per month. In France, in 1995 with only 500,000
subscribers, the GSM growth was only 6% per months. During
the first four months of 1995, the French cellular
penetration rate has only grown by 0.17 point with respect
to 1.3 in the UK and 0.45 in Germany.
3‘)
Now that the coverage of the population is not an obstacle
anymore, and the prices have decreased to a point where it
is more expensive to own a GSM in Germany than in France, it
can be concluded that the market variables cannot
sufficiently explain the important differences in the rate
of adoption of cellular telephony in France, Germany and the
UK. The next chapters will describe the regulatory and
socio-economic environment and analyze how the interaction
of these factors can help us understand this inconsistent
development.
‘ The study did not take into account the product
substitution as a variable. One can think that there is a
relationship between the number of public phones in a
country and the penetration rate of cellular phones: the
more public phones, the less incentives to get a cmdlular
phone. It acts as a product of substitution. In 1992, the
penetration of public phones in the UK was 0.65 per 1000
inhabitants, while it was 0.33 in Germany, and only 0.31 in
France. On the contrary, one can consider that the number
of public phones increase the need for calling anytime and
anywhere. So the long run it favors the habit of calling.
It seems there are no real products of substitution for
cellular telephones.
2 There has never been a lot of differences between terminal
handsets in France and Germany. The use of a national norm
prevent the market from having a very diversed offer. The
coming of the NMT 450 standard in 1989 increased the number
of handset terminal available in France. .Nowadays the
number of terminal features is not a factor considering that
GSM is a European norm.
3This relative difference in results might come from a
different analysis of the price. M. Paetsch does not take
into consideration the initial connection charge and also
the monthly rental charge. Moreover, the usage charges have
been calculated differently. The source from his study, Mc
Cartney, bases the usage charge on five two minute calls per
day during peak time, five times a week. So it becomes a
basket of 520 calls per year. (In the other hand, in the
current study, the data is coming from the OCDE. The OCDE
considers a basket of 910 calls of different distances and
duration made at different times of day or week.
‘Michael Paetsch showed that there was no correlation
between terminal prices and service prices. He performed a
regression analysis between these two variables and found
an R square of only 0.07.
5 The following countries did have a 100% GSM coverage at
the end of 1994: Belgium, Germany, Luxemburg, Netherlands,
Sweden, the UK, Italy.
41
‘ The following countries did not have a 100% GSM coverage
at the end (ME 1994: Austria, Denmark, Finland, France,
Greece, Norway, Portugal, Switzerland.
7 OECD communication outlook, OECD publications, Paris 1993
“ OECD communication outlook, OECD publications, Paris 1993
9 Michael Paetsch, Mobile communications in the US and
Europe: Regulation, technology and markets, Mobile
Communications Series, 1993.
w This exceptional low price is due to the two tier service
provision structure.
“ Mobile Europe, 1995 GSM Tariff update, the terrible truth
about tariff is..., October 1995, pp75.
” Mobile Europe, 1995 GSM Tariff update, the terrible truth
about tariff is..., October 1995, pp75.
13
Mobile Europe, 1995 GSM Tariff update, the terrible truth
about tariff is..., October 1995, pp75.
14
Tariffs 1J1 September' 1995. Found (n1 internet an: the
Mercury one 0 one homepage.
The web adress is: http://www2.one2one.co.uk/one20ne
15
Mobile Europe, 1995 GSM tariff update, the terrible truth
about tariff is..., October 1995. pp73-77.
” The value added Tax is not taken into account. In
October 1995, the VAT was 18.6% in France, and 15% in
Germany. In the UK, it was 17.5%.
n lUS$ = .2094 Ffr (04/15/1995)
lUS$ = .7318 DM (04/15/1995)
42
” The model should look like the following chart.
250
[—D— Any countryJ
200 4
150 1'-
Subscriber
Grow th (96)
100 ..
50 ..
-a
o 1 :— 1 4 : . . . 4 A
0 10 20 30 40 50 60 70 80 90 1M
Penetration rate per 1000
Chapter 4
THE REGULATORY FRAMEWORK
This chapter consists of a comparative description of the
regulatory framework in France, Germany and the UK. Its
purpose is tub make time differences described 1J1 the third
chapter more clear; The controlling of the regulatory
bodies covers numerous fields such as the management of the
spectrumu the degree: of competition, the standardization
process anui the distribution circuits. This chapter will
focus on these various parameters and how they impact the
market variables.
4.1 The regulatory policy.
In examining the regulatory framework in the UK, Germany and
France, important discrepancies are revealed.
The United Kingdom is considered by some to be one of the
most open telecommunication market in the world. - The
liberalization process started in.tflua earby 80’s with the
transformation in the provision of telecommunication from
the original state-owned monopoly into a privately owned
43
duopoly -British Telecom and Mercury. The current framework
is based on the 1984 Telecommunication Act that “allows any
person or company to operate a telecommunication system in
the UK provided their license has been authorized by the
Secretary of State for Trade and Industry and OFTEL". The
duopoly ended in 1991 and numerous operators are now
competing on the fixed market.
In Germany the liberalization process began in 1989 with the
Postal Reform I which separated the operational and
regulatory functions of Deutsch Telecom (just after the
postal and telecommunication services were separated). EH‘
depends on the Bundesminister fur Post und
Telekommunikation'. In June 1993, the decision was made to
privatize DT and the first shares are scheduled to be sold
in mid 1996 (20%).
France embraced early on the concept of a more liberalized
telecommunication industry. The first structunal move in
1988 was to place all the France Telecom subsidiaries under
the control of a new holding company, COGECOM. A more
obvious step was taken when the terminal equipment market
stopped being subjected to supply restriction. Moreover,
the arrival of the Societe Francaise de Radiotelephone as a
second analog operator in 1989 triggered the era of
competition. In order to remain competitive, France Telecom
receives the status of an autonomous Operator which makes it
45
responsible for its own budget. Since January 1993, the
DGPT is regulating independently the telecommunication
sector. Its mission is:
”to elaborate and implement governmental policy in the field
of Post and Telecommunications at a national, community and
international level, and to regulate these two sectors of
activity by defining clear economical, legal and technical
ground roles". ‘
In addition, ideas are being exchanged on the possible
transformation. of the state-owned. France Telecom. into a
privater company. Tim: HEW’ liberal government intends to
privatize France Telecom. but has had to deal with the
disapproval of the civil workers.
4.2 The key factors of regulation
4.2.1 Spectrum management
Despite the technological advances, there are still
technical obstacles that limit the available amount of
spectrum. The spectrum has to be shared between
radiocommunication, broadcasting, government auui (other
private uses. The possession for the radiocommunication use
of the spectrum (especially in the most useful frequencies -
between 30 MHz and 1 GHz) allows the operator to adopt a
flexible policy in terms of frequency allocations and
technological choices. As mentioned by Simon Glynn}, after
considering the availability of the spectrum the:
”challenge for regulators is to determine what number of
licenses will best achieve their objectives in the
particular circumstances of their market, operators and
regulatory system".
Each country has a special allocation procedure. In the UK
the selection of the new PCN operators has been made by
limited competition with a requirement to meet certain
quality criteria. In Germany, they are selected by public
tenders, while in France they are chosen by a ”request for
tenders" procedure.
In Germany and the UK the management spectrum has not been a
big issue. The necessary frequencies have always been
available when needed. When in 1989 the C network reached
its saturation point, the spectrum availability was allowed
to double the network capacity and thus to satisfy the
growing demand.
47
Table 5 - Allocation of spectrum bands below 1 GHz, 1992
Use of the France3 Germany‘ UK5
spectrum
Radiocommunication 15% 64.5% 48%
Broadcasting 50% 0% 3%
Government 35% 35% 22%
others 0% 0.5% 27%
France is the only European country that does not have a
centralized spectrum management system. The organization
comes from: political, historical and cultural traditions
which make it really unique. It is due to the strong
historical division between telecommunication and
broadcasting. In Germany or the UK, this division is not
manifested ixi the spectrum allocation. For instance, the
radiocommunication agency in the UK manages all the
radioelectric frequencies including time ones for
rbroadcasting. Moreover the importance of the military
historicaly within the revenues of the companies of? the
telecommunication sector (2/3 for the mulitary sector, 1/3
for the civil sector) has always influenced the French
spectrum allocation policy. With regards to the more useful
48
part of the spectrum (below 1 GHz), only 15% is alloted to
radiocommunications, while in Germany it is almost 65% and
in the UK, 50%. In this context, the GSM frequencies have
been liberated only because of the pressure applied by the
European directives.
The situation has now evolved in France. The regulator has
alloted the most important portion of the electromagnetic
spectrum in Europe to the two GSM operators. Consequently,
this factor can no longer be considered as an obstacle to
the development of mobile communication services.
4.2.2 Competition
France, Germany and the UK have decided to introduce
competition in cellular telephony. A competitive
environment has been the UK ”credo" from the beginning. The
freeness with which licences are being awarded in the UK is
currently raising the question on their ability to survive
in such a competitive market. Considering that competition
is the Zbest' environment for' the development of cellular
telephony‘, it is interesting to reflect upon the rhythm of
introduction of competition and the effectiveness of this
competition.
49
The rhythm of competition
Questioning rhythm of introduction of competition means
considering calendar efficiency. With the passing of time,
it seems that introducing competition in the analog network
4 years after the start of the first network was not
judicious. Moreover SFR had only three years to develop its
network before the advent of GSM on the market. Waiting a
three more years, as did Germany, and introducing
competition only with GSM might have been a better solution.
Paetsch notes that:
”Countries with presently only one analog cellular-telephone
network are likely to see the fastest implementation of the
new Pan-European digital network"t
In the France’s case, SFR did not have a sufficient cash
flow to support both a GSM and an analog network. The
investments were divided into 2 different networks. The
participation of Southwestern Bell and Vodaphone in SFR's
capital in 1994 finally provided 600 million dollars that
will allow SFR to make the necessary investments for its GSM
network.
Moreover, in a market of mobile communication that develops
very quickly, it is important to award licenses on a
specific market at the same time so equal competition can be
50
insured. In the UK, each service is in a competitive
environment (Analog, GSM and PCN), and the market share of
each operator is relatively equal in each market. Since
1985, and the launch of analog services, Vodaphone and
Cellnet have relatively experienced the same growth, and
they had approximately the same number of subscribers in
1995“. In Germany, the only competitive service (GSM) is
equally divided between the two operators, Mannesman and
Deutsch Telecom”. The French analog market has been
competitive since 1989, and SFR has represented around 30%
of it until 1993. In the GSM market, SFR represents around
25% of the market. Consequently, it can be concluded that
the rhythm of introduction of competition in France has not
been as efficient as in Germany or the UK which raises the
question of the effectiveness of the French competition.
The effectiveness of competition
Among all the forms and degrees of competition, only certain
ones are effective
”Effective competition requires strong mutual pressure
applied among comparable rivals on a basis of competitive
parity. At each point in the competitive process, there
must be numerous comparable rivals, with comparable
resources and prospects of winning in each episode. All
51
firms must be able to assert and defend themselves
u H)
effectively
This statement makes even more sense in the mabile market
where the competition is limited de facto to spectrum
availability. Among the countries with a competitive
environment within the analog market, France experienced the
lowest penetration rateu The imperfections of tflue French
market are a result of various parameters such as access to
cheaper input for FT (capital, interconnection facilities”)
and of disparity in the spectrum allocation. From the
beginning, SFR has complained to the DGPT about the
interconnection tariffs and spectrum allocation. 131 1994
only, a ministerial directive cut the pay back on the mobile
operators to FT by up around 50%”. In addition, the DGPT,
in order to catch up with the European countries, has given
mobile operators different Options to reduce their
interconnection tariffs:
January 1994: The possibility to establish
their own links (it CENT be electromagnetic links
or fixed links). In Germany, the (mat operators
are still not able to establish their own fixed
links.
June 1994: The possibility of renting network
capacity from an independent network (SNCF, Air
France...).
52
Mannesman, the GSM German operator, complained to its
national regulator about the interconnection tariffs in
1992. FGW’ month later, the commercial tariff for a
connection to the fixed lines was reduced by up to 79%. In
the UK, the competition within the fixed market facilitated
the drop in interconnection costs of the mobile operators.
They were also able in 1985 to rent some network capacity
and tx> establish their (WWI fixed link. These regulatory
decisions gave a lot more flexibility to the mobile
operators who were able to optimize their costs with a
better management of their network.
As mentioned earlier, the French market's lack of efficiency
can also be explained by the choice of the second operator
(the natural one being the national PTTs). The SFR did not
have the financial resources to heavily invest and thus
compete with France Telecom. In Germany, Mannesman is a
huge company with a significant cash flow. The introduction
in 1994 of Southwestern Bell and Vodaphone into SFR’s
capital has finally helped it to compete on the same level
as FT.
4.2.3 The technology and the standards
4.2.3.1 The first generation of cellular telephones
53
The choice of the analog technology has been largely
influenced by the availability -or the scarcity- of the
spectrwm, and the presence of national manufacturers. The
three major European countries have started to develop their
own systems. Considering only the technical parameters, the
tandard TACS, chosen by the UK, was using higher frequencies
than the C network and Radiocom 2000. Consequently, as each
cells was smaller (between 1 to 10 km for the TACS network,
and between 4 and 25 for Radiocom 2000), the power needed
for the emission. was lower. EkL if the use of lower
frequencies allows for 61 better geographic coverage, it
restrains the capacity of the network. In order to bypass
this coverage problem, four kinds of terminals were defined
and were introduced in 1985.
In the early 1980’s, France Telecom banked on private mobile
networks. The French operator developed the Radiocom 2000
systems as a network with divided spectrum possibilities.
This system facilitates the re—allocation of frequencies.
Moreover the ”band III” (171/223 MHz) is not totally
available in France as it is in the (”L This spectrum is
being used.kn/ the private broadcasting channel Canal +-cxi
half of the French territory while military forces are
making full use of their frequency in the 400 MHz band
(Saphir network (ME the police forces, security networks).
The French standard had to adapt to these restraints.
54
Radiocom 2000 was benefiting from large cells, and
consequently was not acceptable for intensive frequency use.
In the Radiocom 2000 system, the emission power of mobile
devices is constant and does not allow for a reduction in
cell size due to possible interference. In order to solve
this problem, France Telecom set up an improved version
called ”Reseau a haute densite (RHD)" or high density
network which allowed for hand over; Despite this
improvement, the system was not productive enough in terms
of spectrum efficiency when compared with a system in which
emission power was regulated from a fixed base. This kind
of system allows for a significant cell reduction in the
densely populated areas. All in all, Radiocom 2000 used
around 50 MHz. Most of it was shared with military forces,
Broadcasting channels and the company networks. Only 6,4
MHz of the UHF band, were exclusive and did allow for
national coverage. It means that out of 250 000 subscribers
in June 1991, only 25 000 had a national monthly
subscription (more than a half were from Paris). SFR, who
chose an NMT system, entered the market at the end of 1989.
This system, relatively similar to the TACS system, has the
advantage of having hand over and automatic power
adjustment. Consequently it allows for a higher cell
density in the most populated areas. But for both SFR and
France Telecom their system reached their saturation point
quite early. Jurgen Muller and Saadet Toker writes that the
Radiocom 2000 system
35
”reached its saturation point of 8000 subscribers 1 year
after the opening. ' As a consequence, spectrum originally
allocated to the provinces had to be reallocated to Paris"”.
When the demand exceeds the supply, the result is a scarcity
rent. As shown in figure 4.1, the two competing operators
have to increase their' market price in order to avoid
overloading their network and then reduce the waiting list
of customers”.
idomflmy
Unit
P ............ I ; I, . _ .......... .
#Scamity- y =
Market Price rent _
of the services " ’
Differential
rent Equipment
Equipment COSt
cost
//
// ’ .
LOW Operator 1 Operator 2 ngh
Frequencies used
Figure 6 — Mechanisms creating scarcity rent.
Source : Ecole Nationale Superieure de Telecom Paris,
Departement economie, 1992.
57
Moreover, when one of the operators has a frequency more
suitable to their needs, then its scarcity rent is
compounded with a differential rent (hatched part figure
4.1). This means that the operator with the most desirable
frequency has a significant advantage over the other, and
consequently the two operators can not compete equally. In
France, the first frequency allocated to SFR did not allow
it to compete on an equal level with FEB SFR started its
network with only 2 MHz of spectrum which was then extended
to 6 MHz. Both providers in Germany (Mannesman and DT) and
in the UK (Vodaphone and Cellnet) received the same amount
of spectrumt when launching their analog or GSM. This
scarcity rent was also apparent in the pricing policy of the
SFR which charged Paris twice as much as the Provinces.
This policy was more easily attainable since FT had the same
one. fDue rent was directly related to the radio spectrum
resource and was important to the cost structure of the
market.
The adoption of one standard in several countries may
directly influence the supply of the terminal handset. At
the European level, countries that have standards other than
the TACS or NMT systems had a penetration rate under 8.7 per
1000 inhabitants in 1991”.
58
The standardization of the TACS system. and its use in
several countries (Ireland, Italy, Austria, Spain) lowered
subsequently the terminal prices. This statement was found
in an analogy of the NMT network implemented in the Nordic
countries”. Nevertheless, it needs special attention.
When, in 1991, the market for the NMT 450/900 network was
adequately divided within the Nordic countries (45% in
Sweden, 20% in Finland and Norway, 15% in Denmark), 83% of
the TACS subscribers were coming from the [H0 Moreover,
other countries using time TACS standard started ix) launch
their networks only in the early 90's. At this time, the UK
already had 1 million subscribers. Therefore, it is harder
to draw any correlation between the use of a common standard
and the terminal price. Nevertheless, the development of
the TACS standard was partial to the manufacturers investing
in it (and consequently was reached a mass market that
affected terminal prices). In France only 9 terminals were
available for both the Radiocom and the SFR networks. The
manufacturers considered the potential French market too
small and they refused to heavily invest.
4.2.3.2 The second generation of cellular telephones
With the development of a European approach to the
standardizatbmn of cellular phones —GSM, DECT-, the
technological factors do not influence the growth
59
discrepancies as they did in the past. Nevertheless, it
seems that each country is considering each standard
differently. While France and Germany consider PCN as a
natural extension of the GSM and as a way to extend its
capacity, the UK looks at it as a direct competitor to the
GSM. Consequently it is promoting the PCN as a more
universal and less expensive service. In order to favor
competition, the regulatory bodies in France and Germany
have forbidden the GSMI operators to participate in the
allocation of the PCN frequencies.
4.2.4 The distribution structure
The distribution structure has often been cited to explain
the success of the cellular phone in the UK”. The
Department of Trade and industry (DTI) has imposed- since
the laundh of the analog service- a distribution via some
intermediaries who are completely independent from the
operators, "the Service Providers" or SCS (see figure 4.2).
When a terminal handset is sold for a price P0 to the
service provider, both the operator and the service provider
often give a bonus of X1 and X2 to favor the demand. Then,
if the benefits of the distribution are Y, the price paid by
the subscribers becomes : Po+Y- (X1+X2). Consequently, if
the reimbursement of the distribution benefits are inferior
to the extras given by the operator and the service
providers, the price Pr paid by the subscribers becomes
inferior to Po. It means that Pr can vary from 0 to Po or
more. In such a structure the prices are varying from one
day to another in function of the extras given by the three
different actors (Operator (X1), Service provider (X2) and
distributor (Y)).
Number of % of revenues
competitors on the service
2 73-80 % Operator Manufacturers
1 x
P0
50 18-25 % Service Provider
I x
2000 2 % Distibutors
# Pa
4,] millions Subscribers
in April 1995
Figure 7 - Marketing channels in the UK
61
This distribution circuit completely separates the marketing
and distribution functions. The distributors are free to
fix their equipment prices with specific airtimes and
monthly subscription deals. Within a non—homogeneous
market, with a lot of different market niches, a pricing
segmentation is allowed that fits several different
profiles. Naturally it is hard to evaluate the influence of
this ”two tier approach" on the market. The terminal price
can change from one month to the next by way of special
discounts from the service providers.
Otherwise, the distribution of the analog service in France
was divided into three main actors : the manufacturers, the
operators and the distributors. In this distribution
circuit, there was a strong variation between the sale of a
terminal and the sale of services -airtime + connection-
(see figure 2.4). Bruno Salgues” considers that this
commercialization circuit welcomed between 120,000 and
140,000 new subscribers every year. It was sufficient to
get a return on an investment (estimated at 350,000) for the
upcoming digital network.
62
FT en c Distributors Manufacturers,
ag y +Installators agencies
onme ren H Subscribers
Figure 8 — Marketing channels of Radiocom 2000 in 1991.
Source : Bruno Salgues, Les telecoms mobiles, Hermes, 1995.
Note : EGT, a subsidiary of FT, commercializes its cellular
telephones through the brand FTE (France Telecom equipment)
via its network of big agencies to the administrations and
companies of more than 50 employees.
The success of the marketing channels in the UK has
1‘)
encouraged. FT .and SFR to reevaluate their distribution
policies. The distribution circuit for the (mud has also
63
witnessed the arrival of the SCS” which has caused a
considerable decrease in terminal prices. The "war on
prices" began in France in October/November 1993. In April
1995, the~ SCS had. gained.:more than. 60%“ of the French
market. The war on price is also contributing to the change
in social mentality with regards to cellular phones in
France by shortening the gap between the market price and
the psychological price threshold of the population (see
chapter 5).
4.3 Conclusion
The descriptive regulatory framework outlined in this
chapter provides key information for the understanding of
mobile communication development in France. IFirst of all,
the lack of consensus on key decisions, on the technology
and on cellular telephony in general prevented the market
from increasing. Until the early 90’s, ea global lack of
interest in mobile communications from both regulators and
operators was apparent. Nobody thought that mobile
communications would obtain such a mass market. For
example, Alcatel, who has been the leader in technological
telecommunication French moves, did not follow the mobile
path. And in a short time, Alcatel has lost its world
leadership as a telecommunication manufacturer.
More specifically, the lack of frequencies, the use of a
standard with different frequencies, including low ones
(<200 MHz), and a regulatory context that does not favor the
emerging competition has resulted with poor coverage and
high tariffs. Above all, it is the incapacity to react
promptly to the market moves at the regulatory level that
prevented the market from developing. If Germany
experienced a low penetration of analog services in the
80’s, it also succeeded in quickly taking control in 1990
when the demand began to thrive(by doubling the C network
capacity).
When Mannesman complained to the German regulatory body in
1992 about the high interconnection tariff, a decision was
made to encourage competition. It took 2 years in France
for the DGPT to decrease the interconnection tariff as well
as the usage cost of the fixed network for mobile operators.
Table 6 - regulatory structure in F, UK and G
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Individually, some decisions made by the French regulatory
body can not be considered inappropriates. For example, the
introduction of competition in the analog network should
have boosted the market rather than to financially weaken
the SFR. At that time, SFR did not have enough cash flow to
compete with France Telecom. IX stronger competition would
have urged France Telecom , ems a state owned manopoly, to
invest more heavily, even on a relatively unknown market.
Consequently, it is no surprise that until 1994, the French
market had only 400 000 subscribers. Competition is not
effective in France, and France Telecom is focusing more on
its technological ”wonder" -the Bi—bop- than on GSM
technology. Nevertheless, several changes have taken place
in the French regulatory framework in 1994. In January
1994, mobile operators were allowed to establish their own
fixed links, the interconnection tariffs were slashed by
50%. In June, the DGPT allowed them to rent network
capacity from independent networks. Ln this context, the
French mobile operators can enjoy a favorable regulatory
environment (see table 4.2). If the regulatory situation
was a factor of the delay in the penetration rate of mobile
phones in France, the recent efforts made by the DGPT
should prevent any complaints of lack of incentives in the
mobile sector. Nevertheless, when everybody was expecting
the French market to take off in 1994, and again in 1995, it
remained relatively inactive in comparison with other
67
European countries at the same penetration rate. And in the
first semester of 1995 there were only 250,000 new GSM
subscribers in France. This is compared to the nearly
400,000 new subscribers in Germany during the first semester
of commercialization -in 1992.
Despite the fact that France has one of the lowest cellular
phone penetration rates in Europe, the growth of this rate
during the first four months of 1995 was the lowest in
Europe. The hope of a real expansion has been once again
postponed to the opening of a PCN network by Bouygues
Telecom early in 1996.
In this favorable regulatory framework, and with current
market variables that should encourage the growth of
cellular telephony, why does the French market still long to
flourish? Coming back to figure 1.1 (see chapter 1), one has
to consider the socio-cultural factors and their impact on
cellular telephony.
68
‘ BMPT stands for the Federal Minister for Post and
Telecommunication.
2 Simon Glynn, Spectrum frequency allocation, 1992.
3 La Direction. Generale «des Postes et Telecommunications
(DGPT), Les services de radiocommunications mobiles, Juin
1995.
‘ OECD, The economics of radiofreguency allocation, OECD
Publications, Paris 1993.
5 OECD, 1993.
6 OCDE, Services de communications mobiles et fixes:
concurrence ou complementarite ? ,pp50-59. OECD
publication, Paris 1995.
2 Michael Paetsch, 1993.
8 In April 1995, Cellnet tumi l 752 900 subscribers on its
analog network, and 41 000 on its GSM network. Vbdaphone
had 1 685 450 subscribers on its analog network and 194 750
on its GSM network. This means a 51% market share for
Vodaphone and 49% for cedlnet (not considering PCN
operators).
9 In April 1995, III DeTeMobil (Deutsch Telecom) had 1. 010
570 subscribers on its GSM network while D2 Mannesman had
981 000 subscribers. This means a 50,8% market share for D1
and 49,2% for D2 (not considering PCN and analogic services)
” William G. Shepherd, Potential competition versus actual
competition.
” Robert Albon, Interconnection pricing: an analysis of the
efficient comparing pricing rule, Telecom Policy, 1994.
6‘)
‘2 La Direction Generale des Postes et Telecommunications
(DGPT), Les services de radiocommunications mobiles, pp1-3,
Juin 1995.
1:‘Jurgen Muller and Saadet Toker, Mobile communications in
Europe, in Charles Steinfield, Johannes M.Bauer and Laurence
Caby (Ed), Telecommunication in Transition, Sage
publication, 1994.
” ENST, department of economy, 1990.
” Michael Paetsch, 1993.
” OCDE, Services de communications mobiles et fixes:
concurrence ou complementarite ? ,pp50-59. OECD
publication, Paris 1995.
" Bruno Salgues, les telecoms mobiles, Hermes, 1995
” Bruno Salgues, les telecoms mobiles, Hermes, 1995
” The SFR has approximately the same marketing channels. It
does not have an equipment subsidiary like FT, and so its
number of agencies are slightly lower.
” In France the SCS are: Carrefour, Cellcorp (Affiliate t0
SFR), CMC (Communications de Mobiles Cellulaires), Debitel
France (ex-Mades), Hutchison Telecom, Locatel Service
(Alcatel affiliate), Motorola Telco, Sagem, Sodira
(affiliate to France Telecom), Vodaphone
2‘ La Direction Generale des Postes et Telecommunications
(DGPT), Les services de radiocommunications mobiles,pp60—61,
Juin 1995. ‘
Chapter 5
THE SOCIO-CULTURAL FACTOR
It was revealed in the last two chapters that the slow
development of cellular telephony in France could not be
adequately accounted for considering only market or
regulatory factors. For instance, the mobile communication
market, because of its visible presence (For example, who
has not already be awakened in a train or a subway by a GSM)
has been affected more than other telecommunication markets
by intangible social factors that have either promoted the
use of cellular telephony (as a social status symbol in
Italy). or hindered its social acceptance.
Presently, the social debate is focusing on assessing the
socio-cultural impact of a technology that allows anybody to
be contacted “anywhere and anytime". France, Germany and
the UK all come from the same European unity. They have
experienced the same kind of technological development and
one can see that the degree of innovation is equal all three
countries. So at first sight, there are no strong cultural
differences that could explain why the social acceptance of
cellular telephony would. be different in each of these
70
71
countries. Then, the economic factor should prevail over
the socio-cultural ones.
Nevertheless, there are some historical and cultural
differences inherent to France that when linked with the
particular development of cellular telephony may influenced
its slow development. The first section of this chapter
will analyze the effect of the French centralizing tendency
on the development of mobile systems. Then a second section
will analyze hOW' the jparticular development of cellular
systems has impacted the perception of the individual toward
cellular telephony. Finally, a third section will outline
how a social demonstration has acted as a critical point in
the development of mobile communication in France.
5.1 France and the centralizing tendency.
France is a centralized country in many ways.
Geographically, economically and culturally this
centralizing tendency is prevalent. More than one sixth of
the French population lives in Paris (n: in nearby suburbs
while 11% of the UK population is living in London and less
than 4 % of Germans live in Berlin. And other than the main
metropolitan city in France, there are only two cities with
more than 21 million inhabitants in France (Lyon and
Marseilles). In the UK, Birmingham and Manchester have more
72
than 2 million inhabitants, and Leeds Sheffield, Liverpool,
Glasgow or Edinburgh are also cities that can counterpart
London. In Germany, there are 12 cities that have more than
1 million inhabitantsh This French centralizing tendency
is also emerging through the rail lines and the road network
architecture, since they all lead to Paris. The following
map (figure 5.1) reveals this tendency through highway
constructions. Consequently, when it comes to coverage of
the mobile network, the Parisian area is well covered while
the rest of France suffers from a diversified coverage.
73
Figure 9 - GSM coverage in 1993
Source: France Telecom, 1993.
74
This centralizing geography is fundamental in the case of
cellular telephony. The operator has to be able to separate
the traffic flow respectively in vocal, data or image flow,
and also to locate the point of emission. This analysis is
very important because it allows the optimization of network
architecture and the organization of geographic coverage.
Location of emission sites and geographic partition of
frequencies attempt to answer this question2. It means that
it is important to search for places were people are
”consuming" mobile services. In the case of France, the
answer is Paris.
Moreover, Paris is economically the center of France. Big
companies try to rebuild. what decentralization laws are
trying to reformu Headquarters, big decisions and big
business take place in Paris while the remaining ones are in
the Provinces. Counterexamples in Lyon or Toulouse will not
alter this trend. The buying power also concentrates around
Paris which is the first target for cellular telephonyh
Above all, there is a large mentality gap between Paris and
the Provinces which is more significant than in any other
European country. The French expression ”menter at Paris”
means that one is going to move from one world to another.
One does not say “monter a Londres" or ”monter a Berlin",
because these cities are economically and culturally
opposed. The French Provinces develop other ways of living,
75
more discrete, more calm, less engaged. The response to
cellular telephony would be less popular in the Provinces
than in Munich or Manchester.
5.2 Perception about cellular telephony
As mentioned earlier, only 10% of the Radiocom 2000
subscribers had a national coverage subscription due to the
lack of available spectrum. Consequently, this poor
coverage linked with poor network quality gave the feeling
that cellular telephony would result in lost calls and the
inability to call from anywhere. And the arrival of the GSM
did not alter this social perception. As mentioned by
Francois Pilleron, sales director at Ericsson in 1995, “the
main obstacle remains the perception that people have about
the coverage territory”5 In Germany and the UK, the
national analog networks were not perceived as inefficient.
Moreover, the transition between analog and digital network
has not been. very outstanding. in: Germany, the
reunification helped moving from one system to another. And
since the beginning, heavy commercial and marketing
investments have been made to favor the transition to
cellular telephony from a specialized to a mass product.
The enormous need for communication equipment in East
Germany required a quick deployment of digital technology.
76
In the UK, cellular telephony was already considered to be a
mass product, and consequently, there was no real need for a
clear transition between analog and digital technology.
The arrival of the BI-bop as the alternative technology in
1992 prevented a clear and outstanding transition in France
between analog and digital services. Once again, the rhythm
of introduction of a new service on an embryonic market is
crucial.
France, Germany and the UK have all tried to implement a
cordless system. Deutsch Telecom abandoned its Birdie
system at the end of 1992. The existing competition (GSM +
analog) and that of the future (PCN) were considered as a
threat that was not worth the risk of making this service
available. In the UK, Rabbit failed, partly due to poor
marketing. On the other hand, it is relatively successful
in France (even if the goal of 150,000 subscribers by the
end of 1994 was not attained). At the end of 1994, the Bi-
bop acquired approximately 80,000 subscribers and 10% of the
cellular telephone market. .Above all, its inmact (n1 the
perception of the individual with regards to cellular
telephone has been. of primary concern. France Telecom
displayed the Bi—Bop as the symbol of technological
advancement in the mobile field. Most of FT's advertising
campaigns for mobile services have been directed exclusively
as this product. (hi one hand, its affordability and its
77
convenient portability demystified the concept of the
cellular phone as an expensive and unfriendly technology.
On the other hand, the Bi-Bop features (inability to receive
incoming calls —in the beginning-, no handover, limited use
of services only when near a cell) became characteristic of
”every" cellular phone. It is only at the end of 1994 that
France Telecom started to market the GSM.
Moreover, time BI-bop is run: available nationally; In the
beginning, it started with coverage in Paris and Strasbourg,
and is now expanding to Lilles and Lyon. Consequently, it
gave the impression that cellular phones were mainly a
”wealthy gadget for Parisian people”. This might have
widened the socio-cultural gap between Paris and the
Provinces in terms of perception about cellular telephony.
Because of this gap, cellular telephony is mainly a Parisian
technology. In 1994, more than 1 subscriber of Itineris in
2 was from Paris while more than 80% of the population was
covered.
5.3 Relevance of the socio-cultural factor by way of a
social event and critical mass theory.
5.3.1 A basic model
78
The notion of critical mass for mobile communication is hard
to evaluate. The figure 3.1 in chapter 3 showed that in the
case of France, Germany and the UK, it was hard to relate
subscriber's growth to the penetration rate. Thus, there was
no “economical“ critical mass. Oliver, Marwell and Texeira
define critical mass as ”a small segment of the population
that chooses to make big contributions to the collective
action while the majority do little or nothing"fl Another
definition is given by Noam who describes critical mass as
”the smallest number of users such that a user is as veil
off as a nonuser u(n) = P(n)', with u being the benefits of
participation in the network and p the price.
Cellular telephony is the interactive media that allows any
member of a community to communicate with all other members
at all time and places. Applying critical mass theory to
cellular telephony means to study an interactive media6
which is also a subnetwork of telephony. The concept of
utility mentioned by Noam is different for the mobile
network” When social utility of the telephone network
steadily increases with the first subscribers, the increase
in subscribers to the mobile network does not augment social
utility at the same rate. In the OCDE countries, ‘ where
telephone has already reached universal access, the early
adopters do not need the mobile network to grow so that the
number of subscribers adds to utility. They can call and be
called anytime and from any location. Utility is above all
79
an individual variable: each individual is more or less
benefited by using it, but these benefits are not a function
of the size of the mobile network. All in all, cellular
telephony is the extreme case of interactive media in which
an isolated user can obtain benefit from using it.
Coming back to Noam's network tipping model, in the
beginning, the function U(n) —benefit of participation in a
network—, is not steadily increasing with network size as it
is a subnetwork of telephony. In the case of a mobile
network, the benefit of participating in this network
steadily increases only when a certain amount of people are
using the media. Then it becomes a network all by itself
and becomes less dependent on the telephony network. It can
be shown schematically in figure 10.
80
Model for a mobile
network
A Noam’s Basic
Model
PKn)
DoUms
=AC/
U(n)
n1
———p—_—-—_————————_——————
Figure 10 - Critical Mass in a mobile network
Source : Eli Noam, Network Tipping: The rise and the Fall of
the Public Network Monopoly. Author’s adaptation.
U(n) = benefits of participation in a network.
P(n) = the price of participating in the network.
n1 = critical mass point.
81
For instance, in terms of communication, when in 1991 in the
UK the communication between mobile networks represented
only 3% of the communication with a mobile telephone, it is
predicted to be more than 20% by the year 2000. Then the
media will become an interactive media on its own. People
will subscribe not only to call and be called at their
convenience, but also to reach others conveniently.
All in all, critical mass can be defined as a sum of
individuals which considers individual benefits of
participating in the network worth the price. But this sum
of individuals varies from one country to another.
If the critical point in the critical mass theory of Noam
can hardly be defined in the specific cases of France,
Germany or the UK, nevertheless one can talk about some
crucial events in the development of these networks.
The social move in December 1995 appears as a critical
event. In France, the take off of the mobile market might
have been postponed if not for the social movement in
December 1995 and the next section will explain how. In the
UK, important events occurred in 1992 with prices being
suddenly slashed in the analog network or 1993 with the
appearance of Mercury on the market. In Germany, following
reunification, the appearance of GSM in 1992 is an important
date for reaching a critical point.
82
Whereas critical mass is hard to define, it seems the theory
of innovation is more appropriate to explain the relevance
of a social event. The diffusion of an innovation has to
come through different kind of events, more or less
important. An event participates in the diffusion of this
innovation but its real impact remains blur.
For instance, Rogers mentions that “an important factor
affecting the adoption rate of any innovation is its
compatibility with the cultural beliefs of the social
system”. Then he analyzes different categories of social
change. What Rogers called “selective contact change" is the
most relevant to our study. He states that "selective
contact change results when members of a social system are
exposed to external influences and adopt or reject new idea
from that source on the basis of their needs. The exposure
to innovation is spontaneous or accidental”“. Consequently,
different kinds of social (or economic, or pmditical) can
facilitate the adoption or the rejection of an innovation.
5.3.2 The French case
This chapter has already described the socio-cultural
environment and how it affects the development of mobile
communication in France. The benefits of using a mobile
83
phone were not clearly evident for a portion of the French
population.
November and December 1995 have seen the biggest strikes of
the last 30 years in France. People were striking against a
social security reform, and France was paralyzed for one
month. There were 300 miles of traffic everyday in Paris
which greatly affected communications. As mentioned by the
French newspaper Le Monde, it seems that the strike has
shown that mobile communications is not only made up of
simple gadgets but that it can be really useful, especially
in extreme situations. While there were around 35,000 new
subscribers each month before the strike, FT and SFR
registered 100,000 new subscribers during time first three
weeks of December. New Bi—Bop subscribers have increased
500% from November to December. For the professional, it is
no doubt that this growth is linked with the strike in
public services. Alain Lenoir, CEO of France Telecom Mobile
Telephone, said that ”the strikes acted as a trigger
mechanism for some people. It revealed that mobile phone
was not a gadget, but also a useful tool during isolation"fl
The growth suggests also that the mobile telephone is now
given as a gift to a close person. French are using more
and more mobile communications in their business life, but
also, more recently, in their private life. This indication
shows that mobile phones have finally become a mass product,
84
and so have finally attained a ”critical segment of the
population”.
5.4 Conclusion
This chapter shows the importance of the socio-cultural
factor on the development of cellular telephony in France.
First of all, it notes the relevance of the French
centralizing tendency. Then it analyzes how the
introduction of the Bi—Bop has impacted the perception of
the individual toward cellular telephony. Finally, the
critical mass model developed in the last section aims to
confirm the strong impact of the socio-cultural factor by
linking a social event to the critical mass point. It also
shows that the uneven development of mobile communication in
France, Germany and the UK can partly be explain through the
analysis of critical mass.
This chapter did not really focus on the social debate about
the use —or not- of cellular telephonyu IMobile
communications is often referred to as a technological tool
that will be an essential element of our personal liberty in
the close future.
”Mobile communications stand at the forefront of this move
toward liberalization because they allow each of us to use
our time most efficiently. If I can return business calls
85
while driving home from work, I can spend more time at home
with my children. Any intrusions in our private time are
intrusions that we have chosen, often in order to have more
or better quality”m.
Yves Lafargues, in 1992, questioned the connection of the
business and private life through communication tools. IHe
mentions the harassment by the telecommunication sector. It
would be interesting to study how the differentiation
between private and business life within a social system can
affect the adoption of a technology such as cellular
telephony. France is often characterized as a country that
clearly separates their private and their business life, a
trait that may be different for Anglo-Saxons and Latin
countries. In a technology-oriented French
Telecommunication magazine Telecom interview, one could
expect to welcome technological moves such as mobile
telephony. Then, it is surprising to note its conclusion.
Eric Fries outlines that cellular telephony' is going to
change our lives... and he describes all the everyday life
situations where cellular telephony is able to disturb our
lives”. This example confirms the perception of cellular
telephony in France before the strike. Then, this social
demonstration helps understand, via critical mass theory,
the recent development of mobile services in france.
86
2 Cities with more than 1 million inhabitant in Germany in
1995.
City Population in
million
Aachen 1.0
Berlin 3.3
Biedefeld 1.3
Cologne 3.0
Dusseldorf 3.0
Essen 6.5
Frankfurt 3.6
Hamburg 2.6
Mannheim 1.6
Munich 2.2
Nuremberg 1.2
Stuttgart 2.6
3 Bruno Salgues, les Telecoms mobiles. 1995, Hermes.
3 Eric fries, Introduction, Telecom Interview, Revue de
l'association des anciens eleves de l’Institut National des
Telecommunications, Numero 27, pp.2, Decembre 94.
4 Stanislas Noyer, Telephone mobiles, La course aux abonnes,
Les enjeux, Octobre 1995, pp.98—101.
C
Oliver, P.E., Marwell, G., and Texeira, R., A theory of
critical mass I, Interdependence, grogp heterogeneity, and
the production of collective action, American journal of
sociology, 1985.
6 Markus Lynne, Toward a “critical mass ” theory of
interactive :mediaq in. Organization and communication
Techonology' edited 1»! Janet Fulk euui Charles Steinfield,
1990.
87
2 Everett M. Rogers with Floyd F. Shoemaker, Communication
of innovations: A cross-cultural approach, pp.5, The Free
Press, New York, 1971.
Everett M. Rogers with Floyd F. Shoemaker, Communication
of innovations: A cross—cultural approach, pp.9, The Free
Press, New York, 1971.
9 Jean-Michel Norma, La diffusion des outils de
telecommunication mobiles s'accelere, Le .MOnde, 15th of
December 1996.
2“ Phillip L. Spector, Wireless communications and personal
freedom, Telecom policy, August 1993.
“ Eric fries, Introduction, Telecom: Interview, Revue de
l’association des anciens eleves de l'Institut National des
Telecommunications, Numero 27, pp.2, Decembre 94.
Chapter 6
CONCLUS ION
In this document, the slow development of cellular
telephony in France has been qualitatively defined through
a comparative analysis with Germany and the UK. This study
has been separated in three different level of analysis
(micro—macro variables, and the socio-cultural
environemnt). In order to understand the development of
the cellular network in France, and in any other country,
it is necessary to consider these three level of analysis.
If the micro variables have been directly related to
penetration rate, it has been shown that they could not
explain everything. Not only the macro variables help
understand how micro variables evolved, but they also may
impact on the social perception of this technology.
Nevertheless, it is possible to highlight the main factors
that explain the lag of the cellular network in both the
analog and the digital network. This lag in the analog
system was mainly a consequence of the global
disinterestedness in the main actors (France Telecom, the
manufacturers and the DRG). The use of an inappropriate
national standard considering the lack (ME spectrum
88
89
prevented the demand from freely developing. Moreover, it
was shown that a better price policy would have been
beneficial. The comparative example of the German network
showed how a quick reaction to the market moves and an
adequate pricing policy allowed the market to grow.
Nevertheless, at the end of 1991, Germany and France
experienced the same penetration rate which was in the EC
average.
The introduction of a Pan European solution to the GSM
aimed to redistribute the various factors that attempt to
explain the national differences. The EC set up a
Memorandum of Understanding (MoU) which required different
measures to favor an adequate development, such as the Open
Network PrOViSiCWL Consequently, the influence of the
national regulatory bodies have become restricted because
they are partially dictated by the EC. "The global
objective of the proposed positions is to allow European-
wide markets to develop and barriers to be lifted“. If
regulatory differences remain between countries, they tend
to decrease. The introduction of GSM has been accompanied
Iby a fundamental change with regard to the provision of the
'Telecommunication services in these countries. The French
and German previously monopolistic PTTs have begun
liberalizing their market. Ihi 1996, France, Germany and
‘the UK will experience almost the same kind of competition:
3 services (Analog, GSM and PCN), 3 different operators for
90
France2 and Germany’, and 4 for the UK‘. And while the
effects of the European approach. were visible in most
European countries(especially in the countries that had a
low penetration rate in 1991 —Spain, Belgium, Portugal,
Luxembourg-), the French cellular market was still
attempting to flourish.
The analysis of market variables in chapter 3 reveals that
the price has decreased significantly in France -especially
when being compare to Germany- but still remains higher
than in the UK. Despite this improvement the French growth
lagged behind Europe in the beginning of 1995. When
comparing France and Germany, it is important to note that
the German network is not experiencing a significant growth
due to internal factor such as the reunification. Table 2
in Annex 1 reveals that the German growth remains slower
than the EC average. Then, the French network is trailing
behind the most in cellular telephony.
A first explanation of the lack of success of GSM
technology -technology therefore developed by a French
research center- has been given through the analysis of the
rhythm of introduction of competition and the effectiveness
of this competition” INot only ea fair regulatory
environment is necessary to insure an efficient competition
.
but the timing of the introducing of this competition is
also important. SFR did not have enough cash flow to
91
develop a GSM network 4 years after having received the
authorization tx: implement anr analog network. Moreover,
the development of a cordless system in a few big cities
has prevented France Telecom to focus more on the most
promising technology: GSM. Consequently, ii: delayed the
transition from a business product to a mass market
product.
This critical transition, and the notion of critical mass,
has been analyzed in chapter 5. It has been concluded that
the strikes of 1995 have prompted a shifting in how
individuals perceive mobile communications. When studying
intangible factors suoh as the socio—cultural environment
of a country, it is difficult to make clear assumptions.
It will take time to see if the strike of December 1995 in
France has really acted as a critical point in the
development of cellular telephony in France. Nevertheless,
the figures in December 1995 and January 1996 are tending
to support this thesis. But more than a critical mass
theory on mobile network, the study tried to bring out the
significance of the socio-cultural factors to explain the
current slow development of cellular telephony in France.
When factors such as price and spectrum inefficiency are
obviously important in explaining the French lag,2 the
socio-cultural environment can not be neglected.
92
However, this study is limited, and should only be taken as
a tentative attempt to analyze the various factors that
influenced cellular telephony in a particular environment,
mainly France. When considering the results of the study,
one should keep in mind several limitations.
First, the study remains qualitative. The objective of the
brief statistical analysis in chapter 3 was to
scientifically relate the influence of some market
variables -and especially three kinds of prices- to the
variance of the penetration rate. But this analysis
remains incomplete because of the lack of scientific
relation in all the market variables. This limitation may
be lifted through further studies. It needs to integrate
statistical data on the coverage of the territory and the
population.
However, rational on which the explanation is based has
been discussed in the literature, and most of the factors
inherent to one country have already been observed several
times in different countries.
93
‘ European Commission, Towards a personal communication
environment, The Green paper on a common approach in the
field of mobile communications in the European Union, April
1994.
2 France Telecom and SFR 2( Analog + GSM), and Bouygues
(PCN)
3
Deutsch Telecom (Analog and GSM), Mannesman (GSM), Veba
(PCN)
‘ Vodaphone and Cellnet (Analog and GSM), Mercury and
orange (PCN)
APPENDICES
Appendix
Table 1. Appendix A: Data from several Eurgpean countries in
1991.
Penetration Fixed Usage Terminal GDP per Launch
rate' Charge charge price capita (in
(us $12 (us s)’ (US$) (ECU)‘ months)
Sweden 70.0 93.37 882.97 1140 22100 111
Iceland 53.7 87.96 380.16 1330 19600 54
Denmark 34.7 103.32 602.88 1470 21300 108
Switzerland 26.4 377.98 398.25 2010 23000 40
UK 21.6 498.69 1336.08 600 17800 62
Italy 9.9 461.76 931.99 1590 16600 64
Ireland 9.0 462.96 1229.90 1110 10900 61
Germany 6.5 440.99 1961.56 2530 18700 64
Netherlands 7.9 492.21 1040.30 1720 16400 72
France 6.7 929.56 1218.88 2190 17800 62
Belgium 5.1 484.69 923.32 2140 16800 45
Spain 2.8 720.26 997.88 2780 11400 103
Luxembourg 2.1 1526.72 990.29 2150 21000 66
Portugal 1.2 660.60 1368.63 2700 7800 24
1 Michael Paetsch, Mobile communications in the US and Europe:
Regulation, technology and market, mobile communications series, 1993.
2
OECD communications outlook,
1993 Paris.
The basket is weighted so that the fixed charges are one fifth of total
charges. the fixed charges include monyhly rental plus one fifth of the
initail connection charge.
The usage basket includes a basket of 2783 calls of different distance
and duration made at different times of day or week ~
2 1993, Paris.
OECD communication outlook,
Eurostat, the European statistical body.
The datas are of 1991. Found on the World
http://www.cec.lu/en/comm/eurostat/eurostat.html
4
Wide Web at
94
95
Multiple Regression
Equation Number 1 Dependent Variable.. PENETRATION RATE
Block Number 1. Method: Enter TOTAL
Variable(s) Entered on Step Number
1.. TOTAL
Multiple R .72610
R Square .52723
Adjusted R Square .49346
Standard Error 15.43364
Analysis of Variance
DF Sum of Squares Mean Square
Regression 1 3718.83908 3718.83908
Residual 14 3334.76030 238.19716
F = 15.61244 Signif F = .0014
------------------ Variables in the Equation ------------------
Variable B SE B Beta T Sig T
TOTAL -.014669 .003713 -.726103 -3.951 .0014
(Constant) 69.168603 12.869700 5.375 .0001
96
Multiple Regression
Equation Number 1 Dependent Variable.. PENETRATION RATE
Block Number 1. Method: Enter TOTAL GDP SINCE
Variable(s) Entered on Step Number
1.. SINCE
2.. TOTAL
3.. GDP
Multiple R .83180
R Square .69189
Adjusted R Square .61486
Standard Error 13.45761
Analysis of Variance
DF Sum of Squares Mean Square
Regression 3 4880.31077 1626.77026
Residual 12 2173.28861 181.10738
F = 8.98235 Signif F = .0022
------------------ Variables in the Equation --—-—-———-----—---
Variable E SE B Beta T Sig T
TOTAL -.010940 .003595 —.S41506 -3.043 .0102
GDP .001357 9.2941E-04 .265647 1.460 .1700
SINCE .234701 .144305 .279844 1.626 .1298
(Constant) 16.679590 24.666820 .676 .5117
97
Multiple Regression
Equation Number 1 Dependent Variable.. PENETRATION RATE
Block Number 1. Method: Enter FIXED USAGE TERMINAL
Variable(s) Entered on Step Number
1.. TERMINAL
2.. USAGE
3.. FIXED
Multiple R .78969
R Square .62362
Adjusted R Square .52952
Standard Error 14.87411
Analysis of Variance
DF Sum of Squares Mean Square
Regression 3 4398.73112 1466.24371
Residual 12 2654.86826 221.23902
F = 6.62742 Signif F = .0069
------------------ Variables in the Equation ---—----—--—------
Variable B SE B Beta T Sig T
FIXED —.031106 .011817 -.526518 -2.632 .0219
USAGE -.017595 .010306 -.316751 -1.707 .1135
TERMINAL -.006306 .006020 -.202883 -1 047 .3155
(Constant) 65.544700 13.429701 4.881 .0004
Linear Regression
1.. USAGE / FIXED
Multiple R .29445
R Square .08670
Adjusted R Square .02147
Standard Error 363.09120
2. TERMINAL / FIXED
Multiple R .40242
R Square .16194
Adjusted R Square .10208
Standard Error 347.81398
3 TERMINAL / USAGE
Multiple R .16116
R Square .02597
Adjusted R Square -.04360
Standard Error 398.80188
98
99
Table 2, Appendix A: Relationship between penetration rate growth and
charges in April 1995.
Penetration Fixed Usage Total
rate growth charges charges charges
in April (055)“ (US$)2 (US$)
19955
Sweden 7.22 204 2876 3080 (6)
Finland 5.05 150 2545 2695 (1)
Norway 4.48 95 2773 2868 (4)
UK 2.57 568 2442 3010 (5)
Denmark 2.54 243 2558 2801 (3)
Italy 1.55 478 2290 2768 (2)
Germany 1.11 645 5003 5648 (13)
Austria 1.08 524 3536 4060 (10)
Portugal 1.06 610 3050 3660 (7)
Greece 1.02 645 3305 3950 (9)
Belgium 0.98 882 3276 4158 (11)
Switzerland 0.61 806 4295 5101 (12)
France 0.54 551 3376 3927 (8)
Penetration rate growth in April 1995 means the increase of the
penetration rate in April 1995.
0.54 in Fance means that the penetation
rate has increased from 0.54 from Mars to April. The penetation rate was
15.36 in March 1995,
and 15.91 in April 1995.
2 Ministere des technologies de l'information et de la poste,
generale des postes et telecommunciations
6
Fixed charges are
(DGPT)
- Juin 1995.
Connection fee + 12 * monthly access fee
Direction
7Usage charges are: 100mn of peak rate calls per week and 40mn of off-
peak rate calls per week and during a year.
HX)
Multiple Regression
Equation Number 1 Dependent Variable.. PENETRATION RATE
Block Number 1. Method: Enter FIXED USAGE
Variable(s) Entered on Step Number
1 . . USAGE
2.. FIXED
Multiple R .80727
R Square .65169
Adjusted R Square .58203
Standard Error 1.33273
Analysis of Variance
DF Sum of Squares Mean Square
Regression 2 33.23257 16.61628
Residual 10 17.76182 1.77618
F = 9.35506 Signif F = .0051
------------------ Variables in the Equation ---——-------------
Variable B SE B Beta T Sig T
FIXED -.006609 .001857 -.796573 -3.559 .0052
USAGE —5.09919E-05 5.9732E-04 —.019105 -.085 .9337
(Constant) 5.710470 1.631511 3.500 .0057
101
Multiple Regression
Equation Number 1 Dependent Variable.. PENETRATION RATE
Block Number 1. Method: Enter FIXED
Variable(s) Entered on Step Number
1.. FIXED
Multiple R .80712
R Square .65144
Adjusted R Square .61975
Standard Error 1.27118
Analysis of Variance
DF Sum of Squares Mean Square
Regression 1 33.21963 33.21963
Residual 11 17.77476 1.61589
F = 20.55813 Signif F = .0009
------------------ Variables in the Equation —---------—-----——
Variable B SE B Beta T Sig T
FIXED -.006696 .001477 -.807116 -4.534 .0009
(Constant) 5.591448 .808177 6.919 .0000
MICHIGAN STATE
, H mm m m
12 3O
Ill
3