w 473:5. h)” {Flurua .. a “Q n a?» 5.. ... _ 1. 1. ‘ . .r ,. :2 . 2.: ., an .. 1;,‘ 1 1.. 7.. 1, :5... a: in. . (hm) 23:... z. . . . . VA. V . , . ‘ ‘Q ‘41“ “9H4, 3%»me : a. 1... ‘ L. bun“: ‘ :9... t In S. ‘kt‘lt .71.. t A :Ir. .. Kg... #3! 5. 5}.- it? .n .! .4 I. .53.’ ril' . L r- ‘ .0 ntwl .L A’AaD,|.6l. .3 .réa. 131......vfi Eur wu$14..u..n»o..... .1122: :2: 4... .... 5...: t. 1.1,“? uni}, 3.4... . ‘amfihiitun 3.9“. . . . ‘ 1 a? «10!. r a ‘II i \(\J I Q N \gc) ‘\ 1-.) o LIBRARY MIChIQan State _ . . University “"3 liggigegmdat the VALUE NETWORK AND BUSINESS STRATEGY FOR MOBILE DATA THE MOBILE DATA MARKETS IN KOREA, JAPAN, THE U.K., AND THE US. presented by Yu-Chieh Lin has been accepted towards fulfillment of the requirements for the MA. degree in TELECOMMUNICATION, INFORMATION STUDIES AND MEDIA Major Professor’s Signature/ / ’2, // L A) 3' I Date MSU is an Affirmative Action/Equal Opportunity Institution PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. MAY BE RECALLED with earlier due date if requested. DATE DUE DATE DUE DATE DUE JUN l f§0§% T 7‘ II S 6/01 c:/ClRC/DateDue.p65«p.15 VALUE NETWORK AND BUSINESS STRATEGY FOR MOBILE DATA THE MOBILE DATA MARKETS IN KOREA, JAPAN, THE U.K., AND THE US. By Yu-Chieh Lin A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF ARTS Department of Telecommunication, Information Studies, and Media 2003 ABSTRACT VALUE NETWORK AND BUSINESS STRATEGY FOR MOBILE DATA THE MOBILE DATA MARKETS IN KOREA, JAPAN, THE U.K., AND THE US. By Yu-Chieh Lin This thesis attempts to use the value network model as a research framework to analyze the market structure and the business strategy in the four mobile data markets: Korea, Japan, the United Kingdom, and the United States. The research goal is to find out the significant differences among these four cases and how these differences influence market development from interview conducting and publicly available resources. More emphases are put on the mobile network operators (MNOs) than other players since they have the greatest influence on the market. MNOs’ interaction with their partners, core capabilities, and value creation is the main study focus. Several differences are revealed from the information collected: the overall model of the value network, mobile network operators’ market share and business strategies, the relations between mobile network operators and other players, the value created in the market, the policy framework, and the cultural and social factors. With these differences, the four markets thus exhibit diverse market structures and performances. ACKNOWLEDGMENTS It was tough work for me to write this thesis. The thoughts of giving up came to my mind lots of times in the past year. Fortunately, there were so many wonderful people giving me help and encouragement, so I could get my thesis done at last. Professor Johannes M. Bauer was the person who I want to thank the most. He was an excellent teacher in advising me how to do research and write an academic work. Besides, he was always so patient with listening to me, answering my questions, and giving me feedback about my writing. Working with him was one of the greatest experiences I had in MSU. I also want to thank Professor Charles Steinfield and Professor Dan Jong Kim for their valuable suggestions on my thesis. Many people gave me emotional support and helped me through some bad time. I was very grateful to them; especially to my parents, Mao-Yu, Pinjia and Kevin. Even though they were far away from me, their lovely care made me feel nice and warm. I was also grateful to have Lois, Roy, Nate, Julie, and the MSU Writing Center help me with my presentation and English writing. Finally, I would like to express my appreciation to several experts from SK Telecom and KT Freetel for their assistance. They provided me much useful information for my study. Without their generous help, I would have had to spend an even longer time and greater energy in this study. Thank you all, truly and sincerely. TABLE OF CONTENTS LIST OF TABLES .................................................................................... v LIST OF FIGURES ................................................................................. vi Chapter 1 Introduction ............................................................................................. 1 Research Motivation ............................................................................... 1 Research Methodology ............................................................................ 3 Chapter 2 Literature Review and Research Framework ....................................................... 6 Literature Review .................................................................................. 6 Research Framework ............................................................................. 12 Chapter 3 Context of the Mobile Data Markets .............. - ................................................ 15 Development of Mobile Data Communication .............................................. 15 Policy Issues in the Mobile Data Markets .................................................... 28 Chapter 4 Industry Structures and Business Strategies: Korea and Japan ................................ 35 The Mobile Data Market in Korea ............................................................. 35 The Mobile Data Market in Japan .............................................................. 45 Chapter 5 Industry Structures and Business Strategies: the UK. and the US ........................... 54 The Mobile Data Market in the UK ........................................................... 54 The Mobile Data Market in the US ............................................................ 66 Chapter 6 Analysis, Conclusions, and Suggestions for Future Studies ................................... 75 Differences among the Four Cases and Their Influences .................................... 76 Suggestions for the Future Studies ............................................................. 91 APPENDIX .......................................................................................... 94 BIBLIOGRAPHY ................................................................................... 95 iv 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 4.6 5.1 5.2 5.3 5.4 5.5 5.6 5.7 6.1 6.2 LIST OF TABLES 3G Services Launched by June 2003 ...................................................... 21 30 Applications .............................................................................. 23 Allocation of 3G Mobile Licenses in Selected Countries Worldwide ................. 30 june’s Price Plans ............................................................................. 43 FIMM’s Price Plans .......................................................................... 44 Mobile Data Services in Japan .............................................................. 50 FOMA Price Plans ............................................................................ 52 FOMA Packet Pack ........................................................................... 52 Discount Plans Provided by the Japanese Operators .................................... 53 Comparison for Handset Subsidies Provided by the UK Operators (Taking Nokia 7250 as an Example) ........................................................ 60 Mobile Data Services in the UK ............................................................ 61 Examples of Monthly Price Plans in the UK ............................................. 63 Hutchison 3G’s Service Prices .............................................................. 65 Mobile Data Services in the US ............................................................ 70 Text Messaging Price in the US ............................................................ 72 Mobile Data Price Plans in the US ......................................................... 74 Comparison for Quantity and Market Share of Operators .............................. 79 Summary of Study’s Findings ............................................................. 89 LIST OF FIGURES 2.1 The Mobile Wireless Value Chain ............................................................. 9 2.2 Deconstruction of the Telecommunications Value Chain ................................. 10 2.3 The Value Network of Mobile Portals ........................................................ 11 2.4 A Model of Value-creating Networks ......................................................... 13 2.5 A Framework for the Mobile Data Value Network ......................................... 14 3.1 Predicted Growth of WLAN Access Points: Worldwide .................................. 25 4.1 Value Network of the Korean Mobile Data Market ........................................ 35 4.2 SK Telecom’s CP Management & Support... ............................................... 37 4.3 KT F reetel’s Service Launching Process .................................................... 38 4.4 Value Network of the Japanese Mobile Data Market ...................................... 46 4.5 i-mode’s Content Provider Bill Collection System ......................................... 48 5.1 Value Network of the UK Mobile Data Market ............................................. 55 6.1 Locus of Differences Among the Four Cases in the Value Network ..................... 76 vi Chapter 1 Introduction I. Research Motivation More and more people are longing to gain useful information and obtain better communicational systems. Throughout history, people have been seeking faster and more convenient approaches to mass and personal communication. Different kinds of media were invented in different time periods, and they have evolved into being essential parts of our lives, such as newspapers, magazines, radio, movies, TV, and Internet. Mobile technology is one of the significant approaches of communication. Mobile services have been used since the early 19005. In the 19805, cellular voice services started to grow quickly. Even though mobile was used for voice transmission only in the beginning. it was expected to become an advanced multi-medium that can carry all kinds of data. The first step of this goal was made by the International Telecommunication Union (ITU). In 1985, it began planning the next generation of digital cellular system: the Future Public Land Mobile Telecommunications Systems (F PLMTS). FPLMTS is known as [MT-2000 today (Nokia Networks, 2001). The necessity of mobile data was justified later by the popularity of the Short Messages Service (SMS) and NTT DoCoMo’s i-mode service. Then more attention was attracted to the 3G service, due to the astonishing bidding price for 3G license auctions in some European countries. However, the Internet bubble and economic recession slowed down the development of mobile data in some countries, especially in Europe. Whether mobile data have a bright future and how they can develop successfully became the popular issues argued by experts with different opinions. I chose mobile data to be the subject of my study because its prevalence may allow people to access the information highway at any time and from any location. Not only can mobile data enrich our lives, but it also can shorten the distance between people, and perhaps even between cultures. However, the complexity of technology, market management, and regulation issues in the mobile data market make it difficult to fully utilize mobile data and accomplish these dreams. Many technical and non-technical difficulties need to be overcome, such as the problems of roaming between different systems, the drawbacks of mobile handsets’ small screen and limited keys, unfinished exploration for the killer applications, the financial burden caused by the upfront investments, and an immature market structure. Instead of trying to address all these problems, I will focus on aspects of market structure and the interaction between different players because a sound environment for service creation and distribution is essential for successful industry development. Given the different skills needed, it is unlikely that mobile data and services can be created by one company alone. Rather, many players will be involved, such as content providers (CPS), content intermediaries, application service providers (ASPs), mobile network operators (MNO), mobile virtual network operators (MVNOs), handset manufacturers. network equipment manufacturers, and standard developers. Together, they form an industry network which is more complicated than previous mobile industries or the fixed Internet industry, therefore resulting in the complexity of the mobile industry. To meet customers’ needs for the mobile data, players must contribute their expertise and cooperate with one another to ensure quality services and smooth delivery. These aspects will be studied later. The structure of this thesis is as follows: In chapter two, I will develop a theoretical framework using the concepts of value chains and value networks, and propose the research strategy for the study. In chapter three, I will describe the context of the mobile data markets, which includes the development of mobile technology and services as well as the critical policy issues. In chapter four, I will use the research framework to analyze two case studies for Korea and Japan. In chapter five, I will present case studies for the U .K. and the US. In chapter six, I will examine the differences among the four cases. the findings of my research, and the conclusion. II. Research Methodology To examine the market structure and the essential factors of market performance, I utilize the value network model as the framework of my study. The value network model is an analytical tool for understanding the significant interactions in markets. I intend to apply this model on my research to explore the following questions: 1. The status quo in 2003 of the industry structures and value networks in the selected mobile data markets 2. The essential differences between these mobile data markets 3. How those differences influence market performance 4. The advantages and disadvantages of different value networks This research represents a multiple-case study design. Since the case study method is criticized as being not amenable to generalization (Wimmer & Dominick, 2000), diversity of case selection helps to shed light on the broader range of countries and to find the key factors encouraging the development of mobile data. Four markets were chosen for this research— Korea, Japan, the UK. and the US. Not only are they in different geographic areas, but also in different stages of mobile data development. Korea and 3 Japan have very successful mobile data markets and took the lead in the service and network development. They may serve as examples of relatively mature mobile data markets. The UK. is one of the pioneers in the European mobile data markets, but suppliers are still struggling to find good approaches to sell the new services. As for the US, it does not yet have broad experience in advanced mobile data services and is still in the take-off stage compared to the other three markets. Four strategies were applied to collect the information required for this research: I. Literature review: This includes books, periodicals, academic papers, research reports about the development of the mobile data market, and significant statistics, such as mobile penetration and Average Revenue Per’User (ARPU). 2. Supplier information: Important information was collected from business reports, operators’ company and service websites, and operators’ press releases. 3. Business news: Since the mobile data services are new and in flux, it is essential to follow daily news and every event about this industry. Daily news and news analyses from telecommunications news websites (ex. www.totaltcle.com and www.the3gportal.com ) were utilized to track current developments. 4. Intensive interviews: Given the constraints of an MA thesis, I could not conduct interviews with every mobile data company. Therefore, my work is based on convenience samples. I interviewed several experts from KTF (KT Freetel) and SK Telecom. For those who were in the US, personal interviews were conducted. For those who were in Korea, e-mail interviews were conducted. The interviews were conducted by asking open-ended questions (see appendix). After the respondents answered those questions, follow-up questions were asked to acquire more in-depth information where needed. All of those interviews were conducted from June to August 2003. In the other cases, a strong effort was made to collect comparable information from publicly available sources. Chapter 2 Literature Review and Research Framework I. Literature Review In this part, some literature which is helpful to develop the research framework will be reviewed. First, I will discuss the concept of value creation. Second, I will review the value chain model. Third, I will describe an expanded model of the value chain-«the value network concept. Lastly, I will briefly examine the findings of related research that also apply the value chain or value network model. A. Value Creation Value is essential to any firm. It is what a firm wants to create, supply and benefit from. It seems reasonable to postulate that most firms pursue the goal of profit optimization. This goal is intricately related to value maximization. Even though shareholders’ perspective on value may differ from customers’, they must consider customers’ value carefully to optimize profit. Different definitions were developed for the concept of value. Some definitions stress cost and price. Anderson and Narus (1998), quoted in Evans and Berman (2001), state that “Value in business markets is the worth in monetary terms of the technical, economic, service, and social benefits a customer company receives in exchange for the price it pays.” Walters and Lancaster (1999) define value as “the utility combination of benefits delivered to the customer less the total costs of acquiring the delivered benefits.” Some definitions concern the comparison with competitors. Porter (1995) states: “Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price.” Kothandaraman and Wilson (2001) say, “Value is the relationship of a firrn’s market offering and price weighed by the consmner against its competitor’s market offering and price.” Sometimes the value can be conceptualized as consumers’ satisfaction instead of price. Walters and Lancaster (1999) bring up the concept of the relative value and define it as the perceived satisfaction obtained (or assumed available) from alternative value offers. B. Value Chain The value chain can be regarded as a chain of processes for creating and delivering value. Porter is the person who first introduced the value chain model as an analytic tool to examine the activities in a firm. He says: “The value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation” (Porter, 1995). He claims a value chain can represent all the value activities that are performed to design, produce, market, deliver, and support its product (Porter, 1995) and also analyze how they affect both a company’s costs and the value delivered to buyers (Porter, 2001 ). Instead of viewing a value chain just as the total of all the value creating activities, he pays detailed attention to the linkages and interaction within these activities. The value chain model has been broadly adopted by other scholars in business studies since it is systematic and efficient, but some critics pointed out that the value chain analysis could not be applied to real business environments very well. First, value creation does not happen sequentially but concurrently (Vesa, 2003). But Vesa argues that Porter did realize the limitations of the sequential approach and thus the value chain model just needs some revisions to be more applicable. Second, the value chain model was originally developed for a firm-level analysis. However, firms usually do not operate in isolation. They need partners to add value-creation ability and must be able to manage these partnerships so that each partner profits from being within the partnership (Kothandaraman & Wilson, 2001). For improving those limitations, a wider approach for an industry-level analysis has been developed----the value network model. C. Value network The concept of value network broadens the scope of what the value chain exams. Li and Whalley (2002) see the value network as a series of inter-twined value chains where some nodes are simultaneously involved in more than one value chain. A similar term, value chain networks, also is used for explaining the same idea. Srinivas & Sarkis (1999) used VCNs to describe how network organizations, virtual corporations and value adding partnerships are envisioned by experts as solutions for rapid introduction of a variety of products while maintaining quality and low costs (quoted in Olla & Patel, 2002). Snow (1992) pointed out the VCN model is a dynamic model. In the dynamic networks, there are a group of independent companies. The lead firm acts as a broker to identify the potential partners who own a large or sometimes the entire portion of the network (quoted in Olla & Patel, 2002). Olla & Patel (2002) state: “The VCN is an alliance of independent business enterprises each contributing core competencies in their various areas of expertise.” Kothanddaraman & Wilson (2001) proposes another term--- value-creating networks. In this approach, “firms are moving into an. environment in which they will not compete against each other but will become a member of a network of firms that will compete 8 against another network of firms.” These sets of firms are value-creating networks since they are assembled for creating value. How they perform in the industry is determined by the three core concepts: relationships, superior customer value and core capabilities. More details of this model will be discussed later in this chapter. Steinbock (2002) adopts the term “ value system” in his study. The value system model contains the concepts of value chains and vertical systems. For example, a firrn’s value relationships are embedded in a larger flow of activities in the wireless industry can be called the wireless value system. He looked into the industry value system because “Achieving, sustaining, or renewing strategic advantage depends not just on an individual firm’s value relationship, but on its role in the broader value system.” He also points out that the value systems are not steady and linear,but dynamic and changeable. D. Findings of related research The value chain and value network models have been used to study mobile markets and provide insights into their unique features. Figure 2.1: The Mobile Wireless Value Chain Content-related services and applications Network infrastructure and devices 1 Content source \ Mobile wireless content The network infrastructure: \ User interface or enablement—enhancemcnt/ag network operation and wrreless -Content Providers gregation. delivery service provision access devices (connectivity and navigation) -lntemet protocol and public -Wire|ess platform and utility switched telephone network applications providers -Standard servers and routers -Service bureaus ~Intranet customer relationship -Middlcware solutions management center -Portals, browsers and other -Packet backbone accessories -Backhau| transport -Systems integrators and -Radio frequency access J consultants -WAGs and routers / Upstream W Source: Sabat, 2002 Sabat (2002) established a mobile wireless value chain according to the involved players’ offerings to the industry (see Figure 2.1). The value chain includes two broad segments: content-related services and applications, and network infrastructure and access devices. The content-related segment provides upstream activities which include content, applications, and a wireless platform. The network-related segment provides downstream activities. It operates the network, provides the access devices, and enables the smooth connection between network and devices. Li & Whalley (2002) interpret the value chain for telecommunications in a different way. They identify three routes connecting equipment and infrastructure companies with the end customer: software and financial intermediaries, portal and content providers, and reseller (see Figure 2.2). Figure 2.2: Deconstruction of the Telecommunications Value Chain Software intermediaries / Financial intermediaries \\ / \ Content providers \ End customer Equipment Infrastructure 0 . r——————’ companies companies Portal g \ Reseller Source: Li & Whalley, 2002 With increasing complexity in the telecommunications industry, the linear value chain has been transformed into a value network containing a series of intertwined value chains. Li & Whalley (2002) also argue that the transformation from value chains to value networks 10 is not only evident in the whole telecommunications industry, but also in some sub-markets. Therefore they develop a value network model to analyze the business model of the mobile portals market (see Figure 2.3). The interaction of player and users of the mobile portals are depicted in this value network. Figure 2.3: The Value Network of Mobile Portals H/fl/_;_/Financial institutions \ Incumbent Teleco companies Wired Internet portals Online marketplace Content provrders I Mobrle Portals I Mobrle operators I Customers \\\ ———> New service providers ' Software companies Handset manufacturers Source: Li & Whalley, 2002 Steinbock (2003) suggests a value system model for analyzing the wireless business. Instead of observing the industry at some fixed time, he puts more attention on how the industry changes over time and sees the wireless business as a dynamic system that includes three stages: monopoly, transition, and competition. The monopoly stage contains the pre-cellular phase (pre-l983) and the 1G era (1983-1992). The great transition stage is the 2G era (1992-2001 ), and the competition stage starts from the 3G era (2001-present). He adds the concept of evolution to the value system and makes a comparison between the value chains in different stages. For example, in the II 2G-transition stage, there were only contract manufacturers, equipment manufacturers, and network operators. But when it comes to 3G-competition stage, the system becomes more complicated and includes contractors, equipment manufacturers, platforms, enablers, content aggregators, retailers, and network operators. [1. Research Framework As new services are launched and new players become involved in the market, the mobile data industry is getting more and more complicated. To have a broader view to examine the crucial complexity in the industry, a value network model is adopted as the research framework. How the value network is organized is a primary and essential question to figuring out at first. In most mobile markets, the mobile network operator (MNO) is an industry organizer and acts as a broker (Snow, 1992). It invites other players to contribute their core capabilities for creating value and supervises this ecosystem. Therefore, this study will focus more on the MN 0 while examining the value network. Kothandaraman & Wilson’s (2001) value-creating network model will also be used as an analytic tool to understand the value networks (see Figure 2.4). There are three core concepts included in this model: superior customer value, core capabilities, and relationships. These three concepts have deep and reciprocal influence on one another. Core capabilities of the member firms in the network are helpful in creating superior customer value. On the other hand, the core capabilities of the firms are also influenced by customers’ value, to which the firm needs to respond. Superior customer value will also be facilitated by the good relationships between member firms. If superior customer value is produced, the existing relationships will be reinforced. Besides facilitating customer value, the quality of relationships also helps member firms to continue to 12 maintain and improve their core capabilities. If the firms have sufficient core capabilities, it will be beneficial to keep the good relationships with other firms. Figure 2.4: A Model of Value-creating Networks RELATIONSHIPS Maintain Reinforce onstrain Facilitate CORE CAPABILITIES SUPERIOR CUSTOMER VALUE Determine Source: Kothandaraman & Wilson, 2001 Combining the value network model and three value-creating concepts, a basic framework for analyzing the mobile data market is formed as Figure 2.5. Instead of looking into every player’s core capabilities and the relationships between every player, I will just focus on MNOs’ core capabilities and their linkages with their partners since they have the greatest influence on the market according to the result of literature review. The next step is to see what kind of value MNOs create for the customers and how they deliver the value. In my study, I regard the mobile data services provided as the value created since they are the output from the cooperation of every company in the industry network. As for the strategy for delivering. value, the mobile data tariff is the key dimension that needs to be looked into. Because the variety and quantity of services the customers can get depends on the price plans they subscribe, the mobile data tariff is a 13 key aspect of the service provided. Figure 2.5: A Framework for the Mobile Data Value Network ,z’ Standard Handset ,I’ Developers Manufacturers 0' / l ' Network Relations/11' s : p MNOs I Equipment _ , , x Core Capabilities \ Manufacturers \ \ Solution Content Providers Providers , Source: Partially adapted from ITU Internet Reports, 2002 14 § Chapter 3 Context of the Mobile Data Markets I. Development of Mobile Data Communication A. First generation services During 19703 and early 19805, cellular systems used analog signals for voice transmission. They were the first generation systems of the mobile evolution. The most common analog cellular systems were Advanced Mobile Phone System (AMPS), Nordic Mobile Telephone (NMT), and Total Access Communication System (TACS). AMPS was the first and most used cellular analog system. It was developed by AT&T and first applied in the US. NMT was developed by the (Nordic countries and also applied by some Asian and Eastern European countries. TACS was developed by the UK. and also applied by some Asian countries.I The analog cellular systems were mainly used for voice service, but the voice quality was bad. In addition, the analog cellular systems were not suitable for developing a data service due to the slow transmission rate. These major drawbacks caused analog cellular systems fail to be an ideal communication technology. B. Second generation services The most significant difference between the first and second generation of cellular systems is the signals used for conveying information. The 26 cellular systems are digital, not analog. In the 19805, digital cellular systems were first developed and gradually replaced analog cellular systems since its first launch in 1992. The 2G systems include ' Source: ITU, http://www.itu.inti’osg’spu/ni/3G/technology/index.html, 2002 The sections about first, second, and third generation services refer to this source greatly. IS Global System for Mobile Communications (GSM), Time Division Multiple Access IS-136 (TDMA IS-136), Code Division Multiple Access IS-95 (CDMA lS-95), Personal Digital Cellular (PDC), and Personal Handyphone System (PHS). GSM is the European 2G standard but also applied by many other non-European countries. It is the most successful cellular system ever and is still in common use. At the end of April 2003, there were 847.3 million GSM subscribers. They accounted for 70.4% of all the wireless systems subscribers in the world.2 GSM uses the frequency of 800 MHz, 900 MHz, 1800 MHz and 1900MHz. Most of the subscribers are using GSM 900 or GSM 900 plus GSM 1800.3 TDMA IS-l 36 used to be called Digital-Advanced Mobile Phone Service (D-AMPS). It is the upgrade system of AMPS, and uses the same frequency as AMPS.4 It applies TDMA technology on AMPS to triple the number of channels, so it can increase the capacity of one original channel.5 It is the dominant cellular system in the United States and also adopted by many other countries. In April 2003, there were 110.4 million TDMA IS-l 36 subscribers in the world.6 Rather than using TDMA technology like GSM and TDMA IS-l36, CDMA IS-95 uses the method of assigning digital codes for improving the efficiency and capacity of a channel. According to the EMC World Cellular Database, CDMA systems accounted 13.1% of global wireless subscribers in April 2003.7 2 Source: EMC World Cellular Database, http://www.emc-d_atabase.com. 2003 3 Source: EMC World Cellular Database. There were 426.2 millions of worldwide GSM 900 users. 298.0l millions of GSM 900/ l 800 users, and 0.0233 millions of GSM 900/1900 users in 2003. " AMPS uses the frequency between 800 MHz and 900 MHz 5 Source: Search Mobile Computing, http://searchmobiIecomputing.techt2_g_rget.com/se2_r_rch/l ,293876,sid40,00.html?query=D-AM PS, 1999 6 Source: EMC World Cellular Database, 2003 7 There were 157.9 million CDMA subscribers while there were 1202.8 million wireless subscribers in the world in 2003. 16 PDC was introduced to Japanese cellular market by NTT DoCoMo in 1991. Like GSM and TDMA lS-I36, it is based on TDMA technology. It was mainly used in Japan and accounted 5.1% of wireless subscribers in the world.8 PHS was also developed by NTT DoCoMo. It can provide the high-quality voice communication and the cheaper price than PDC. Comparing to other cellular systems, it is suitable used in the populous metropolitan areas since it has the flaw of the shorter transmitting distance and the need of more base stations in the same area. The PHS subscribers around the world were approaching 20 million.9 The ZG cellular systems above are still mainly used for voice communication. As for the 2G data services, the most popular services are SMS, E-mail, and Microbrowser. However, 2G data services have different development results in different countries. For example, i-mode is a very successful microbrowser service in Japan. It provides games, music, news, and shopping services. In Europe, the Wireless Application Protocol (WAP) also provides the similar services, but it ended up with failure. C. Current era--the third generation i) Transitional stage to 3G Between 2G and 36, there is an intermediary step, which is called 2.50 The transmission rate of the 2.50 systems is slower than the 3G systems, but is much faster than the 2G systems.lo Therefore, 2.5G is sometimes regarded as an early stage of 3G The most common 2.56 technologies are CDMA2000 1X (also known as CDMA2000 lXRTT), 8 According to EMC Worldwide Cellular Database, there were 61.7 million PDC subscribers in April 2003. 9 Source: PHS MoU Group, http://wwwphsmouorg, 2003 '0 In terms of comparison between GSM and GPRS. the transmission rate of GPRS ( 64~I lSKbps) is four to eight times faster than GSM( 14.4Kbps). In terms of comparison between lS-9SB and CDMA2000 IX, the transmission rate of CDMA2000 1X ( 153~6I4Kbps) is two to nine times faster than IS-95 B( 64 Kbps). l7 GPRS (Global Package Radio Service) and EDGE (Enhanced Data for GSM Evolution). CDMA2000 is the mobile communication standard developed by Qualeomm in the USA. CDMA2000 1X is one of the CDMA2000 standards. In Oct. 2000, the first C DMA2000 1X commercial system was launched by SK Telecom in South Korea and became popular. By the end of 2002, 57.7% of SK Telecom’s 17.2 million subscribers used CDMA2000 1X services (SK Telecom Annual Report 2002). Next to SK Telecom. 45 operators across Asian, America, and Europe launched CDMA2000 1X commercial services during the following two and a half years.ll GPRS is the 2.5G standard in Europe and the upgrade of GSM. According to the GSM Association, GPRS is “a non-voice value added service that allows information to be sent and received across a mobile telephone network'z.” It is also applied by other non-European countries where GSM is the 2G standard and is the main competitor of the CDMA2000 1X standard. In mid-June 2003, there were 162 commercial GPRS networks. Most of them were in Eastern Europe and Asia.'3 EDGE is another European 2.5G standard. Besides the advantage of transmitting data three times faster than GPRS,l4 it also provides the possibility to upgrade from both the GSM and TDMA (IS-136) networks. Therefore, EDGE is more attractive than GPRS to the operators who adopted TDMA-based system.'5 The first commercial EDGE service was launched by the US. wireless operator, Cingular, in July 2003. '6 Due to the limitation of data transmission, a ZG network is mainly used for the text-only services, like SMS, text mail, text game and location based text information. A ” Source: CDMA Development Group, http://www.cdg.org/index.asp, 2003 2 Source: GSM World, http://wwwgsmworld.comfindexshtmI, 2003 '3 Source: TOTAL TELECOM http://www.totaltele.com or July 2003 4 The data transmission rate of EDGE is l44~384 Kbps. '5 Source: THREE-(1N er h@:/’/W\vw.three-g.nev, 2002 '6 Source: TOTAL TELECOM, http://www.totalte|e.com 01 July 2003 I8 2.50 network provides an increased data rate, and thus is suitable for both text and graphic transmission. Users can mail images, download music and video clips, access the World Wide Web or get other information that contains graphics over 2.50 networks. ii) 30 technology systems The concept of [MT-2000 (International Mobile Telecommunications-2000) was first discussed by the International Telecommunication Union (ITU) in the mid-19805. In 1999, it was approved by the ITU to be the standard for the third-generation communication system. According to the ITU’s decision, [MT-2000 includes five standards: CDMA2000, WCDMA, TD-SCDMA, UWC-136 and DECT+. Among them. CDMA2000 and WCDMA play the dominant roles in the current mobile data markets. All of the commercial mobile data services that have been launched are based on either the CDMA2000 or the WCDMA standard. Their potential competitor is TD-SCDMA (Time Division-Synchronous Code Division Multiple Access). It was co-developed by CATT (China Academy of Telecommunication Technology) and Siemens and may be applied by the world’s largest mobile communication market--China. Yet, it is still far from the accomplished stage. The problem of connecting with other countries’ networks will be an inevitable bottleneck for the network deployment. Moreover, both the CDMA2000 development group and the WCDMA development group are trying to persuade China to apply their standards. It is hard to anticipate the future trend at this moment. The principal criterion the ITU uses for defining a 30 service is transmission speed. A 30 service must qualify the following requirements. * 2Mbps or higher for stationary users and indoor environments 19 * 384kbps for pedestrians * 144 kbps for high-speed moving vehicles W—CDMA and CDMA2000 IXEV are the most two significant technologies that reach the standard of transmission rate. W-CDMA is the European 30 standard. UMTS (Universal Mobile Telecommunication System) is synonymous with W-CDMA. It is the next generation for the GSM system, so it is also the best choice for operators of GSM networks. CDMA2000 1X EV includes CDMA2000 1XEV-DO(Evolution-Data Optimized) and CDMA2000 1X EV-DV (Evolution- Data and Voice). CDMA2000 1X EV-DO is an upgrade of CDMA2000 lXRTT. Its transmission rate can be up to 2.4Mbp5. A5 for EV-DV, it is a higher upgrade whose transmission rate can be up to 5.2Mbps. Still, no commercial services based on EV-DV have been launched so far (June 2003). iii) Launch dates of 30 services After the booming success of the Internet and mobile phone market, the telecom operators shifted their attention to the mobile data market. In 2000, European operators went wild for bidding on the 30 licenses. Bidders in the British auction paid a total of $34.2 billion for 5 licenses. German operators paid a total of $46.1 billion for 6 licenses, and Italian operators paid $11.6 billion for 5 licenses”. Providing 30 services is a momentous goal for operators and they may want to be the first oneS who rolled out 30 services in their countries to grab the users’ attention and get the predominance of the market share. However, the huge amount of license fees put financial pressure on operators. Operators also began to lose confidence in the profit '7 Source: Perter Curwen, The Future of Mobile Communications, 2002 20 potential of mobile data because of the decay of Internet booming. These factors slowed down operators’ steps for deploying the 30 network and launching services. Moreover, the problems of network deployment, handset provision, and uncertain market demand also forced operators to postpone the launch date. Table 3.1: 30 Services Launched by June 2003 Country Service provider Date of launch Technology applied Australia Hutchison April 15‘h 2003 WCDMA Austria Hutchison May 5th 2003 WCDMA Mobilkom April 25th 2003 WCDMA Brazil Vesper May lST 2003 CDMA 2000 IXEV-DO Isle of Man Manx Telecom Dec. 4th 2001 WCDMA Italy Hutchison March 3rd 2003 WCDMA Ireland Vodafone May 2003 WCDMA Japan NTT DoCoMo Oct. 1"2001 WCDMA J-Phone Dec. 20th 2002 WCDMA Luxembourg Tango May 2003 WCDMA Monaco Monaco Telecom Dec. 2001 WCDMA South Korea SK Telecom Jan. 28'h 2002 CDMA2000 IXEV-DO KTF May 8'“ 2002 CDMA2000 IXEV-DO Sweden Hutchison May 5th 2003 WCDMA ux Hutchison March 3rd 2003 WCDMA Source: Own research, June 2003 2| By June 2003, there were only 15 service providers in the world who had launched “true” 30 commercial services (see Table 3.1): Hutchison (Australia, Austria, Italy, the UK, and Sweden), Mobilkom (Austria), Vesper (Brazil), Manx Telecom (Isle of Man), Vodafone (Ireland), NTT DoCoMo (Japan), J -Phone (Japan), Tango (Luxembourg), Monaco Telecom (Monaco), SK Telecom (South Korea), and KTF (South Korea) Surpassing European countries, NTT DoCoMo launched 30 services on Oct. 1St 2001, making Japan the country that opened up a new era for the mobile data communication history. Two months later, Monaco and Isle of Man began to provide 30 began to be provided. They were the first two European countries that launched 30 services. The 30 services launch by SK Telecom in South Korea was also a significant achievement. It was the first operator who adopted the CDMA2000 IXEV-DO technology. iv) 30 services and applications 30 applications have several strengths. First, they can be put in use anytime. Because the mobile Internet is always on and users can take the handset with them all the time since it is small and easy to carry, users can apply 30 applications anytime they want. Besides, receiving and searching for timely information will be easy and convenient. Second, they can be put in use anywhere. The vision of 30 mobile communication is to provide seamless services anywhere on earth. As long as users can receive the Signals, they may enjoy the use of 30 applications anyplace indoors, outdoors, on trains, in cars, and even in foreign countries. Third, there are a broad variety of 30 applications. They can contain lots of functions and be the synthesis of all the media and communication tools. Forth, 30 applications can be personalized. Users can choose applications based on their likes 22 and demands. Also, 30 applications can be sensitive to users’ location. They can provide appropriate location-based services no matter where users are. For these reasons, the telecommunication companies were devoted to develop 30 networks and services even though we already had many media to fulfill the needs for entertainment, communication, and information seeking. Nokia classified possible 30 applications into four main categories: information, communication, productivity and entertainment (see Table 3.2). However, operators decided on what to offer to the users after their assessment of the market demand. The following is the common services and applications over 30 networks available in the current markets. Table 3.2: 30 Applications INFORMATION NEWS BANKING & LOCAL BUY & SELL TRAVEL SPECIAL FINANCIAL SERVICES INTEREST (City Guide) -0eneral -Stock indexes -Taxi -Classifieds -Tratflc (traffic -Mobile Headline -Stock prices -Restaurants -Cars jams. radar. telephones -Financial & -Metal prices -Cinema -Properties control. . . .) -Intemct sites Business -Stock alert -Theatres -Jobs -Pub|ic and -Politics -Currency rates ~Concerts -Auctions transportation services -Tabloids -Interest rates Exhibitions -Shopping -Navigation -Computers -Cultural & -Account -Night Clubs -Small daily services and Entertainment balance -Emergency items -Train schedules hardware -Sports -Credit/debit services -Specific -Flight -Automobilc -Lottery balance -Phannacies promotions schedules -Check balance -Household -Tickets -Hotels -Money assistance -HoIiday transfers -Weather packages -Bill payments -Time -Automatic call «Directory -Account status services flash -ATM -Stock purchase Locator -Financial products purchase COMMUNICATION SMS E-MAIL FAX BULLETIN BOARDS -Send/receive SMS -Send/receive e-mails -Send/receive fax -0roups with message -E-mail to voice (IVR) -Special features common interest -SMS to postcard (delivery and receipt -Messages. News. etc report. storage for later delivery) 23 Table 3.2 (cont'd) To management 'alendar book management Voice to SMS. Ii-mail and fax Translator appliances at vending machines verification Translation sen ices nomy 'l'amagotchi Source: Nokia Networks, 2000 Personal communication: It includes voice and video telephony, short, multimedia and video messages, instant messenger, E-mail and file exchanging, and community communication. Entertainment: It includes video-on-demand (VOD), music-on-demand (MOD), TV broadcasting, on-line games, horoscope, jokes, and dating services. Information and latest news: Users can obtain information about public transportation, leisure activities and latest news about sports, finance, current events, weather, lotto results Location-based services: These are for helping the users know where they are, direct them to where they want to go, and location specific advertising. Internet access: Users can browse websites either by clicking the menu in the service portal or typing in the URL. Mobile commerce: M—commerce includes banking, tickets and hotel booking, and shopping. 24 v) A threat to 30--WiF i WiF i is another name for the IEEE (Institute of Electrical and Electronics Engineers) 802.11b standard of WLANS (Wireless Local Area Networks). It utilizes unlicensed spectrum in the 2.4GHz band for transmission. The current WiFi technology can provide the data rate up to lleps for laptops, PDA, or other mobile devices to access Internet without cables, but only in an area within 100 meters of an access point. Due to the short range for the Internet access, WiFi is mostly being used in indoor areas. For this reason, the places which apply the WiFi technology have been called “ hotspots”. Figure 3.1: Predicted Growth of WLAN Access Points: Worldwide 4.5 4 3.5 3 2.5 2 1.5 l 0.5 0 Millions of Units 2000 2001 2002 2003 2004 2005 Source: Gartner Dataquest. Feb. 2002 Most of the commercial hotspots are set up in the populous areas such as hotels, coffee shops, bookstores and airports. People who spend a lot of time staying at those would be more willing to pay for the Internet access than they usually are. WiFi operators can make money from the subscribing fee. The location owners also can attract more consumers to 25 their places if they have WLANS. Therefore, the number of hotspots increases fast. (See Figure 3.1) In addition, there are numerous non-commercial hotspots being set up in schools, company offices and hospitals. It is getting easier for users to find a hotspot in a city, so people shifted part of their attention from 30 to WiF i. Moreover, WiFi has two advantages over 30 First, its transmission rate is more than five times faster than 30 Second, building a WiF i base station does not cost much. Operators do not have to invest large sums of money before they launch WiF i services like 30 operators do. Therefore, WiFi seems to be a big threat to 30 While many operators are pessimistic about the future of 30, if WiFi flourishes, then may be threatened the position of 30. However, WiF i also has some weaknesses compared to 30 The short range for transmitting is the most serious limitation. The area that one 30 base station can cover would take 10,000 WiFi base stations. If we are trying to set up WIF i base stations to achieve the goal of seamless networks, it will generate tremendous costs and require much work While it is difficult to apply WiF i technology for surfing the Internet anywhere, people have to endure an inconvenience of disconnection when they move from one hotspot to another one. What users get from WiF i is just the confined mobility. In addition, the security problem of WiF i hasn’t been resolved yet. When users are doing transactions on the Internet in the hotspot, it is easy for other users in the same area to intrude their on-line bank system. Based on the reasons above, WiF i seems to be a complement to 30 rather than being a replacement. WiF i could satisfy some users’ need for accessing Internet and exempt them from subscribing to 30 services. However, this is just for a small part of users who are only surfing Internet in fixed areas. WiFi still cannot satisfy most of users’ need for mobility. 26 D. Developments in the future 30 is definitely not the terminal stage of mobile-communication development, since 40 has evolved. A 40 network is an integration of a 30 network and WLAN. It can provide a data speed of 100Mbps for downloading and 20Mbps for uploading. With such a high transmission rate, 40 can offer premium-quality multimedia services to mobile device users and broadband Internet services to home and office users, just like the cable modem and DSL. Besides speed, 40 has another strength-- not only can it be applied to the handset, but it can also be used as a wearable device, such as a wristwatch. 40 terminals will be more convenient to carry and can function as fashionable ornaments at the same time. Although the 40 standard has not been set up yet, 40’s commercial deployments are working in America, Canada, China, Japan,~New Zealand, South Korea, Germany, Italy, and the Netherlands. NTT DoCoMo even declared the date for 40 services’ launching would be advanced from 2010 to 2006. Because 30 systems are costly and do not have a bright and clear outlook, some people suggested that 30 be completely abandoned in favor of 40. However, 40 probably will also face the same problems as 30. First, a key element for a new technology’s success is the application of it. It is essential to find out what kind of applications are important to users’ lives and can only work well on the 40 networks at. There will be little market demand for 40, if users can be fully satisfied with other technologies. Second, it would take years to set up the international standard for 40 Even though 40 is superior to 30 in some ways, it is not able to replace 30 in the mobile data market immediately. 27 11. Policy Issues in the Mobile Data Markets To achieve the goal of public benefits, the government regulates the market with various policies. Those regulations could have a great influence on the development of the industry. Therefore, even though governmental regulations are not the main focus of this study, four significant policy issues in the mobile market are discussed in this chapter: spectrum licensing method, handset subsidy, standard regulation, and resource sharing. A. Spectrum licensing method The necessity for allocating and assigning spectrum is commonly justified with the scarcity of spectrums”. Since spectrums are the finite public resources, they need to be assigned to those users who best serve the public; hence the appropriate spectrum assignment is crucial to the efficiency of spectrum use. How the licenses are assigned to the operators also has a great effect on the development of the mobile data market. First, the number of licenses issued influences the number of players and the competitive degree in the market. Second, the criteria for qualified applicants may establish the barriers to enter the market. Third, the time consumed in the processes and the rules about launching deadlines can affect the date when the services are supplied to the public. Forth, the license fee might be a large investment that reduces funds available for infrastructure investment. It might also create an incentive for the operators to raise the service price to recover the costs of the license. There are several methods for license allocation: lotteries, comparative evaluation processes (or beauty contests), and auctions. Auctions, beauty contests and combined I8 . . - However, some researches challenge the scarcrty assumptlon, eg. Reed, DP (2002) “How wrreless networks scale: the illusion of spectrum scarcity.” 28 auction/comparative methods are most frequently used. When adopting the auction method, spectrum licenses are usually assigned to the operators who offer the highest bids. Sometimes the selection is not based on financial bids alone, but also on service-related criteria like the time required to meet a roll-out target or commitments on maximum prices for consumers (Telecommunications Regulation Handbook, 2000). The auction approach has the advantages of transparency and efficiency. Besides, the winning bidders are usually the ones who value the licenses the most and have the highest motivation to launch the services. However, if the auction approach is improperly designed, it may lead to very high bids. It may also bring the market development some negative influences. First, the bids could be passed on to the customers and indirectly diminish customers’ willingness to subscribe to the new services. Second, if companies overbid, the bids could be a heavy burden for them and consequently cause them difficulties with deploying the networks and launching the services. Table 3.3 shows some examples of countries that used the auction method for assigning the licenses. If the beauty contest is adopted, the regulatory institutions will make an assessment of the applicants according to a list of criteria and then issue the spectrum licenses to the best-qualified operators. It is claimed that the beauty contest is not as efficient and transparent as the auction approach. The regulators have to devote much time and energy to the complicated examining processes and might still fail to make an unbiased decision. On the other hand, the approach of beauty contest may save operators money. In most of the cases, the winners of the beauty contest pay less for licenses than the winners of the auctions. Sometimes they even just pay a nominal fee (see more details in Table 3.3). This is helpful to lessen the operators’ financial stress created by production costs in the 29 initial stage, and might also contribute to lower service prices in the later stage of market development. Table 3.3: Allocation of 30 Mobile Licenses in Selected Countries Worldwide Country No. of licenses Mobile Method Date awarded Amount bid incumbents (USS million) Australia 6 3 Regional March 2001 610 auction Austria 6 4 Auction November 2000 6 I 8 Belgium 4 3 Auction March 2001 42 I .2 Czech Republic 2 2 Auction December 2001 200 Denmark 4 3 Sealed bid September 2001 472 auction Finland 4 3 Beauty contest March 1999 Nominal France 4 3 Beauty contest July 2001 4.52 billion (2 awarded, 2 + fee (Results of (subsequently still on offer) (Auction for revived auction reduced to 553 two outstanding due in million each, licenses closed September plus 1% of in May 2002) 2002) revenue) Germany 6 4 Auction August 2000 46, 140 Greece 3 3 Hybrid July 2001 414 Hong Kong, 4 6 Hybrid September 2001 Minimum 170 China each plus royalties Israel 3 3 Beauty contest December 2001 157.1 + fee Italy 5 4 Hybrid October 2000 10,180 Japan 3 3 Beauty contest June 2000 Free Korea (Rep.) 3 2 Beauty contest August 2001 2,886 + fee Malaysia 3 3 Beauty contest December 2001 Nominal 30 Table 3.3 (cont’d) Country No. of licenses Mobile Method Date awarded Amount bid incumbents (USS million) Netherlands 5 5 Auction July 2000 2,500 New Zealand 4 2 Auction January 2001 59.9 Norway 4 2 Beauty contest + November 2000 88 fee Singapore 3 (+1?) 3 Cancelled April 2001 165.8 auction Slovenia 1 2 Cancelled December 2001 82.2 auction Spain 4 3 Beauty contest + March 2000 480 fee Sweden 4 3 Beauty contest December 2000 Nominal Switzerland 4 2 Auction December 2000 I 19.8 Taiwan, China 5 4 Auction February 2002 1,400 UK 5 4 Auction April 2000 35,400 Total (25) 99+ 79 13 auctions 105,286+ 9 beauty contests 3 hybrid Source: ITU Internet Reports—lntemet for a Mobile Generation, 2002 The third approach is a hybrid of the auction and the beauty contest. The qualified bidders would be filtered out from all the applicants based on selection criteria. In a second stage, an auction is used to determine the final winners. The hybrid method could ensure that every bidder is competent to make a good use of the spectrum and provide decent services to the public. However, it is more time-consuming and less transparent than the pure auction. Greece, Hong Kong, and Italy are examples of countries that adopted the hybrid method. 31 B. Handset subsidies A handset subsidy is a marketing strategy often seen in the mobile markets. To lure new subscribers, the mobile operators either partially or fully subsidize the handset price even though this increases the costs of acquiring subscribers. Handset subsidies can bring the operators positive network effects. It is good for the operators to draw some new users and then acquire even more as a result of word-of—mouth. Besides, it is helpful in reducing the churn rate in the short term by signing contracts to bind the subscribers for an extended period. Handset subsidy is also good for the subscribers because they can have a new handset with a much lower upfront payment. However, it is argued that there are some downsides about handset subsidies. First, the operators with greater financial strength are more capable of subsidizing the handsets. This may further their significant market power and destroy the health of competition in the mobile market. Second, subscribers may want to upgrade their handsets more frequently. As soon as their previous service contract expires, they can switch to other service plans or other operators and easily get a new and more advanced handset. This will be a wasteful use of handsets. Third, once consumers get used to obtaining new handsets for cheaper prices, it is difficult for operators to get rid of the cost of handset subsidies. Regulators usually take no notice of this issue, except the Ministry of Information and Communication (MIC) in Korea. The MIC adopted a law to eliminate handset subsidies in Korea starting in June 2000. It put a ban on any kinds of behavior that amounts to subsidizing handsets, such as paying the handset makers or rewarding the retailers. Those who violate the regulation will be fined heavily. In fact, the mobile data market in Korea is still thriving. Customers do not shy away from subscribing to new services because of the expensive handset prices. Some countries also worry about the 32 downsides of handset subsidies, but no one has adopted the same rule yet. C. Standard regulation A big question in the 30 market is adopting a standard of W-CDMA or CDMA2000. Operators usually make a decision based on which standard is more convenient and cheaper to adopt when they upgrade from the networks they are running. They also have to take into account which standard is beneficial for service interconnection and roaming. Usually the operators have a free choice of a standard selection. However, operators are stipulated or encouraged to make a certain choice. For example, the European Union named W-CDMA as UMTS and set UMTS as European 30 technology. The European Union recommends operators adopt UMTS, even though UMTS is the best choice for European countries because it is the upgraded technology of the GSM system, which has prevailed in Europe. Korea has a regulation on standard selection. Instead of supporting only one standard, it provides two W-CDMA licenses and one CDMA2000 license. The operators can apply for both of them, but they have to adopt one certain standard according to the license they get. D. Network and equipment sharing Deploying the service network is time-consuming and involves large initial costs. Sharing networks or equipment will be very helpful to lighten the load and lessen production costs. According to Bauer, Westerveld and Maitland (2001), there are several forms of sharing arrangements: antenna site sharing, antenna towers sharing, radio access network sharing, geographical split network with mutual roaming, and common network sharing. They all can speed up the network deployment as well as contribute to the cost savings, 33 which range between 10% and 40% of the capital expenditure, depending on the depth of the sharing arrangement reaches into the network. Despite the high benefits from sharing network infrastructure, a sharing agreement may be difficult to reach due to discrepancies in operators’ bargaining power (ITU, 2002). This situation is especially unfavorable to the new entrants and small operators and may have adverse effects on the market competition. Therefore, some countries impose regulations on this issue. For example, the operators who acquired 30 licenses in Finland, Netherlands and France have obligations to share the network facilities. The Italian operators must share their network and equipment if requested by another operator"). The Irish operators will be rewarded for sharing their network. If the winner of the “A” license agrees to allow an MVNO to use its network, it can get an additional spectrum”. '9 Source: Bauer, Westerveld and Maitland, 2001. 3° Source: Curwen, 2002. 34 Chapter 4 Industry Structures and Business Strategies: Korea and Japan I. The Mobile Data Market in Korea Korea has the most advanced and thriving mobile data market in the world. As of April 2001, KT F reetel became the first company that launched CDMA 2000 1x service. In January 2002, SK Telecom launched the world’s first commercial CDMA 2000 1x EV-DO service. Korea also has a fast-growing wireless data market. The total revenue in the wireless data market was 690 billion KRW ($590 million) in February 2001. One year later, the market revenue increased to 1.2 trillion KRW ($1.026 billion).2| Moreover, the wireless penetration rate in May 2003 was 69%.22 88% of subscribers owned handsets that are enabled for use with the wireless Internet.23 Figure 4.1: Value Network of the Korean Mobile Data Market Standard Developers Network Equipment Manufacturers Handset Manufacturers Solution Providers \ / Third Party Source: Own research Content Providers 2' Source: MIC, http://wwwmic.go.kr/index.isp, 2003 22 Source: MIC, http://wwwmic.go.kr/index.j$, 2003 23 Source: SK Telecom, 2003 35 \ @® Figure 4.1 is the value network of the mobile data industry in Korea. The three mobile network operators, SK Telecom, KT F reetel and L0 Telecom, have chosen to be in charge of coordinating handset manufacturers, solution providers, content providers and other players. Therefore, these three operators occupy the most significant position in this industry. Not only did they establish the business models between themselves and players, but also influenced the business model between different players. In the value network of the Korean mobile data market, the network operators bear the highest responsibility for the development of the market. The way the operators cooperate with other players strongly influences the market. The relations between the network operators and other players are discussed below in more detail. A. Network Operators vs. Content Providers Content generates 30% of total wireless Internet revenue for the market.24 Quality and abundance of content will likely help the ARPU to rise. Therefore, it is essential for each network operator to have a sound strategy for cooperating with content providers. In the case of SK Telecom, they do not interfere with how content providers develop new content, but they have the power to adopt or veto proposed services. However, it is time-consuming to evaluate every provider’s content. Instead of examining 24,000 services from 680 content providers”, SK Telecom mostly deals with “master content providers”. Even though some individual content providers contact SK Telecom directly through the official website, SK Telecom still have “master content providers” evaluate those services for them. SK Telecom need not participate in the process of selecting 2’ Source: SK Telecom. SMS is excluded here. 25 Source: SK Telecom. March 2003 36 content and still receive quality content from providers. Master content providers, also known as content aggregators, are mostly independently owned, although a few of them are subsidiaries of SK Telecom. Master content providers collect content from content providers, then sift it based on quality control criteria and test the selected content to see if it works well with the network platform. Once the content has been uploaded to the service website, SK Telecom manage the menu and the ranking according to the content’s performance (see Figure 4.2). Figure 4.2 : SK Telecom’s CP Management & Support Sourcing A SKT Masters Quality Control Masters —-—/ Technical/ Engineering Masters 680 CPS supplying over 24,000 contents as of March 2003 Source: SK Telecom, 2003 As for KT F reetel, they have a standard process for launching a service (see Figure 4.3). If content providers want to provide new services via KT F reetel’s mobile network, they register their service proposal on KT Freetel’s website. KT Freetel then evaluates the proposal considering the development possibility, target users, revenue potential and so forth. If the evaluation is passed, content providers can go on developing the new services and perform quality tests. After the tests are done and the new services are available, KT Freetel plans promotional activities for the new services according to their marketability. 37 In the final part of work, KT Freetel evaluates the results to see if service adjustments are needed or not. Figure 4.3: KT Freetel’s Service Launching Process New item search Business planner/ external C P Market research Consulting to the marketing research team Under responsibility of the relevant team Sending RFP“ CP business Proposal Proposal registry Evaluating . ‘— Reject proposal notification No \/Yes I "—-—UAnalysis & assessment of the proposal CP: service developing and test *RFP: request for proposal L-—No ® Yes Launching service I Processed online at the magicn riginality/creativity/service cenario/development possibility. Etc. ~marketability: target user/revenue size/ tappealing effect (contribution to No. of page view) ~-CP contract and service launching --preparing charge list in case of paid Bringing it to the promotion team Promotion Evaluation results Source: KT Freetel, 2003 38 Withdrawal/ continuation (abide by management manual) Both SK Telecom and KT Freetel are more powerful than content providers in negotiations. They have the right to decide who can be connected to their portal websites. They also can decide the order of the content list. Although they usually list content based on the number of hits”, they still put some new content on the top of the list for several days to promote it. If the new content is not popular enough, its rank will be assumed by more popular content. However, SK Telecom and KT Freetel adopt a win-win profit sharing strategy with the content providers. To attract more content providers, a large part of the content fee will be given to the content providers to encourage them to develop more high-quality content. SK Telecom gives 90% of the collected content fee to their content providers and keeps 10% of the fee for maintaining the services and billing system. KT Freetel’s basic model for profit sharing strategy is the same. In the case that content providers utilize the platform provided by KTF, the fee retained by KTF is 10% to 30%. B. Network Operators vs. Handset Manufacturers Samsung is has the highest market share in Korea of all the handset manufactures. The handsets produced by Samsung are widely used in Korea, and are far more popular than the products from other leading makers like Motorola, Nokia, and Sony Ericsson. Even though SK Telecom and KT F reetel can produce handsets, they still need handsets from Samsung because they are preferred by customers. Besides, these two operators tend not to choose LG Electronics as their main handset providers because LG Telecom, LG Electronics’ related company, is one of their competitors in the market. Therefore, Samsung is more powerful than the network operators during their negotiation. 2“ The more hits a content has, the higher it will be ranked. 39 One of the significant issues between the network operators and handset manufacturers is the handset subsidies. It used to be very common that operators subsidized the handset price to let users buy the handsets at a lower price. This policy facilitated the growth of subscribers, but it cost operators around 30 % of sales and increased the users willingness to change their handsets. The Korean government banned mobile phone subsidies in June 2000, and even prohibited any direct profit-involved interaction between the network operators and the handset manufacturers. The network operators have to apply other approaches for assuring the handset manufacturers of the low risk in producing new handsets. For instance, SK Telecom does not formally purchase the handsets but is still involved in the purchasing and distribution process. SK Global, SK Telecom’s related company, signedthe handset contract with Samsung for SK Telecom. SK Telecom can still guarantee a certain volume of purchasing for a specific handset model via SK Global. Then SK Global resells the handsets purchased from Samsung to SK Telecom’s retail agents. The users can buy the handsets from those agents. The new regulation helped the network operators reduce their cost in selling services as well as reduce the churn rate, since the users have to pay a higher price for buying new handsets if they want to change the service providers. However, when users’ willingness to purchase new handsets decreases, it could entail reduced sales for the handset manufacturers. This is why the handset manufacturers need the operators to bear some risk of bad sales by guaranteeing a certain volume of purchasing. C. Network Operators vs. Solution Providers Network operators in South Korea play a big part in the solution providers’ development process. To acquire good solutions for their services, they are generous in providing 40 financial support to solution providers. Therefore, the content providers and handset manufacturers can enjoy the use of the solutions by paying a small amount of revenue or even nothing. Take SK Telecom’s VOD service as an example. SK Telecom used two kinds of technology, MPEG-4 and Wavelet, for its NATE multimedia services (SK Telecom, 2001). Wavelet is the multimedia wireless solution which supports real video image, animation, photo slide and graphics. It was developed by Thin Multimedia Inc. of the USA. SK Telecom signed two contracts, a solution development contract and an ASP contract with Thin Multimedia. According to these two contracts, Thin Multimedia had to develop the Wavelet solution as well as operate and manage the data center, and SK Telecom provided the financial support to Thin Multimedia for their contributions. Thin Multimedia provided their solution to the handset manufacturers at no charge because they had already been paid well by SK Telecom, As for the content providers, Thin Multimedia merely charged them 5% of the total sales revenue. The biggest revenue stream is still from SK Telecom. The business models with other solution providers are similar. Therefore, the content providers and handset manufacturers can invest the money they save from the cost of utilizing the solutions on their own research and development, and produce more high-quality content and handsets. SK Telecom will also have more subscribers or higher ARPU because of the attractive content and handset, and gain a far more amount of the profits than the amount they have paid to solution providers. Therefore, everyone benefits from this model.27 D. Mobile Data Services There are three 2.5 0 mobile Internet service brands and two 30 service brands in South 27 This section greatly referred to SK Telecom’s report: Wireless Internet Business, 2001 41 Korea. The three 2.50 service brands are SK Telecom’s NA TE, KT Freetel’s Magic n and L0 Telecom’s (22-1128 NA TE was launched in October 2000. Magic n and ez-i both were launched in May 2001. These service brands rival one another and provide similar services: picture and ringtone downloads, location-based services, life information, news, m-books, broadcasting, games, e-payment, mobile coupons, lotteries, fortune, jokes, adult content and communication including chatting, e-mail, date matching and message sending. Of those services, ringtone downloads, picture downloads and games are the top three revenue streams. However, these service brands also have some distinguishing characteristics. For example, NATE was positioned as the single Internet portal for multiple devices including the PC, handset, PDA (Personal Digital Assistant) and VMT (Vehicle-Mounted Terminal). ez-i were designed for cellular phones as well as PDAs. The two 30 service brands are SK Telecom’sjune and KT F reetel ’s FIMM(First in Mobile Multimedia). They are both based on CDMA2000 IXEV-DO network. june was launched in January 2002, and F [MM was launched in May 2002. With the advanced network technology and higher transmission speed than 2.50 services, they aim to offer multimedia services including VOD, MOD, MMS, live news, TV programs and video telephone. The 3G services emphasize on entertainment services while the 2.50 services emphasize on communication services. The 3G services’ target users are also different from the 2.50 users. june and F [MM target younger generations more than'other services since they are entertainment-oriented. 2” This mobile service information of SK Telecom, KT Freetel and LG Telecom draws from those companies’ home page: http://www.sktelecom.com ; http://www.ktf.co.kr, http://wwwletelecom.co.l\r 42 E. Mobile Data Tariff Korean operators have similar tariff strategies for mobile data. Since the connection is always on, they charge users according to the usage instead of connecting time. Table 4.1 shows the price plans for SK Telecom’sjune. Table 4.2 shows the price plans for KT Freetel’s F IMM. Table 4.1 :june’s Price Plans Price Plan Basic Monthly Free Allowance Discount for the Fee excess June 50 5,000won 13,000won 10,000 packets 30%* ($4.26) ($1 1.07) June 95 9,500won 32,500won 25,000 packets 50%* ($8.09) ($27.68) June 150 15,000won 65,000won 50,000 packets 70%* ($12.78) ($55.37) June 250 25,000won 156,000won 120,000 packets 80%* ($21.29) ($132.88) *one packet= 512 bytes *Rate for data download: Daytime-----l .3won ($.0011)/packet Nighttime---O.3won ($.0003)/packet Source: SK Telecom, Sep. 2003 Users can choose a plan from different flat-rate plans according to their needs. Users pay a basic monthly fee and have a certain amount of bundled packets for free. The higher the price plan users choose, the more free packets they will have. If the data transmitted exceeds the bundled free amount, users will be charged for the excess part per packet. However, the excess part will be discounted. The high-volume-plan consumers receive a higher discount rate from the operators since Operators want to encourage users to consume more. 43 Table 4.2: FIMM’S Price Plans Price Plan Basic During After Promotion Over bundled free packets Monthly Promotion (per packet") Fee Bundled Bundled Price for MagicN Multimedia Video (Won) free packet fiee VOD per discount (packet) packet packet (packet) (Won) FIMM45 4,500 33,000 11,000 0.41 30% ($3.83) ($.00034) 6.5Won 2.5Won FIMM87 8,700 78,000 26,000 0.33 ($00554) ($00213) 50% ($7.41) ($00028) FIMMI40 14,000 153,000 51,000 0.27 70% ($1 1.93) ($00023) F1MM240 24,000 Unlimited 124,000 0.19 80% ($20.44) ($00016) F1MM490 49,000 Unlimited 520,000 0.09 90% ($4l.74) ($00008) *one packet = 512 bytes -Text service: 30 Won ($.0256)/ Per time -Multimedia service: 2.5 Won ($.0021)/Packet Source: KT Freetel, Sep. 2003 44 C I II. The Mobile Data Market in Japan In 2002, Japan had the world’s third largest mobile market. According to ITU’s statistics, Japan had 79 million cellular subscribers. It was only next to China (207 million) and the US. (141 million)”. However, Japan had higher cellular penetration rate (62.11%) than China (16.09%) and the US. (48.81%), and the biggest mobile data market. The number of mobile Internet subscribers in Japan was 59.5 million”. It exceeded China’s 35 million mobile lntemet users3 ' and America’s 9.9 million mobile Internet users”. Besides the astonishing number of subscribers, Japan is also remarkable for taking the lead in the development of mobile data. Japan was the second country to launch 30 services. five months after Korea”, and the first country to launch WCDMA services. The three mobile operators in Japan are NTT DoCoMo, KDDI and J-Phone (Vodafone KK)”. They also play the roles of mobile Internet service providers and mobile lntemet portal providers in the Japanese mobile data market. Adopting the centralized management approach, these operators are responsible for integrating all of the products provided by the other players (see Figure 4.4) and distribute mobile data services, which consist of handset, mobile network, and mobile portal, to the users (Vesa, 2003). 2" Source: ITU http://www.itu.int .2003 3° Source: Ministry of Home Management, Public Affairs, Posts and Telecommunications (MPHPT) http://www.soumu.go.ip/ioho_tsusin/eng/index.htm| ,2003 There were 59,527,000 lntemet service users via mobile phone terminals. It was the total number of subscribers to the i-mode, ez-web and .I-Sky services. 3' Source: lIAS Newsletter http://www.iias.n1/iiasn/29/l1ASNL29 55_Nie|sen.pdf ,Nov. 2002 Source: Comscore Networks http://www.comscore.com ,2002 Those 9.9 million mobile lntemet users include 5 million people who use a handheld computer to access lntemet services and 5.8 million use a wireless phone. 3" NTT DoCoMo’s 3G FOMA service was launched at Oct. lSt 2001. 3’ J-Phone changed its name to Vodafone KK from October 2003. 45 Figure 4.4: Value Network of the Japanese Mobile Data Market Standard Handset Developers Manufacturers Network Equipment I Manufacturers Solution Content Providers Providers Source: own research With 39 million subscribers3 5 and 59% of the market share in Japan, NTT DoCoMo’s i-mode undoubtedly contributed to the flourishing market the most. i-mode’s success story was studied extensively and became a blueprint of what a successful business model Should be. The most common explanations of its success are i-mode’s always-on functionality, its bit-based charges, the lower fixed Internet penetration in Japan and the market strategy for targeting the young generation (Fransman, 2002). KDDI and J -Phone provide similar services and pricing plans, but they did not benefit from the first-mover advantage. KDDI and J -Phone launched their mobile lntemet services after people were aware of the brand name of i-mode, and they both were slower in upgrading services than NTT DoCoMo. J-Phone’s 30 service36 was 14 months behind NTT DoCoMo and KDDI still used 2.50 technology (Sep. 2003). Even though KDDI had merely 25% and J-Phone 35 Source: NTT DoCoMo http://wwwnttdocomocom ,2003 3" J-Phone launched WCDMA service at Dec. 2002 46 had 16% of market share, they still had a large number of subscribers compared to the number of WAP users”. A. Network Operators vs. Content Providers Because the three Japanese mobile network operators are portal providers simultaneously, they control lntemet access. These operators all have their own service portals which have direct links only for the “official” content. Even though users could access the “unofficial” websites by typing the URL, hitting the links of the portal menu on their handsets is still easier and more convenient. The providers who want to supply content in the service portals have to make an application for being “official content providers” at first. Then the operators will decide who are qualified to list on the service menu. Besides, they restrict access of their service portals. Since the portals are part of their products, they offer their portals exclusively for their subscribers and block the access from non-subscribers. To attract more subscribers, the operators need more quality content providers joining them. NTT DoCoMo’s i-mode is an example of a successful model. When it bills its users for mobile lntemet connecting fees, it also collects content fees for their official content providers. NTT DoCoMo takes 9% from the content fees collected as commission. The other 91% goes to the content providers (see Figure 4.5). Not only does it leave out multi-bill inconvenience for the users, it also frees the content providers from billing and collecting. 37 In 2001, there were 18 million WAP users in the world. http://wwwwapforumorg, 2001. At Jan. 2001. KDDI had 14.47 million subscribers, of which over 5 million utilize KDDI’s ez-web. http://www. intage.co.jp/express/micjapancom/market’O I 02/0 102.11tml, 2001. At Mar. 2001, J-Phone reached 10 million subscribers, of which 61 % subscribed its mobile lntemet service---J-Sky. http://www.i-phone.com/english/release/ZOO l /index.html ,2001. 47 Figure 4.5 i-mode’s Content Provider Bill Collection System Commission (9%) i-mode . . Content Fees for lnformatlon DoCoMo Payment of . user . . . Provrders obtained (collected as Information provider’s agent) provision fees Information Source: NTT DoCoMo Annual Report 2002 The lntemet standard used on the i-mode website is another advantage of attracting content providers. NTT DoCoMo adopted cHTML (compact HTML) for i-mode menu and content. cHTML is embedded in the fixed Internet standard: HTML, so content providers can convert their HTML-based content into cHTML-based content with only slight changes (NTT DoCoMo,2002). The user-friendly format decreases the entry barrier of providing content and contributes to i-mode’s fast growth of content providers. By Aug. 2003, there were 3,732 i-mode menu registered sites and 67,598 independent sites listed in “ OH! NEW i-search”38. B. Network Operators vs. Handset Manufacturers Japanese operators are deeply involved in handset design and production. To create handsets which can fill their requirements and deliver their services smoothly, they 38 Source: NTT DoCoMo httpzr'l’www.nttdocomo.com 2003 48 actively participate in the R&D work. The handsets are produced just for one specific operator and have operator’s brand name and special function keys. Each phone can only be used for one specific operator’s mobile service since SIM cards are not used in Japan and the telephone number has already been hardcoded in the phone (Vesa, 2003). Operators regard the handset as one of their products, not just the tool for carrying their service. Operators ordered the handsets from handset manufacturers and then sold those handsets under their brand names. Instead of selling “NEC” or “Sharp”, they named the handsets in their way. For example, J -Phone named its handsets as J -SH53, J-T51, J -SA06, etc. NTT DoCoMo named its FOMA (Freedom of Mobile Multimedia Access) enhanced handsets as FOMA F2102V, FOMA N2102V, FOMA N2701, etc. Phone branding is helpful to deepen users’ impression on their brand images and strengthen users royalty to their services. Besides, their handset partners can fully concentrate on product research and development and do not have to worry about sales volumes of handsets since the operators highly subsidize the handset price and they are also responsible for marketing and selling the handsets. C. Mobile Data Services There are four major mobile data service brands in Japan: NTT DoCoMo’s i-mode and F OMA, KDDI’S art”, and J-Phone’s J-Sky (see Table 4.3). Among those four services, i-mode is the most successful service but based on the most primary network technology. The two principal services it offers are mail and website access. Website access includes the voluntary web sites and i-menu sites. i-menu is i-mode’s portal service. Through 3’ KDDI has another mobile service besides au---Tu-Ka. It was especially designed for business users. Tu-Ka’s subscribers can also subscribe the same mobile lntemet service, ez-web, as au’s subscribers. So basically Tu-Ka and au’s mobile data services are the same. 49 i-menu, subscribers can directly access the official websites. Ringtones/screens was the most popular content. Games and horoscopes were the next“). Table 4.3: Mobile Data Services in Japan Carrier NTT DoCoMo KDDI J-Phone Brand i-mode FOMA au J-Sky Service -i-menu: The Basic services: - Movie mail -Mail and files sending gateway for easy -Voice service - Photo mail - JavaTM Applications: access to lntemet. -i-appli: Applications download -i-mode mail -Messages -Check i-center for new messages and mails —Bookmark: register URL in the phone -00 to Location: Access a site by entering URL -Videophone -64K digital communications -Packet communications -Short message service -Multi-Access service (simultaneous-communication) Additional services: - i-mode - Video distribution service - mopera - Voice mail service - Call forwarding service - Call waiting service - ezmovie: different streaming video services - eznavigation : location applications - ezplus": download service - ringtunes download - pictures and wallpaper download - lntemet access (I44kbps) - Searching services - Living information -Community communication ( ex. BBS) 3D characters, games and standby screens. - Web: on-Iine contents - Global Net: lntemational content service - Station: Notice and news from J-Phone - @Sha-mail: Mail to other mobile phones or PCs. - @Sha-mail Album42 Source: Own Research from websites of NTT DoCoMo, KDDI, J-Phone ’0 Source: NTT DoCoMo’s slide show for business activities http://www.nttdocomo.com 2001. Out of total number of hits to iMenu sites, 35% was ringtones/screens and 18% was games/horoscope at Mar. 2001. 41 ez-plus is a download service includes a variety of entertainment and e-commerce JAVA applications. ’2 @Sha-mail Album service is storing mails on the J-SKY server and create mail albums which can be viewed from J-Phone handsets and other lntemet-capable mobile phones or PCS. 50 If h F OMA is the 30 service based on WCDMA technology. It offers more advanced services including high quality voice communication, TV phone (videophone), 64K digital communications, multi-access (simultaneous packet transmission while talking over the phone), and diverse multimedia content. F 011M users can also subscribe to i-mode service and get i-mode content with fast speed access at up to 384Kbps for downlink. Based on CDMA20001X, KDDI’s au service can provide lntemet access up to l44Kbps.Using the au service, users can send movie and photo mail, watch streaming video, download ringtones, pictures and Java applications, use location services, communicate in group discussion community and access the lntemet through its portal website: ez-web. J -Phone’s J-Sky is the other 30 service in Japan besides F OMA. It offers mail and sending attached files, Java contents like 3D games and animations, web content and mail storing. One of its characteristic services is Global Net: international content service. Not only does it offer global information, but it also provides multilingual content including English, French, German, Spanish, Dutch, Portuguese and Tagalog. D. Mobile Data Tariff The basic charging model of i-mode, F OMA, au and J-Sky’s is a monthly bundled plan. Operators provide a couple of price plans for subscribers’ choices. Subscribers pick up a plan according their usage, pay a basic monthly fee, and have some amount of communication allowance for the packets they transmit. For example, F OMA has plan 39. 49, 67, 100, 150 and Data Plan22 (see Table 4.4). If subscribers choose plan 49, they pay ¥4,900 ($43.75) monthly and have free communication allowance of ¥2,050 ($18.3), which is worth 10,250 packets. Besides F OMA Plan, NTT DoCoMo also offers Packet 51 Pack for the subscribers. The subscribers can add one Packet Pack (see Table 4.5) on their F OMA Plan and they will have more communication allowance and lower cost per packet, but they cannot subscribe to Packet Pack without F ()MA Plan. Table 4.4: FOMA Price Plans "Packet fee without Packet Pack: ¥ 0.2 /packet *One packet = 128 bytes *Voice and digital communication fees vary depending on the price plans subscribed to. *There will be other discounts applied the basic on monthly fee and communications fee Price Plan Basic Monthly Fee Communication Allowance FOMA Plan 39 ¥3,900 ($34.82) ¥750 ($6.70) FOMA Plan 49 ¥4,900 ($43.75) ¥2,050 ($18.30) FOMA Plan 67 ¥6,700 ($59.82) 3154050 ($36.16) FOMA Plan 100 ¥10,000 ($89.29) ¥7,350 ($65.63) FOMA Plan 150 ¥ 15,000 ($133.93) ¥ 1 1,650($104.02) FOMA Data Plan 22 ¥2,200 ($19.64) 3150 Source: NTT DoCoMo, Sep. 2003 Table 4.5: FOMA Packet Pack Packet Pack Monthly Fee Communication Packet Fee Allowance (Over Bundled Free Packet) Packet Pack 20 ¥2,000 ($17.86) ¥2,000 3150. l/packet Packet Pack 40 ¥4,000 ($35.71) ¥4,000 ¥0.05/packet Packet Pack 80 ¥8,000 ($71.43) 5158000 ¥0.02/packet Source: NTT DoCoMo, Sep. 2003 A variety of charge discounts distinguish Japanese operators’ tariff strategy (see Table 4.6). Some discount services seem to be a reward for subscribers’ loyalty to the operators. such as Yearly Discounts, Long-Tenn Discounts and Family Discounts. On the other hand, they are also helpful to reduce the churn rate. Therefore, those discount services are provided and highly recommended by every company. Some discount services are 52 designed for the specific target groups, such as business users and students. These groups usually are the heavy users and contribute handsome profit to the operators, so the operators offer special plans to attract them. Some discount services are intended to improve the business image of the service providers, such as NTT DoCoMo’s Hearty Discount. Japanese mobile users have to spend some time understanding the rules because many discount services are provided. If subscribers want to get the best deal, they need to know which discount service is applicable to them, whether they have to pay extra fee for being eligible for the service, and if the discount service can be combined with others. Table 4.6 Discount Plans Provided by the Japanese Operators Carrier NTT DoCoMo , KDDI J-Phone Discount - lchinen Discount -Yearly & Long-Term -Yearly Discount (Yearly Discount) Discount - Long-Term Discount Plans - Long-Term Discount - Family Discount - Automatic Carry Over - Family Discount - Designated Numbers - Designated Numbers - e-billing Discount Discount Discount - Volume Discount - Student Discount - Family Discount - Yu Yu Call Discount - E-mail and Ez-web - Corporate Discount (Designated Numbers Discount) services on Multiple Lines - FOMA Packet Pack - Calling Home - Volume Discount Discount Discount - Business Discount - Bulk Line Discount - lkkatsu Discount"3 - Hearty Discount"4 Source: Own Research from websites of NTT DoCoMo, KDDI, J-Phone, Sep. 2003 N 43 The lkkatsu Discount is given on communications charge for two or more DoCoMo mobile phone lines on a single bill. The Hearty Discount is provided to the physically and mentally challenged. 53 SU 1101 fit! of] ath nth: , I SOur Ihflty a . in: Chapter 5 Industry Structures and Business Strategies: the U.K. and the US. I. The Mobile Data Market in the U.K. The U.K. mobile data market became one of the pioneers for the next-generation mobile data services when Hutchison 30 UK launched 30 services in the first quarter of 2003. The U.K. mobile market was highly developed. There were nearly 50 million cellular subscribers in 2002.45 Among European countries, only Germany (59 million) and Italy (52 million) had more subscribers. In 2002, its mobile penetration rate was 84%, which )46 and the average global penetration was much higher than the European average (50% (19%).47 Since the U.K. had a large base of cellular subscribers, experts expected that the U.K. would have great potential for success in the mobile data market. There used to be four mobile operators in the U.K.: Vodafone, BT Cellnet, Orange and OneZOne. Vodafone had the biggest market share among them (28%), but the difference between operators’ market share was small. In March 2001, their market shares were almost equal (Olla and Patel, 2002).48 However, there were some changes during 2002 and 2003. BT Cellnet merged with the mm02 and the company’s name changed to 02 UK. OneZOne was annexed by T-Mobile and provided services under the brand name of T-Mobile. Besides, new entrants came into the mobile market. Hutchison 30 UK acquired one of the five 30 spectrum licenses and started its business. It is the only network operator who completely concentrates on 3G services. Beside these five MNOS. ’5 Source: ITU http://www.itu.int/ITU-D/ict/statistics/at glance/cellularOZpdf , 2002 There were 49,921 thousands subscribers in the UK in the end of 2002. ’6 There were 44 European countries taken into account. ’7 Source: ITU. http://www.itu.int/lTU-D/'ictfstatistics/at glancelcellularfllpdf, 2002 There were 196 countries taken into account. ’8 Vodafone: 28%; BTCellnet: 26%; OneZOne: 21%; Orange: 25%. 54 a MVNO, Virgin Mobile, also participates in this market. Virgin Mobile is a half-half joint venture between Virgin Group and OneZOne.49 Without its own network, Virgin Mobile uses infrastructure owned by OneZOne, but established a new brand for providing mobile services. F igure5.1 : Value Network of the UK Mobile Data Market Standard Content Developers Providers f f ,1 I l,’ v s" Network EQUiPment ‘- MNOS * - _ _ ) MVNOS - - - - T” Manufacturers / T A +—+ ,1 If, 1 Solution Handset Providers \ Manufacturers Source: Own Research The structure of the U.K. mobile data market can be roughly represented in the Figure 5.1. Vodafone, 02, Orange, T-Mobile and Hutchison 30 UK are the network operators as well as the mobile lntemet service providers. As network operators, these five companies establish technological cooperation with the standard developers and with network equipment manufacturers. As mobile lntemet service providers, these five companies ’9 Source: Virgin Mobile http://www.virginmobiIe.com/mobiIe/media_centrer’media_te_r_t_tfrings.i531. Sep. 2003. 55 work with the content providers, solution providers and handset manufacturers for delivering mobile Internet services to users. Virgin Mobile is the MVNO in this structure. Instead of acquiring a spectrum license and deploying the mobile network by itself, it just delivers services over another operator’s network. The MVNO strategy simplifies coordination with the standard developers and network equipment manufacturers. Virgin Mobile can concentrate on negotiating with content providers, solution providers and handset manufacturers. A. Network Operators vs. Mobile Virtual Network Operators For Vodafone, 02, Orange and Hutchison 30, Virgin Mobile is a competitor in the same industry. For T—Mobile, Virgin Mobile is both a competitor and a big client. Virgin Mobile rents the network and buys bulk airtime from T-Mobile for delivering the mobile services under the brand name of Virgin Mobile. Virgin Mobile highly benefits from this partnership. It quickly started launching services since it did not have to build up the network, and also provides the services with lower cost due to the saving from the spectrum license and the network-deploying fee. With lower expenses, Virgin Mobile is more competitive. For example, Virgin Mobile lowered the text message price to 3 pence (5 (it )per message while other operators charged averagelO pence (17 ¢ ) per message”. T-Mobile is the beneficiary in the MVNO model, too. The rental fee from Virgin Mobile brings T-Mobile extra revenue and can slightly relieve the financial burden due to a huge amount of money on the spectrum license. However, Virgin Mobile will become dependent on T-Mobile since it needs T-Mobile’s network for providing services. In the 5° Source: http://www.totalteIe.com, April 30, 2003. Virgin Mobile offered SMS at 3 pence per message when sent to another Virgin Mobile phone within the UK from May I". 56 U.K., there is no regulation that requires the operator to open the network. The U.K. regulatory institution just positively encourages some forms of infrastructure sharing. Therefore, T-Mobile could decide to stop sharing its network with Virgin Mobile if the contract expires and it has a strong position in deciding the rental price. Since they are competitors and Virgin Mobile’s success will influence T-Mobile’s market share, T-Mobile may have mixed incentives with repaid by the pricing of access. It is complicated by the fact that T-Mobile is also a big shareholder of Virgin Mobile. This is why Virgin Mobile did not rent the network from other network operators. Overall, since T-Mobile shares 50% of Virgin Mobile’s revenue, it can be expected that T—Mobile will offer the network at a reasonable charge. B. Network Operators vs. Content Providers The U.K. operators tend to actively partner with the content providers, especially with established and recognized media companies. Operators usually establish reciprocal partnerships with those media companies instead of being a content gatekeeper or controller. Hutchison 30 has a partnership team. One of its duties is to look for the content partners who can deliver quality and consistent services for its users. Its present key content partners are BBC Technology, The RA. Premier League and Emap.5 ' BBC Technology converts the audio and visual formats for Hutchison 30’s services. The FA. Premier League provides football clips. Emap provides music and entertainment news. Hutchison 30 also offers a register approach on the “official” website for those who are interested in becoming the content partner with it and it is open to everyone. However. the website does not explain the selecting criteria. Vodafone UK Content Services, a g 5' Source: http://wwwlrutclrison3g.com, Sep. 2003 57 division of the Vodafone Group, is a central content broker seeking mobile entertainment and information content for Vodafone users.52 Vodafone UK Content Services signed up several major content partners for Vodafone. Digital Bridges is one of those partners. It is a U.K. mobile entertainment firm53 and distributs mobile game content for Vodafone’s mobile lntemet service: Vodafone Lives!. Another example is T-Mobile. T-Mobile wanted to gain the strength in providing multimedia services when it launched t-zones mobile lntemet service, so it acquired some major brands as content partners, like MTV, Sony. and Universal Music for delivering music download and special ringtones. C. Network Operators vs. Handset Manufacturers In the U.K., the mobile operators tend to take an open attitude toward handset manufacturers. They do not establish a close partnership with some specific handset makers like Korean and Japanese operators. Their service plans are compatible with a variety of handset brands and models. When customers subscribe to mobile services, they have a variety of choices of service plans and handsets whether they shop at operators’ retailers, independent dealers or online. This benefits the handset makers since their products can be purchased by every consumer no matter who their service providers are. One drawback is that operators cannot ask handset makers to develop phones with a unique appearance for their services. The fact that operators lack for close relations with handset makers caused a shortage of handsets initially when Hutchison 3G launched the first 30 service in Britain. Hutchison 30 was the only operator providing 30 services. As other operators provided 52 Source: http://www.vodafone.co.uk, Sep. 2003 53 Source: http://www.totaltele.com, Feb. 27, 2003 58 services based on GSM or GPRS networks and those services were still popular, handset manufacturers tended to focus on producing 20 or 2.5 G handsets. Besides, Hutchison 30 could not provide a guarantee sales volume to the handset makers. Therefore, handset makers hesitated to invest money in the high-risk 30 market and delayed handset production. The U.K. mobile market is very competitive. To acquire more subscribers, each operator has its own special offers for service plans and handsets. Those special offers can increase the sale of some specific service plans as well as handsets. It is a cooperative strategy good for both of the operators and handset makers. Moreover, the mobile operators pay handset manufacturers or retailers 30% to 100% of the handset price. As long as customers sign a 12-month service contract, they get a handset at a discount or even for free. Generally speaking, the handset price is dependent on the tariff chosen. The higher tariff customers choose, the lower price they pay for a handset. Besides, operators have different subsidization policies for the same handsets. Take the Nokia 7250 as an example. If customers purchase a Nokia 7250 at a 3G Newsroom online store“, they get it for free or pay up to £ 339.99 ($576.25)according to the service plan they choose (see table 5.1). Orange subsidizes the Nokia 7250 model most among all of the operators. Its subscribers get the Nokia 7250 for free if they Sign a contract for more than £ 50 ($84.75) monthly line rental. If consumers subscribe to mobile services from Virgin Mobile, they pay :6) 339.99 ($576.25) for a handset since Virgin Mobile does not subsidize the handsets. 5" http://3gnewsroom.mobiles.co.uk, Sep. 2003. 59 Table 5.1: Comparison for Handset Subsidies Provided by the UK Operators (Taking Nokia 7250 as an Example) Service plan SIM-Free55 02 Orange T-Mobile Vodafone Handset price £ 339.99 .15 79.99 ~ £ 0.00 ~ :15 19.99 ~ ,1; 99.99 ~ ($576.25) £ 219.99 £ 199.99 £ 249.99 .£ 229.99 ($135.58~$372.86) ($0~$338.97) ($33.88~$423.7l) ($169.47~$389.8l) Subsidy N/A £ 120~ £ 260 £ l40~ £ 339.99 £ 90 ~ £ 320 £ 1 10 ~ .15 240 ($203.39~$440.68) ($237.29~$576.25) ($152.54~$542.37) ($186.44~$406.78) Source: own research, Oct. 2003 D. Mobile Data Services Five of six British mobile operators provide 20 and 2.50 services: Vodafone, O2, Orange, T-Mobile, and Virgin Mobile. In general, the service items they provide are very similar. They all offer services such as text and picture messaging, WAP content, E-mail, ringtone and wallpaper downloads, and games (see Table 5.2). Hutchison 30’s “3” is the only 30 service in the U.K. (2003). It offers customers more services than the others through its 30 network. For instance, it provides the first and the only 2-way mobile video calling in the U.K.56 and a wider variety of games, VOD, and MOD than other operators. 5’ SIM free mobile phones can be used on any network. 5" By Oct. 2003, Hutchison 3G is the only provider of the video calling service. 60 Table 5.2: Mobile Data Service Plans in the UK Service Provider Service Brand Service Items Network Vodafone Vodafone Live! -Picture, sound, and text messaging -Mobile lntemet access -WAP content -Polyphonic ringtones -Games -Vodaphone live! menu: News, download..... -E-mai| -Vodaphone messenger GSM/GPRS 02 02 Active -Mobile Video -myWAP: the mobile web and WAP community -E-mai| -Media messaging -Games -Ringtones and Wallpapers Downloads -Entertainment and sport news GSM/GPRS Orange N/A -Text and Voice media service -Ringtones and Pictures Downloads -Games -E-mail & text messaging -Photo messaging -WAP websites and information GSM/GPRS T-Mobile I-ZODCS -Messaging: Text, picture, video messaging -E-mail -Downloads: Ringtone, picture, Video download -t-games: Text and JAVA Games -t-movies: star photo and movie theme download -t-music: music news and special ringtone download -t-sports: sport news -WAP services GSM/GPRS Virgin Mobile Virgin Xtras - Sport: Latest sports news - Music: Music information - Going out: Living information - Staying in: TV guide, buy DVDNideo, rent games - Travel: Travel news - Shopping: m-commerce - Organiser: e-mail and personal calendar - Fun: Ringtones, graphics, horoscopes, lotto... - News: UK news, music and sports news..... - Text messaging - Teggames GSM/GPRS Hutchison 3G -Text, video, and photo messages -Video calls -Online Content -Download & Keep Content -Games Content -E-mail W-CDMA Source: These operators’ service websites, Oct. 2003 61 Several strategies are adopted to make the services look special and distinct from competitors’ services. Some of them brand their services with a simple name which also contains their companies’ images such as Vodafone Live!, 02 Active, t-zones, VirginXtras, and 3. Some of them highlight the specialties of the services. For example, Vodafone distinguishes its “Polyphonic Ringtones” from other ringtones. 02 differentiates its “myWAP community” from other WAP content. T-Mobile names its services as t-garnes, t-movies, t-music, and t-sports to imply they may have some unique content. Virgin Mobile uses another strategy. Its services and content are very entertainment-oriented. It stresses what kinds of amusements it has rather than the services for communicating between people. E. Mobile Data Tariff The two most common service plans in the U.K. are “Pay monthly service plans” and “Pay as you go”. “Pay monthly service plans” are provided by every operator except Virgin Mobile. Operators provide several service plans for different patterns of mobile phone usage (see examples in Table 5.3). Not only do they differentiate the plans by the quantity of usage, but also by the timing of usage (e.g. anytime, daytime, or weekend & evening), and the network of usage (e.g. transmitting within the same network or to other U.K. networks). If customers subscribe to a monthly service plan, they can choose a plan which fits their needs the best. By paying a fixed amount for monthly line rental, they have certain free allowances for making voice calls, sending text /media messages, or downloading content. Once this allowance is used up, they pay extra money for the 62 excess part. If there is a surplus allowance, some operators allow it to be carried over.57 However, these service plans are mainly designed for making voice calls. The allowance for the mobile data is usually limited. Some operators provide extra service packs for the customers who use mobile data heavily. For example, Orange’s customers can pay :6 4 ($6.78) per month for unlimited WAP browsing”. Vodafone’s customers can add a “Half—price extras pack” on the plan they subscribe and pay £ 3 ($5.08) per month to receive £ 6 ($10.17) worth of text, picture messages, lntemet, WAP, and Vodafone live! web browsing”. Table 5.3: Examples of Monthly Price Plans in the UK Operator Price Plan 7 Monthly Price Plans Vodafone Perfect Fit Number of Cost per month Picture messaging inclusive minutes and data included anytime 30 £ 15 ($25.42) £2 ($3.39) Online 100 £ 15 ($25.42) £ 8 ($13.56) 200 £ 30 ($50.85) £ 2 ($3.39) 400 £ 50 ($84.75) £ 2 ($3.39) 1000 £75 ($127.12) £2 ($3.39) daytime 100 £ 20 ($33.90) :8 2 ($3.39) 200 £ 25 ($25.42) £ 2 ($3.39) 400 £ 45 ($76.27) £ 2 ($3.39) 1000 £ 60 ($101.69) £ 2 ($3.39) weekend & 300 £ 17.50 ($29.66) :8 2 ($3.39) evening 57 In Vodafone’s price plan, any unused minutes can be carried over and used in the next month. Source: http://www.vodgffonecouk ’8 Source: http://wwworangecouk , Oct. 2003 59 Source: hmazfl'www.vodafone.co.uk ,Oct. 2003 “Half-price extras pack” also offers plans for paying :13 9 to get £ 18 worth and paying .£ 18 to get I; 36 worth. 63 Table 5.3 (cont’d) 02 Online Free Free 02 Non-02 Monthly Line Tariff Minutes Text/Media Mobiles/Fixed Mobiles Rental Messages Online 500 off 500/ N/A 30p/ 2p 45p/ 30p £ 20.00 OffPeak peak/50 ( ¢ 51/ ¢ 3) ( ¢ 76/ ¢ 51) ($33.90) 500 anytime Online 750 off 500/ 125 30p/ 2p 45p/ 30p £ 25.00 OffPeak peak/ 35 (¢ 51/ ¢ 3) (¢ 76/ ¢ 51) ($42.37) 750 anytime Online 50 50 anytime 500/ N/A 15p ( ¢ 25) 40p 33 20.00 ( ¢ 68) ($33.90) Online 100 100 anytime 500/ 125 15p ( ¢ 25) 40p 55 25.00 (¢ 68) ($42.37) Online 200 200 anytime 500/ 125 15p ( ¢ 25) 40p £ 30.00 ( ¢ 68) ($50.85) Source: Vodafone http://www.vodafone.co.uk ,2003 ; 02 http://www.02.co.uk , Sep. 2003 Every UK operator provides a “Pay as you go” plan. If subscribers choose “Pay as you go,” they do not pay for the monthly line rental. They just pay for the exact amount they use. For Virgin Mobile’s customers, “Pay as you go” is the only choice. Service providers rely on different metrics to measure use, not only different from service to service, but also different from network to network. The same services may have different pricing units when data are transmitted over GSM, GPRS, or W-CDMA networks. For example, WAP content and E-mail over GSM are charged by the length of connecting time (per minute), but charged by the number of data packs (per Kb or per Mb) while they are over GPRS. Hutchison 3G adopts a different way of charging for its W-CDMA services. It sets up nine price bands and categorizes all the services into a suitable price band according to its service rules. The higher the level the service is in, the 64 more expensive its price unit is. For example, reading small e-mail belongs to price band A, reading medium/large e-mail and sending small/medium e-mail belong to price band C, and sending large e-mail belongs to price band D60 The price of a unit in band A is 5p ( ¢ 8) while band C is 25p ( ¢ 42) and band D is 50p ( ¢ 85). Except for “calls”, every service is charged on per “event” basis (see Table 5.4). Table 5.4 Hutchison 30’s Service Prices Price Price Calls Messaging Email Online Download and Band (per minute) (per event) (per event) (per event) Keep (per event) to scores 3 customer tips Voice calls to news to Text message directory Text football news to news to UK mobile medium/large Game video Fun email, Send live text stand up small/medium mail Guide message Match video calls to Video £1 ($1.69) 5; ($2.54) £ 2.00 ($4.24) Video (Top shelf) Source: Hutchison 30, Oct. 2003 "0 Source: http://www.hutchfion3gcom. Sep. 2003. Small e-mail is less than 10Kb. Medium e-mail is between 10Kb to 100Kb. Large e-mail is over 100Kb. 65 II. The Mobile Data Market in the U.S. Although the U.S. has the world’s second largest mobile marketf’I it lags behind some West-European and Asian countries in the development of mobile data. First, it has a lower mobile data penetration rate. At the end of 2002, the U.S. merely had 8% mobile data penetration rate62 while Japan had 75%”. Second, none of the mobile carriers had launched a nationwide 30 service yet and the two 30 services were only offered in the very limited areas. Both of them are based on CDMA2000 IXEV-DO. One was launched by a regional carrier, Monet Mobile, in some cities of the central states at Oct. 2002.64 The other one was launched by Verizon in San Diego and Washington DC. in Oct. 2003 and mainly targeted the business users. There are six nationwide mobile operators and more than a hundred regional operators in the U.S., but only the nationwide operators are discussed here. Verizon Wireless, a joint venture of Verizon Communication Inc. and Vodafone Group PLC,65 is the biggest U.S. mobile operator. Its market share is an estimated around 23%."6 Ranked by the mobile market share, the next five operators are Cingular Wireless (15.4% market share), AT&T Wireless (14.7% market share), Sprint PCS (10.4% market share), Nextel (7.5% market share) and T-Mobile (7.0% market share)“ Strictly speaking, there is no 6' Source: ITU http://www.ituint , Oct. 2003 62 Source: FCC CM RS Eighth Competition Reports Mpfl/wwwfccgov, July 2003 There were 11.9 million mobile telephone users who subscribed to some type of mobile data service at the end the 2002 and there were around 141 million mobile telephone users in 2002. 63 Source: ICS http://www.souma.go.jp, Oct. 2003 The re were 59.5 million mobile telephone users who subscribed to mobile data service at Dec. 2002. 6’ Source: 30 Today http://www.3gtodav.com ,Oct. 2003 Monet’s CDMA2000 IXEV-DO services offered in Sioux Falls (South Dakota), Fargo (North Dakota), Grand Forks (North Dakota), Bismarck (North Dakota), Eau Claire (Wisconsin), Superior (Wisconsin), Duluth (Minnesota) and Moorhead (Minnesota). 6 Source: Verizon Wireless http://wwwverizonwireless.com, Oct. 2003 66 Source: FCC CM RS Eighth Competition Reports http://wwwfcegov, 2003 Out of 141.8 million total subscribers in the U.S., Verizon had 43.49 million subscribers in the end of 2002. 67 SOurce: FCC CMRS Eighth Competition Reports hupz/lw'ww.fcc.&)v, 2003 66 dominant player in the U.S. mobile market since none of them greatly gets ahead of the followers. This situation makes the U.S. mobile market very competitive and brings on a fierce price war between operators and more advertisement campaigns. Due to the difficulty on increasing the number of subscribers, the mobile operators intend to put more efforts on “undeveloped” mobile data service for increasing ARPU. They continue upgrading their mobile networks with the advanced network technologies for delivering mobile data with high speed and initiate the promotion for mobile data service. In 2002, mobile data contributed to only 1.7% of the mobile operators’ total ARPU and revenue."8 However, it is predicted that the U.S. mobile data market will grow fast. The mobile data penetration will rise from 2% in 2000 to 60% by 2007 and the size of the market will rise from 5 million subscribers in 2000 to 172 million by 2007."9 In addition to the six mobile operators, there is one new entrant in the market. Virgin Mobile USA is a joint venture of Virgin Group and Sprint PCS. Without its own mobile network, its service is delivered through Sprint PCS’s network and it is positioned as a MVNO for reselling the airtime. Although it only had 0.25% market share by the end of 2002, it still seems to have a bright future. First, its number of subscribers is rapidly growing. It acquired 350,000 customers within the first 6 months since its initial rollout at July 200270 and had 500,000 subscribers at April 2003". Second, its mobile data usage rate is much higher than the others’. While 20% of the U.S. cellular subscribers sent or received SMS in 2002, there were more than 50% of the Virgin Mobile’s subscribers used (’8 Source: FCC CMRS Eighth Competition Reports htmzflwwwfccgov, 2003 (’9 Source: The Strategies Group http://wwwstrategisgroupcom ,news was issued in 2001 but retrieved in Oct. 2003 70 Source: Virgin Mobile USA http://www.virginmobileusacom, Oct. 2003 7' Source: TotaITeIecom http://wwwtotaltelecom, April 22, 2003 67 5M5”. The value network of the U.S. mobile data market is similar to the U.K. (see Figure 5.1). The U.S. also has a MVNO (Virgin Mobile USA) besides network operators (Verizon Wireless, Cingular Wireless, AT&T Wireless, Sprint PCS, Nextel and T-Mobile). A. Network Operators vs. Content Providers The information about how the U.S. mobile operators select their content providers and their business models is not easy to obtain. However, from the list of content providers on those operators’ service websites, it seems that they prefer branded media companies. For example, at least five of them Offer content from ESPN, Amazon, and The Weather Channel; three of them offer content from e-Bay, CNN, ABC and Sabre; five of them offer AOL Instant Messenger. Those content providers are usually familiar to the general public. They could attract the customers to subscribe operators’ mobile data service. On the other hand, the operators do not restrict the content providers to provide their content to others, so the content providers want to offer their content widely. However, some content providers have partnership with only one network operator. For example, Verizon Wireless cooperates with MSN to offer MSN Messenger and mobile lntemet portal (vzw.msn.com) to its customers. MSN is Verizon Wireless’s exclusive content provider and does not offer the same content to the other Operators. Virgin Mobile USA also has an exclusive content provider. It provides unique content since its target market is the young generation and needs market distinction from other operators, so it has a multi-year strategic partnership with MTV networks and offers 72 Source: Virgin Mobile USA http://www.virginmobileusacom, Oct. 2003 68 music and entertainment content from MTV and VH1.73 B. Network Operators vs. Handset Manufacturers Basically, the U.S. mobile operators are big resellers of handset manufacturers. After they order handsets from handset manufacturers, they market the handsets to the customers with their mobile services. They could decide how to sell a handset: Which service plan should it go with? How much does it cost? Is there a rebate discount offered? They could purchase handsets from any makers as long as the handsets support their network technologies and mobile service. If they have special mobile services or adopt unique network technologies, they tend to partner with some specific handset makers and participate more during the process of R&D and product testing to make sure the handsets can work well on their networks or carry their mobile services without a hitch. For example, Nextel is the only operator who adopted the iDEN network technology developed by Motorola in the U.S. It mainly partners with Motorola to produce suitable handsets. Virgin Mobile USA partners with Kyocera and Audiovox instead of the other major brands creating exclusive handsets that could be compatible with its unique mobile services. C. Mobile Data Services Compared with other countries which have launched 30 service, the U.S. mobile operators mostly offer the basic mobile data services like text messaging, IM (Instant Messaging), ringtones and graphics, E—mail, information alerts, games, and web browsing for the text-based content (Oct, 2003). None of them provide video telephone. Five of 73 Source: Virgin Mobile USA http://www.virginmobileusacom, Oct. 2003 69 them (except Nextel and Virgin Mobile) provide MMS, but only in the regions where there are the advanced-technology networks. MOD and VOD are also limited (see Table 5.4). Table 5.5: Mobile Data Services in the US Service General Data Service Special Service Brand Network Provider Verizon Get It Now Brand Name: Express CDMA/ CDMA2000 1X Wireless - Messaging Network *Text Messaging -High-speed Wireless lntemet (CDMA20001 X is for *lnstant Messaging Access Express Network) (MSN, AOL, TXT Community) *E-Mail - Fun & Games *Games *Ringtones *Living lnfomration Searching - Info *Alerts *Mobile Web Browsing - Flix & Pix ‘Video Clips Viewing *Picture Messaging Cingular -Text Messaging N/A GSM/GPRS Wireless - Instant Messaging EDGE (limited) *Yahoo Messenger *AOL Instant Messenger - Multimedia Messaging - Games - Ring Tones & Graphics - Wireless lntemet AT&T -Text Messaging Brand Name : mMode GSM/GPRS - Instant Messaging -E-mail EDGE (limited) *Yahoo Messenger -lnstant Messaging *AOL Instant Messenger -Text Messaging - Multimedia Messaging -Office Online - Games -Match Mobile - UPOC Community Chat -Web Search -Ring Tones & Graphics -News and Information -Games -Music Sprint N/A Brand Name: PCS Vision CDMA/ CDMA2000 1X PCS - Picture Mail - Messaging — Games - Ringers - Screen Savers - Web Access - PCS Business Connection 70 Table 5.4 (cont’d) Service General Data Service Special Service Brand Network Provider Nextel -Wire|ess Web Access N/A iDEN -Email Services - Mobile Messaging *Two-Way *Text and Numeric *AOL Instant Messenger - Java apglications/ RinLTones T-Mobile - Picture & Video Messaging Brand Name: t-zone GSM/ GPRS - MegaTones - Picture & Video Messaging - Text Messaging - MegaTones - AOL Instant Messenger - Text Messaging - E-mail - AOL Instant Messenger - Wallpapers and Screensavers - E-mail - Games - Wallpapers and Screensavers - Alerts - Games - Alerts - t-zones Mobile Web Virgin - Text Messaging Brand Name: VirginXtras CDMA/ C DM A2000 Mobile - Ringtones - Ringtones 1X USA - MTV - Daily Dose - vhl 2 go - Music Source: Own Research from the websites of the listed operators, Oct. 2003 Due to the different market targets and the limitation of network bandwidth, some operators have different services from others. Sprint PCS’s main target users is business users, so it offers PCS Business Connection especially designed for them. Virgin Mobile USA’s main target users are the teenagers and young adults. Focusing on their demand on music, movies and fun, Virgin Mobile USA targets entertaining content. As for Nextel, it only provides basic services because of the limitation of transmission Speed. Some operators bundle data services and create a brand name for the combination. Customers have a variety of mobile data services included in one plan, such as AT&T’s mMode, Sprint PCS’s PCS Vision, T-Mobile’s t-zone, and Virgin Mobile USA’s VirginXtras. It would be easier to advertise and market the service product. Among those 71 service brands, Verizon Wireless’s Get It Now is an exception. Even though it gave a brand name for the collection of the services, customers do not have to get them all and can subscribe to the services individually just like other general data services in Table5.4. D. Mobile Data Tariff Three common ways are adopted for charging mobile data services. Some mobile data services could be offered individually and paid on a per-use basis as long as users subscribe to the monthly voice service. Text messaging is the most common service which is charged in this way. With the exception of Sprint PCS, the other six operators allow customers to use text messaging without subscribing other mobile data services and pay every time they send or receive messages (see Table5.6). Table 5.6: Text Messaging Price in the US Provider Per-Message Send Receive Verizon Wireless 10 ¢ 2 ¢ Cingular Wireless 10 ¢ 10 ¢ AT&T 10 42 Free Sprint PCS N/A N/A Nextel 10 ¢ 10 ¢ T-Mobile 5 ¢ 5 ¢ Virgin Mobile 10 ¢ Free Sources: FCC CMRS Eighth Competition Report and Virgin Mobile, http://www.virginmobileusa.com Oct. 2003. The second way for charging mobile data services is selling certain service packages. Like the first alternative, users can choose the services they want. Sometimes a service package includes more than two services and users pay a monthly fee instead of the usage fee. For example, the Verizon Wireless’s customers can pay $4.99 per month for 72 unlimited mobile web browsing, E-mail and instant messaging.74 They also can pay $2.99 per month for monthly allowance of 100 text messages, $3.99 per month for monthly allowance of 200 text messages, or $4.99 per month for monthly allowance of 20 picture messages and 100 text messages. The third option is to offer a plan that contains a set of services. Some Operators offer mobile service plans which include most of their mobile data services. Those who subscribe to these plans pay a monthly or daily fee. They cannot just choose and pay for what they want. Verizon Wireless’s Express Network, AT&T’S mMode, Sprint PCS’s PCS Vision, T-Mobile’s t-zone, and Virgin Mobile USA’s VrrginXtras belong to this category (see Table 5.7 in the next page). 7" Source: Verizon Wireless http://www.verizonwireless.com, Oct. 2003 73 Table 5.7: Mobile Data Service Plans in the U.S. Provider Service Brand Name Price Plans Verizon Wireless Express Network Express Network Calling Plan $35 for 150 min -$55 for 400 min -$75 for 600min -$100 for 900min -$150 for 1500min -$200 for 2000min -$300 for 3000min Unlimited Express Network Calling Plan - $79.99 Express Network Megabyte Calling Plan - $39.99 for 20 MB -$59.99 for 60 MB AT&T mMode mMode MINI - $2.99 plus ¢ 2 per kilobyte mMode MEGA - $7.99 plus (I Iper kilobyte over 1MB mMode MAX - $12.99 plus ¢ 0.8per kilobyte over 4MB mMode MEGA - $19.99 plus (I 0.6per kilobyte over 8MB Sprint PCS PCS Vision Unlimited PCS Vision services -$15 if subscribing voice service under $80 -Free if subscribing voice service more than $100 T-Mobile t-zone t-zones service - $2.99 plus $3 per MB over 1MB unlimited t-zones pro - $ 9.99 for unlimited data transfer Virgin Mobile VirginXtras 10 cents per day Source: Own Research from these operators’ websites, Oct. 2003 74 Chapter 6 Analysis, Conclusions, and Suggestions for Future Studies Four mobile data markets were discussed in this study: Korea, Japan, the U.K., and the U.S. These four cases have some similarities. First, they all have a vision of 30 as the next generation mobile service. Korea, Japan, and the U.K. have already launched commercial 30 service. Although the U.S. is currently falling behind, it may catch up in the near future. On Oct. 16th, 2003, later than the other nations, the Federal Communications Commission (FCC) adopted Third Generation rules which include provisions for application procedures, licensing, technical operations, and competitive bidding;75 however, U.S. mobile service providers were allowed to use 20 spectrum allocations to deploy 3G services. Second, all four countries have advanced mobile markets and have high mobile phone penetration. Third, they are relatively affluent and highly-developed countries. These similarities did not make their markets all develop in the same way. On the contrary, they exhibit diverse market structures and performances. While Korea and Japan have highly integrated market structures and a high mobile data penetration, the U.K. and the U.S. seem to be the opposite. To find out the reasons, a discussion about their differences is necessary. Since this study attempts to use the value network model to analyze each market, the discussion of the differences will be based on this model. I will also explain how these differences influence the markets. In the conclusion, some suggestions for future studies will be proposed. 7’ Source: http://www.fcc.gov, 2003 75 1. Differences among the Four Cases and Their Influences Several differences among the mobile data markets of Korea, Japan, the U.K. and the U.S. are revealed in this study. Figure 6.1 shows where those differences are in the value network. “A” is the overall model of the value network. “B” includes the structure and organization number of market, and MNOs’ various strategies. “C” refers to the relations between operators and other players. “D” stands for the value created in the market. “E” represents the policy framework, which influences corporate decisions. “F” represents the cultural and social factors that influence the market. Those differences will be articulated in this section. Figure 6.1: Locus of Differences among the Four Cases in the Value Network Policy Cultural and E social factors F .. ...... ' ------ -. A Standard Handset ’ I ,I' Developers Manufacturers ’I I ' Z I I I Network MNOs Equipment . . . _ / C are Capabilities I \‘ Manufacturers Relationships ‘1 / \ I \ I ‘, Solution Content ,’ “. Providers Providers /’ Source: Partially adapted from ITU lntemet Reports (2002) and Own Research 76 A. Model of value network Simplified model of value networks in the four cases were depicted in Chapters 4 and 576. The first difference among these network models is that in the UK and the US a MVNO takes part in the mobile data market but in Korea and Japan there are none. Virgin Mobile has entered both the UK and US markets. Even though it provides services to the users in the same way as mobile network operators, it has a simpler business connection with standard developers and network equipment manufacturers than regular operators because it does not own the mobile network. However, it has to be dependent on operators and pay for the use of the network. The second difference among the network models is the link between operators and handset manufacturers. Due to the ban on handset subsidies, Korean operators cannot establish a financial link with handset manufacturers. They need a “third party” to place an order of handsets from handset makers and sell the handsets to the resellers. If users need a new handset, they have to go to the retailers; they cannot buy it from the operators. In Japan, the U.S., and the U.K., the situation is different. Their operators have a financial link with handset makers and can purchase handsets from handset makers. Operators resell handsets to users and can subsidize handsets makers or retailers to lower the price of the handsets. The third difference is the relations between players and users. Operators’ strategies in organizing the market influence other players’ relations with users. In Korean and Japanese models, content providers have fewer connections with customers since operators control the service portals and billing systems. In the U.K. and U.S., content providers have more connections with customers since they have to market their content and gather the content 7" Figure 4.1 represented the model of Korean market. Figure 4.4 is the model of Japanese market. Figure 5.1 is the model of British market as well as American market. 77 fees by themselves. Handset manufacturers also have more connections with customers in the U.K. and the U.S. For example, Nokia is the biggest handset providers in the U.K. It actively established a direct link with its British mobile phone owners by providing the “Club Nokia!” service”. Nokia and Motorola are the two top handset makers in the U.S. market. They both offer download services to their mobile phone owners. Besides, it is common that handset makers try to boost handset sales by rebating portion of the handset price to customers in the U.S. Comparatively, the major Korean or Japanese handset makers have fewer connections with their handset owners. B. Market share and core capabilities of operators i) Number and market share of operators The number of mobile network operators is different among these four markets (see Table 6.1). Both Japan and Korea have three operators, the U.S. has seven, and the U.K. has six. In Japan and Korea, the largest operator has more than a half of the market share and the second one has around a quarter of the market share. In the U.S., none of the operators has more than a quarter of the total market. For the larger operators, market shares vary from 7% to 23 %, and the smallest one has merely 0.25%. In the U.K., the four largest operators each have similar market shares around 25%. The fifth and the sixth account for less than 6%. Based on the number of operators and the concentration ratios (CR)78, Japan and Korea have a market structure of tight oligopoly. The U.K. has a market structure between tight and loose oligopoly. The U.S. mobile market can be 77 “Club Nokia!” is provided in more than 30 countries worldwide in 2003, but not in Japan, Korea, and the US. 78 Market structure can be categorized as follows---Monopoly: only one supplier,; CR( 1) and C R(4) is 100%. Tight Oligopoly: 2~5 suppliers; CR( 1) is below 50% and CR(4) is 60~100%. Loose Oligopoly: 2~5 suppliers; CR(4) is less than 60%. Competition: more than 5 suppliers; C R(4) is less than 60%. 78 characterized as a competitive market environment. Table 6.1: Comparison for Quantity and Market Share of Operators Market Number of operators Operators’ market Share Japan 3 NTT DoCoMo: 59% KDDI: 25% Vodafone K.K.: 16% Korea SK Telecom:53.7% KT Freetel:31.6% LG Telecom:14.7%79 United States 7 (Including one MVNO) Verizon: 23% Cingular: 15.4% AT&T: 14.7% Sprint PCS: 10.4% Nextel: 7.5% T-Mobile: 7.0% Virgin Mobile: 0.25% United Kingdom 6 (Including one MVNO) Orange: 26.4% T-Mobile:24.9% 02: 24.5% Vodafone:24.2% Virgin Mobile:5.8% Hutchison 30: 0.3%80 Source: Own Research from these four markets Based on the market structure, the principal operators in Japan and Korea seem to have a 79 Source: SK Telecom, KT Freetel and LG Telecom, 2003 80 Source: Oftel Market Information http://www.oftel.gov.uk/publications/market info/2003/mobile/c15mobi1el003.pdf ,2003 This report does not include Hutchison 3G and Virgin Mobile. However, it mentioned that Hutchison 30 had around 155,000 UK subscribers in August 2003, representing 0.3% of all mobile users. Therefore, there were about 51.67 million UK subscribers in total. In Virgin Mobile’s website, http://www.virginmobileeom , it pointed out that it had 3 million subscribers in August 2003. So it had around 5.8% of51.67 million UK mobile users. 79 higher market power than operators in the U.K. and the U.S. With more than 50% of market shares, NTT DoCoMo and SK Telecom could easily attract more business partners and have a higher bargain power than their competitors. Thus, they are in an advantageous position to provide quality services. Besides, they have the greatest influence on framing the market network and market development. Other operators are relatively powerless, so they tend to follow the leader’s steps. Otherwise, they will need some special services or competitive price plan to lure customers. In the U.K. and the U.S., a larger number of service providers cause a more competitive market than other two countries. If the U.K. and U.S. service providers want to acquire more subscribers. they will need aggressive marketing and pricing strategies since they have numerous competitors. Market share is also a strong factor that influences operators’ role in the market. The high market share of the principal Korean and Japanese operators is conducive to their central role. Compared with Korean and Japanese operators, the U.K. and the U.S. operators have a low market share. Thus they may lack the market power required to establish a coordinating role in the market. ii) Core capabilities Every operator has its peculiar core capabilities. For example, LG Telecom and its handset maker: LG Electronics, both belong to L0 Global, so it controls one more critical element of mobile data service, handsets. Virgin Mobile specializes in marketing and packaging the entertainment content. Vodafone K.K. is the leader in multimedia messaging (Vesa, 2003). Hutchison 3G is supported by the conglomerate with strong financial and management capabilities. It also has the largest amount of 30 spectrum in 80 the UK“. These core capabilities have a great influence on creating value, acquiring users and interacting with other players. I am not going to discuss each MN O’s core capabilities, because most of those core capabilities mainly cause the variance within the same mobile data market, not the variance between the markets. Rather, the core capability that causes the different value network model will be discussed here; that is, the operators’ business strategies in the market integration. Because all the operators possess their unique management skill and market vision, they do not necessarily make the same strategy for the same industry. They have to cautiously examine their own capabilities and market environment before they make the business strategies that might be best suitable for them. Korean and Japanese operators adopt different business strategies from U.K. and U.S. operators. While Korean and Japanese operators choose the strategy of integrating each player in the market, U.K. and U.S. operators choose the strategy of not controlling or intervening with other players. The business strategy they adopted effects the operators’ relations with other players and market roles. These will be discussed in the next section. C. Relations between operators and other players i) Relations with handset manufacturers Compared with the American and British operators, the Japanese and Korean operators seem to have a closer relation with handset makers. They tend to actively participate in the development and production processes of handsets. To ensure the handsets can conform to their requests for the function, performance, exterior design, and size, they usually specify clearly what qualities they need for the handsets and provide support 8' Source: http://www.11utcl1ison3g.c_(_)_m, 2003 81 enthusiastically on product research, design, and test. Most of the American and British operators do not work with handset makers so intensively”. They tend to be more passive during the development and production processes. Instead of giving detailed requirements for the handsets, they give the handset makers more freedom. The handset makers in the U.S. and the U.K. will have more influences on the function and appearance of the handset. Moreover, while the US and UK operators work with various handset makers from different countries, the Japanese and Korean operators mostly cooperate with domestic handset makers. The latter also prefer developing stable and long-term relationships with specific companies. These are also the factors that facilitate better affiliations with handset makers. The close relations between the operators and handset makers have three main advantages. First, the handsets and the services they provide can match up nicely. Second, operators can ask for special designs or function keys on the handset, such as their company’s respective logos and hot keys that directly dial their service. Third, handset makers tend to highly cooperate with delivering a sufficient quantity of handsets in time when operators want to launch new services. However, it is not easy to maintain close relations with numerous handset makers. Korean and Japanese operators tend to have a few stable partners. This may reduce users’ Options of handset brands. The companies who have loose relations have opposite advantages of those who have close relations. The operators can partner with more handset makers, and customers can have a wider choice of handsets. Moreover, one handset may be compatible with 82 Nextel and Virgin Mobile USA are two exceptions. Nextel has a close relation with Motorola since the network technology it adopted was developed by Motorola. And Nextel is the only operator who has iDEN network in the US. Virgin Mobile USA has a close relation with Kyocera and Audiovox because it wants to offer phones with distinguished features (see Ch. 5, the US case study). 82 different operators’ networks: therefore, users will not need new handsets if they switch to other service providers. ii) Relations with content providers In terms of the relation between content providers and network operators, the Japanese and Korean Operators act like a “manager” in the higher position to govern its “official content providers” while the American and British operators act more like a “partner” in the parallel position to establish the business connection. This can be discovered by two ways. First, consider the way the operators acquire the content providers. The Japanese and Korean operators control the power to establish the cooperation model as well as the content selection and portal arrangement. Content providers have to follow Operators’ rules to apply for being “official” content providers. Then the operators filter the content according the selection rules. Once the content has been approved, the operators will arrange its location of the portal website and may advertise it if they presume the content will be popular. On the contrary, the U.S. and U.K. Operators do not put their content providers through a strict selection process. They tend to conduct business with major media companies and establish partnership with them. Second, consider the billing scheme they adopted. Japanese and Korean operators are in charge of the content billing system. When the users subscribe to some “official” content from their portal website, they collect the content fees for the content providers by including the content fees on the phone bill. After the operators receive the money. they keep a certain percentage of the content fees as their commission on managing the bills and give the content providers the remaining sum. However, the U.S. and the U.K. Operators do not handle the bills for the content providers. The content providers either 83 offer the content for free or ask the users to pay by credit card. The users’ monthly bills do not include the content fee; rather, they pay the content providers directly. The “manager” model that Korean and Japanese operators adopted have the following advantages. First, the content registration is open to everyone. Content providers can have easy access to the evaluation process. This is helpful to have abundant content. Besides quantity, the quality of content is guaranteed since the operators carefully evaluate if the content is qualified. Second, content providers can concentrate on content creation, because operators take care of billing systems as well as content solutions (operators also work with solution providers to ensure content can be smoothly transmitted to the users). Third, it is convenient for customers to pay the bills. Operators collect content fees for content providers, so customers do not have to pay content fees to each content provider. The simple payment approach may also increase customers’ willingness of purchasing content. The biggest disadvantage is operators usually restrain their “official” content providers from providing same content to other operators. This may limit content’s provision. The “partner” model that the U.K. and the U.S. operators adopted has opposite advantages and disadvantages of the “manager” model. The partner model needs content providers to take care of billing systems and content testing. Customers have to pay by credit card each time they use content (which is not free). The advantage is the operators usually do not bind the content providers to provide content only for them (except some special content partner). Content providers can provide their content through every service provider. They also have more freedom to create content because they will not be put through the evaluation process. Moreover, they can receive all the content fees. They do not need to give service provider commission. 84 D. Services and pricing i) Service level The mobile data services of these four markets are based on different technologies. In Korea and Japan, the services are based on 2.50 and 3G technologies. In the U.K. and the U.S., mobile data are transmitted through 20 or 2.50 networks. Only Hutchison 30 Offers 30 services in part of Britain. Due to the limitation of speed transmission, the services that 20 and 2.50 networks can carry are less than 30 networks. Therefore, Korean and Japanese customers have more choices of advanced services which require higher bandwidth and faster speed, such as VOD, MOD, and video telephone. By comparison, American and British customers have a narrower choice of services. Basic services like text messaging, ringtones and simple graphics, WAP content, and E-mail are commonly provided, but the advanced services like MMS, VOD, and MOD are limited. ii) Service plan design These four markets applied different service plan designs. Korean and the U.S. operators tend to separate the voice and data services. In general, their users subscribe to the voice service plans at first. If they also need the data service, they have to subscribe to the data service plans additionally. Mostly, their voice allowance cannot be interchangeable with the data allowance. Japanese operators usually combine voice and data service in the same plans. When customers subscribe to some service plan, they have a certain amount of communication allowance, which can be used for voice communication, packet transmissions, and SMS (content and information fees are usually excluded). Even though the allowance was originally designed for free call time, it still can be applied to packet communications charges. If subscribers use data transmission a lot, they can add 85 other packet packs on the service plan to receive a cheaper rate for data transmission and more data allowance. In the U.K., operators include some data allowance in the service plans yet not much. Most of the communication allowance is for voice minutes. Hutchison 3G and Virgin Mobile are exceptions. Hutchison 30 offers numerous service plans which include some free voice minutes plus free content allowance for the first month of subscribing”. After the first month, the service plans only include voice allowance. Data communication fees are charged additionally based on content’s bands and usage. Virgin Mobile does not offer “service plans” in the U.K. and the U.S. Its subscribers just pay for what they use monthly. iii) Methods of measuring use While the metrics to measure the use of voice is always on an airtime basis and the use of text messaging is always on a per message basis, the use of data transmission can be put on either an airtime basis or on a bit basis. Japanese, Korean and U.S. operators measure the use of data transmission on a bit basis. The Japanese and Korean operators charge their users by the amount of “packets” they transmit. The ways they define one packet are different. For example, SK Telecom defines 512 bytes as one packet while NTT DoCoMo defines 128 bytes as one packet. As for the U.S. operators, some of them apply the unit of “per kilobyte” and some of them apply the unit of “per megabyte”. The British operators measure data use on a bit basis as well as on a time basis. When data are transmitted over GSM network, they are charged based on the length of connecting airtime. When data are transmitted over GPRS network, they are charged based on the number of “Kb” or “Mb”. 83 Source: http://www.hutchison3g.com . 2003. These special plans are for customers registering between 10/01/2003 and 12/3 1/2003. 86 Hutchison 30 adopted another special strategy. Its data services are charged on an “event” basis. How much per event cost depends on which price band this service belongs to (see more details in Ch5 I.E.). iv) Special pricing strategy A great variety of discount plans is Japanese operators’ special pricing strategy. While other operators do not have so many discount plans, Japanese operators design discount plans for students, family, long-term subscription and so forth (see more details in Ch.5 II D). Not only do Japanese operators want to attract more subscribers by these discount plans, but also they express a spirit that they tend to win customers’ loyalty and establish long-term relations. E. Policy i) Ban on handset subsidy Korea is the only country that has banned having subsidies on handset. This rule forced Korean operators to alter their cooperative model with handset makers and retailers, and made them adopt different strategies for handset ordering and delivering from other operators. While Japanese, American, and British operators can take more control of handset wholesaling and pricing, Korean operators need another broker to deal with these matters. The biggest influence of the ban on handset subsidies is the retail price of handsets. Korean customers have to spend more money in buying handsets than other customers. 87 ii) Spectrum licensing method Korea and Japan adopted beauty contests for assigning spectrum licenses while the UK and US adopted auctions. The different design of spectrum licensing method affects the license fees. In terms of 3G licenses, the total license fee in Korea was $2,886 million, in Japan it was “free”, and in Britain it was $35,400 million“. On a per head of population (pop) basis, $61 per pop in Korea was still far less than $590 per pop in the UK85. It seems that the auction design tends to cost the operators more in license fees than the beauty contest design. This may also partially explain the different 30 developments in these three countries. U.K. operators presented a heavier financial burden than the Korean and Japanese operators, so they had difficulties in initial investment and delayed the date for launching the 3G services. iii) Interoperability Compared with Korea, Japan, and the U.K., the U.S. has a lower degree of interoperability in mobile services. The low degree of interoperability in the U.S. may have hindered the diffusion of early data services. For example, U.S. operators did not offer inter-operator SMS until 2002. Mobile users could only exchange messages with subscribers of the same Operator before 2002. While European and Asian operators had provided inter-operator SMS for years and generated significant revenue from it (McKenna, 2002), the U.S. had a slow SMS diffusion due to the lack of interoperability. The lack of interoperability was partially caused by the diverse network technologies 8’ Source: ITU lntemet Reports—lntemet for a Mobile Generation, 2002 There is no information about the US since its 30 rules have just adopted on Oct. 16‘“, 2003. 35 The total population of Korea in 2001 was 47,343,000. The total population of the UK in 2001 was 60,012,000. Source: OECD Communications Outlook, 2003 88 used by the U.S. operators. Before users could exchange SMS smoothly with users of other operators, some operators had to solve the problem of incompatibility between their SMS systems and other network technologies (Loftus, 2002). F. Social and cultural environment Besides the above-mentioned, some social and cultural phenomena in these four countries also have influenced on mobile data markets. First, how they commute influences users’ need for mobile lntemet. Compared with the U.S. and the U.K., Korea and Japan are very crowded. A higher percentage of commuters take bus or rapid transit system to work or to school in Japan and Korea, while a higher percentage of commuters go to work or school by cars in America and Britain. Therefore, Japanese and Korean mobile users may have a higher need to use their mobile phone access lntemet since they spend one or two hours waiting and sitting on the bus or train per day. American and British mobile users may have lower need for mobile lntemet since it is not convenient to operate the handsets while they are driving. Second, the low lntemet penetration in Japan may also increase the users’ need for mobile lntemet and cause the faster development of mobile data than the US and UK. However, Korea has a high lntemet penetration as well as a high mobile data penetration. It seems that mobile lntemet and fixed lntemet are replacements to each other in Japan, Britain, and America while they are complements to each other in Korea. Someone argued that the factor of timing should be considered. Korea had rapid growth of fixed lntemet in recent years. When the first mobile lntemet services were launched in 1999, the fixed lntemet penetration was low. Therefore, the initial development of mobile lntemet was not influenced by the later growth of the fixed lntemet. 89 Table 6.2: Summary of Study’s Findings Topic Key findings Model — MVNO takes part in the UK and US markets but there are none in Korea and Japan. - A third party is needed for handset order and distribute from handset makers to users in Korean but not in other countries. - Content providers and handset makers have more connections with users in Britain and America than in Korea and Japan. MNOs - Number and market share of operators caused different market structure Korea and Japan: tight oligopoly The UK: between tight and loose oligopoly The US: competitive — Management skills Korea and Japan: integrating every player in the market The UK and the US: not controlling other players in the market Relations - Relations with handset manufacturers Korea and Japan: Operators have close relations with handset makers. The UK and the US: Operators have loose relations with handset makers. - Relations with content providers Korea and Japan: Operators act like a manager. The UK and the US: Operators act like a partner. Services and pricing - Service level Korea and Japan: more advanced mobile data services The UK and the US: more basic mobile data services - Service plan design Korea and the US: Voice and data services are in different plans. Voice and data allowance cannot be interchangeable. Japan: Voice and data services are combined in the same plans. Voice and data allowance can be interchangeable. The UK: Data allowance is included in voice service plans but not much. - Methods of measuring data use Korea, Japan, and the US: on a bit basis (Korea and Japan: packet; the US: KB or MB) The UK: on an airtime basis (GSM network) and on a bit basis (GPRS network) Exception: Hutchison 3G--on an event basis 9O Table 6.2 (cont’d) Services and pricing - Special pricing strategy: Japan has a variety of discount plans. Pohcy - Ban on the handset subsidies: only in Korea - Spectrum licensing method Korea and Japan: beauty content The UK and the US: auction -Interoperability Korea, Japan, and the U.K.: higher degree of interoperability The U.S.: lower degree of interoperability Social and cultural factors - Commuting patterns Korea and Japan: A higher percentage of commuters take bus or rapid transit system and have more need for the mobile lntemet The UK and the US: A higher percentage of commuters drive a car and have less need for the mobile lntemet - lntemet penetration Japan: a lower lntemet penetration and higher need for mobile lntemet The UK and the US: a higher lntemet penetration and lower need for mobile lntemet Korea: a high fixed Internet penetration and a high mobile lntemet penetration--the timing factor II. Suggestions for Future Studies This study attempted to use the value network model as research framework to analyze the mobile data markets in Korea, Japan, the U.K., and the U.S. The study goal is to find out the significant differences among these four markets and how these differences influence the market development. The study’s findings have been presented in the previous section and summarized in Table 6.2. One question might be asked about those findings: which model or strategy is the best among these study cases? The answer is: there is no “absolute” best model or strategy, which is suitable for every market. It seems 9| evident that Korea and Japan have good business models for mobile data since their markets are successful. However, their models do not necessarily work out in other countries because other countries may have different market environments, business ecosystem, and consumer behavior. This is why the i-mode model was not as successful in other countries (e.g. slow diffusion in the Netherlands) and why many European and American operators did not imitate the i-mode model after i-mode’s successful story had been broadly studied. Even though it is difficult to accurately predict the future development of mobile data, it is for sure that mobile data can bring people great convenience in communicating, information acquiring, and entertaining as long as all the technical and managerial problems are solved. To find out how to solve these problems and the good ways of utilizing mobile data, more studies of the mobile data market are essential since this study is insufficient to achieve these goals. In the following, some suggestions for future studies are proposed to overcome this study’s limitations. First, more interviews with experts from companies should be conducted. It is not easy to get the details of companies’ business strategies and their cooperative models from public available source. This study only did interviews on Korean case, so it has a limitation of knowing some particulars of the player interactions in other cases. Second, the focus should be broadened to every player. This study mainly focused on operators’ strategies. It did not collect information from other players and study the interactions between other players. Since other players also have an influence on the value creation. studies that consider from other players’ point of view besides operators are needed. Users’ opinions are also valuable to the market studies. Interviewing or surveying representatives of the mobile lntemet users is suggested, too. Third, it is necessary to look 92 into the variance of business models in the same market. This study considered the general situations in each market when comparing the differences among the four markets. However, some differences among companies in the same market do exist. To have a more precise insight into each market, some studies can just go deep into one market and analyze each company’s characteristics. Fourth, it is essential to track the latest status of the mobile data markets. This study was based on the situation before Oct. 2003. Since the mobile data market is constantly changing, the research findings may not be consistent with the latest development. 93 APPENDIX Interview Questions The interviewer will conduct the interview by asking the following questions: 1. What kinds of mobile lntemet services and content does [Company Name] provide? How to select and decide which services to provide? 2. Who are involved in the process of offering services to customers? What are these players’ roles in the market? Does [Company Name] also play other roles besides the network operator and the mobile service provider at the same time? 3. How does [Company Name] cooperate with its business partners (ex. content providers, ASPs, handset manufacturers) for service creation and providing? Who got the power during negotiation for the deal? (ex. [Company Name] vs. content providers; [Company Name] vs. handset manufacturers) What 15 [Company Name]’s profit sharing strategy? Dose [Company Name] have the handset subsidizing policy for the customers? 4. How does [Company Name] charge and bill the mobile lntemet services? (the pricing strategy & the billing system) 5. What is [Company Name]’s strategy for mobile portal access? (Open in, open out, or walled garden?) 6. What are [Company Name]’s strengths and weaknesses when comparing to other competitors? What are [Company Name]’s opportunities and threats in the mobile data industry? 7. How many subscribers does [Company Name] have? ARPU (Average Revenue Per User) for all the services (including voice and data) and only for the mobile data services? 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