Transcript Information Society

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Agenda
29.1. Introduction, Sakari Luukkainen
26.2. Mobile Communications Industry, Sakari Luukkainen
4.3. Service Diffusion Models, Sakari Luukkainen
18.3. Mobile Communications Markets, (chapter 2), Sakari Luukkainen
1.4. Services and Applications, (chapter 3), Sakari Luukkainen
8.4. Spectrum, Regulation and Licensing, (chapters 5,6), Sakari
Luukkainen
15.4. Mobile Consumer Behaviour, (chapter 7), Sakari Luukkainen
22.4. Mobile Services and Business Processes, Sakari Luukkainen
29.4. Mobile Services Industry Case, Antti-Jussi Kangas, Small Planet
7.5. Examination
© Sakari Luukkainen
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Evolution of GSM
• The core concept of the mobile networks was first invented
in the early 1940’s by the researchers of the Bell
Laboratories in the USA
• The cellular systems were, however, not introduced into
wide commercial use until the 1980’s
• The first public mobile networks were analogy, manually
switched and mainly based on the national standards during
the 1970’s
• The services were mainly targeted at the needs of the
traffic, and the terminals were mostly located inside the
vehicle
© Sakari Luukkainen
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Evolution of GSM
•
ARP mobile networks in Nordic countries were in the beginning of
1980´s the largest in the Europe
•
NMT 450 and 900 networks continued this forerunner role
competing in fragmented market with english TACS, US AMPS,
German Netz-C, Italy RTS, no economies of scale in equipment,
no roaming, limited spectral efficiency, services and security
•
WARC conference in 1979 reserved frequencies in 900 MHz, the
standardisation process of GSM can be interpreted as an
extension of NMT
•
In the early days of GSM the PTT´s were part of the public sector,
French PTT made first initiative for pan-European mobile network
•
1982 CEPT established Group Speciale Mobile working group
after Nordic and Dutch PTT´s initiatives
© Sakari Luukkainen
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Evolution of GSM
•
EU started to play major role in mid 1980´s and ETSI was set up to
continue the standardization work now open for all players from
public to private
•
ETSI and EU played major role also in facilitating the share of IPR
based on basket model
•
Main manafacturers involved were Nokia, Ericsson, Motorola,
Siemens, Alcatel, AEG, Bosch, Orbitel, Matra, Philips
•
Co-operation between operators has been facilitated by MoU, e.g.
roaming agreements, rollout timetable to 1991, tariffing
•
Independent research organizations and universities have also
significantly influenced in GSM development in EU research
programs
•
In USA (D-AMPS, CDMA) and Japan (PDC, CDMA) there where
several competing standards (high switching costs), which could
not evolve to global mass markets at similar extent like GSM
© Sakari Luukkainen
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Market shares by region
North Latin
Europe America America Asia
GSM
D-AMPS
CDMA
Analogue
89%
11%
4%
27%
9%
60%
1%
39%
9%
51%
35%
3%
14%
48%*
Africa
88%
12%
*includes PDC & PHS
Source: ITU
© Sakari Luukkainen
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Evolution of GSM
•
Standard war between GSM and CDMA rival revolution type, Qualcomm
executing performance play, Motorola in D-AMPS controlled migration
•
Alliances were also used, GSM has open interfaces between major network
elements, which enabled for operators to build multivendor networks
•
EU´s liberalization of telecom market (deregulation) opened the competition
for GSM
•
Added value compared to NMT: Mobile voice incremental, pricing, roaming,
SMS discontinuous and unexpected success, mobile data, SIM reduced the
switching cost of terminal and operator, fast coverage expansion
•
All European countries awarded licenses to 2-3 operators
•
This enabled also internationalization by acquisitions e.g. Vodafone and
consolidation process
•
Competition was further promoted by the launch of PCS1800 (dual mode
terminals), substitute technologies like DECT, PCN and ERMES failed
© Sakari Luukkainen
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Evolution of GSM
•
Regulation of interconnection charges, separation of numbering
space enabled calling party pays
•
First commercial service launch 1991 in Finland in time
•
Critical mass easily created, global market selected GSM as
dominant design, huge network externalities and positive
feedback effects enabled tipping market
•
1992 commercial GSM services were initiated in 15 and 1996 in
103 countries by 167 operators
•
1997 number of subscribers started to increase from 50 million
exponentially, now more than one billion subscribers, service
revenue 277 billion USD (2004, GSM Association)
•
2001 also main US operators transferred to GSM in 1900 MHz,
GSM technology accounted about 60 % of global mobile
communications market
© Sakari Luukkainen
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Evolution of GSM
•
The decision that GSM is digital required range of new technology
compared to NMT, however the way GSM developed gave
significant advantages to Nordic firms allthough 82% of patents
came outside Nordic countries (Motorola 50%)
•
Most discontinuos R&D consequences concerned BSS, while
NSS and OSS could be upgraded from NMT and ISDN
•
The advantages of digital radio transmissions related to improved
spectrum efficiency, security and new services, it also facilitated
the use of highly integrated CMOS circuits in mobile terminals,
which influenced to reduced size and price
•
Centralized GSM network architecture and standardized services
worked because services are evolutionary without high market
uncertainty compared to Internet where experimenting through
separated network and service layers was required
© Sakari Luukkainen
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Evolution of GSM
•
Interfaces between BSS and NSS were tightly specified, while
internal interfaces and component technologies were loosely
specified, which left room for company innovations and R&D
alliances
•
Adoption of TDMA radio interface made possible considerable cost
reduction for operators in BSS (1/3 of NMT) and also favoured Nordic
manufacturers
•
The downside of the basket model was that complexity increased
significantly
•
The risks were mainly related to VLSI, increased amount of software,
inconsistency in system definition and new features
•
e.g. the lines of sw code in MS grow from 20 000 in NMT to 500 000
in GSM
•
Hence ETSI decided to freeze phase 1 in 1989 and further
development was divided in phase 2 and 2+
© Sakari Luukkainen
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Business Model – definition in course
• Describes how to extract value from a mobile
service innovation
• It converts new technology to economic value
(utility for customers)
• Plan by which a business intends to generate
revenue and profits taken into account the
dynamics of related value chain
© Sakari Luukkainen
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Mobile business value chain
Content fee
Terminal fee
Traffic fee
Source: Haantie, 2006
© Sakari Luukkainen
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Mobile business
•
Traditional incumbent mobile telecommunications operators
operate based on walled garden business model where
applications available to endusers are fully controlled by them
•
Voice based walled garden model was then extended into data
services using WAP protocol
•
The reason of failure were low level of relevant applications to
endusers parallel with high pricing – high experimentation barrier
•
The content providers get in walled garden model less than 50% of
revenue compared to i-mode´s semi walled garden model where
they get 91%
•
Separation of service (MVNO) and network provision was
supposed to drive price competition and service innovation in
Europe
© Sakari Luukkainen
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Mobile market in Finland
• GSM was launched in 1991
• During the 1990s Finland was
the forerunner in mobile voice
and SMS
• Saturation of mobile
subscriptions was
reached quite early on
in Finland
• Currently only slow growth
• Mobile voice and SMS
dominant design, in new mobile
multimedia services no
forerunner position any more
© Sakari Luukkainen
Source: ITU, Haantie 2006
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Recent developments
• The most significant development (25.7.2003): the
introduction of the number portability arrangement by
regulator in order to reduce switching cost
• Made number portability easy for subscribers
• Increased competition resulted in declining user loyalty
and increased customer churn
• Finnish authorities also intervened to guarantee equal
network usage fees to all service operators
• At the beginning of March 2004 network operators cut their
fees by approximately 30%
• Diverse new entrants (MVNO) emerged in the market (full
control over SIM cards, branding, marketing, billing and
customer care, might have own CC, MSC, HLR, IN)
© Sakari Luukkainen
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ARPU development
© Sakari Luukkainen
Source: Prisma Research, Haantie 2006
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Mobile market in Finland
• Competition was price-based, revenue per subscriber
(ARPU) decreased significantly to about 30 e / month,
roaming still significant revenue source because of scarce
competition
• Scarce competition through differentiation
• Mobile data services (excluding SMS) create still only few
procents of operators revenues (disappointment in WAP,
MMS, low GPRS usage etc.)
• Incumbents started to make acquisitions, MVNO´s
disappeared - price competition settled down, incumbent
operators have started to increase their prices
• Increasing importance of multimedia services as a new
growth source
© Sakari Luukkainen
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Mobile content economics
United Kingdom
Capacity needed
Price to end-user
SMS
160 bytes
0.15 € / message
937.50
MMS
30 kB
0.41 € / message
13.70
Voice
16 kb/s
0.30 € / min
2.50
GPRS
115-348 kb/s
4.80 € / MB
4.80
Music streaming
128 kb/s
1.5 € / min
1.60
Finland
Capacity needed
Price to end-user
SMS
160 bytes
0.09 € / message
562.50
MMS
30 kB
0.39 € / message
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Voice
16 kb/s
0.08 € / min
GPRS
115-348 kb/s
2 € / MB
Music streaming
128 kb/s
0.5 € / min
0.50
Video streaming
384 kb/s
1 € / min
0.35
Germany
Capacity needed
Price to end-user
SMS
160 bytes
0.17 € / message
1062.50
MMS
30 kB
0.39 € / message
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Voice
16 kb/s
0.27 € / min
GPRS
115-348 kb/s
3 € / MB
Music streaming
128 kb/s
0.4 € / min
© Sakari Luukkainen
Operator (€/MB)
Operator (€/MB)
0.67
2
Operator (€/MB)
2.25
3
0.42
Source: Luukkainen, Haantie 2006
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Conclusions
• Operators to the consolidation path
• Price competition has settled down and opened market for
differentiation by mobile multimedia services
• What is Mobile Internet? Is mobile network only an access to
open Internet service innovation?
• New mobile data services to increase market segmentation:
e-mail, browsing, music, PoC, videophone, TV…
• Bundling of equipment, subscription and services helps 3G
adoption rates, but it also promotes walled garden business
model, tailored service packages increase switching costs
• Key issue to promote service innovation by low usage barriers
and experimentation with reasonable cost structure and
openness
© Sakari Luukkainen