LICENSING OF THIRD GENERATION (3G) MOBILE: BRIEFING PAPER

This paper was prepared by Dr Patrick Xavier of the School of Business, Swinburne University of Technology, elbourne, !ustralia "p#avier$swin%edu%au& ahead of the 'TU (orkshop on licensing )* obile, to be held on 1+,-1 Septe.ber -//1 in *eneva% The author wishes to thank 0ara Srivastava, Dr Ti. 1elly and !udrey Selian of the 'TU and 2ohn Bahtsevanoglou of the !ustralian 3o.petition and 3onsu.er 3o..ission for significant contributions relating to the preparation of this paper% The views e#pressed in this paper are those of the author and do not necessarily reflect the opinions of the 'TU or its .e.bership%

)* Briefing Paper

TABLE OF CONTENTS 1 'ntroduction%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%4 - Technical issues in the evolution to third,generation networks%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%5 ) The potential for )*6 services and .arket de.and%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%17 7 0icensing policies%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-8 8 9nhancing the co.petitive landscape%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%)5 4 *lobali:ing )* and the role of international agencies%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%7+ 5 3onclusion%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8!;;9X 16 )* 0'39;S';* '; <!='>US 93>;> '9S%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%87 !;;9X -6 0'ST >? 'SSU9S ?>= T@9 (>=1S@>P T> 3>;S'D9=%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8A !% Technical issues%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8A B The de.and for )* services%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8A 3% 0icensing policies%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8A D 9nhancing the co.petitive landscape%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8+ 9 *lobalising )* and the role of international agencies%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%8+

)* Briefing Paper

LIST OF FIGURES ?igure -%16 ' T,-/// ST!;D!=D'S!T'>;%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%+ ?igure -%-6 9volution fro. -* to )*%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%1) ?igure )%16 3o.parison of ?i#ed and obile 'nternet Services, 3ontent Standards, and ;etwork Technology%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%18 ?igure )%-6 P3 'nternet !ccess and ?igure )%)6 obile 'nternet !ccess in 2apan%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%14

obile By the ;u.bers6 Subscriber Penetration -/// B -//8%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%1+

?igure 7%16 Significantly varying prices of )* licences, in 9urope and the rest of the world%%%%%%%%%%)/ ?igure 7%-6 The )* rollercoaster%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%)1 ?igure 8%16 !n <;> custo.er .aking and receiving calls%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%)A

?igure 8%-6 The )* value chain%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%75 ?igure 8%)6 The i,.ode network and access to 'SPs%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%7A LIST OF TABLES Table -%16 ;ew )* services%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%A Table )%16 !pplications that could drive de.and for .obile data%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%15 Table )%-6 9sti.ated cost of *S and U TS networks%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-7

Table 7%16 !llocation of )* .obile licences around the world%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-+ Table 8%16 =egulatory !ttitudes to )* LIST OF BOXES Bo# -%16 The )* standard issue in South 1orean license allocation%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%+ Bo# )%16 3o.paring servicesCapplications provision under -* , -%8* and )*%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%1A Bo# )%-6 =evenue ?orecasts for .obile services%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-/ Bo# )%)6 ain >perators in the arket%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-1 obile <irtual obile Services%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%71

Bo# )%76 3ase Study of )* in *hana%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-Bo# 7%16 3:ech =epublic )* licensing%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%-5 Bo# 7%-6 ! .odified auction approach B licensing in @ongkong S!= through a Droyalty,basedE syste.%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%)/

)* Briefing Paper

Bo# 7%)6 Spectru. allocation for )* service in 9urope%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%)4 Bo# 8%16 <irgin obile ,,an e#a.ple of an <;>%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%)+

Bo# 4%16 Barriers to *lobal 3irculation ,,The 3ase of 2apan%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%81

)* Briefing Paper

1 1"1

Introdu t!on Introdu t!on

This docu.ent is designed to serve as a briefing paper for the 'TU (orkshop on6 F0icensing of Third *eneration ")*& obileG, to be held on 1+,-1 Septe.ber -//1, in *eneva -% 't ai.s also to co.ple.ent the country case studies on )* licensing prepared for the (orkshop, which cover 3hina and @ong 1ong S!=, 2apan, *hana, Sweden, 3hile and <ene:uela% The obHective of the paper is to raise awareness about i.portant issues that need to be addressed to facilitate the successful develop.ent of )* services, including6 licensing issuesI technological and other issues "such as global circulation of )* ter.inals& relating to the sea.less global roa.ing vision of )*I and national as well as international policy and regulatory issues% 'n keeping with its briefing paper function, the paper ai.s pri.arily to identify issues and policy considerations pertaining to these issues, without necessarily pointing to solutions% The paper does not purport to cover the full range of issues relating to the develop.ent of )* services% =ather, its focus is on licensing, drawing out the lessons of e#perience with licensing thus far ), in order to draw attention to the need for establishing a set of guidelines for )* licensing% This is because licensing conditions have varied significantly across countries with different selection procedures used6 auctions, co.parative selection "Dbeauty contestsE& and, in so.e countries, a .i#ture of the two% The nu.ber of licences awarded has varied "co..only between three and si#&, while the price paid for the licences has also varied greatly% The spectru. assign.ent per operator is not har.onised, licences awarded are of varying duration and infrastructure and service rollout reJuire.ents and conditions have also differed considerably% oreover, access conditions to -* .obile networks, e%g%, national roa.ing, is not treated the sa.e way in various countries% 'f the )* vision of sea.less international roa.ing is to .aterialise, international co,operation and policy har.onisation will be reJuired7% The develop.ent of )* service is perceived to have i.portant econo.ic and social i.pacts, with the develop.ent of large new .arkets e#pected% 8 But while )* is an i.portant issue for developed countries, the stakes are perhaps even higher for developing countries% Successful develop.ent of )* service can help developing countries to close technology gaps with developed countries% But failure to do so could widen the Ddigital divideE even further% The paper also addresses regulatory issues critical to the introduction and develop.ent of )* that .any govern.ents and regulatory agencies are having to grapple with 4% This is because the successful develop.ent of )* will depend not only on licensing and .arket entry, but also on the e#tent to which a regulatory fra.ework is established that pro.otes post,entry co.petition, safeguards new entrants, both facilities,based and resellers "including obile <irtual ;etwork >perators B <;>s&, fro. possible anti,co.petitive practices applied by e#isting network operators, and ensures sea.less connectivity between )* and other do.estic and international networks%

) 7 8

?or .ore infor.ation on the workshop, including case studies and presentations, see the website at http6CCwww%itu%intC)*% ?red Donovan, *overn.ents Botched )* 0icensing, Say 9urocrats, Wireless Insider, -) !pril -//1% 1eith ;utall, K3 presses for unified )* regulation, Total Telecom, -/ arch -//1% See, for e#a.ple, US 3ouncil of 9cono.ic !dvisers, The 9cono.ic '.pact of Third,*eneration (ireless Technology , ;ove.ber -///% 9uropean 3o..ission, The 'ntroduction of Third *eneration obile 3o..unications in the 9uropean Union6 State of Play and the (ay ?orward, 3> "-//1&171 final, Brussels, -/%)%-//1%

)* Briefing Paper

1"#

Stru tur$ o% t&$ '('$r

?ollowing this introduction, Section - of the paper discusses so.e technical ele.ents relating to spectru. usage that establishes the conte#t of )* develop.ent issues, including standardi:ation issues, the nu.ber of licenses allocable, and the .igration path fro. -* to -%8* to )*% Section ) focuses on the potential for )* services, including prospective .arket de.and% Then Section 7 discusses various approaches to licensing )* operators, including auctions, Fbeauty contestsG and hybrid approaches% The ai. here is to highlight the need to identify guidelines for countries yet to engage in )* licensing, but also for any further licensing activity countries engage in% Section 8 considers a nu.ber of issues i.pacting on the co.petitive landscape within which )* will operate, including the interconnection arrange.ents crucial to the develop.ent of effective co.petition in )* operations% Discussed here is the infrastructure sharing issue, and the recent e.ergence in .obile .arkets of so,called D obile <irtual ;etwork >peratorsE " <;>s&% =egulators are under pressure to decide whether industry,specific regulatory provisions "such as .andatory DunbundlingE of )* networks& are warranted or whether the develop.ent of <;>s should be deter.ined by .arket forces "protected by general co.petition law&% Section 4 is concerned with tasks to be addressed if global roa.ing is to beco.e a reality% These tasks include the global circulation of )* ter.inals and further international co,operation and policy Dhar.onisationE% ?inally, Section 5 presents the paperEs conclusions%

T$ &n! () !**u$* !n t&$ $+o)ut!on to t&!rd,-$n$r(t!on n$t.or/*

The i.pact of technological change on .obile teleco..unications is often described in ter.s of FgenerationsG% Thus, Ffirst generationG .obile technology has referred to the analogue cellular syste.s that characterised the 1+A/s and early 1++/s, while Fsecond generationG refers to todayEs digital cellular syste.s, such as the widely,used *lobal Syste. for obile 3o..unications "*S &% So,called FThird *enerationG ")*& syste.s or ' T,-/// 5 include high,speed data, .obile 'nternet access and entertain.ent such as ga.es, .usic and video progra.s using i.age, video and sound to .obile users% These )* syste.s will provide support for6 high data rates at a .ini.u. of 177 kbitCsA for all radio environ.ents and and indoor environ.entsI sy..etrical and asy..etrical data trans.issionI bitCs in low,.obility

circuit,switched and packet,switched services, such as 'nternet Protocol "'P& traffic and real,ti.e videoI i.proved voice JualityI greater capacity and i.proved spectru. efficiencyI several si.ultaneous services to end,users and ter.inals, for .ulti.edia servicesI sea.less incorporation of -* cellular syste.sI and global roa.ing between different )* operational environ.entsI and econo.ies of scale and an open international standard that pro.ises to .eet the needs of the .ass .arket +%

Table -%1 indicates the new )* services deriving fro. the DconvergenceE of the 'nternet and .obile co..unications% -* .obile phones can currently be used to trans.it short .essages "up to 14/ characters& and slow speed data "in theory up to 17%7 kbitCs but in practice no faster than +%4 kbitCs& , significantly slower than the 84 kbitCs achieved on dial,up .ode.s on fi#ed,line networks% (hile )* offers little i.prove.ent in regard to basic voice trans.ission, it will effect a significant i.prove.ent in ter.s of data trans.ission, not only over todayEs -* .obile but also over .ost residential fi#ed,line networks%

' T stands for 'nternational obile Teleco..unications and '.agination eeting Technology% (ork is currently being carried out under the banner ' T,-/// and Beyond% ?or .ore infor.ation, see the website at6 http6CCwww%itu%intCi.tC% 'n this paper, trans.ission capacity or bandwidth is .easured in ter.s of kilobits per second "kbitCs& or egabits per second " bitCs& 'TU,=6' T,-///, )rd generation .obile services and applications , 'nternational Teleco..unication Union, http6CCwww%itu%intCi.tCwhatLisC)rdgenCinde#%ht.l%

)* Briefing Paper

T(0)$ #"1: N$. 3G *$r+! $* T2'$ o% *$r+! $ !sy..etrical .ulti.edia services ediu. .ulti.edia @igh .ulti.edia Sy..etrical .ulti.edia services @igh .ulti.edia
Source: 'TU

Do.n*tr$(3

U'*tr$(3

!sy..etric .ulti.edia services are characterised by .ore traffic flowing in one direction than the other% 9#a.ples include 'nternet browsing, full .otion video )A7 kbitCs bitCs 47 kbitCs 1-A kbitCs

Sy..etrical .ulti.edia services are characterised by an eJual a.ount of traffic flowing in both directions% 9#a.ples include videoconferencing and tele.edicine User bit rate of 1-A kbitCs in each direction

The increase in the data,transfer rate will allow .obile phones, hand,held co.puters, and other products to beco.e .ulti.edia access devices, enabling .ultitasking and the trans.ission of .ulti.edia services such as high,Juality audio, video and graphics, 'nternet browsing, e,co..erce, e,.ail and bandwidth on de.and% ?urther, international roa.ing will beco.e a distinct prospect with the develop.ent of standards to allow )* global roa.ing with a single device%

#"1

St(nd(rd!1(t!on !**u$*

>ne of the inherent advantages of )* networks is the provision of sea.less global roa.ing, enabling users to .ove across borders while using the sa.e nu.ber and handset% The pro.ise of )* networks also lies in the sea.less delivery of services, over a nu.ber of .edia "satellite, fi#ed, etc%%%&% 'n the .id,1+A/ s, the 'nternational Teleco..unication Union "'TU& 1/ developed the concept of ' T,-/// "where ' T stands for D'nternational obile Teleco..unicationsE& and in -/// unani.ous approval was given to the technical specifications for )* syste.s under this brand na.e "i%e% ' T,-///&% This approval, which resulted fro. the collaboration of .any entities, both inside and outside the 'TU "'TU,= and 'TU,T, and )*PP, )*PP-, U(33, etc%&, .eant that for the first ti.e there was a pro.ise of full interoperability and interworking of .obile syste.s on the basis of a single standard, without the frag.entation that had characteri:ed the .obile .arket% @owever, there are strong proponents of different approaches to )* technology , 3D !-/// "US, 1orea&, and U TS "9urope, 2apan& who were not able to agree on a single standard% This resulted in a variety of approaches to )* technology, with ' T,-/// consisting of a fa.ily of standards "or flavors&, i.plying the need for .ultiple .ode and .ultiple band handsets capable of handling various optional .ode and freJuency bands% ore specifically, the ' T,-/// standard acco..odates five possible radio interfaces "or flavors& based on three different access technologies "?D !, TD ! and 3D !&% Two of these technologies fall under the wideband,3D ! category "(,3D ! and 3D !-///, which is a Teleco..unications 'ndustry !ssociation "T'!& standard for third,generation technology, one of the. falls under the TD ! category "Universal (ireless 3o..unications 1)4&, and the last one falls under the TD,3D ! category "Ti.e,Division Duple#&, and the last one under ?D,TD ! "D93TM&% Difficulties e#perienced in reaching a decision on a single standard are due in part to the variety of stakeholders and players involved in the standardi:ation process, each with its own set of interests for pro.oting the adoption of a particular standard% So.e of these organi:ations are indicated in ?igure -%16 the list is not .eant to be e#haustive, but rather illustrative of the kinds of organi:ations i.plicated in the process% !n e#a.ple of the role of standardi:ation in the license allocation process is provided by the case of South 1orea, discussed in Bo# -%1%

1/

See www%itu%int

)* Briefing Paper

F!-ur$ #"1: IMT,#444 STANDARDISATION

STANDARD,SETTING BODIES5 CONSORTIA AND PARTNERSHIPS

ORGANI:ATIONS 8ITH AN INTEREST IN STANDARDISATION

CONTENT DE6ELOPERS5 APPLICATION SER6ICE PRO6IDERS5 MSP7* (MOBILE SER6ICE PRO6IDERS)

'TU 'TU,T
)*PP U(33 )* P!T9;T 3D* 9TS' T'! 3(TS

'TU,=
GO6ERNMENT

3el<ibe !latto
obile !pplications 'nitiative

Sy.bian 3 * >penwave

)*PPU TS ?>=U *S ((=? 'Pv4 ?>=U !='B TT!

;ational =egulatory !uthorities ";=!s& <arious Teleco.. inistries

MANU, FACTURERS
Philips Sie.ens ;okia otorola ;93 Sa.sung

3o.panies developing backend products for the )* .arkets

<irgin obile

;orthpoint

(orking !ssets

NET8OR9 OPERATORS
!TNT BT 3ell;et ;TT Doco.o

?rance Teleco. @utchison Telefonica 3hina obile 1P; <odafone

('=909SS ST=!T9*'3 ';'T'!T'<9

Note6 This list is not e#haustive but illustrative in nature% Those organi:ations depicted on the left are key standard,setting bodies consisting of various consortia and partnerships that bring together entities with a stake in the develop.ent of ' T,-///% >rgani:ations depicted on the right consist of private sector and govern.ent players that contribute to the standardisation process% The inter,play between these two larger groupings is characteri:ed by different kinds of .e.bership, subscribership and other channels through which industry and govern.ent players e#ert influence upon standard,setting organisations% Source6 'TU

Bo; #"1: T&$ 3G *t(nd(rd !**u$ !n Sout& 9or$(n )! $n*$ ())o (t!on

)* Briefing Paper The South 1orean govern.ent had intended to .ake 1orea a rival to 2apan as a showcase for )* technology, and a showcase based on 'S,-/// technology% The govern.ent, through the inistry of 'nfor.ation and 3o..unications " '3& announced that three licenses would be awarded, two based on (3D ! and one on 3D !-///, the .igration path based on 'S,+8% The '3s plan was not readily accepted by the country s three largest operators who all said they would rather install )* networks using (3D ! technology "because of the greater e#pense and the risk of backing 3D !-/// which .ight not be accepted as a global standard&% This posed a proble. for the govern.ent which was pursuing a policy of .aking 1oreas teleco..unications industry the worlds leading 'S,+8 .anufacturer% 1oreas two largest .obile operators, 1orea Teleco. "1T& and S1 Teleco., were subseJuently awarded licences to launch (3D ! networks% eanwhile, the third largest operator, 0* Teleco. backed out of the process and the '3 was left with no one wanting the 3D !-/// license% The '3 announced that to attract a licensee, it would reduce the licence fee for a 3D !-/// operator% 1T and S1 Teleco. Juickly threatened legal action% The co..unications .inister resigned, apologising for the )* licensing proble.s% >n 5 2uly -//1, 0* Teleco. finally agreed with @anaro Teleco., Powerco.., a unit of state utility 1orea 9lectric Power 3orp, and 3anada s Telestste. 'nternational (ireless "T'(& to for. a consortiu. to bid for the countrys third licence based on 3D !-///% The agree.ent ca.e after repeated calls fro. the '3 for the two co.panies to co,operate% 1T Teleco. warned that if )* .obile service operators were reJuired to provide dual,band and dual,.ode handsets and services, there could be further delays in the co..ence.ent of services%
Source6 9#change, 1)C-5, -/ 2uly -//1%

1/

)* Briefing Paper

#"#

T&$ 3!-r(t!on '(t& %ro3 #G to 3G

2ust as there has been a continued .igration of voice fro. fi#ed line to cellular, it is e#pected that data traffic too will .igrate fro. fi#ed to .obile% Bo# -%- co.pares the .igration path fro. 1* to -* with that of the .igration path fro. -* to )*% Present -* networks are the result of the .igration fro. analogue to digital networks% The conversion fro. 1* analogue networks like ! PS and T!3S to -* digital networks like *S , TD ! and 3D !, has allowed carriers to increase network capacity, provide value,added services like caller identification, short .essaging, call,waiting, and increased functionality% The evolution of networks fro. -* to -%8* and then to )* "or straight fro. -* to )*& will enable users to send and receive data over a wireless platfor.% -%8* solutions, such as *P=S "*eneral Packet =adio Service or 9D*9 "9nhanced Data rates for *S 9volution& offer .obile data services at rates between 84 kbitCs and 177 kbitCs, the speed of conventional .ode.s and 'SD; lines, respectively% (ith )* will co.e full broadband applications at trans.ission rates that will eventually reach - bitCs%

Bo; #"#: M!-r(t!on Co3'(r(!*on

1st Generation 2nd Generation

Source6 'TU%

2nd Generation 3nd Generation *P=S, 9D*9, @SDS3 (3D ! flavours De.and for Data Services F ass arketG for obile Services

! PSCT!3S *S , TD !, 3D ! De.and for <oice Services F9#clusiveG obile Services

?rag.ented Syste.s >perators under onopoly

'nteroperable Service Private >perators 3o.pete Ouick e#pected Dti.e to .arketE *lobal Standardi:ation

Slow Dti.e to .arketE =egional Standardi:ation

#"#"1 Fro3 C!r u!t to P( /$t Data can be sent over a cellular network either through circuit,switched or packet switched trans.ission .ethods% 3ircuit,switched trans.ission, which is the technology used in todayEs fi#ed,line telephone networks, was designed pri.arily to carry voice, not data, and at relatively low bandwidth% (ireless data can be sent over circuit,switched trans.ission but at low speed of about +%4 kbitCs%% oreover, using circuit, switched networks for data is inefficient and e#pensive because the user occupies the full circuit irrespective of whether data is actually flowing through the circuit% The packet,switching technology ,, upon which -%8* and )* service is based ,, create connections by breaking up the infor.ation to be sent into packets of bytes, sending the. along a network with other infor.ation "over different routes& and reasse.bling the original infor.ation at the other end% Packet, switching enables users to send data at a far .ore econo.ical rate, since users are charged only for the nu.ber of packets "i%e%, the volu.e of data& sent 11 "as opposed to the length of a call for circuit,switched&%

11

The .aHority of 2apanEs current .obile 'nternet services already bill per packet or kilobyte "e%g%, i,.ode and 2,Sky&, though speeds are generally low%

11

)* Briefing Paper

#"#"# #"<G S$r+! $* (nd N$t.or/* Depending on the e#isting network, there are two different routes a cellular carrier can take to .igrate fro. -* to -%8*% ?or *S providers, a logical e#tension to -%8* would be either *P=S or @S3SD 1- and 9D*91)% ?or 3D ! operators, the likely route is via 'X=TT 17 or @igh Data =ate "@D=& 18 "introduced by Oualco.. in late 1+++&% *P=S is a packet,switched technology that delivers speeds of up to "theoretically& 118 kbitCs "co.pared against circuit,switched *S data trans.ission at only +%41bitCs so that, for e#a.ple, S S .essages are li.ited to 14/ characters&% The significant advantage of *P=S is that it can be provided on the basis of an Dalways,onE per.anent connection to the 'nternet, thereby avoiding the dialup delays "that was one of the reasons hindering the take up of (!P&% *P=S allows *S networks to be .ore co.patible with the 'nternet by using a packet,switched techniJue to transfer the DburstyE traffic of data applications in a .ore efficient .anner% @owever, *P=S faces so.e proble.s% *S trans.itters are seg.ented into eight distinct voice ti.e slots% *P=S networks take the full channel of eight ti.e,divisioned circuits, running at 17%7 kbitCs each to create one packet channel of 118 kbitCs% This .eans that to obtain a 118 kbitCs connection, each user would theoretically be occupying network resources eJuivalent to eight voice circuits% Therefore, if *P=S services do take off, considerable strain .ight be placed on the e#isting syste.s% !nother factor that .ay slow down the take up of *P=S is the need for subscribers to buy *P=S,enabled handsets% !side fro. the cost of these handsets, there have been reports that .anufacturers are still grappling with proble.s of overheating, battery life and software operability of the *P=S handsets, and that their co..ercial availability on a large scale will be subHect to considerable delay% 9D*9 "enhanced data for *S Cglobal evolution& is regarded as a cost,efficient way of .igrating to full, blown )* services% 't concentrates on i.proving the capacity and efficiency of wireless interface by introducing a .ore advanced coding sche.e whereby every ti.e slot can transport .ore data to bring higher .a#i.u. data rates ")A7kbps& and increased spectral efficiency% 9D*9 is applicable to both *P=S traffic "9*P=S&, and circuit,switched data traffic "93SD&% ! key feature of 9D*9 is that co..only no additional spectru. is necessary and 9D*9 boosts capacity and bit rates of e#isting *S C*P=S as well as TD ! syste.s% ?igure -%- sets out the evolution of .obile syste.s fro. -* to )* diagra..atically, including the position of *P=S and 9D*9 in the evolution fro. -%8* to )*%14
1-

@S3SD "@igh Speed 3ircuit Switched Data& is another *S technology introduced in 1+++ to enable *S technologies to increase data speeds to as high as 85%41bitCs by aggregating four voice channels running at 17%71bitCs% The benefit of @S3SD is that it utilises the e#isting network and reJuires only a software upgrade thereby .ini.i:ing e#pense% The disadvantage is that users on a @S3SD network will still need to dial up to the service% 9D*9 "9nhanced Data over *S 9volution& is part of a step,by,step, low i.pact approach to .igrating to )* services while protecting operatorsE invest.ents by allowing the. to reuse their e#isting network eJuip.ent and radio syste.s% Using a .ore efficient technology opti.ised for data co..unication, 9D*9 increases end,user data rates up to )A71bitCs B and potentially higher in good Juality radio environ.ents% 't does this within the e#isting *S radio spectru., bandwidth, carrier structure and cell planning process% 9D*9 is regarded as the final network,upgrade stage technology that operators will seek to deploy before the launch of full broadband services% 't is considered likely to be attractive to so.e operators as an efficient fill,in technology that can be used to fill the gaps in coverage between )* syste.s% !t present, 9D*9 appears to be still in develop.ent stage, with no 9urope,wide technical standard agreed upon% 3D !,1X=TT% >perators in !sia and the US that e.ploy 3D ! syste.s will use their own fa.ily of technologies known as 3D !-/// as the basis for their upgrade path to broadband syste.s% ost 3D ! co.panies currently run their networks off a standard known as 'S,+8!, which has a capacity of 17%71bitCs, si.ilar to *S % any are currently undertaking a transition toward a standard known as 'S,+8B, which will enhance network carrying capacity by roughly 1/ ti.es% The ne#t step in the develop.ent of the standard will involve the launch of a technology known as 1X=tt% 1X refers to 1X the nu.ber of 1%-8 @: channels B which can support data rates of 1771bitCs and will double voice channel capacity% This technology should enable speeds in the range of 118,1771bitCs% 1X=TT will carry out a function si.ilar to *P=S for *S % @igh Data =ate "@D=&% The @D= syste. is opti.ised for packet services, with fle#ible architecture based on 'P protocol% @D= can overlay an e#isting cellular network or work as a stand,alone% @D= has been referred to as Oualco..Es answer to 9D*9% @D= is e#pected to provide speeds of up to -%7 bps for fi#ed cellular applications and )A71bitCs for .obile applications, and is e#pected to be available in around -//-% ! detailed discussion of this .igration path is available in =% Downes, F!dopting the right evolution path to )* profitability6 3rtical choices for 0atin !.erican TD ! operators%G Universal (ireless 3o..unications 3onsortiu.I and Sie.ens, FThe new path fro. *S to U TS FSoft 9volutionG of .obile radio ;etworks%G Both docu.ents are available at http6CC)gnews%co.Cht.lCwhitepaperCevolution%sht.l%

1)

17

18

14

1-

)* Briefing Paper F!-ur$ #"#: E+o)ut!on %ro3 #G to 3G

9D*96 9nhanced Data *S 9nviron.ent *P=S6 *eneral Packet =adio Service @D=6 @igh Data =ate 3d.a-/// 1#6 3ode Division ultiple !ccess -///

# 30'*? d3(#444

1"=,#"> 30'* HDR Cd3(#444 1; # 30'*? GPRS GSM 11< /0'* EDGE 3=> /0'* TDMA 8,CDMA

CDMA

#G

#444, #441

#441, #44#

#44#, #443

#443, #44<

Source6 ' T,-/// and Beyond Study *roup%

#"3

I* 3G 0$!n- *@u$$1$d?

So.e co..entators have raised warnings that )* .ay be in danger of being sJuee:ed between evolving technologies% >n one side are the so,called -%8* technologies "essentially -* networks upgraded to handle data, but slower than )* networks& such as *P=S, and on the other the advent of fourth generation "7*& technologies "operators in 2apan are already working on defining specifications 15& as well as wireless co.puter,networking technologies, such as BlueTooth 1A and A/-%11b1+ "also known as (i,?i&, that links laptop co.puters to office networks at high speeds% >ne report, in pointing out that the high data rates pro.ised by )* operators are designed for video, which users are unlikely to want to watch on the .ove, suggests that lower,speed -%8* service "such as *P=S& .ay turn out to be adeJuate to satisfy user reJuire.ents% @owever, it now see.s that *P=S speed will be .uch

15

1A

1+

ichael ?it:patrick, F2apan sets out 7* stallG, Total Telecom, -) >ctober -///I F;TT Do3o o chair.an urges Juicker 7* .obileG, Total Telecom, 7 !pril -//1I F2apan prepares for 7*G, Total Telecom, -+ 2une -//1% Bluetooth enables the use of a wireless connection to link all kinds of devices together% Users can connect to the 'nternet or print docu.ents without the inconvenience of using cables or lining up infra,red connections% Bluetooth offers the prospect of wire free offices% 't can link laptops and handheld co.puters to the 'nternet via their .obile phones% See =oy =ubenstein, F(ill Bluetooth be a blockbusterPG, Communications Week, 1+ arch -//1% (0!; "(ireless local area networks& offer an unregulated spectru. by which laptop users can access the 'nternet% 0aptop users insert a P3 3'! or USB card to connect to the 'nternet without having to search for a free telephone socket% ! w0!; base station, which costs roughly USQA//, has already been installed in the US in hotels, coffee shops and airport lounges as well as in offices% Starbucks, for instance, has recently put wireless 0!;s in its coffee shops world wide for use by custo.ers%

1)

)* Briefing Paper

slower than anticipated% !t one ti.e, *P=S trans.ission rates were reputed to be about 118 kbitCs, .any ti.es faster than (!PEs +%4 kbitCs% 't is now considered that this is a theoretical opti.u. speed of *P=S and is unlikely to be reached% 'n practice, a top rate of 84 kbitCs is achievable, with .any services operating at Hust -/ to )/ kbitCs-/% This reassess.ent is notable because, to so.e e#tent, the .uch lower than e#pected trans.ission speed of -%8* revalidates the case for )* service% So.e analysts have pointed out also that )* networks will be necessary because -%8* networks will need .ore radio bandwidth than -* networks, and that the reJuired additional bandwidth has already been ear.arked and sold to )* operators% !t any rate, .ost operators reportedly -1 plan to offer )* services in densely populated areas to begin with, and to give custo.ers hybrid handsets that can switch to -%8* elsewhere% >perators can start with these so,called Rthin and crispyR )* networks, and if they wish, upgrade capacity later% This .eans that if the de.and for high,bandwidth services fails to .aterialise, the upgrades will be unnecessary, and the cost of introducing )* would be far less than e#pected%

3 3"1

T&$ 'ot$nt!() %or 3G: *$r+! $* (nd 3(r/$t d$3(nd T&$ #G S'( $ (nd t&$ D$3(nd %or D(t(

The -* DspaceE can be conceptualised in .any different ways% The .ost basic relates to the deploy.ent of networks that e.erged as DdigitalE rather than DanalogueE "the latter having do.inated 1 st generation networks&% ;aturally, digital technology offers an appealing co.bination of perfor.ance and spectral efficiency as well as the develop.ent of features like enhanced Juality of service, security and high,speed data co..unications% Data trans.ission in the -* space is .ostly occurring over circuit,switched networks, although so.e regions have already .ade the switch to packet,based technologies% The -* DspaceE also relates to current co.peting standards like TD ! and 3D !, and their direct precursors and cousins like Digital ! PS and 'S,+8 respectively% *S , which has a co.bination ?D !CTD ! origin, is recogni:ed as the .ost do.inant and successful of these -* standards, and is widespread in 9urope% *S relies chiefly on digital trans.ission between base stations and handsets, with high,speed connections to and fro. centres eJuipped with circuit switches% !t +%4 1bps, trans.ission is slow, and the architecture itself is unsuitable for data traffic or strea.ing, .ainly due to the use of a circuit, switched network% @owever, the very successful i,.ode service available in 2apan also runs at +%4 1pbs and has led to a .uch .ore positive perception of its service capabilities% This ste.s chiefly fro. the differences in the perfor.ance of packet,switched infrastructures% Despite these shortco.ings, *S has and is continuing to be i.ple.ented by countries who seek to use it as a core starting point towards deploying data, bearing wireless technologiesI the unifor.ity and coherence of *S Es develop.ent and deploy.ent worldwide re.ains as yet unparalleled% -* syste.s have been the foundation of current wireless service offerings in different parts of the world, and .ost countries are choosing a .igration path through a variety of -%8* DupgradesE% The .ain applications available in the wireless -* space consist of voice telephony and basic data service offerings% The .ost popular data services are the Dshort .essage serviceE "S S& and .obile 'nternet access technologies like (!P and i,.ode. 3"1"1 M$**(-!n>ne of the best ways to assess the likelihood of success in the )* space is to look at the popularity of data services in the -* space% >ne of the .ost widely used -* data services is te#t .essaging, particularly in regions where the *S standard is prevalent% The Short essage Service "S S& on the *S platfor. has been e#tre.ely popular in 9urope and contributed significantly to .obile data revenues over the past two years% S S is a two,way si.ple te#t service for sending short "1-/ characters& alphanu.eric .essages in a Dstore,and,forwardE process, which can be used for both Dpoint,to,pointE as well as cell,broadcast .odes% The *S !ssociation-- esti.ates that *S networks transported one billion .essages worldwide in >ctober 1+++, and that S S revenues co.prised a significant portion of overall service revenue figures in

-/

>ne reason for this is that handsets will nor.ally e.ploy only two or three of the eight available ti.eslots for trans.itting packets of data% There have also been fears of handsets overheating% The 9cono.ist, + 2une -//1, p% +-% See http6CCwww%gs.world%co.C

-1 --

17

)* Briefing Paper

.ature .arkets such as ?inland and ;orway% By Dece.ber 1+++, the volu.e was up to two billion, and by arch -/// it was over three billion% 'n the first three .onths of -//1, so.e 8/ billion test .essages were sent worldwide% So.e -8%) billion S S te#t .essages were sent in the first twenty,seven days of 2une S-//1T alone%G-) *artnerEs DataJuest e#pects S S usage and revenue to continue to grow strongly across (estern 9urope during the ne#t two years% *lobal inco.e fro. te#t and .essages in -//1 is e#pected to reach Q1A%+ billion on total .obile phone revenues of Q7// billion, according to research group >vu.% 9uropean .essaging sales in particular could reach Q14%5 billion on total .obile revenues of Q144 billion% -7 3"1"# Mo0!)$ Int$rn$t obile 'nternet services for -*, on the other hand, have not had as resounding a success as S S% ;evertheless, ?orrester sees the long,ter. gloo. associated with it as .isguided, citing 87U of all (estern 9uropeans as regular .obile 'nternet users by -//8% -8 (!P "(ireless !pplication Protocol& and i, ode "a 2apanese standard& are the two .ain co.peting standards for access to the 'nternet via -* .obile phones% obile 'nternet access on *S is slow and inconvenient, as it was never designed for the 'nternet and infor.ation services% *S Vs +%4 1bitCs circuit,switched links are responsible for connection ti.es that last up to )/ seconds, and e#tended waiting ti.es for loading6 Falso, in contrast to 2apanVs ;TT Do3o o, which .ade it easy for content providers to build an open network of useful sites, 9uropean operators like ?rance Teleco. and BT have built poorly supported, tightly restricted Rwalled gardensR ,, ensuring discontent%G -4
F!-ur$ 3"1: Co3'(r!*on o% F!;$d (nd Mo0!)$ Int$rn$t S$r+! $*5 Cont$nt St(nd(rd*5 (nd N$t.or/ T$ &no)o-2

?i#ed 'nternet
, >pen global network , , anyone can build a site , =obust road,tested sites , 9verything is available6 ;ews, shopping, financeW

obile 'nternet, circa -///

3losed offerings restrict consu.er choice , Buggy, first,generation sites , Services take little advantage of .obility

obile 'nternet, circa -//, >pen networks let any consu.er easily reach any site , =eliable second, generation sites , 0ocation,based services .obility into added value

S$r+! $*

HTTPAHTML Cont$nt* St(nd(rd*

,Displays rich, graphical pages ,;o push capabilities , users .ust co.e to the site , ;o user authentication B userna.es and passwords needed

8AP 1"1
, Displays s.all, si.ple pages , ;o push capabilities , users .ust co.e to the sites , ;o user authentication , userna.es and passwords needed

8AP X"B
, Display s.all, si.ple pages , Push capabilities , sites co.e to users , User authentication in the phone B no userna.es or passwords needed

An()o- d!(),u' N$t.or/ T$ &no)o-2

, Slow B 84 1bps , ;ot always,on,1/,to,)/ Second connection ti.e

GSM
Slow B +,4 kbps ,;ot always,on,8 to )/ second connection ti.e

GRPS
, ?ast B up to 118 1bps , !lways B on, , user il instantly connected

C(0)$ 3od$3AADSL
, ?ast B up to -

bps

, !lways,on

Proble.

Doing fine

Source6 ?orrester =esearch

-) -7 -8 -4

<an *rinsven, 0ucas% F obile N Satellite6 ;okia )* guru cites S S as key to wireless web successG% =euters, 2une -A, -//1% <an *rinsven, 0ucas% F obile N Satellite6 ;okia )* guru cites S S as key to wireless web successG% =euters, 2une -A, -//1% *odell, 0ars% FThe 9uropean obile 'nternetEs Uneven TakeoffG, ?orrester Brief% 2anuary ), -//1% ;ordan, atthew% F9uropeVs obile 'nternet Beyond The (!P BacklashG, ?orrester Brief% Septe.ber -///

18

)* Briefing Paper

3.1.2.1

WAP

otorola, ;okia, 9ricsson and the US software co.pany Phone%co. "for.erly Unwired Planet& were the initial partners that tea.ed up in .id 1++5 to develop and deploy the (ireless !pplication Protocol "(!P&% (!P was an atte.pt to define the standard for how content fro. the 'nternet should be filtered for .obile co..unications% (!P is the de facto standard in 9urope and the United States, and is a protocol that runs on top of an underlying bearer% 'n !sia, apart fro. Singapore and 1orea, there has been low uptake of .obile (!P 'nternet access% 3o..only cited proble.s are that it is too e#pensive, unreliable, and there is not enough content or services% !rgogroup, a provider of device intelligence for the .obile 'nternet industry, released a study in 2uly -//1 showing that only 11 per cent of (!P sites are usable by handsets on the .arket, according to 'ndustry usability guidelines% -5 'n addition, there are translation proble.s due to the co.ple#ity of ( 0 "wireless .ark,up language&, and .any sites cannot be viewed using (!P,enabled phones% Security issues specific to (!P are also said to have inhibited use% Despite a huge vendor push to pro.ote infrastructure and .obile devices, network infrastructure deploy.ent for (!P was tentative% ost consu.ers perceived (!P as a technology looking for an application% -A 3o.pared with nu.ber of Short essage Service "S S& co.pliant phones, the nu.ber of handsets supporting (!P is insignificant% !ccording to ?orrester, fir.s spending little on (!P site .arketing are adopting the correct strategy% They esti.ate that only -U of 9uropeans own (!P phones, and less than half of this nu.ber use the .obile 'nternet regularly%G -+ % (!P services, aside fro. suffering the conseJuences of pre.ature technology FhypeG, are sub,opti.al for 'nternet access given the circuit,switched network and billing syste.s% 3.1.2.2 i-Mode The rapid increase in usage of .obile 'nternet in 2apan presents a sharp contrast to the e#perience with (!P% !s ?igure )%- shows, .obile 'nternet subscribership increased by a .onthly growth rate of about 14U over -///%
F!-ur$ 3"#: PC Int$rn$t A $** (nd Mo0!)$ Int$rn$t A $** !n C('(n
By monthly growth and by market share
Grow th of Internet Subscribers in 2000 (thousands) 45'000 Mobile Internet Users 40'000 Dial-Up Internet Users 35'000 30'000 25'000 20'000 15'000 10'000 5'000 0 Jan
Source6 'TU,G )*

#obile Internet users in (apan) $illions 30 26' 66 25 20 15 15' 00 i-#ode 10 5 0 J-S"y#eb %& 'eb

#obile monthly row th rate! 1$"

Dial-up m onthly row th rate! 3"

Mar

May

Jul

Sep

Nov

June 2000

De! 2000

obile6 The 3ase of 2apanG, 2uly -//1,

-5

F>nly 11U of (!P sites usableG, 2uly -1, -//1% 0ink6 http6CCwww%thewapgroup%co.Ccgi,binCwapnewsCviewnews%cgiP

categoryXANidX++85/5478%
-A -+

2ohnson, *eoff% F9arly (ireless (eb Services ,, (!P vs% i,.odeG, *artner *roup, 2uly 1-, -//1% Sch.idt, 3arsten% FDriving obile Site TrafficG, ?orrester =esearch =eport, ?ebruary -//1%

14

)* Briefing Paper

obile browsing services in 2apan began in ?ebruary 1+++ hen ;TT Do3o o launched its 'nternet connection service, D'nfor.ation,.odeE or Di,.odeE,% i, ode subscribers can access custo.i:ed 'nternet content over a packet,based network through a special i, ode enabled phone% Subscribers to i, ode can download a range of ite.s, including i.ages of cartoon characters, weather reports, news and entertain.ent listings% @owever, the .ost popular services are still those that allow people to interact with each other% i, .ode users can send e,.ail to other i,.ode users, other .obile phone users with co.patible handsets, as well as P3s% >ther transactional services include .obile banking and ticket reservations% The data is trans.itted over a packet,based network at the trans.ission speed of +%4 kbitCs, and billed on the basis of bitsCpackets trans.itted% By 2une -//1, there were over -8 .illion i, ode .obile 'nternet subscribers in 2apan% ! variety of reasons have been advanced for i, odeVs relative success in 2apan a.ong which are6 low street price and high de.and fro. young users, .icro,billing, low P3 'nternet access due to high fi#ed line charges, use of relatively si.ple web standard c@T 0 which encourages content develop.ent, and co,ordinated roll,out% Until recently, there had been considerable opti.is. about the co..ercial prospects for )* services% So.e applications that were considered to be potential catalysts for )* service growth are set out in Table )%1% During the course of the 1- .onths between .id -/// and .id -//1, however, considerable uncertainty appears to have developed over the co..ercial viability of )* services )/% 'ndustry players in .any countries are currently deliberating issues that will need to be resolved in order to facilitate the successful .aterialisation of the )* vision% ! broad range of Juestions is being raised in the .edia% 's )* technology readyP (ill inter.ediate -%8* solutions that i.prove upon -* but fall short of the specifications sufficeP (hen will )* handsets be available in sufficient JuantityP (ill businesses and individual consu.ers really want .obile services that only )* can supportP (hat are the key drivers for wireless )*P (ill there be a Rkiller applicationGP (ill the Rkiller applicationR vary in different businesses or regions or a.ong different age groupsP (ill enough users be willing to pay for the servicesP (ill wireless service operators be able to .ake a profitP (ill there be enough spectru. to satisfy de.andP T(0)$ 3"1: A'')! (t!on* t&(t ou)d dr!+$ d$3(nd %or 3o0!)$ d(t( Produ t 3o..unications 'nfor.ation ?inancial >rganisational >ffice services 9,co..erce !dvertising 9ntertain.ent S$r+! $ $;(3')$* S S, 9,.ail ;ews, weather, sport, finance, ti.etables Stock Juotes, trading Personal organiser functions !ccess to co.pany networks 9lectronic wallets, tickets, ga.bling T<,style, full,screen DflashE adverts *a.es, video, .usic

Source6 !B;,! =>, Teleco. Sector =esearch, 2une -//1%

'nsofar as the co..ercial viability of )* is concerned, there see.s to be a broad acknowledge.ent that while it is a critically i.portant issue, the responsibility for developing co..ercial )* .arkets resides with the teleco..unications industry itself% 'n essence, it depends on the industryEs ability to deliver services that the .arket wants profitably% The popularity of ;TT Do3o oEs i,.ode .obile 'nternet syste. in 2apan, with over -8 .illion data subscribers in 2une -//1, has been cited as evidence that consu.ers want the sort of Dalways,onE services that )* can offer and that )* services will be co..ercially viable )1% 'ndeed, out of the 48 .illion .obile subscribers in 2apan at year,end -///, the rapidly growing FbrowserG or F.obile 'nternetG subscriber base

)/ )1

F1iller applicationsG, The Economist, -4 !ugust -///, p%48% >ne of the .ain catalysts for growth of i,.ode is seen to be the relatively affordable cost of using the services% The packet, switched nature of Do3o oEs PD3 network allows users to be charged only for the volu.e of infor.ation they receive, after a flat fee of about USQ) per .onth% >n average, users pay between USQ+ to USQ1/ per .onth for accessing services%

15

)* Briefing Paper

accounts for over )1 .illion, or al.ost half% >ther co..entators believe that the i,.ode business .odel is specifically 2apanese)- and cannot be easily replicated elsewhere ))% They also point out that i,.ode is not burdened by high licence fees% >n the other hand, there are analysts who .aintain that even with high licence fees paid in countries such as the U1 and *er.any, )* is a co..ercially viable service )7% ?or instance, arguing that there is now too .uch pessi.is. over )*, Spectru. Strategy consultants esti.ate that while a typical )* operator in the U1 would face cu.ulative costs of appro#i.ately USQ1/ billion in preparation for data services, this would still be e#ceeded by esti.ated revenues fro. these services "even on the basis of conservative assu.ptions& )8%

3"#

3G S$r+! $* (nd A'')! (t!on*

Bo# )%1 places )* services within the conte#t and ti.elines of the evolution of servicesCapplications available with -*, then -%8* and )* technology%
Bo; 3"1: Co3'(r!n- *$r+! $*A('')! (t!on* 'ro+!*!on und$r #G 5 #"<G (nd 3G

P$r!od U' to #444

M(Eor T$ &no)o-2 Introdu t!on -*

N$. Int$rn()AE;t$rn() A'')! (t!on*

Telephone 9.ail S S Digital Te#t Delivery obile Banking <oice.ail (eb obile !udio Player Digital ;ewspaper Publishing Digital !udio Delivery obile =adio 1araoke Push arketingC Targeted progra.s 0ocation,based services obile coupons obile videoconferencing <ideo PhoneC ail =e.ote edical Diagnosis =e.ote 9ducation obile T<C<ideo Player !dvanced 3ar ;avigationC 3ity *uides Digital 3atalog Shopping Digital !udioC<ideo Delivery 3ollaborative B-B !pplications

#441 to #44#

-%8 *

#443 (nd 0$2ond

)*

Source6 'TU%

3"3

M(r/$t D$3(nd D !* t&$r$ ( n$$d %or 3G?

To place this issue in conte#t, Bo# )%- presents a su..ary forecast of subscribership and revenue for .obile services in (estern 9urope% 'n addition, Bo# )%) provides a su..ary of the .ain .obile operators in 9urope%

)-

't is pointed out, for instance, that in 2apan ho.e P3 penetration is relatively low, 'nternet and fi#ed phone fees are relatively high, workers spend hours each day with little else to do, and i,.ode has little co.petition% See, for e#a.ple, 2ohn Ure, F0icensing third,generation .obile6 a poisoned chaliceP, In o, vol ), nu.ber 1, ?ebruary -//1% Si.on Du#, FDo3o oEs i,.ode success6 the basis for a )* .odelPG, Communications Week, 14 2uly -//1% ! report by Teleco.petition proHects that revenues fro. .obile services will e#ceed the cost of )* licenses and infrastructure build out in 9urope% 3ited in 9li:abeth Biddleco.be, FDeveloping world a big opportunity for .obile dataG, Total Telecom, -A 2une -//1% Bratton, (%, 2a.eson, 2 and Pentland, S "Spectru. Strategy 3onsultants&, F!nalysis6 )* .adness B ti.e for so.e .oderationYG,
Total Telecom, 14 2uly -//1%

)) )7

)8

1A

)* Briefing Paper

! study of revenue opportunities for )* by the U TS ?oru. "which includes forecast data produced by Teleco.petition& assu.es that by -/1/, )* will co.prise -A per cent of cellular subscribers worldwide, yielding revenue of Q)-- billion per year "based on assu.ptions regarded as conservative& )4% The U TS ?oru. study forecasts that revenue fro. non,voice services will co.pensate for the e#pected decline in average revenue per user fro. voice services, which is e#pected to fall sharply by -/1/% (ork by Pyra.id =esearch reinforces the U TS ?oru.Vs predictions% Pyra.id forecasts that by -//), fewer than 1/ per cent of .obile subscriptions will be for )* service% This figure is predicted to e#ceed -/ per cent by -//8, suggesting that )* will not take off until -//7 or -//8% !t that ti.e, .obile 'nternet,related revenues will account for appro#i.ately one,third of total revenue% 'n so.e regions, )* will be slower to gain a foothold% 'n Bra:il, for e#a.ple, it is e#pected that by -//8 only ) per cent of .obile subscriptions will be )*, partly due to fact that licences were awarded later and partly because de.and is less .ature% !s 9urope is concluding the process of spectru. allocation for )* technologies, operators are facing a nu.ber of dile..as relating to the high cost of licences "in so.e countries& and the large invest.ent reJuired for network deploy.ent% any analysts predict financial difficulties for )* licensees% Though the valuation .ethods for spectru. auctions have been subHect to considerable debate, .etrics used by investors and analysts to valuate operators in the .arketplace have not changedI the =>' "=eturn on 'nvest.ent& continues to reign as the fore.ost preoccupation% Perceptions of the potential for DrecoupingE invest.ent varies depending on whether de.and,pull or technology,push is considered the pri.ary driver for )* growth% any past observations have been discredited, as lessons fro. the -* e#perience are co.ing to the forefront% 3orporate strategy based solely on increasing the subscriber base, for e#a.ple, has proven to be a double,edged sword for operators, since pushing subscriber levels past a 1/,-/U threshold )5 has actually led to increased subscriber acJuisition costs% So.e analysts believe that long before )* networks are co.pleted, alternative solutions in the range of -%8* technologies will replace the.I the ends .ay not necessarily Hustify the .eans "or the costs necessary to achieve )*&% ore neutral observations point to waves or cycles of success, one being ?orrestersE prediction that operating profits will disappear in -//5 and take si# years to return, leading to business failures and .assive industry consolidation% )A
F!-ur$ 3"3: Mo0!)$ B2 t&$ Nu30$r*: Su0* r!0$r P$n$tr(t!on #444 D #44<
200 1 0 160 140 120 100 0 60 40 20 0
%2 0%3 2'%4 2%' 1&%4 6'%6 4 %1 103%3 3% 135%3 11'% 120%1 150%2 152%4 111%2 163% 1&6%' 1&1%1

2000
Mobile (ata users
Source6 ?orrester =esearch

2001

2002

2003

2004

2005

)otal Mobile Subs!ribers

Internet-*nable( +an(sets

)4

The report, FU TS Third *eneration arket , Phase ''6 Structuring the Service =evenue >pportunitiesG -//1, can be downloaded at http6CCwww%u.ts,foru.%orgC F(ireless6 =iding its luck into )*G% *odell, 0ars% F9uropeEs U TS obile atters, ?ebruary -//1% p% 7+%

)5 )A

eltdownG% ?orrester =esearch =eport, Dece.ber -///% p%4%

1+

)* Briefing Paper

>n the other hand, now that over twenty countries have awarded )* licenses and over 5/ )* infrastructure contracts)+ have been signed, it would see. that 9urope is well on its way to offering )* services% !lthough anticipated infrastructure and handset delays are e#pected, coupled with incre.ental returns on invest.ent for operators, these factors will only postpone the adoption of )* rather than signal its end% Service launches have been postponed even by those e#pected to be the first to Droll,outE )* in -//16 2apan, South 1orea and on the 'sle of an% @owever, .ost observers are confident that )* will be deployed% The .aHority of carriers around the world e#pect to evaluate their own )* options well into -//- and begin deploy.ent in late -//- or early -//)% Therefore, while there is widespread confidence that we are .igrating to the )* space, this will occur .uch later than first e#pected% "Section )%8%-&%
Bo; 3"#: R$+$nu$ For$ (*t* %or 3o0!)$ *$r+! $* Despite its li.ited share of total service revenue to date, 1+++ was a good year for .obile data in .any .arkets% S S growth was rapid, and while it is still a long way fro. being a .ass .arket, .any believe that the .obile data .arket will continue to grow% By -//7, .obile data in (estern 9urope will be a principal driver of increasing revenue, accounting for appro#i.ately ))U of .obile services revenue, up fro. )U during 1+++% ! recent study into the service revenue opportunities over the ne#t decade for the )* .obile .arket, conducted by the U TS ?oru., predicts a 3o.pound !nnual *rowth =ate for three key )* services B na.ely 3usto.i:ed 'nfotain.ent, obile 'ntraC9#tranet !ccess and ulti.edia essaging Service B of over 1//U during the forecast period, with total revenues for these ) forecast services of over US Q147 billion by -/1/% ?urther evidence of the strong growth of the .arket lies in the e#panding user,base, as forecast by 'TU% The nu.ber of .obile phone subscribers worldwide is forecast to reach al.ost one billion by -//1, and will e#ceed the nu.ber of fi#ed,lines worldwide during -//- or early -//)% Su33(r2 For$ (*t %or Mo0!)$ S$r+! $ !n 8$*t$rn Euro'$:
)otal ,onne!tions -t.ousan(s/ 0nalo1 ,onne!tions -t.ousan(s/ Di1ital ,onne!tions -t.ousan(s/ 2repai( ,onne!tions -t.ousan(s/ 2ostpai( ,onne!tions -t.ousan(s/ )otal Servi!e 3evenue -4t.ousan(s/ )otal Data 3evenues -4t.ousan(s/ )otal 0vera1e 3evenue 2er Unit
Source6 *artner DataJuest " ay -///&

1*** 154'112%3 5'&04%& 14 '40&%5 &5'2'4%' & ' 1&%4 464504 5 45%2 4251505111%5 4521%4

2000 200+ 211' 62%0 325'2 3%0 3'6'6%' 36%& 20 '165%1 325'246%3 11&' ''%1 1' '5'0%1 '3''62%' 126'6'2%' 4 4555 5 4%5 413'5 ''5264%0 4651425510%1 445560 5645%' 4462%1 443'%4

F!;$d )!n$* (nd Mo0!)$ u*$r* (8or)d5 M!))!on*)

1'400 1'200 1'000 00 600 400 200 0
1''3 1''4 1''5 1''6 1''& 1'' 1''' 2000 2001 2002 2003

D(t( (nd 6o! $ R$+$nu$ For$ (*t*5 8$*t$rn Euro'$

4160

Mobile Users 6i7e( 8ines

4140 4120 4100 4 0 460 440 420 40 1''

Data 9oi!e

1''' 2000 2001 2002 2003 2004

Source6 'TU%

Source6 *artner DataJuest

)+

=oberts, Si.one% F)* in 9urope6 9#pensive but 9ssentialGI (irelessC obile 9urope, The Zankee *roup% =eport <ol% 8, ;o% A B 2une -//1% p%-%

-/

)* Briefing Paper

Bo; 3"3: M(!n O'$r(tor* !n t&$ M(r/$t

Co3'(n2
<odafone B !irtouch

Countr!$* o% Pr$*$n $
Spain, U1, ;etherlands, *er.any, 'taly, Portugal, Swit:erland, Poland, Sweden, Belgiu., !ustria ;etherlands, *er.any, 'taly, !ustria, Portugal, Swit:erland, Poland, Sweden, ?rance, Belgiu., U1 U1, 'taly, !ustria, Sweden

A**o !(t$d Co3'(n!$*

!irtel, <odafone, 0ibertel, D" annes.an obilfunk&, >.nitel, Telecel, Swissco., Polko.tel, 9uropolitan, Pro#i.us, Tele%=ing Dutchtone, obilko., (ind, >;9 "3onnect&, >pti.us, Telecel, >range, 3entertel, >range, 'tineris, obistar, >range T'(, !ndala , @utchison, @')* !ccess

?rance Teleco. "wC>range&

@utchison (ha.poa

Telefonica

Spain, *er.any, 'taly, !ustria, Swit:erland ;etherlands, *er.any, !ustria, Poland, U1

Telefonica, *roup )*, 'pse, Telefonica, *roup )* B9; ")* Blue&, T, obil, a# obil, PT3 9ra Plus, >ne->ne

Deutsche Teleco.

British Teleco.

U1, ;etherlands, *er.any

3ellnet, Telfort, <iag

Sonera

?inland, Spain, *er.any, 'taly

Sonera, Xfera, *roup )*, 'pse

1P;

*er.any, ;etherlands, Belgiu.

9plus, 1P;, 1P;

Source6 3luster 3onsulting

!e"elo#ing countries !s in developed countries, the develop.ent of appropriate business and revenue .odels for the delivery of )* services will be the pri.ary driver of the success or otherwise of )* in developing countries% >ne proble. for the successful introduction of )* in developing countries is the relatively high cost of )* service for consu.ers in those countries 7/% This is probably the largest single barrier to the effective develop, .ent and use of new teleco..unication technologies% 'ncreasing the nu.ber of users on the new network "and thus sharing the high up,front cost of network develop.ent a.ong the .a#i.u. nu.ber of users& is one .eans of reducing the average cost of the service through spreading the fi#ed costs of service% But this will not be easy to do in econo.ic circu.stances that are likely to support only li.ited .arket de.and%

7/

FDeveloping world a big opportunity for .obile dataG, Total telecom, -A 2une -//1%

-1

)* Briefing Paper

The special proble.s of developing countries also .ake the appropriate licensing of )* operators crucially i.portant% @ow can govern.ents ensure that the .ost suitable operators .ost Jualified and able to develop the service cost,effectively are allocated the licencesP (ould a DhybridE syste. of licence allocation "discussed later& be relatively .ore suitable since this would allow the special develop.ental obHectives of the country to be taken into accountP The difficulties of developing countries in regard to the develop.ent of )* services are e#a.ined further in the case studies that co.ple.ent this paper%

Bo; 3">: C(*$ Stud2 o% 3G !n G&(n( Despite being the eighth biggest cellular .arket in !frica, with 1)/,/// .obile subscribers at the end of -//1 "up fro. a figure of 5/,/// in 1+++&, one of the biggest proble.s faced by operators planning to introduce )* in *hana is the low level of econo.ic activity and the s.all scale of the do.estic econo.y which .akes it hard to Hustify the financial invest.ent% (ith a per capita inco.e of Q)+/ per annu., only a few individuals and corporations are likely to subscribe to )* to enable the operators to recoup their invest.ents% obile subscribers co.prise only )1 per cent of telephone subscribers and revenue fro. the teleco..unications sector as a whole in -/// was only Q-//.illion, less than 1 per cent of the cash generated fro. )* auctions in the U1, for instance% 'n the case of )*, it is likely that content revenue will constitute a significant proportion of total revenue collected% @owever in *hana and other !frican countries, content revenue can be e#pected to for. a .uch s.aller proportion of the total revenue for the services delivered to business users and other residential users% This is because the .arket for content develop.ent is still in its infancy in *hana% ost !frican countries are .ore likely to depend on content developers in 9urope and !.erica until capacities and skills are developed to fill the shortage%
Source6 'TU, 3ase Study of )* in *hana, 2uly -//1

3">

B!))!n- !**u$* %or #"<G (nd 3G S$r+! $*

The introduction of )* with the convergence of voice and data will reJuire operators to upgrade billing syste.s71% The billing syste. for Dalways,onE -%8* services is of particular interest since it .ay be a forerunner of the billing that is reJuired for )* services% (hile current *S connections are billed per second, because *P=S "and )*& is packet,based and therefore Dalways,onE, billing by the byte .ay be necessary% 'n this conte#t it is notable that a per,packet billing syste. is already in place in 2apan for .obile 'nternet services% Unlike other .obile 'nternet services, i, ode custo.ers are charged on the basis of data trans.itted rather than connection ti.e% Users are charged a subscription fee of )// Zen "around USQ-%8/& per .onth% 'n addition, they are billed /%) Zen per packet% !verage i, ode usage charges are around Z-,///C.onth "USQ14&, on top of voice revenues of ZA,///% So.e content providers charge an additional fee of -//,)// Zen per .onth% There are both FofficialG and FunofficialG i,.ode sites% 'n the case of official sites, there is a contractual arrange.ent between Do3o o and the content provider whereby Do3o o collects the content charge on behalf of the content provider and keeps a co..ission of + per cent% 'n the case of unofficial web sites, users are reJuired to pay the content provider directly% Unofficial sites that charge for access are therefore rare, since electronic pay.ent .ethods are li.ited in 2apan with only a relatively s.all nu.ber of credit cards in circulation% 3urrently, i, ode users have access to about 1,/// content services% !n alternative pricing .odel could be to base charges on the value to the subscriber of the service provided 7-% ! flat fee is considered suitable for content services like fil.s where the user is charged per download, not the a.ount of data downloaded or the ti.e it takes7)% ! flat,rate .onthly subscription fee .ay

71 77)

SanHi.a De:oysa, F! )* billing .a:eG, Telecommunications,

arch -//1%

2ulian Bright, FBilling6 <alue vs volu.e , valueG, $oam, 1 !pril -//1% FThe difference with dataG, CI%&nline, 1 ay -///%

--

)* Briefing Paper

be .ore suitable for other services, such as freJuently used ones like .essaging% There .ay also be difficulties in initiating less technology,aware custo.ers to a new pricing .odel% Thus, providing custo.er support for billing and technical proble.s .ay be an additional cost for )* network operators% ! suitable approach .ay be a .i#ture of a flat,rate charge with an additional per,packet fee over and above a certain .ini.u., adeJuate perhaps to .eet the needs of low,end consu.ers% !n indication of how a .ature *P=S [ and subseJuently a )* [ tariff structure .ight look like .ay be gleaned fro. the situation in *er.any, where strong price co.petition broke out after the launch of rivals to T, obilEs *P=S service 77% T, obil itself offered three tariffs, ranging fro. a pay,as,you,go charge of Q/%-5 per 1/ kilobytes and Q/%1+ per day, to a heavy user package costing Q1)%48 per .onth, but Hust Q/%/-- per 1/ kilobytes% annes.an obilfunk "D- <odafone& charged Q+%11 per .onth, plus Q/%/A5 per 1/ kilobytes, with the first .egabyte free% !nd 9,Plus obilfunk did not levy a .onthly charge but applied a tariff of Q/%)- per 1/ kilobytes, with the charge reducing as data volu.e increased%

3"<

D$')o23$nt

3"<"1 Co*t* o% D$')o23$nt 'n addition to paying for a license, network operators have to construct or e#pand their physical infrastructure to enable provision of )* service% >perators will also have to invest heavily in network .anage.ent, support services and handset subsidies, not to .ention billing syste.s and .arketing% ?or e#a.ple, in the United 1ingdo., <odafone paid nearly \4 billion for its license and on top of this contracted with 9ricsson to install infrastructure at a cost reported to be around \7 billion% Si.ilarly, in *er.any, annes.ann co..itted to a D 1/ billion network upgrade progra..e after paying D 14 billion for a )* license% ! rough esti.ate .ade is that infrastructure costs can .atch the a.ount that so.e operators have paid for a )* license% !ccording to one esti.ate, building infrastructure for )* services can cost around Q8 billion per operator per country78% ?or instance, the cost of building a large nu.ber of incre.ental base stations is significant and poses a proble. despite recent .oves to share e#penditure between operators% 't is e#pected that network operators will face changes in their cost structures by co.parison with past e#perience with the cost of *S syste.s% Spending on 'T syste.s and billing syste.s will rise significantly% >ther costs are also e#pected to increase due to .obile services .oving fro. hierarchical architectures based on circuit switching, to distributed and layered architectures based on packet routing% 3onverging voice and data services will reJuire a co.bination of the disciplines of voice telephony and 'T networks% This will be new territory for .any operators, and operators are e#pected to outsource .ore and .ore of their back,office applications% 't has been esti.ated that the incre.ental costs of servicing new subscribers could rise fro. an average of Q-// per subscriber for a *S network to around Q)8/ per subscriber on a U TS network% Physical infrastructure costs could shrink fro. 48 percent of the total to 8+ percent but other costs could double% Table )%- sets out further details of esti.ates co.paring the costs of supporting clients in *S and )*CU TS networks% The highest costs are for the network "-+U& and trans.ission links "-)U&% 3"<"# D$)(2* !n t&$ Introdu t!on o% 3G S$r+! $* ;TT Do3o o is e#pected to be the first operator to launch )* service in 2apan% The service, known as ?> !74, will be based on the (,3D ! standard% The full,scale co..ercial launch of ?> ! was initially scheduled for )/ ay -//1 but in !pril -//1, Do3o o announced a postpone.ent until 1 >ctober -//1%

77 78 74

Barnaby Page, F obile 'nternet6 *P=S B .ore than a Juick fi#PG, $oam, 1 2une -//1% Dirk % Bout et al%, FThe ;e#t *eneration of obile ;etworks Poses a Q1// Billion 3hallenge for 9uropeG, ;ote ;u.ber6 =,11, 8/8), *artner *roup, 1+ Septe.ber -///% ?> ! stands for ?reedo. of obil ulti.edia !ccess%

-)

)* Briefing Paper

@owever, the operator proceeded with plans for an FintroductoryG trial service to a select group of users starting on )1 ay -//1% !ccording to Do3o o, the Fintroductory serviceG will be used to assess syste. perfor.ance and to provide custo.er feedback in anticipation of the >ctober -//1 launch of )* service% The selected users or F.onitorsG have received a free handset, are e#e.pt fro. paying .onthly subscription fees and are reJuired to pay only co..unication charges%

T(0)$ 3"#: E*t!3(t$d o*t o% GSM (nd UMTS n$t.or/*

/ost per Subscribers GS# -#.S 420%00 424%50 4&0%00 4101%50 440%00 4 0%50 422%00 43 %50 416%00 435%00 420%00 442%00 412%00 42 %00 0200100 0320100 ,ercent /han e 22%5; 45%0; 101%3; &5%0; 11 % ; 110%0; 133%3; 3210" GS# -#.S (percent) (percent) 10 & 35 2' 20 23 11 11 10 10 12 6 100 100

,ore Net:or" 3a(io Net:or" )rans$ission 8in"s Net:or" Maintenan!e Sales an( Mar"etin1 ,usto$er ,are an( <illin1 I) Mana1e$ent Servi!es .otal
Source6 *artner DataJuest%

'n 2apan, 2,Phone has also announced a delay of 4 .onths in the introduction of )* service% @owever, the delays in the introduction of )* are not confined to 2apan% 'n 1orea, S1 Teleco. has announced that the co.pany is likely to delay the launch of )* services until as late as ay -//) due to changed circu.stances, including delays in the .anufacture of handsets and other eJuip.ent 75% 1orea Teleco. has also indicated that there would be a possible delay in the co.panyEs introduction of )* services as a result of the failure of handset and syste.s .anufacturers to produce eJuip.ent on ti.e% 'n 9urope, Spain, which was e#pected to be one of the first 9uropean countries to launch )* services "along with ?inland and the 'sle of an&, has postponed its launch fro. !ugust -//1 to 2une -//- 7A% >perators in a nu.ber of other countries have also announced delays in introducing )* service, including BTEs an# Teleco. )* service on the 'sle of an 7+, that was intended to be the worldEs first% These announced delays in the introduction of )* have led to considerable uncertainty and so.e pessi.istic reports over Hust when )* services will beco.e available% @owever, a report fro. ;okia .aintains that reports suggesting that )* .ay not be a reality before -//7 or -//8 are too pessi.istic 8/% ;okia points out that operators have already taken the first key steps, with *P=S leading the .igration process to )*% ;okia e#pects the .ass .arket for *P=S to take off in early -//-, followed by )* (,3D ! later 81% The ;okia report pointed out that there is usually a lag between delivery of infrastructure and the availability of .ass .arket ter.inals, as was the case with *S % 'ndeed, ;okia believes there is early evidence that so.e (!P portals, fro. BT *enie, Sonera ]ed, n,Top in 1orea and 2,Phone in 2apan, are e#hibiting user behaviour si.ilar to that of i, ode subscribers%

75 7A 7+

FS1 Teleco. to delay )* and cut fi#ed,line businessG, Total Telecom, 7 2uly -//1% FPortugal .ulls U TS delay as Spain e#tends deadlineG, Total Telecom, ) !ugust -//1% See http6CCwww%ta#,news%co.CaspCstoryCstory%aspPstoryna.eX)881 , http6CCwww%totaltele%co.Cview%aspP article'DX)++-ANPubXTTNcategoryidX4-8NkwXisleMofM.an and an# Teleco.Es )* site at .ttp=>>:::%:orl(s?irst31%!o$% F;okia re.ains opti.istic on )*G $oam, 1 2une -//1% ;okia, F3orrecting )* arket isconceptions , the Truth about Ti.ing and opti.istic on )*G, $oam, /1 2une -//1% arket ShareG, -//1% 3ited in F;okia re.ains

8/ 81

-7

)* Briefing Paper

't should also be noted that delays in the deploy.ent of )* can occur because of a failure to release spectru., as in the case of the US 8- where )* service is not e#pected until -//78)%

>

L! $n*!n- 'o)! !$*

0icensing policies and procedures .ust be applied Hudiciously since not only can they influence .arket entry but also the post,entry conditions affecting co.petitiveness and .arket develop.ent% 0icensing .ay i.pose barriers to entry, whether through licence costs or through procedures which inadvertently per.it increased scope for collusive behaviour by e#isting operators and service providers% (hile teleco..unications is globalising, with technology .aking national borders irrelevant in the design and delivery of services, licensing of )* operators re.ains highly frag.ented along national lines% (ith technological and co..ercial DconvergenceE it is even .ore i.portant to be vigilant that unnecessary licensing reJuire.ents do not constitute barriers to the develop.ent of new global innovative services, including global roa.ing% 'ndeed, there .ay well be a disposition to continue the practice of li.iting licence nu.bers since, after all, a relatively s.all supply in relation to the de.and for such licences will support higher auction receipts for govern.ent% 3ertainly, a li.itation in the nu.ber of licences awarded will boost the scarcity value of a licence% !lso there is the related concern that a high licence fee i.poses a substantial ta# "since no cost is involved in supplying the spectru.& on end,users "to the e#tent that the fee is passed on&% !n effective fra.ework for licensing )* operators is crucial to the successful introduction and develop.ent of )* services87% ! licensing fra.ework .ust recognise and reflect the high levels of invest.ent reJuired for )* network rollout and the significant uncertainty associated with the )* business case% The licensing fra.ework should assist the develop.ent of new and innovative services rather than act .erely as a .eans of raising revenue%

>"1
>"1"1

A''ro( &$* to 3G L! $n $ A))o (t!on

Pr!n !'() M$t&od*

4.1.1.1 Auctions !uctioning of )* spectru. licenses has, since .id,-///, raised substantial a.ounts of revenue for govern.ents and has given rise to a fierce debate concerning the efficiency, co.petitive i.pact and social i.plications of this for. of allocating )* spectru.% Supporters of the auctioning approach argue that it allocates )* spectru. to those operators that value the spectru. .ost highly and who can thus be e#pected to .ake the .ost econo.ically efficient use of the spectru.% !uctions reJuire that bidders esti.ate for the.selves the true value to the. of owning the relevant spectru.% Thus, assu.ing an environ.ent of well, infor.ed bidders, the winning bids should co.e fro. the co.panies that can find ways of .a#i.ising the strea. of future benefits% 't is true that an operator with the greatest capacity for .onopoli:ation .ight also be prepared to place a relatively high value on a .obile licence% Thus, if three .obile licences were up for auction, they would probably be perceived to be of the highest value by a single operator who could bid for all three in order to have the .onopoly of the service% This would obviously be an undesirable outco.e% 't can however, be

8-

@arter, Betsy% RSpectru. SJuee:eR, (ireless =eview, >verland Park% <olu.e 1A, 'ssue 1-% 2une 18, -//1, p%1+I *ood.an, P% S, R! Push for ore ?reJuencies6 (ireless ?ir.s Say They 3anVt !dvance Until *overn.ent >pens Up the !irwavesR% (ashington Post, ?eburary -A, -//1, p% *1-% Unlike 9urope, the US did not designate particular blocks of spectru. for )* wireless networks% The proble. is that radio bands in the US thought to be .ost suitable for )* are controlled in part by the Pentagon, which uses the. for a variety of purposes, including co..unications with intelligence,gathering satellites% 3oa#ing current occupants of these slices of radio spectru. has proven to be a difficult task% 'n !pril -//1, the Depart.ent of Defense reported that it would take Ras long as -/1/ for non,space syste.s and beyond -/15 for legacy space syste.s to vacate the relevant spectru. band,sharing is not an option "for security and interference reasons&, nor is relocation unless the wireless industry .akes co.parable spectru. available and bears the significant .oving costs "which, according to one esti.ate, could total Q7%) billion&% ! useful discussion of .aHor issues in designing a licensing fra.ework for )* services is available on the web site of the @ong 1ong >ffice of the Teleco..unications !uthority ">?T!& at http6CCofta%gov%hk

8)

87

-8

)* Briefing Paper

si.ply re.edied through appropriate auction design B in this case, a rule that any operator can only control one licence and that a reasonable nu.ber of licences are awarded "thereby .ini.ising scope for cartel,like behaviour&% There has been concern that incu.bent operators would be Dlocked,inE to bid large a.ounts to win a )* licence if they take the view that their e#isting businesses would be unsustainable over the longer ter. without one% >ne response to this concern has been that since incu.bent operators .ay also benefit fro. cheaper network construction costs, FW it may thus be entirely rational or incumbents to be #re#ared to bid more than a new entrant or the '( licence ) it is worth more to an incumbent o#erator. This merely illustrates again the ad"antages o the auction system, which will automatically take these s#eci ic di erences into account%G88 The outco.e of an auction is easy to understand and the process avoids putting the onus on officials or even appointed De#pertsE to out,guess the .arket as to how new technologies and services will develop% >fficials are not reJuired to .ake difficult decisions that can have significant repercussions on the future prosperity of .aHor corporations% They are freed fro. pressures to favour local or national bidders% They will also be freed fro. confusion of obHectives e%g% regional e.ploy.ent policy, backing Dnational technology cha.pions, etc% !uctions can be applied fle#ibly, with auction rules designed to achieve a range of policy obHectives% ?or e#a.ple, if there is a desire to bring in new entrants into the .arket, so.e licences can be reserved for the., or they .ight receive special benefits in the auction process "for e#a.ple, by adding a notional .onetary su. to their bids84&% 'f it is a policy obHective to accelerate infrastructure deploy.ent, a licence could be allocated subHect to a range of deploy.ent conditions% 9ven the bidding rules can be .ade to suit circu.stances% ?or instance, concern that large up front auction prices could i.pede )* infrastructure deploy.ent led the @ong 1ong S!= regulator to devise a sche.e with staged pay.ent based initially on 8 per cent of network turnover but then rising over the 18 year ter. of a license 85% (here the auction rules and any licence conditions included are .ade e#plicit, auctions are also a transparent and DobHectiveE approach% Potential bidders know in advance the basis upon which they are co.peting, and this is not only efficient, because it encourages .ore bidders to participate, but also eJuitable, because they are treated eJually% Concerns o"er auctions Despite their theoretical attraction, auctions .ust in fact .eet a set of stringent preconditions before they can be considered to contribute positively to econo.ic welfare 8A% >ne of the key preconditions for auctions to function properly is that all potential bidders be fully infor.ed as to .arket conditions, the regulatory environ.ent, de.and characteristics and the pricing structures that are likely to prevail in the .arket% @owever, full infor.ation on )* .arket characteristics is far fro. available since .any of the issues surrounding .arket de.and, service functionality, pricing and technical develop.ent have not been fully or even partially resolved% !lso, the perceived value of spectru. has fallen .arkedly over ti.e, as the trading conditions in the teleco..unications sector have changed and as the financial .arkets have re,evaluated the value of )* licences% ! further concern associated with the spectru. auctions that have so far been conducted is that .any co..entators have alleged that govern.ents have been preoccupied with revenue raising and have artificially .anipulated the auctions% The argu.ent is that govern.ents have, by design, restricted the a.ount of spectru. available for )* services in order to create .arket conditions that would be .ost

88 84

Patricia @ewitt, F)* licence allocation6 why an auction was best for the U1,G 'nfo, vol% -, no%7, !ugust -///, p%)7) artin 3ave and To..aso <alletti, F!re spectru. auctions ruining our grandchildrenEs futurePG, info, vol% -, no%7, !ugust -///, p% )7A% F@ong 1ong unveils rules for )* auctionG, Total Telecom, 1A 2uly -//1% 1le.perer, P, F!uction Theory6 ! guide to the literatureG, *ournal o Economic Sur"eys, -///, 1)")&6 pp% --5,A4% 1le.perer, P, F(hat really .atters in auction designG, -///, .i.eo, ;uffield 3ollege, >#ford, available fro. http6CCwww%nuff%o#%ac%ukCusersCkle.pererCpapers%ht.l%

85 8A

-4

)* Briefing Paper

favourable to e#tracting huge econo.ic rents fro. industry% 'n addition, so.e countries have designed auctions which e.ployed .ulti,round transparent and publicly known bids further inducing potential operators to bid higher a.ounts than what they .ay have intended in response to bids fro. other players% The conclusion of one co..entator 8+ is that6 +,des#ite rhetoric to the contrary, the early '( auctions in Euro#e ha"e been ramed, designed and im#lemented to e-tract ma-imum mono#oly rents rom an arbitrarily restricted incumbent and new '( mobile o#erators in national markets G

Bo; >"1: C1$ & R$'u0)! 3G )! $n*!n'n .id,?ebruary -//1, the 3:ech govern.ent reiterated its plans to sell third,generation .obile teleco..unications licenses to the countryEs three e#isting .obile *S operators "9uroTel, =adio obil and 3esky obil& between 2uly and Septe.ber -//1 at a fi#ed price of 8 billion crowns "USQ11/ .illion& each% The fourth license is to be auctioned off at an unspecified date, with a .ini.u. bid of 8 billion crowns% The new entrant would be given national roa.ing rights% The e#isting .obile operators confir.ed they were interested in obtaining a U TS licence but have argued that the govern.entEs e#pectation that it will receive five billion crowns per licence is unrealistic in the light of recent U TS tender results in other 9uropean countries and the .arket reassess.ent of wireless operators and to the funding of U TS in particular% 9uroTel suggested that a price of -%A billion crowns .ight be .ore appropriate, based on average 9uropean prices% 3esky obil declared that a reasonable price for the U TS license would be between 1%8 billion to - billion 3:ech 3rowns% The 3:ech govern.ent was so.ewhat Dlocked inE to the price of the U TS licenses because it had already included a revenue ite. of 3]1 -/ billion "about USQ8)8 .illion& in the budget -//1 to be collected in fees fro. the teleco..unication service sector% The .ost obvious source of such funds would be fro. )* licences, forcing the licensing fra.ework to focus on the need to raise the -/ billion 3:ech crowns rather than the effective allocation of U TS licences%
Source6 3:ech operators interested in U TS, but at what costP =euters ;ews Service, 8 ?ebruary -//1

*overn.ents should not focus pri.arily on the use of the teleco..unications sector to raise general revenues% This is inco.patible with policies for creating conditions of co.petition and creating a teleco..unication .arket that can be treated on the sa.e basis as other industry .arkets% 'f the govern.ent wants to obtain econo.ic rent fro. a scarce resource then it should let the .arket decide, through auctions, what the appropriate value for this resource is% (hile so.e analysts have argued that the a.ount paid for a licence would not affect prices custo.ers are charged for )* service4/, others argue that, wherever possible, )* operators would atte.pt to pass on to custo.ers as .uch as possible of the up,front costs licence costs, resulting in retail prices being higher than they would have been% This would result in de.and for )* services being artificially restricted since so.e consu.ers "especially non,business custo.ers& who would otherwise have bought )* services would be priced out of the .arket% @igh up,front licence charges would .ake it .ore difficult for winning bidders to attract or raise funds necessary for network rollout and for service develop.ent% This has raised uncertainties in capital .arkets as to the risks and likely success of )* operators% !s a result, technology choices and decisions about the range of services to be .ade available on )* networks .ay be driven by short,ter. considerations centred on the Juickest possible recovery of up,front license fees, rather than a long,ter. focus on over,all growth of the industry%

8+

elody, ( @, FSpectru. auctions and efficient resource allocation6 learning fro. the )* e#perience in 9uropeG,
?ebruary -//1, pp% //8,/1/%

In o, vol ), ;o% 1,

4/

3ave

and <alletti, T, F!re spectru. auctions ruining our grandchildrenEs futurePG

In o, vol -, ;o% 7, !ugust -///, pp%)75,)8/6 F .s ar as the irm and

its com#etitors are concerned, the licence ee is an irre"ocable sunk cost. When deciding how to set #rices, the irm rationally only takes account o its own orward looking costs and re"enues and the likely beha"iour o other irms. Since the licence ee is a sunk cost or all irms, it alls out o the #ricing e/uation or all o them. 0ence the si1e o the licence ee does not a ect #rices % F "p% )7+

&%

-5

)* Briefing Paper

The barriers to entry and to effective co.petition resulting fro. high up,front license fees are e#acerbated in a situation where )* operators are reJuired to pay high license fees for the use of spectru., while other broadband providers, such as e#isting fi#ed line or .obile carriers or broadcasting operators, are able to offer si.ilar services without the need to pay high prices for spectru. or for licenses% 9ven where e#isting operators have been reJuired to purchase spectru. to provide )* services, they are still at a co.petitive advantage over new )* providers because they will generally be able to utili:e e#isting fi#ed or .obile infrastructure to rollout their networks% This allows e#isting fi#ed or .obile operators to offer )* services at a lower cost and within a Juicker ti.efra.e than those operators entering the .arket for the first ti.e% 4.1.1.2 Comparative selection (Beauty contests) The beauty contest approach is Juite different% Typically, the govern.ent invites applications that are rated according to so.e pre,set criteria% 0icences are allocated to those who. the govern.ent believes best .eet the stated reJuire.ents% This is widely seen to have several disadvantages in ter.s of process and efficiency% 'n Sweden, the initial criteria were that sufficient capital .ust be availableI technical plans .ust de.onstrate reliability, access, speech Juality and other service guaranteesI business plans .ust be co..ercially feasibleI and applicants .ust have suitable e#perience and e#pertise% Concerns o"er beauty contests ! nu.ber of concerns have been raised regarding the use of beauty contests% @ow could a govern.ent B even using leading technical e#perts B confidently choose between alternative business plans stretching well into the future, and relating to new products and services that have not yet been developed, let alone test .arketedP 3an this .ethod ever be fully transparentP 'f so, will bidders be reJuired to divulge their business plans in full detailP 'f not, how can the decision be open and transparentP These and other doubts can lead to suspicions and dissatisfaction with the outco.e of beauty contests% ?or instance, in Sweden, Telia finding itself without a licence .ounted a legal challenge against the licence allocation "unsuccessfully& 41% 4.1.1.3 Hybrid Table 7%1 provides a su..ary of the nu.ber of licences allocated in various countries, the .ethod and date of allocation and the su. paid for each licence, and also shows that a nu.ber of countries, including !ustria, 'taly, ?rance and @ong 1ong adopted a DhybridE approach to )* licence allocation% Tenderers have to pre, Jualify in ter.s of criteria si.ilar to those established for straight out Dbeauty contestsE to bid% 0icences are then allocated on the basis of an auction% Pre,Jualification of potential operators involves the authorities screening potential license bidders prior to the auction according to Jualitative non,financial and financial criteria deter.ined by the govern.ent% ;u.erous policy goals including social, e.ploy.ent, technology transfer and environ.ental obHectives could potentially be pursued under this approach with candidates being Hudged on their ability to fulfil policy obHectives% >bservations .ade earlier in regard to auctions and beauty contests pertain also to this DhybridE approach% By their nature such pre,Jualification processes can potentially be co.ple#, ti.e,consu.ing and contentious% Because selection at the pre,bidding stage is not solely based on Juantifiable and obHective financial and technical criteria the scope for subHective interpretation of the rules and reJuire.ents of the assess.ent process increases the risk of litigation and delay in introduction of the new service% ;evertheless, such processes can be used to help ensure that potential holders of )* licenses have the e#pertise, capability and will to .eet social and policy obHectives reJuired by *overn.ent%

41

See http6CCwww%totaltele%co.Cview%aspParticle'DX)8)+-NPubXTTNcategoryidX4-8NkwXswedenM)*M

-A

)* Briefing Paper

T(0)$ >"1: A))o (t!on o% 3G 3o0!)$ )! $n $* (round t&$ .or)d

Countr2 !ustria !ustralia Belgiu. 3anada Den.ark ?inland ?rance *er.any *reece 'reland No o% )! $n $* 4 4 7 8 8 7 7 "- still to be issued& 4 7 or .ore 7 Mo0!)$ In u30$nt* 7 7 ) 7 7 ) ) "- still to be issued& 7 ) ) M$t&od @ybrid !uction !uction !uction !uction Beauty contest M no.inal fee Beauty contest M fee !uction !uction Beauty contest M fee @ybrid Beauty 3ontest M fee Beauty 3ontest !uction !uction Beauty contest M fee Beauty contest M fee Beauty contest M fee Beauty contest !uction !uction !pril -/// arch -/// 1-C-/// D(t$ (.(rd$d 11C-/// arch -//1 /+C-//1 2anuary -//1 1/C-//1 /)C1+++ /5C-//1 /5C-/// .id,-//1 /7C-//1 9sti.ated between 114 and 17/ each 1/,/5/ ),/A/ ;o.inal 78-/ !bout 54+/ each Su3 '(!d USF 3!))!on 41/ )81%5 71A%A 1,7A-

'taly 1orea 0u#e.bourg ;etherlands ;ew ]ealand ;orway Portugal Spain Sweden Swit:erland U1

8 ) 7 8 7 7 7 7 7 7 8

7 8 ) ) ) 7

1/C-/// 9nd -/// By 4C-//1 2uly -/// 2anuary -//1

)4+ to 445 each 81%7 -- each )4/ 1-/ each 77%/A 114 41// to +1//

Source6 'TU, 9uropean 3o..ission, The 'ntroduction of )* Brussels -/%)%-//1 3> "-//1&171final%

obile 3o..unications in the 9uropean Union6 State of Play and the (ay ?orward,

-+

)* Briefing Paper

Bo; >"#: A 3od!%!$d (u t!on (''ro( & D )! $n*!n- !n Hon-/on- SAR t&rou-& ( Gro2()t2,0(*$d7 *2*t$3 The >ffice of the Teleco..unications !uthority ">?T!& in @ong 1ong has released the rules for the auctioning of four )* licences in Septe.ber -//1% >?T! has adopted a hybrid approach that reJuires bidders to pass a pre, Jualification round prior to bidding for the licenses% 'n order to reduce the upfront financial burden on operators, the fra.ework adopted involves a Droyalty,basedE pay.ent sche.e% 9ach licensee would pay a percentage of its network turnover, and would also be subHect to a schedule of .ini.u. pay.ents% The initial reserve price would be 8 per cent of network turnover, with an annual .ini.u. pay.ent of Q@18/ .illion "USQ 4%7 .illion& for the first five years% This .ini.u. pay.ent will then rise fro. year si# over the re.aining ter. of the 18,year licenses% The identity of bidders would be kept hidden during the .ain bidding stage in order to .ini.ise opportunities for collusion% ;otably, the auction rules include the condition that licensees .ust set aside at least )/ percent of their network capacity for .obile virtual network operators " <;>s&% This condition caused controversy when first announced because operators said that no .ore than -/ percent of a licenseeVs network should be reserved, to avoid a situation whereby an <;> could obtain .ore overall capacity than a licence holder by aggregating capacity fro. different network owners% !nother license condition is that a )* license winner which is also a -* operator .ust offer do.estic roa.ing services to new entrants%
Source6 Total Teleco., F@1 operators to bid for )* licenses despite co.plaintsG, 1+ 2uly -//1%

4.1.1.4

Licensing Fees

!uctions have resulted in sharply varying prices paid for a )* licence% !s ?igure 7%1 indicates, the price of )* spectru. in ter.s of price per head of population has varied greatly, fro. USQ8+A in the U1 and USQ88+ in *er.any to USQ)/ per head in !ustralia, USQ17 in ;ew ]ealand and :ero in Sweden and 2apan%

F!-ur$ >"1: S!-n!%! (nt)2 +(r2!n- 'r! $* o% 3G )! $n $*5 !n Euro'$ (nd t&$ r$*t o% t&$ .or)d
In 2S3 #er inhabitan
,rices paid for 3G licences in selected %uropean countries) 10 in US4 per in.abitant 1& 36 ,rices paid for 3G licences in selected non-%uropean countries) in US4 per in.abitant 13 1' 4' 52 66

S: e(en Nor: ay S: itBerlan( 2ortu1al 0ustria Net.erlan(s Italy Aer$any U@

Japan Ne: Cealan( 0ustralia

160 1&5 562 5'5

,ana(a Sin1apore @orea -3ep%/

Source6 'TU research%

?igure 7%- shows how the auction price has varied in ti.e% ?ro. a peak in arch -/// "U1& and -/// "*er.any&, the auction price per head of population has fallen sharply during the early .onths of -//1% oreover, ?igure 7%- also shows the falling global price trend for )* licences%

)/

)* Briefing Paper

F!-ur$ >"#: T&$ 3G ro))$r o(*t$r

Trends in the #rice #er inhabitant o '( license #rices obtained through auction, in 2S3
,rice per inhabitant) in US4 $illion &00 U@ 600 500 400 300 200 100 0 Net.erlan(s Italy 0ustria <el1iu$ @orea -3ep%/ ,ana(a NC 0ustralia S: itB% Aer$any

03>00 0&>00 &>00 10>00 11>00 12>00 12>00 01>01 01>01 03>01 03>01

Note6 9#cludes beauty contests and hybrids% @ori:ontal access is not linear% Source6 'TU research%

>"1"# 8&o (r$ t&$ .!nn$r*? 't is freJuently argued that incu.bent .obile operators have a significant advantage and are the winners of an auction approach since they have DdeeperE pockets and .oreover have the advantages of an established -* networks and a subscriberCrevenue base% ;ew entrants in this sector, according to so.e analysts, face severe financial pressures before they even begin providing service% !nd there are fears that this could place incu.bent operators in a position of significant .arket power% >n the other hand, there are clai.s typified by the "reported& e#cla.ation of Bouygues Teleco.Es 39> that incu.bent .obile operators faced a choice between a fast death and a slow death6 4... i they don5t secure a license regardless o their #rice, the stock market decimates the com#any6 i they win, the com#any bleeds itsel o"er the license5s li etime 7usually 89 to :; years< as it struggles to make a #ro it.=>: 'ndeed, such concerns over the ability of teleco..unications operators to .ake reasonable profits appear supported by the significant reduction in the availability of funding for )* operators, which has further accentuated the proble.s they are perceived to be facing% To what e#tent are operators in countries adopting beauty contests the winnersP 't is notable that in countries where licenses were awarded on .erit, services appear set to start sooner% Such countries include ?inland, Sweden, 2apan, and 1orea% 2apan allocated all three )* licenses to its three incu.bent operators B 2apan Teleco., 'D>, and ;TT Do3o o% ;one of these operators had to pay up,front fees, being reJuired to pay only radio,usage fees of appro#i.ately USQ8 per subscriber per year, which is a fraction of the price so.e operators paid at )* auctions in so.e 9uropean countries% This can turn out to be a significant advantage since, as noted above, financiers are now wary of )* proHects% Thus operators in these countries will be able to use the financial resources they did not have to e#pend on the acJuisition of licenses, to roll out infrastructure for )* services% "3osts of deploy.ent were discussed earlier&%

4-

Dirk % Bout, et alE, FThe ;e#t *eneration of 11,8/8), *artner *roup, 1+ Septe.ber -///%

obile ;etworks Poses a Q1// Billion 3hallenge for 9uropeG, ;ote ;u.ber6 =,

)1

)* Briefing Paper

But to what e#tent will the i.pact of high licenses prices in so.e countries be contained to those countriesP To what e#tent will the pressure to recover costs spill over into business and pricing strategies even in countries that allocated spectru. at lower pricesP !re govern.ents receiving high auction receipts the winnersP 'n ter.s of revenue receipts, no doubt they are% But what about the i.pact on the govern.entsE broader responsibilities concerning the introduction and develop.ent of )* serviceP To what e#tent will operators be pressured to Hoin forces in order to a.eliorate the burden of paying for spectru.P !nd to what e#tent will govern.entsCregulators be pressured to allow the. to do soP (hat i.plications would this have for the goal of creating a co.petitive and VhealthyV sectorP 3ertainly the signs of .aHor operator consolidation are already discernible, as successful bidders struggle to li.it co..ercial rivalry% 'n 2uly -///, Dutch operator 1P; e.barked upon a Hoint venture with 2apanVs Do3o o, and @ong 1ong,based @utchison (ha.poa% !nd finally, what about custo.ersP !re custo.ers the losersP To what e#tent will they be .ade to pay higher prices to defray the cost of licencesP But there are those who argue that custo.ers do not have to purchase )* services and indeed will not pay the prices asked unless they perceive value in the services offered% >"1"3 HR$,%(r3!n-I #G *'$ tru3 -* and )* will co,e#ist for a considerable period, as .any .obile service custo.ers will not see an i..ediate need for the full range of )* services% But as the coverage and penetration of )* services increase, -* services .ight be e#pected to be progressively withdrawn if significant user .igration occurs, allowing the -* spectru. to be re,allocated for use by )* services% Thus a further consideration is whether operators will be allowed to Dre,far.E their -* spectru. to support )* services, thereby i.proving the efficiency of that spectru.% 'n view of the i.plications for international roa.ing "one of the key selling points of *S &, govern.ents are waiting for international co,ordination before .oving in this direction% To e#plain a little further, re,far.ing of second generation spectru. and upgrades of *S standards .eans the re,designation of spectru. in a specified band for a different technology fro. that for which it was originally licensed% =e,far.ing of second generation spectru. would .ean changing the use of so.e or all of the spectru. at +// and 1A// @: fro. *S CP3; technology to U TS technology% The situation with U TS technology in second generation operatorsV e#isting spectru. is so.ewhat different% U TS will be part of the world,wide third generation ' T -/// fa.ily of standards, and it is intended that U TS should be co.patible with ' T -/// to allow global roa.ing% ;otably, with this in .ind, the U1 govern.ent concluded that it would not be appropriate to license the use of U TS technology outside internationally agreed U TS bands% 't is therefore decided not to consider the re,far.ing of *S spectru. for U TS unless that spectru. has been re,allocated to U TS by international agree.ent 4)% >"1"> Cond!t!on* (nd O0)!-(t!on* on L! $n*$ Ho)d$r* *overn.ents need to deter.ine the nature and e#tent of any obligations that i.posed on )* license holders% These obligations should be set out clearly prior to potential license holders applying for available licenses% This will ensure that prospective operatorsE business plans are developed and decisions on the value of licenses are .ade on the basis of such infor.ation% *overn.ents .ay be keen to i.pose network roll out, geographic or population coverage and do.estic industry partnership and develop.ent obligations in order to achieve political, social and econo.ic obHectives% 'n addition, govern.ents .ay i.pose obligations on license holders relating to efficient use of the spectru., access to infrastructure and essential or bottleneck facilities, retail pricing constraints and responsibilities and reJuire.ents for contributions towards universal service or other social obligations% 'n developing countries where social develop.ental and coverage concerns are para.ount, govern.ents can ensure that that these priorities are recognised in the for. of clear, transparent and e#plicit reJuire.ents which are known to all potential license bidders prior to the auction% This will help prevent subseJuent resistance fro. operators in fulfilling these obligations and will li.it argu.ents by operators that the rules were not known up front%

4)

0ink6 http6CCwww%spectru.auctions%gov%ukCuacgCdocu.entsCuacg1%ht.

)-

)* Briefing Paper

>"#

Co*t S&(r!n-

3ost sharing has beco.e a topical issue as the high auction prices paid for )* licences together with e#pected infrastructure deploy.ent costs co.bine to e#ert financial pressure on intending )* operators 47% @owever cost sharing is controversial because of its potential to restrict co.petition% 3ost sharing should be distinguished fro. infrastructure sharing% Under cost sharing, operators Hointly construct and own network co.ponents while under infrastructure sharing one operator pays for the right to use another operatorEs infrastructure% There is concern that two operators building a network together are unlikely to co.pete as vigorously against each other as they would against other operators% !nother concern is that by allowing cost sharing, regulators will, in effect, be rewriting the ter.s of the )* licences already granted and that such changes in the rules retrospectively would set a disconcerting precedent% 'n response to such concerns, in 2une -//1, =egTP, *er.anyVs teleco..unication regulator, clarified its earlier announce.ent of support for cost sharing, .aking it clear that )* operators would be allowed to share only certain parts of their network infrastructure, such as towers and antennae 48% 'n fact, so.e of these parts are already shared on todayVs -* networks% =egTP declared that each operator would still have to build its own RbackboneR network linking base stations together% !nd sharing would be per.itted only in such a way that, if one operatorVs network .alfunctions or is shut down, other operators are not affected% ;evertheless, despite such restrictions on cost sharing arrange.ents, since towers and antennae account for a significant portion of overall costs, sharing these physical ite.s can lead to savings of around -/U,7/U of total deploy.ent costs44 and this is a considerable saving% The stance taken by *er.anyVs regulator see.s to occupy the prag.atic .iddle ground between the position in the ;etherlands, where cost sharing is prohibited altogether, and in Sweden, where even closer co, operation between operators is allowed%

>"3

S'$ tru3 Tr(d!n-

!nother issue relating to spectru. .anage.ent is whether spectru. trading should be per.ittedP Under new legislation proposed by the 9uropean 3o..ission 45 secondary trading of radio spectru. would be allowed in order to provide for i.proved usage of this scarce resource% 9cono.ists have long argued that spectru. trading has the potential to increase econo.ic efficiency 4A and accordingly should be per.itted% They point out that if trade occurs, this signals that so.e gains are being .ade by both parties% Thus spectru. trading should be prohibited only when it would lead to .arket failure% >therwise there see.s little reason for opposing it%

>">

Ro(3!n- 0$t.$$n N$t.or/*

)* operators will roll out their networks against a background of a range of co.peting *P=S and *S services% Third,generation handsets will therefore need to roa. between -*, )*, *P=S and *S networks in 9urope, between PD3 and wideband 3D ! "(,3D !& in 2apan and between ti.e division .ultiple access "TD !&Ccode division .ultiple access "3D !& in the !.ericas% There .ay also be a need for roa.ing between different i.ple.entations of the )* standard, such as (ideband 3D ! "(,3D !& and 3D !,-///% (,3D ! is the radio access technology selected by 9TS' "9uropean Teleco..unications Standards 'nstitute& in 2anuary 1++A for wideband radio access to support third generation .ulti.edia services in 9urope% @andset co.panies wishing to break into new regions will therefore still need to acJuire technology co.patible with the second,generation networks to operate in their new target .arkets% Unlike

47 48 44 45

FTelefonica, 1P; in talks to share )* network costsG, Total Telecom, 4 2uly -//1% F*er.an regulator gives nod to network sharingG, total Telecom, 8 2une -//1 FBT and Deutsche Teleko. to Hointly build )* networksG, Total Telecom, 1- 2une -//1% Proposal for a directive of the 9uropean Parlia.ent and of the 3ouncil on a co..on regulatory fra.ework for electronic co..unications and services% 3> "-///&)+), 2uly 1-th, -///% 3ra.ton, P and Schwart:, 2 F3ollusive Bidding6 0essons fro. the ?33 Spectru. !uctionsG, 2ournal of =egulatory 9cono.ics, 15")&6 --+,-8-%

4A

))

)* Briefing Paper

the -* handset .arket where .anufacturers are strong only in regions deploying specific network standards "e%g%, *S , 3D ! or PD3&, the )* syste. even provides the potential for players to operate on a global basis, although not without having to resolve a nu.ber of proble.s "discussed in section 4&% ?or instance, 2apanese and 9uropean .anufacturers will need access to each otherEs -* technologies if they are to succeed in each otherEs .arkets% ;ational roa.ing is a key reJuire.ent for the success of )* syste.s% *uaranteed access of a new entrant )* operator to an e#isting .obile operatorEs -* networks would allow the new entrant to co.pete on a .ore eJual footing with the e#isting .obile operators while providing the necessary co..ercial incentive to roll out its )* network% ost 9U e.ber States are planning to .andate national roa.ing between third, generation and second,generation networks, in order to facilitate the establish.ent of co.petitive networks by )* operators who do not own a second,generation network in the sa.e territory% @owever, so.e countries, for e#a.ple, *er.any and the ;etherlands, have not provided for this as a .atter of law but will leave it to co..ercial negotiation% ost of these national roa.ing obligations will be for a li.ited ti.e, reflecting the anticipated roll,out period for third,generation networks% They are nor.ally applicable only to national roa.ing fro. )* to -* networks "and "ice "ersa&, rather than also between -* networks% @owever, in Den.ark and 'taly, regulatory provision does e#ist to reJuire national roa.ing between second,generation networks in certain circu.stances, while in Sweden, a new entrant with a co.bined second,generation and third,generation licence would also have national roa.ing rights% 'n addition to .andated national roa.ing, additional regulatory reJuire.ents "e%g%, concerning roa.ing pricing and conditions&, are likely to be necessary to ensure effective roa.ing conditions to enable custo.ers to get the benefits of )* service at realistic and affordable prices% $igorous im#lementation o regulatory #olicy 9stablishing licence conditions is necessary but not enough% !lso reJuired are the regulatory rules to i.ple.ent the licence conditions and their i.ple.entation pro.ptly, vigorously and pro,co.petitively% The develop.ent of appropriate pricing principles that can be used by arbitrators in resolving disputes on the wholesale pricing of )* roa.ing services is essential for the successful i.ple.entation of )* roa.ing arrange.ents% =oa.ing is essentially the resale by one operator of network capacity owned by another operator% !s such it should be distinguished fro. interconnection which involves the physical connection of networks and the purchase by one operator of network functionality which it then co.bines with its own network functionality to deliver services% >ne approach that has been used widely for the wholesale pricing of resale services involves establishing a price based on retail prices less avoidable costs% This retail,.inus approach ensures that when a )* operator acJuires the roa.ing service, it does not incur any of the costs of the retail functions associated with the supply of the service% This is achieved by subtracting, fro. the retail price of a .obile call, the Davoidable costE the network owner would avoid in the long run if it ceased supplying .obile services in the retail .arket% 'n i.ple.enting the retail,.inus pricing approach, it would be necessary to deter.ine an appropriate basis for both the retail starting price and the costs that should be deducted fro. it% Deter.ining the appropriate retail price to be used as the basis of the Dretail price .inus avoidable costE .ethodology is a difficult e#ercise since in practice there will be a range of prices in the .arket for the supply of .obile services% These prices will depend on the .onthly fee versus airti.e package selected by the custo.er and will also depend on the value added services being provided as part of the package% >ne .ethod to overco.e this proble. is to establish the retail price with reference to the average revenue fro. providing to all custo.ers those services that would be available to a co.petitor as part of the roa.ing package% This will include revenues fro. connections, rentals and calls% =etail revenues for the services provided under a roa.ing agree.ent would, in practice, be calculated separately for different services and for peak and off,peak periods% *overn.ents also need to consider whether it would appropriate to introduce an integrated package of co.petitive safeguards that are designed to pro.ote sustainable co.petition% These safeguards are pri.arily ai.ed at ensuring that do.inant or incu.bent carriers do not abuse their position to unfairly restrict the operation of new entrants% These anti,co.petitive provisions can act as safeguards to ensure that roa.ing charges are not used by incu.bent operators to increase barriers to entry faced by )* operators in both do.estic and international .arkets% They can also be used .ore generally to prevent incu.bent fi#ed and .obile operators fro. engaging in behaviour ai.ed at da.aging )* co.petitors%
)7

)* Briefing Paper

!nti,co.petitive provisions can include6 i.posing restrictions on incu.bent carriers fro. discri.inating between wholesale custo.ers e#cept where this can be Hustified on cost grounds and reJuiring such a carrier to price strictly in accordance with publicly known "filed& charges a broader co.petition test which assesses whether practices such as service bundling and tying are adversely affecting co.petition% *overn.ents will need to develop analytical tools containing both Jualitative and Juantitative tests to assess whether co.petition has been da.aged% Structural and behavioural tests are appropriate for this purpose%

These rules are designed to li.it the opportunities for a do.inant carrier to selectively target individual custo.ers at special prices not available or known to anyone else% Discri.inatory discounts could be per.itted if they are cost Hustified and are not otherwise affecting co.petition% *eneral discounts could also be per.itted if they are available to a broad group or class of custo.ers%

>"<

Pr!n !')$* %or 3G L! $n*!n-

$e/uirements o an e ecti"e licensing ramework !s noted earlier, clear and stable licensing conditions and policy para.eters that are well known to potential bidders prior to the co..ence.ent of the licensing process are key reJuire.ents of an effective licensing fra.ework% 'ssues that need to be deter.ined prior to the co..ence.ent of the )* licensing process include6 the nu.ber of licenses to be awarded the conditions, if any, to be attached to the licenses the .ethod by which licenses will be allocated to prospective operators of )* services clear ter.s for pay.ent of .onies tendered at auction%

@aving such infor.ation available is necessary in enabling potential bidders of )* licenses to deter.ine the value of a license and to develop viable business plans% Number o licenses to be awarded The nu.ber of licences to be awarded is an ele.ent of co.petition policy and can critically deter.ine the success or failure of the )* regulatory fra.ework and of )* service provision in general% The 'TU has no.inated the bands 1AA8,-/-8 @: and -11/,--// @: for the i.ple.entation of ' T,-///% (ithin these bands, each national govern.ent selects the a.ount of spectru. to be .ade available for )* services, taking into account co.peting de.ands and uses for the spectru.% !cross .ost of 9urope, the full 188 @: of spectru. has been allocated for )* or U TS as it is known in 9urope% The 'TUEs (orld =adio 3onference "(=3& B the international body responsible for radio spectru. allocation B has identified additional spectru. bands for the provision of U TS "151/,1AA8 @:, -8//, -4+/ @: and A/4,+4/ @:&% ?or the .ost part, this spectru. has not yet been .ade available in licences awarded, or auctioned% (hen it is .ade available, it .ay have the effect of reducing the per @] value of e#isting licences% The (orld =adioco..unication 3onference "(=3&, held every two to three years by the 'TU establishes a global fra.ework for the use of the radio spectru.% *lobal coordination ensures that services are not i.paired by interference of co.peting signals and trans.issions% The 1++- (orld =adio 3onference "(=3& identified the - *@: freJuency for ' T,-/// on a global basis% But this was not sufficient, particularly in the US where .ost of the - *@: freJuency is still li.ited to .ilitary use% The last conference, held in 'stanbul in ay,2une -/// " (=3 -///&, allocated additional spectru. for )* services6 the three bands identified for use for ' T,-/// include one below 1 *@:, another at 1%5 *@:, where .ost of the second,generation syste.s currently operate, to facilitate the evolution over ti.e of these syste.s to )*, and a third band in the -%8 *@: range% Decisions about the e#tra spectru. needed were based on three .ain considerations6 the growing nu.ber of .obile users "which is e#pected to reach an esti.ated - billion worldwide by -/1/&, the rapid growth of .obile data services, .obile e,co..erce, wireless internet access and .obile video,based services, and the need to secure co..on spectru. worldwide for global roa.ing%

)8

)* Briefing Paper Bo; >"3: S'$ tru3 ())o (t!on %or 3G *$r+! $ !n Euro'$ The U TS ?oru. "www%u.ts,foru.%org&, a trade body, has reco..ended that the .ini.u. spectru. reJuire.ent per operator be - # 18 @: paired with 8 @: unpaired% Paired spectru. uses two freJuencies to allow infor.ation to be trans.itted and received by a .obile device si.ultaneously% Unpaired spectru. uses one channel that is used alternately to trans.it and receive% The ratio of data trans.itted and received can be varied, so unpaired spectru. is well suited for asy..etric applications such as web browsing% @owever, the unpaired spectru. signal has li.ited range and therefore can only be used in short,range urban environ.ent and indoors% *iven current spectru. availability, the U TS ?oru. reco..endation allows four U TS lots to be licensed% @owever, neither govern.ents nor operators have consistently agreed on this nu.ber of licences, ?or instance, in 9urope, the U1 govern.ent originally proposed to offer four licences, but under pressure fro. new entrants, it divided the spectru. into five "uneJual& lots% (ith five e#isting operators, the Dutch also decided upon five licences% *er.any offered 1- s.aller lots, allowing bidders to bid for two or three lots each, allowing for between four and five licences, 'taly offered five identical lots% The nu.ber of licences is, in fact, decided upon with regard to each govern.entEs perspective on co.petition, and the trade,off between rewarding incu.bents and providing incentives for new entrants% 'n .ost 9uropean countries at least one new entrant is to be licensed% !s a result, co.petition in 9uropean .obile .arkets is set to intensify% So far, the .ost active co.petition that has developed is in countries wherein the new .obile .arkets have at least four operators co.peting and where a degree of co.petition with fi#ed line services has occurred% This contrasts with the relatively slow develop.ent of co.petitive fi#ed,line networks, especially networks that could provide co.petitive alternatives for residential consu.ers%

>ne conclusion that .ight be drawn fro. a review of licensing e#perience "thus far& is that while auctions are in practice, not without deficiencies, this approach is nonetheless preferable to the inherently subHective Dbeauty contestE approach% 'n this view, the task is in essence to i.prove auction design 4+ and apply co.petition policy vigorously% *overn.ents should adopt licensing practices that encourage new invest.ents in teleco..unication infrastructures and facilitate co.petition within the sectorI encourage innovationI and enhance consu.er interests% Spectru. should be allocated on the basis of achieving econo.ically efficient, co.petitive and structurally desirable outco.es rather than to e#tract .onopoly rents fro. industry% To achieve this obHective, the licensing authorities .ust at a .ini.u. clearly specify, prior to the invitation of bids for spectru., the fra.ework within which the )* industry would operate in order to provide as .uch infor.ation as possible to potential bidders% This fra.ework could include6 an e#plicit reaffir.ation by the govern.ent that the pri.ary obHective of teleco..unications policy is to increase co.petition and provide benefits to consu.ers and that this .ay reJuire issuing additional )* licenses in the future and the i.position of pro,co.petitive and pro,consu.er regulation of the )* industryI a clear state.ent that the govern.ent will auction all available spectru. that can potentially be used by )* networks and is not allocated to other usesI a clear state.ent that there is no artificially created li.it on the nu.ber of licenses to be awarded and that the only deter.ining factor is the a.ount of spectru. reJuired by operators versus the total a.ount of spectru. availableI

4+

>n the subHect of auction design, see for e#a.ple, Paul 1le.perer, F(hat really .atters in auction designG, ?ebruary -//1 "see above&%

)4

)* Briefing Paper

a clear state.ent of the obligations on winning bidders in regard to network develop.ent 5/, interconnection with other networks, the provision of network capacity for resale by <;>s, the provision of roa.ing services to co.petitors, and the e#tent of infrastructure sharing between )* co.petitorsI a clear state.ent about the ter.s of pay.ent of .oney tendered at auctionI a well defined state.ent of the processes that regulatory authorities will e.ploy in resolving disputes between new )* operators and e#isting carriers, of the pricing approaches that will be e.ployed in establishing wholesale prices for the use of key network ele.ents reJuired by )* operators, and of any pricing constraints that .ay be i.posed on services such as roa.ing and spectru. resale provided by )* operators to other co.petitorsI and a clear indication of any other public policy obligations that )* operators will be reJuired to .eet, including network rollout and network coverage reJuire.ents and universal service obligations%

< <"1

En&(n !n- t&$ o3'$t!t!+$ )(nd* ('$ T&$ !ntrodu t!on o% Mo0!)$ 6!rtu() N$t.or/ O'$r(tor* (M6NO*)

The <;> issue is a relatively new one with regulators in .any countries still considering whether "and if so to what e#tent& regulatory intervention including the regulation of access price and conditions is necessary% So.e analysts argue that regulation should facilitate the operations of <;>s since <;>s offer consu.ers a wider choice of services and applications at a lower price, and thereby result in a .ore efficient use of the spectru.% >thers argue that the .obile environ.ent is sufficiently co.petitive, the advent of )* operators will further increase co.petition and that regulatory intervention in support of <;>s is unnecessary51% <"1"1 8&(t (r$ M6NO*? There are different definitions about what constitutes an <;> 5-% The 'TU defines an <;> as an operator that offers .obile services but that does not own its own radio freJuency 5)% The <;> can be a .obile service provider or a value,added service provider 57% 't can have its own network code and in .any cases issues its own S' card% The U1 regulator, >ftel, defines <;>s to cover activities undertaken by organisations that offer .obile services but do not issue their own S' card% >vu. refers to such organisations as Denhanced service providersE 58% >vu. defines a <;> as an organisation without its own

5/

This should also cover any return of )* licenses% 'n !ugust -//1, SoneraVs ;orwegian subsidiary Broadband obile !S! "Sonera 8/U, 9nitel !S! 8/U& has decided to liJuidate the co.pany and hand back its )* license to the ;orwegian govern.ent% The .ove is based on 9nitelVs decision to focus on its core business and to divest its shares in )* business% 9nitelEs decision to apply for a )* license in the relatively s.all ;orwegian .arket was based on a strategy ai.ed at gaining a )* license in ?inland, ;orway and Sweden% @owever, the co.pany was not successful in obtaining a license in Sweden% Thus the econo.ies of scale and synergies e#pected with geographically adHoining .obile co..unications .arkets were not realisable% The USQ11%- .illion license fee has been settled and reportedly no penalties would be incurred in returning the license to the State of ;orway% 't is not known whether the govern.ent will re,auction the license% 2oanne Taaffe, =ay obile <irtual ;etwork >perators B arking out their territoryG, CWI on?ine, 8 arch -//1%

51 55)

aistre, F>perators6

<;>s , not all <irginsG, Total Telecom, 1 2une -//1%

There are differing views on how to define a <;>% >ne definition of an <;> "eg% Pyra.id =esearch& is that it is a co.pany that provides .obile voice and data services to end users through a subscription agree.ent, without having access to the spectru.% Through co..ercial agree.ents with licensed .obile network operators, an <;> negotiates to buy e#cess capacity for re,sale to custo.ers% R<irtual =eality6 fro. resellers to <;>s% !re virtual operators here to stayP Business Services, -5 ?eb /1 by6 <eronika Bocarova, edgeco.% !vailable at http6CCwww%.obilestart%co.Carticles%aspPinternalXA+7 >vu. defines Denhanced service providersE to be organisations that resell the service of a .obile operator and provide additional services, but do not issue their own S' cards "although they .ay re,badge the operatorEs S' cards&% 9nhanced service providers .ust have a partnership with a physical network operator% They can issue that operatorEs S' cards although they .arket services independently of it%

57

58

)5

)* Briefing Paper

radio freJuency "spectru.& allocation that6 offers .obile services to custo.ersI has its own .obile network codeI issues its own S' cardI and that operates its own .obile switching centre "including @0=&% ?igure 8%1 indicates diagra..atically the interface between a <"1"# Ar$ M6NO* d$*!r(0)$An$ $**(r2? )* <;>s can potentially offer6 an e#panded range of service providers fro. which )* custo.ers can choose better utilisation of network capacity "including capacity on )* networks that would otherwise have re.ained idle& thus enabling network operators to spread network costs and reduce the average costs of service provision new and innovative services since, in order to co.pete with )* operators, innovative product and custo.er service offerings <;>s need to develop <;> and the teleco..unications network%

enhanced incentives for price co.petition since, in order to sufficiently differentiate their product offerings fro. those of network operators, <;>s will need to offer custo.ers attractive pricing packages greater incentives for co.petition .ore generally between network operators to supply network capacity to the <;>s%

F!-ur$ <"1: An M6NO u*to3$r 3(/!n- (nd r$ $!+!n- ())*

MNO
BS
BSC

IN

6LR

MSC

HLR

MVNO supplies SIM

2S)N

MSC

HLR

MVNO
BS - base station BSC - base station controller MSC - mobile switching centre HLR - home location register VLR - visitor location register

Out-going calls In-coming calls

Source6 >vu., )*

Signalling / database Voice and signalling interface

anage.ent Su..ary, -///, p% -

)A

)* Briefing Paper

Bo; <"1: 6!r-!n Mo0!)$ ,,(n $;(3')$ o% (n M6NO ! typical e#a.ple is <irgin obile which e.erged as a 8/68/ Hoint venture between the <irgin *roup and >ne->ne% <irgin buys airti.e and network capacity fro. >ne->ne on a wholesale basis, then packages and sells it to its target custo.er base% Unlike a pure reseller, <irgin assu.es roles and responsibilities traditionally associated with a full network operator including S' card allocation% <irgin obile offers both traditional .obile voice and value added services together with Ve#trasV which, via an S S toolkit, can provide access to products and services offered by <irgin *roup co.panies6 .usic, travel, etc% ! key factor in <irginVs success has been the integrated distribution and sales platfor. it has built6 the call centre, the web and nu.erous <irgin distribution outlets% <irgin obile has about 458,/// custo.ers in the U1 filling about A percent of >ne->neVs network and it is seeking to e#pand its operations internationally% Since the U1 launch, a nu.ber of operators fro. around the world have approached <irgin with a view to establish Hoint ventures to operate in various .arkets% <irgin obile has already established a presence in the US, !ustralia and Singapore and by the end of -//-, intends to be in all .aHor 9uropean countries%

<"1"3 Curr$nt r$-u)(tor2 'o*!t!on* r$-(rd!n- M6NO* The attitude of regulators towards <;>s varies significantly at present as shown in Table 8%1% 9ven within the 9uropean Union, 9U directives on teleco..unications regulation currently do not .andate <;>s access to a licensed )* operatorEs network% 'ndeed, the 'talian regulator has declared the. illegal, while in the U1 >ftelEs current position is there is not enough evidence to Hustify intervention% There have been argu.ents both for and against <;> regulation% Those in favour of regulation posit that the .obile network operators control the available radio spectru., which is a bottleneck facility and an entry barrier for new .obile network operators% !lso, .obile network operators are less likely to provide <;> access unless it is a regulatory reJuire.ent% <;>s can provide a wider choice of services and prices to consu.ers, and could also potentially ensure .ore efficient use of spectru.% =egulation of the .obile .arket is failing, which is another reason why <;> regulation .aybe a good idea% obile operators have very high profit .argins of -8U, in so.e cases significantly over costs% 3urrent regulation "as interpreted by so.e ;=!s& already gives ;=!s the power to enforce an access obligation on e#isting operators% The argu.ents against regulatory intervention are based on the fact that the benefits of <;>s are as yet unproven, and that there is inadeJuate evidence that .arket failure has occurred% The .obile .arket is co.petitive by nature and therefore does not reJuire regulation% There is no industry consensus that <;> access is necessary, and the bleak possibility that <;>Es could even discourage invest.ent in .obile networks "both -* and )*&% !nti,regulatory intervention stances also posit that regulatory .easures such as indirect access or third generation networks will i.prove the co.petitive situation% This line of argu.entation supports the belief that rather than be incrased, sector specific regulation should be reduced in faovr of .ore e.phasis on co.petition law% Com#arison with local loo# unbundling Those against .andating <;> access to )* networks argue that it is not the sa.e as Dlocal loop unbundlingE in the fi#ed network% Several operators and regulators have begun to think about aligning <;> access in the .obile network to local loop unbundling in the fi#ed network% They point out that local loop unbundling was introduced to provide co.petition to the local and access .arkets so that the incu.bent would not in the long ter. be the only operator "aside fro. cable operators& to control future broadband .arkets% They argue that <;> access is a far .ore co.ple# issue%

)+

)* Briefing Paper

7/

)* Briefing Paper

T(0)$ <"1: R$-u)(tor2 Att!tud$* to 3G Mo0!)$ 6!rtu() Mo0!)$ S$r+! $*

'n selected 'TU e.ber sites
Do r$-u)(tor2 3$(*ur$* $;!*t %or *u0)$(*!n- o% *'$ tru3? Au*tr()!( Au*tr!( Bot*.(n( Bur!nd! C(n(d( Cro(t!( Cu0( C1$ & R$'u0)! D$n3(r/ E*'(n( E*ton!( Fr(n $ Gr$$ $ Ind!( Ir$)(nd It()2 C('(n Cord(n R$' 9or$( 9u.(!t 92r-21*t(n M()d!+$* Mon( o M(ro N$'() Po)(nd Portu-() J(t(r Ro3(n!( S!n-('or$ S)o+(/ R$'u0)! S.!t1$r)(nd Tur/$2 Tu+()u Zes ;o ;o ;o ;o ;o ;o Zes ;o ;o ;o ;o ;o ;o ;o Zes ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o Zes ;o Zes ;o ;o Zes ;o ;o Zes ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o Zes ;o Zes ;o ;o ;o Zes ;o Zes ;o Zes ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o ;o Zes ;o !llowed on a co..ercial basis Ar$ +!rtu() 3o0!)$ *$r+! $* (r$*()$ o% *$r+! $*) '$r3!tt$d? Zes Zes Zes ;o Zes ;o ;o Zes Zes Zes Zes Zes ;o ;o ;o ;o ;o Zes ;o ;o ;o Zes ;o ;o !s regular .obile service ;o S'$ !%! r$-u)(t!on o% +!rtu() 3o0!)$ *$r+! $* E;!*t$n $ o% (n !n%or3() r$-u)(tor2 n$t.or/? 8$0*!t$* .!t& !n%or3(t!on on 3G

Zes ;o ;o

=adioco..unications !ct 1++;o ;o

http6CCauction-%aca%gov%au http6CCwww%tkc%at

http6CCwww%tst%dk

http6CCwww%teleco.%gouv% fr http6CCwww%eett%grCu.ts http6CCwww%odtr%ie http6CCwww%agco.%it

http6CCwww%.pt%go%HpCengC

http6CCwww%.ic%go%kr

http6CCwww%icp%ptCinde#uk %ht.l

http6CCwww%ida%gov%sg

http6CCwww%ofco.%ch

:(30!( ;o Zes Zes Source6 'TU (orld Teleco..unication =egulatory Database%

71

)* Briefing Paper

7-

)* Briefing Paper

The e#tent of price co.petition resulting fro. the entry of <;>s will depend on the ter.s and conditions with which <;>s gain access to .obile networks% 't is likely that regulatory intervention will be reJuired in deter.ining the prices, ter.s and conditions for the access by <;>s to licensed operators networks since the early indications are that co..ercial negotiation will not be easy to conclude% ?or instance, in Scandinavia, Sense atte.pted to negotiate access to airti.e fro. the e#isting operators that were reluctant to grant it, particularly as Sense wanted to use its own .obile network code and S' card 54% @ricing #rinci#les There are a nu.ber of strategies that could be e.ployed by an <;> entering the )* .arket% !t one end are <;>s that have installed substantial invest.ents in infrastructure and facilities for the provision of )* services% Such <;>s would reJuire e#tensive interconnection with fi#ed and .obile networks and would depend on the .obile networks only for the .ini.u. services that they would not be able to supply the.selves because they do not have licences to use spectru.% Such <;>s would be likely to reJuire the use of the radio ele.ents of the )* operatorsE networks and such fi#ed parts of networks necessary to route calls between the radio ele.ents of the licensed operator and a point of interconnection fro. which calls can be passed on to the <;>Es network% !t the other end are <;>s that are pri.arily resellers of wholesale )* network capacity% These <;>s would have .ini.al invest.ent in network infrastructure and would concentrate their activities and invest.ents in .arketing, custo.er service and billing% 0icensed operators would be responsible for undertaking the verification operations and database functions reJuired for the carriage of a call by an <;> custo.er% This would include the transport and delivery of calls to a ter.inating network% 0icensed operators would then need to pass on billing and service perfor.ance infor.ation to the <;> that would then package this infor.ation and bill the custo.er accordingly% <;>s ability to offer effective and sustainable co.petition against )* network providers will be severely li.ited if network providers, who effectively control near .onopoly DbottleneckE facilities, are in a position to charge .onopoly prices for their services% Because network providers are vertically integrated into the co.petitive upstrea. or downstrea. .arkets for the provision of )* services they .ay also have incentives to restrict access to the facilities reJuired by co.petitors through the i.position of prices which .ake it unecono.ic for <;>s to enter the .arket and effectively co.pete for )* custo.ers 55% The pricing principles that apply to the provision of services to <;>s should reflect the nature of an <;> and the e#tent to which it is engaging in interconnection or pure resale of network capacity% <;>s with e#tensive networks of their own that .ake only .ini.u. use of the licensed operators facilities are identical to other network service providers and should be entitled to interconnection on the sa.e basis as that adopted for licensed operators% 't has been argued that such cost based charging for access to a )* operatorEs network by <;>s would beco.e less necessary as the .arket beco.es .ore co.petitive% 't has also been clai.ed that cost based access charges for <;>s could da.age incentives to invest in infrastructure, particularly in the early stages of invest.ent in )* syste.s% These argu.ents should be assessed within the conte#t of the overall obHective of pro.oting and strengthening the co.petitive fra.ework for .obile services which is the pri.e rationale for allowing <;>s to operate in the .arket in the first place% )* .obile services resale, full network interconnection and full facilities,based co.petition are co.ple.entary rather than alternative .arket entry strategies% arket factors such as population density, custo.er type, ti.ing of entry and penetration levels by new entrants will deter.ine which strategy is used in different areas and at different stages of .arket develop.ent% =elying solely on full facilities,based co.petition to deliver co.peting )* services .ay not provide )* service co.petition to all end users given the costs involved in duplicating a full network throughout all areas of a country% !s such, service based co.petition through the resale of network capacity will be an i.portant ele.ent of the overall state of co.petition in the )* .arket%

54 55

>vu., )* =eport ,,

anage.ent Su..ary, -///%

F(ho will win the race for .obile revenuesPG, Communications Week, 7 2une -//1%

7)

)* Briefing Paper

=elying solely on full facilities,based co.petition to deliver co.peting )* services .ay not provide )* service co.petition to all end users in view of the costs involved in duplicating a full network throughout all areas of a country% arket factors such as population density, custo.er type, ti.ing of entry and penetration levels will deter.ine which strategy is used in different areas and at different stages of .arket develop.ent% !s such, service based co.petition through the resale of network capacity could be an i.portant ele.ent of the overall state of co.petition in the )* .arket% 3urrently the 9U obliges co.panies with a .arket share of over 8/U to open their networks to other users at a cost,plus,.argin,based price and for the .o.ent, only 1P; obile is in this position% >ther licensed operators with .arket shares of .ore than )8U do not have to charge on a cost,plus,.argin basis, so leasing fro. the. could be .ore e#pensive% ! retail .inus avoidable cost 5A approach .ay be .ore appropriate in situations wherein the <;> does not e.ploy a significant network of its own in the delivery of services, relying instead on pure resale of the network operatorEs )* services% 9ven though this for. of resale is not based on facility co.petition, it can be an i.portant co.ponent of the co.petitive environ.ent in the )* .arket% Such resale would facilitate .arket entry and enable <;>s to obtain infor.ation about de.and characteristics and the likely response of co.petitors in the )* .arket% This would reduce the risks associated with infrastructure deploy.ent and thereby assist an <;> in .aking efficient build or buy decisions and about if and when to deploy its own infrastructure% 'n this way, si.ple resale of )* capacity can encourage entry of efficient service providers of retail )* services% Non%#rice re/uirements 'n addition to pricing issues, network operators can discri.inate against <;>s in respect to the Juality, functionality and availability of the services offered the.% easures that can help ensure that licensed operators do not discri.inate against <;>s include6 licensed operators being reJuired to publish specifications and standards for all carrier services used by <;>s in respect to6 service functionality, Juality and perfor.anceI and the ter.s and conditions of service provision, operation and .aintenance i.ple.entation of .easures to ensure that licensed operators do not discri.inate between their own retail operations and <;>s in the ti.ing of service delivery and the provision of infor.ation not generally available to all <;>s .easures to ensure that proprietary <;> co..ercial infor.ation such as .arketing and business plans, forecast capacity reJuire.ents and intentions as to the provision of value added services which .ay need to be passed over to network operators for network di.ensioning and network conditioning purposes is not used by operators for co.petitive advantage develop.ent of safeguards to ensure that custo.er infor.ation which is captured in the network of the licensed operator as part of service provision to <;>s is not used by the operator for co.petitive advantage develop.ent of procedures for the identification and assess.ent of any actual or clai.ed spectru. capacity constraints which would prevent <;>s fro. acJuiring the capacity they reJuire to effectively co.pete in the )* services .arket ensuring that the regulatory authority has sufficient powers to enforce these anti,discri.inatory provisions and is capable of arbitrating disputes between <;>s and network operators%

5A

The retail,.inus avoidable cost approach can be designed to pro.ote efficiency, by re.oving fro. the wholesale price, retail costs that can be e#pected to be avoidable over the long run if the network owner was not providing a retail service% 3onceptually, such avoided costs consist of three basic co.ponents6 the long run incre.ental costs that an efficient provider of the retail function would incur including, a.ong other things, ele.ents of the retail price for the network subscription, the cost of the radio facilities linking the handset to the base station and any fi#ed network co.ponents which provide services allowing any,to,any connectivity between .obile custo.ers and fi#ed network custo.ers, such as the local loop any additional costs the network owner incurs in the provision of retail services that are attributable to production inefficiencies any e#cess econo.ic profit "i%e% .onopoly .ark up& earned by the network owner at the retail stage in the provision of the retail service%

77

)* Briefing Paper

<"#

In%r(*tru tur$ S&(r!n-

!n i.portant consideration is the e#tent to which infrastructure sharing will be an obligation i.posed on )* license holders% The sharing of e#isting or new network infrastructure6 can pro.ote econo.ic efficiency and, by ensuring that new entrants are able to co.pete effectively against e#isting infrastructure owners offering )* or co.peting broadband or .obile servicesI can prevent wasteful duplication of resources% 'n addition, network sharing can reduce infrastructure cost and conseJuently the up front invest.ent burden on new entrants thereby enabling new entrants to co.pete .ore effectivelyI and can offer services Juicker than would otherwise be the case% The 9uropean 3o..ission intends to launch without delay, within the scope of legislation in force, a dialogue with the e.ber States and the operators and eJuip.ent .anufacturers, in order to e#plore concrete .eans to facilitate deploy.ent of )* networks and services% The issues to be addressed include, inter alia6 legal treat.ent of delays in )* deploy.ent with respect to deploy.ent obligationsI licence duration and the i.pact of si.ultaneous roll,out reJuire.ents in several e.ber States% !lso to be addressed are conditions to be .et in order to per.it network infrastructure sharing 5+, which the 3o..ission considers in principle positively due to its potential econo.ic gains, on the condition that the co.petition rules and the provisions of other relevant 3o..unity law are respected% 't is so.eti.es argued that infrastructure sharing runs contrary to the obHective of infrastructure co.petition between network providersA/% This depends on the type of infrastructure being shared and the ter.s and conditions, including the ti.e period for which infrastructure sharing to be .ade available% ost network operators currently share site facilities in order to co,locate network eJuip.ent% This is increasingly co..on for fi#ed networks where ducts and e#changes are being used to house co.petitorEs eJuip.ent or cabling% ?or .obile operators, site and tower sharing has been co..onplace for several years and has generally been considered to have pro.oted new entrant ability to co.pete against incu.bent operators who already have the facilities available, usually having occupied the best available sites% Such site and facility sharing has also prevented wasteful facility duplication and fro. an environ.ental perspective has had a positive i.pact% !nother i.portant issue that .ay need to be e#plicitly set out as part of the license conditions on )* operators is the billing and settle.ent arrange.ents to apply between )* operators% =egulatory bodies could .ake standardised billing a reJuire.ent in its licensing conditions for bidders of )* licenses since this .ay also help provide data necessary for .onitoring the develop.ent and growth of the .arket% Teleco..unications operators are preparing for the e#change of increasingly co.ple# and diverse billing data, to deal with )* co..unications and other vast arrays of future wirelessCfi#ed services% To .anage these changes and develop.ents, operators are ensuring they are fully prepared for the new worldwide industry standard for the e#change of billing infor.ation known as T!P) A1%

5+

9uropean 3o..ission,
-/%)%-//1%

The Introduction o Third (eneration Aobile Communications in the Euro#ean 2nion: State o @lay and the Way Borward , 3> "-//1&171 final, Brussels,

A/ A1

F9UEs

onti repeats concerns over )* network sharingG, Aobile C Satellite, +

ay -//1%

T!P) has special characteristics to .ake it si.pler and easier for global roa.ing operators to e#change billing infor.ation between the.% So.e special features of the new billing e#change include the following6 'nternet services of ?i#ed 0ine type Juality "*P=S and @S3SD& Pre,paid roa.ing and short codes translation "3! 90& Separation of business and private billing profile " SP& Support of Private ;u.bering Plans "SP;P& S' !pplication Toolkit

9nhanced ?ull =ate 3odec "9?=& ?raud 'nfor.ation *athering Syste. "?'*S& @o.e ;etwork repricing 3all 0evel Discounts !dditional charging para.eters

78

)* Briefing Paper

<"3

T&$ $+o)+!n- 3G +()u$ &(!n

The U TS foru. has identified ) generic business .odels for the provision of )* services A-% Under the Daccess focusedE .odel, the )* services operator provides .obile and 'P network access and other services, .aintaining a direct relationship with the end user, but does not provide third,party billing or content aggregation services% 'n this situation the !ccess ?ocused operator does not receive a share of the additional revenue opportunities such as advertising, pre.iu. subscription or transaction fees% The !ccess ?ocused services provider can be an e#isting .obile network operator or a new entrant "e%g%, obile <irtual ;etwork >perator& fro. either the .obile or fi#ed 'nternet industry% The )* services provider utilising the Dportal focusedE .odel provides access to the .obile network and the 'P network, as well as direct end,user billing% The portal focused services provider includes access to selected partnersE content through content aggregation and third,party billing% Therefore, they are able to share in new revenue strea.s eg%, fro. .,co..erce transactions, advertising fees and content based subscription fees% 'n the D.obile specialised servicesE .odel, the )* service provider can offer user,to,user services that are not necessarily 'nternet,centric and can include 3usto.ised 'nfotain.ent, obile 'nternet !ccess or obile 'ntranetC9#tranet !ccess% obile Specialised Services can be offered by either !ccess ?ocused or Portal ?ocused )* services providers% The three business .odels can be characterised by their positioning along the )* services value chain shown in ?igure 8%-% ! Portal ?ocused )* service provider aggregates and custo.ises portal content, providing third,party billing as well as .obile and 'P network access with end,user billing% !n !ccess ?ocused )* services provider only provides the .obile and 'P network access with end,user billing% obile Specialised Services can be offered by any type of service provider at any point in the value chain% !nalysts e#pect the .arket opportunities throughout the value chain to be considerable% !s noted earlier, there are e#pected to be .ore than a billion .obile users by the year -//), and .ore than - billion in the ne#t ten yearsI so.e industry reports predict such di.ensions of subscribership to translate to about USQ4// billion or 5/U of forecasted total cellular service revenues% !nalysts also e#pect that declining eJuip.ent costs and falling airti.e price will enhance the take up of )* service to .ake it the pri.e driver in custo.er usage% There are predictions of significant revenue opportunities in various parts of the value chain for .obile services, fro. network operators and services providers to infrastructure and device .anufacturers, applications developers and content providers% The .ulti.edia service provider is e#pected to be one of the key players in the .ulti.edia value chain% !nalysts e#pect that revenue will be increasingly diverted fro. the traditional operators to other .arket players in the value chain, and .any network operators are already adopting new business strategies to broaden their role and to defend their co.petitive position%

<">

N$t.or/ Int$r onn$ t!on

3o.petition is not assured without proper fra.eworks for interconnection% 'nterconnection is perhaps the .ost contentious regulatory issue in teleco..unications% !nd indeed, the ter.s and conditions associated with interconnection of )* services to e#isting networks can be e#pected to be a very i.portant deter.inant of the success or otherwise of )*% 9#perience indicates that issues surrounding the pricing and develop.ent of ter.s and conditions for interconnection are co.plicated, ti.e consu.ing and difficult to resolve A)% Disputes between operators involving interconnection pricing are co..on and can frustrate the introduction of new services% 'n .any cases interconnection disputes are used by incu.bent operators as a strategy to frustrate the introduction of new services, to allow ti.e for co.petitive positioning of their own services, and to da.age new co.petitors through "a Dprice,sJuee:ingE& i.position of high interconnection rates%

A-

U TS ?oru. =eport ;o%1) FThe U TS Third *eneration -//1%

arket , Phase ii6 Structuring the Service =evenue >pportunitiesG

A)

See for instance, 'TU Briefing Paper, ?i#ed, obile 'nterconnection (orkshop, 'TU ;ew 'nitiatives Progra..e, -/,-Septe.ber -///, *eneva, Docu.ent6 (? 'C/7%

74

)* Briefing Paper

F!-ur$ <"#: T&$ 3G +()u$ &(!n=>

Port() Fo u*$d A''ro( &

;on,Portal !pplication Platfor.s

Portal 3ontent !ggregators

Third Party Billing

Portal !ccess

9nd,User Billing

'P ;etwork !ccess

obile ;etwork !ccess

Users

A $** Fo u*$d A''ro( &

Mo0!)$ S'$ !()!1$d S$r+! $*

Source6 Teleco.petition 'nc%, ?ebruary -//1

'rrespective of the packet,switched trans.ission functionality built into )* networks, )* operators will reJuire access to content providers connected to fi#ed line PST; switch,based networks% )* operators will also reJuire access to custo.ers on fi#ed line PST; and .obile networks to ter.inate voice and data calls .ade by their custo.ers% The PST; and .obile networks with which )* operators will need to interconnect do not in the .ain utilise packet switching or 'P based protocols for the carriage of traffic through their networks% !s a result, )* operators will face identical proble.s to those currently being faced by operators throughout the world in regard to 'nternet and data traffic% There are essentially two possible generic .odels that can govern the interconnection relationships between )* operators and other network infrastructure providers% These .odels are essentially the sa.e .odels that define the interconnection relationships between fi#ed network operators and current -* .obile operators% These are6 a Dter.ination accessE .odel whereby the )* operator ter.inates a )* call on a fi#ed or .obile network and FbuysG a ter.inating service for this purposeI and a Dbill and keepE arrange.ent whereby each network .eets the costs of a call transported through its own network% >ne of the outco.es of the ter.inating access .odel as it has applied in 9urope has been the e#traordinarily high .obile ter.ination rates i.posed by carriers which are subseJuently reflected in retail prices paid by custo.ers% !s discussed earlier, the bottleneck nature of the .obile ter.inating service has .eant that .obile operators can i.pose unconstrained charges on co.petitors reJuiring ter.inating services% 't appears that high ter.ination rates and the danger that operators will face losses if custo.ers .ake long held 'nternet or data calls while paying flat rate unti.ed usage charges has been at least part of the reason why the i,.ode network in 2apan has been configured as a FclosedG network% !lthough current content providers on the i,.ode platfor. provide content directly to users, they are not necessarily acting as 'nternet Service Providers% They offer a pure content service and in this regard, they have been referred to as content aggregators% ?or i,.ode and 9](eb, traffic is routed to the operatorEs 'SP gateway and users are not per.itted to choose their own 'SP% ?urther.ore, content providers, be they 'SPs or not, do not have access to the operatorEs network% 'n order for the. to provide content, they .ust seek approval by Do3o o% The i,.ode configuration is shown diagra..atically in ?igure 8%)%

A7

U TS ?oru. =eport ;o 1), pg 17

75

)* Briefing Paper

F!-ur$ <"3: T&$ !,3od$ n$t.or/ (nd ( $** to ISP*

& icial content

DoCoMo7* Packet ;etwork

Base Station

G W A Y

i-mode content ser4er

i,.ode subscriber Int$rn $t

'P 'P 'P

2nauthori1ed or uno icial content

'P

Source6 'TU, F)*6 2apan 3ase StudyG, 2uly -//1%

This .eans that, in effect, Do3o oEs packet,based network is FclosedG to other 'SPs% ?or .obile users to browse i,.ode sites, they .ust use Do3o oEs 'SP service% @owever, in arch -//1, Do3o o announced that it is considering opening up access to its packet,based network by opening up the specifications for its i,.ode server and access gateway% The interconnection arrange.ents between these operators and 'SPs will be a key issue prior to the opening up of the i,.ode networks to additional 'SPs% 'n this conte#t, it is pertinent to note that a 2apanese govern.ent Study *roup which was set up in 2uly -/// and which released its final report in 2une -//1 "on RBusiness odels for ;e#t *eneration obilephonesR& endorsed Do3o oVs plans to open its network to other 'SPs by -//)% The report also .entions 1DD'Vs plans to open its .obile R9],webR network on a case,by,case basis but does not confir. a date% 2,phone has yet to declare an open network strategy but is considering the possibility% The report e.phasi:es the i.portance of open network access to the e#pansion and success of future .obile services% 't argues that an open network policy will allow new players to enter the .obile browsing .arket and provide a basis for the develop.ent of .obile virtual network operators and alternative infor.ation providers% The constraints and tensions of the ter.inating access .odel for the interconnection and delivery of broadband services is currently being highlighted in interconnection disputes "e%g% in the U1, US and !ustralia& concerning the provision of 'nternet services to fi#ed line custo.ers% The issues arising in these disputes will be identical to those that will be faced by )*, *P=S and i,.ode operators reJuiring access to content services fro. 'SPs directly connected to fi#ed line networks% The li.itations of the ter.inating access .odel, noted above, .akes its use in a broadband environ.ent ;proble.atic% 9ven where it has been deter.ined that the .odel will be used to define the interconnection relationships between )* and other operators, difficult and co.plicated decisions as to the pricing of interconnection services will still be reJuired where the operators cannot reach a negotiated co..ercial resolution% These pricing decisions are likely to be particularly co.ple# in a )* broadband environ.ent within which new allocation rules will need to be developed to allocate the co..on costs of the traditional PST; network to .ulti.edia, interactive and data services%

7A

)* Briefing Paper

These issues could be overco.e through the introduction of the Fbill and keepG approach to interconnection% Under the bill and keep .odel each carrier is responsible for carrying the call through its network and for charging its custo.er "either the ! party or B party& appropriate retail charges which reflect network usage costs and other co..ercial considerations% 'n this situation, no interconnection pay.ents are .ade by either carrier% 'n this conte#t it is worth noting that interconnection in S S is already generally based on a sender, keeps,all Dbill and keepE approach, partly because an S S .essage is registered only at the point at which it enters the network "and perhaps partly because S S traffic is relatively new and has not been significant until recently&% 'n order for the bill and keep .odel to operate successfully, the )* operator .ust be able to interconnect as close as possible to the 'SP at the local e#change% This can only be achieved if appropriate unbundling arrange.ents are in place to ensure that the )* operator is not charged for network ele.ents it does not use to acJuire interconnection% !t a .ini.u., a nu.ber of network ele.ents .ust be .ade available to the interconnecting carrier in order for the bill and keep .odel to operate effectively6 an unconditioned local loop service, which involves the use of unconditioned "copper& co..unications wire between the network boundary "on the end,userVs side& and a point at which the wire ter.inatesI local PST; originating and ter.inating services, which involve the carriage of co..unications between custo.er pre.ises eJuip.ent and a point on the trunk side of the local switch% The introduction of Fbill and keepG for interconnection is especially relevant where the call charges that a carrier applies is un.easured or DflatE% 'n this situation, it is not viable for a new entrant to provide services through interconnection with the incu.bent for both call ter.ination and call origination if interconnection charges are levied on a ti.ed basis% 'n the early years of )* operation, it is likely that )* operators will utilise such flat rate or un.etered pricing structures to attract custo.ers% !s a conseJuence, the bill and keep approach to interconnection .ay be particularly suited to interconnection with fi#ed networks%

G)o0()!1!n- 3G (nd t&$ ro)$ o% !nt$rn(t!on() (-$n !$*

!n i.portant part of the vision of )* service is sea.less international roa.ing capability A8% But such global roa.ing will reJuire resolution of a nu.ber of technical as well as co..ercial and regulatory issues% 't will also necessitate har.onisation of policies based on international cooperation%

K"1

Int$rn(t!on() Ro(3!n-

Significant technical co.ple#ities need to be resolved to enable )* global roa.ing% There are currently five freJuency bands approved for )* and three different technologies% (ith different syste.s in different countries, for )* services to have full interoperability, a nu.ber of interface issues affecting global roa.ing need to be resolved, including network,to,network interface, radio and user identity A4% !nother difficulty facing global roa.ing is that DfreJuency bridgingE of the sa.e band ranges a.ong different countries A5% !dding to the difficulties, .obile handsets need to be either .ulti,.ode if the interface issues are not resolved, or .ulti,band if there is no freJuency bridging% oreover, to enable effective inter,carrier roa.ing, a .ini.u. set of services .ust be deter.ined with other services progressively i.ple.ented by all )* networks, including6 obile Ter.inated S SI 3all ?orwardingI 'nternational 3all ?orwardI obile >riginated 3ircuit Switched DataI obile >riginated S SI obile Ter.inated 3ircuit Switched DataI and ,co..erce applications%

A8

! generic definition of the )* inter,carrier roa.ing service is a custo.erEs ability to auto.atically access basic and enhanced .ulti.edia services fro. another network when out of coverage of their ho.e network using their sa.e handset on the sa.e access nu.ber% The network,to,network interface for inter,working a.ong the different standards is necessary to enable network .anage.ent, custo.er care and billing and service creation functions% The radio interface reJuires so.e for. of global har.onisation to allow global roa.ing, but there are Juestions about the e#tent of full interoperability since there appear to be a nu.ber of co.peting optional .odes% The third interface involves a User 'dentity odule "U' & "si.ilar to the current Subscriber 'dentity odule "S' & card&, which can be re.ovable or fi#ed in a handset% The interoperability of U' would allow over the air progra..ing of services and applications a.ong the different standards% The resolution of these interface issues will enable the possibility of global roa.ing a.ong the three optional .odes% !B; ! =>, Teleco.s Sector =esearch, 2une, p 77

A4

A5

7+

)* Briefing Paper

The Scandinavian countries were the first to develop a co..on standard, the ;ordic obil Telephone "; T& syste.% This allowed the introduction of international .obile roa.ing in the late 1+A/s between Den.ark, ?inland, ;orway and Sweden% 'n the 1++/s there was widespread adoption of the *S standard% This allowed international roa.ing to spread out fro. 9urope to cover .uch of !frica, !sia and >ceania% 'nitially, this used only the +// @: band% @owever, as 1A// @: services ca.e into operation and as dual,band telephones beca.e .ore co..on, roa.ing using both freJuency bands beca.e possible% ! custo.er of a +// @: operator in one country could roa. into the network of an 1A// @: operator in another country and vice versa% *S roa.ing e#cluded the !.ericas and so.e parts of !sia, notably 2apan and South 1orea% 'n those countries different standards were used that are inco.patible with *S % So.e users solved this by hiring phones on arrival in the foreign country% ?or so.e networks in ;orth !.erica, it was possible to take a standard *S S' card and put it in a local phone allowing roa.ing on the other protocol% ! .ore satisfactory solution was found by developing new handsets% *S handsets are available which support the P3S,1+// standard used in the !.ericas% These are either dual,band "+// and 1+//& or, increasingly, tri,band "+//, 1A// and 1+//& and work in all the *S countries, plus the US!, 3anada and so.e countries in South !.erica% !dditionally, so.e handsets have been developed which support both *S and the P@S standard used in 2apan% Thus ';TU* has concluded that there are now few technical obstacles to international roa.ing AA% @owever, for several years ';TU* has been e#pressing concern at the very high costs on international .obile roa.ing% (hile teleco..unications charges have generally declined, roa.ing bills have increased% !lthough other teleco..unications costs are predictable and under control, roa.ing bills are not and this has been inhibiting use of .obile telephones during international travel% To facilitate international .obile roa.ing the *S !ssociation created a fra.ework in the Standard Ter.s for 'nternational =oa.ing !gree.ents "ST'=!& that considerably si.plifies negotiations between operators% (ith over two hundred *S operators around the world, a dependence on bi,lateral agree.ents could be e#tre.ely onerous% 'n -///, the *S !ssociation created the *S *lobal =oa.ing ?oru. "**=?& which allows the participation of non,*S operators in the develop.ent of global roa.ing services% 'n particular the **=? endeavoured to be part of the preparation to facilitate global )* roa.ing% Customer @rotection Issues 3o.ple# data protection issues will need to be resolved% Unifor. and transparent data protection and privacy fra.eworks will need to be i.ple.ented a.ong countries providing )* roa.ing capabilities, including a clear definition of the responsibilities of the ho.e and the visiting network in the protection of custo.er infor.ation and data%

K"#

G)o0() !r u)(t!on o% IMT,#444 T$r3!n()*

ost countries e.ploy a syste. of product certification or type approval for radio handsets% This ensures that ter.inals sold in a particular country confor. to prescribed do.estic standards and regulations, e%g% consu.er protection legislation and technical interference% @owever, such syste.s are not designed to facilitate the circulation of radio handsets in foreign Hurisdictions% Since international roa.ing is one of the key visions of ' T,-///, developing a fra.ework for the efficient global circulation of handsets has beco.e a priority for both industry and govern.ents% There are two reJuire.ents for global circulation% The first relates to a subscriberEs right to carry a personal handset into foreign countries and to use it subHect only to network coverage and co..ercial roa.ing arrange.ents between operators% This issue is currently being considered by the 'TU,T, which is soliciting agree.ent on the following aspects6 type approval, licensing reJuire.ents and custo.sCduties for visiting ter.inalsA+% This aspect deals with the te.porary entry of pre,established ter.inals and their e#e.ption fro. regulation, and has the following funda.ental principles6

AA

'nternational Teleco..unications Users *roup "';TU*&, F'nternational .obile roa.ing and co.petition lawG, <ersion - B draft, 2uly -//1% See 'TU 3ircular 0etter ;o% +5 available at http6CCwww%itu%intCosgCi.t,proHectCcirculation%ht.l%

A+

8/

)* Briefing Paper

1% The personal use by visitors of ' T,-/// ter.inals should not reJuire any individual licence% -% Such ter.inals should not be subHect to additional certification or type approval procedures% )% ;ational 3usto.s !uthorities should e#e.pt ' T,-/// ter.inals, intended for personal use by visitors% The second reJuire.ent concerns restrictions i.posed on foreign .anufacturers for the i.port of handsets in a given country% This will .ost likely be dealt with through utual =ecognition !gree.ents " =!s&, which are negotiated bilaterally and are .easures for the .utual certification of radio eJuip.ent i.ported or e#ported for the purpose of conventional and per.anent use% Both reJuire.ents need to be addressed% Since resolution of the visiting ter.inal issue reJuires international agree.ent, the 'TU has prioritised the issue and is currently receiving proposals and co..ents fro. .e.ber states%
Bo; K"1: B(rr!$r* to G)o0() C!r u)(t!on ,,T&$ C(*$ o% C('(n 'n 2apan, global circulation for visiting ter.inals is covered under the $adio ?aw under which each radio station reJuires a license to operate% Since a handset is defined as a Fradio stationG, each handset in 2apan reJuires a radio license under the =adio 0aw% @owever, handsets can be covered by an operatorEs co.prehensive or blanket license such that all the operatorEs handsets in circulation are dee.ed to be licensed . The co.prehensive license is valid for a period of 8 years and for a li.ited nu.ber of handsets% The $adio ?aw also covers the issue of foreign radio stations% To be granted entry to operate within 2apan, foreign radio stations, including )* stations, .ust co.ply with the technical standards set out in the $adio ?aw% @owever, the actual procedures for de.onstrating such co.pliance are not yet in place and indeed have yet to be deter.ined% 2apan is apparently hoping for the possibility of a )* >U "si.ilar to the * P3S >U +/&, before deter.ining which procedures need to be followed for foreign handsets% 'n !pril -//1, a significant breakthrough was .ade when the 9uropean Union and 2apan signed a .utual recognition agree.ent " =!& for eJuip.ent standards on a li.ited range of products% This will facilitate trade between the 9U and 2apan because .anufacturers will not have to de.onstrate that their eJuip.ent .eet do.estic standards prior to e#port% @owever, the =! only covers a few countries and does not address the issue of visiting ter.inals% Thus, considerable work re.ains to be done to enable )* users to roa. freely fro. country to country%
Source6 'TU, F)*6 2apan 3ase StudyG, 2uly -//1%

K"3

Int$rn(t!on() 'o)! !$* (nd t&$ ro)$ o% !nt$rn(t!on() (-$n !$*

There has been surprisingly li.ited attention given to establishing internationally co,ordinated policies relating to the licensing of teleco..unications operators +1% (hile the regulatory principles attached to the ?ebruary 1++5 (T> agree.ent on basic teleco..unications recognises the i.portance of licensing, it refers to it only in the following very broad ter.s6 +Where a licence is re/uired, the ollowing will be made #ublicly a"ailable 6 7a< all the licensing criteria and the #eriod o time normally re/uired to reach a decision concerning an a##lication or a licence6 and 7b< the terms and conditions o indi"idual licences. The reasons or the denial o a licence will be made known to the a##licant on re/uest.= The 9uropean 3o..issionEs !pril 1++5 Directive on 0icensing +-, designed to si.plify and har.onise licensing within the 9uropean 3o..unity, was the first initiative to har.onise licensing policy at an international level% The 9U directives argued cogently for har.onisation based on .ini.u. licence conditions% @owever, in the case of allocating scarce spectru. resources, the 9U directive left it to individual .e.ber countries to deter.ine the licensing .ethod to be used%

+/ +1

See http6CCwww%itu%intC* P3SCg.pcs,.ouC% ?or a detailed discussion on the need for international har.onisation of licensing, see P% Xavier, FThe licensing of teleco..unication suppliers6 Beyond the 9UEs DirectiveG, Teleco..unications Policy, vol%--, no% 4, 2uly 1++A, pp% 7A),7+-% Directive ;o 1)C1++5C93 of the 9uropean Parlia.ent and of the 3ouncil of 1/ !pril 1++5 on a co..on fra.ework for general authorisations and individual licences in the field of teleco..unications services%

+-

81

)* Briefing Paper

'n 1+++ the 93 released another docu.ent ai.ed at a co,ordinated introduction of a )* syste. +)% 'n 2uly -///, the 93 proposed a new regulatory fra.ework for electronic co..unications services and this is an indication that the need for .ore consistent policies at an international level is being recognised% >ne of the ai.s of the 9UEs proposed legislation+7 is that national authorities be reJuired to consult each other prior to licensing so as to ensure consistency in the licensing .ethods and conditions for services that are offered by operators in several parts of the Single arket% Under the proposed ?ra.ework Directive, the .easures related to the use of radio spectru. envisaged by a e.ber State would have to go through a consultation process with the responsible authorities of other e.ber States and the 9uropean 3o..ission% The 3o..ission would retain the ulti.ate power to reJuire a e.ber State to a.end or withdraw the proposed .easure if it were in contradiction with the policy obHectives of the new fra.ework% The 3o..ission also proposed a Decision on a regulatory fra.ework for radio spectru. policy% This Decision would provide for an 93 level policy platfor. for addressing all issues relating to the use of radio spectru.% 't foresees a .echanis. to har.onise the allocation, assign.ent and conditions of use of radio spectru.% International initiati"es to co%ordinate '( de"elo#ment 3an )* develop.ent that provides global interoperability and inter,working be left to industry initiativesP *S roa.ing currently depends on bilateral agree.ents a.ong individual operators using leased lines% (ith the growth in the nu.ber of *S operators, the arrange.ent has proven to be unwieldy% The difficulties in achieving global har.oni:ation of different technology proposals for )* pose risks to the vision of global roa.ing% 'n 9urope, the 9uropean Teleco..unications Standards 'nstitute "9TS'& is responsible for progressing the standardisation process in 9urope% 'n recognition that a global rather than regional approach is necessary, the Third *eneration *lobal Partnership ")*PP& was for.ed in late 1++A, designed to spur efforts to facilitate a standardi:ed transition to )* .obile% There are indications that views "e%g% in the 9uropean 3o..ission +8& are changing towards an acceptance of interoperability through inter,working technologies rather than any insistence on standardisation based on an enforced single technology% >f course, the deliberations in regard to Dhar.onisedE policies would need to go beyond the 9UEs 18 e.ber countries to cover the wider international co..unity% 'nternational cooperation will be useful not only in ter.s of finding i..ediate solutions for )* services% 't .ay also help in defining future licensing principles ai.ed at .ini.ising the negative effects of frag.entation and to tackle issues related to the organi:ation of further licensing rounds% These subseJuent licensing rounds will be reJuired in order to assign additional radio spectru. identified at (=3,-/// for ' T,-/// applications and the additional spectru. needed between -//8 and -/1/ to acco..odate the e#pected increase of )* traffic%

Con )u*!on

The successful develop.ent of )* service will depend pri.arily on the private sector% @owever it can also be crucially influenced by the e#tent to which a regulatory environ.ent facilitates .arket entry by appro, priate licensing policies but also post,entry co.petitive conditions% 't is i.portant for govern.ents to ensure that the licensing fra.ework is used positively to assist the develop.ent of effective co.petition and the generation of new and innovative )* services rather than be preoccupied with the a.ount of revenue raised% 'ndeed, the proble.s being faced by so.e operators that were successful in obtaining a )* licence at a high auction price is underlining this point% ;ot surprisingly, in view of the )* licence and infrastructure develop.ent costs, the operators are keen to launch )* services in order to start generating revenue as soon as possible% But the financial burden of licence prices, co.pounded by the .arket uncertainties and downward assess.ent of the value of teleco..unications shares, has .ade it harder for operators to raise loans% This situation is contributing to delays in the introduction of )* service%

+)

Decision ;o 1-AC1+++C93 of the 9uropean Parlia.ent and of the 3ouncil of 17 Dece.ber 1++A on the co,ordinated introduction of a third,generation .obile and wireless co..unications syste. "U TS& in the 3o..unity ">2 0 15, --%/1%1+++, p%1&% Proposal for a directive of the 9uropean Parlia.ent and of the 3ouncil on a co..on regulatory fra.ework for electronic co..unications and services% 3> "-///&)+), 2uly 1-th, -///% 2% 0e.bke, F@ar.onisation and globalisation6 U TS and the single .arketG, info, vol% ), ;o% 1, ?ebruary -//1, pp% /18,/-4%

+7

+8

8-

)* Briefing Paper

3lear and stable licensing conditions and policy para.eters well known to potential bidders prior to the co..ence.ent of the licensing process are key reJuire.ents for efficient i.ple.entation of a licensing fra.ework% This will allow potential bidders of )* licenses to develop business plans and deter.ine the value of licenses with the .a#i.u. a.ount of available infor.ation% This is particularly i.portant in developing countries where social develop.ental and coverage concerns are para.ount% *overn.ents can ensure that that these priorities are recognised in the for. of clear, transparent and e#plicit reJuire.ents which are known to all potential license bidders prior to the auction% This will help prevent subseJuent resistance fro. operators in fulfilling these obligations and will li.it argu.ents by operators that the rules were not known up front% 'n this conte#t, there are significant concerns about licensing practices for )* operators% Different license allocation procedures have been used, with so.e countries using auctions and others, co.parative selection "Dbeauty contestsE&, or a .i#ture of the two% The nu.ber of licences awarded has also varied between countries "co..only fro. four to si#&, and the charges paid for the licences have been strikingly different% 'n addition, licences awarded in so.e countries have had .ore de.anding infrastructure and service rollout conditions attached than in other countries% oreover, access conditions to -* .obile networks to enable Dnational roa.ingE also varies fro. country to country% This discord in licensing practice could significantly frag.ent )* .arkets% The high auction prices as well as the high infrastructure roll,out costs have drawn attention to the Juestion of whether Dcost sharingE should be per.itted% @ere again, country positions differ and the issue warrants attention to provide principlesC guidelines to establish conditions under which the costs of Dcost sharingE "in regard to any erosion of co.petition& can be .ini.ised and its benefits .a#i.ised% There are also a nu.ber of i.portant )* issues that will need to be resolved after .arket entry has been effected and infrastructure deployed% 'nterconnection arrange.ents are a.ong the .ost i.portant of these issues% Si.ply .andating access to roa.ing as part of the license conditions of a successful )* licensee is unlikely to be adeJuate% There will be need for regulatory safeguards to ensure conditions enabling effective roa.ing so that custo.ers get the full benefits of )* services% These regulatory safeguards should for. an integral part of a regulatory fra.ework applying to )* roa.ing, including pricing guidelines and provisions preventing anti,co.petitive collusive behaviour% <;>s, like other service providers offering resale of network capacity on fi#ed or .obile networks, can potentially offer better utilisation of network capacity, an innovative e#panded range of services and greater incentives for price co.petition% @owever, e#perience thus far "in the U1, Sweden, ;orway, ?inland and Den.ark& indicates that .obile operators are likely to be reluctant to provide <;>s access thus far to their networks% Thus, co..ercially negotiated outco.es are likely to be slow to arrive at% 'n such circu.stances it is doubtful whether <;>s can survive in the longer ter. without regulatory intervention% (here *overn.ents consider <;>s to be an appropriate .eans of pro.oting co.petition and service delivery, regulatory intervention to set prices and conditions of access and to restrict anti,co.petitive behaviour by licensed operators towards <;>s is likely to be necessary% The paper draws attention to significant changes that will be reJuired in interconnection arrange.ents relating to Dalways,onE )* services, and points to the need for further careful e#a.ination of )* interconnection issues% The currently used ter.inating access .odel of interconnection is likely to be inappropriate as the basis of interconnection for )* service to other networks% This is because ti.e based interconnection charges for Dalways onE interconnection, especially where custo.ers are charged on a flat rate basis, can potentially create significant losses for )* operators% Under a Dbill and keepE approach, )* operators can price their services to pro.ote rapid take,up of )* by consu.ers while avoiding the danger of a sJuee:e on profit .argins because of the need for access to bottleneck PST; access services% @owever, there is need for further investigation of Dbill and keepE and other approaches to )* interconnection% The desire for roa.ing goes beyond national boundaries% 'ndeed, as noted earlier, part of the vision of )* service is for a sea.less international roa.ing capability% But such global roa.ing will reJuire resolution of a nu.ber of technical as well as regulatory issues to effect interoperability and inter,working% 't will also necessitate resolution of standardisation issues and har.onisation of policies% The need for international cooperation to e#pedite this is pressing% 'n this regard, the role played by international agencies such as the 'TU will be of critical i.portance%

8)

)* Briefing Paper

ANNEX 1: 3G LICENSING IN 6ARIOUS ECONOMIES

/ountry 0r1entina )D)08 0ustralia 0ustralia 0ustralia 0ustralia 0ustralia 0ustralia )D)08 0ustria 0ustria 0ustria 0ustria 0ustria 0ustria )D)08 <el1iu$ <el1iu$ <el1iu$ <el1iu$ )D)08 ,ana(a ,ana(a ,ana(a ,ana(a ,ana(a )D)08 5icence ,rocess Date of 5icencin en( 2001 Mar!. 2001 Initial /ost(-S0) 6perator bet:een US4500 an( US4600 $ ?ro$ t.e li!enses 414 %0 412%2 4'6%4 412%4 44%6 4& %1 032113 4104%0 4''%0 4103%0 4' %0 4105%0 4101%0 0$1010 413'%6 413'%6 413'%6 0+1717 4&20%50 43'3%50 4356%00 411%40 40%60 018+72100 )elstra ,E# Dptus +ut!.ison 9o(a?one 2a!i?i! ,@# #ireless 3A Invest$ents 0ustralia $illion ,onne!t 0ustria +ut!.ison 3A $a7%$obil Mannes$ann 3A Mobil"o$ 0ustria )ele?oni!a 3A $illion Mobistar @2N Dran1e 2ro7i$us ?ourt. li!ense :ill be issue( later $illion <ell Mobility 3o1ers #ireless )elus #2N ).un(er <ay )elep.one $illion *ntel 2,S .as announ!e( plans to intro(u!e IM)2000 servi!es by en( 2001

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Nove$ber

2000

6ebruary

2001

January

2001

,.ile

<

Septe$berF

2001

)D)08 ,.ina )D)08

<

G4

2002 ).e ASM net:or"5 9I2net .as a 1uarantee t.at no li!enses :oul( be o??ere( until 2003 -so t.is :ill .ave to be resolve( be?ore t.e 3A li!enses !an be a:ar(e(

,roatia )D)08

0E<

G4

2001

,Be!. )D)08

Se!on( .al?

2001

3 in!u$bent ASM operator H one ne: operator by au!tion <i((ers :ill sub$it seale( bi(s5 an( t.e :inners :ill all pay t.e lo:est o? t.e :innin1 bi(s% ).e li!enses :ill last 20 years 0n a(visory !o$$ission is re!o$$en(in1 t.at t.ere :ill be ?our li!enses5 :it. a sin1le ?i7e( ?ee o? bet:een US44 an( $

Den$ar" )D)08

D!tober

2001

*stonia )D)08 6inlan( 6inlan( 6inlan( 6inlan( )D)08 6ran!e 6ran!e )D)08

<

)o be !on?ir$e(

2001

<E6

Mar!.

2000

*uro 1000 per 25@+B li!ense a($in% 6ee Sonera Suo$en 3A 3a(iolinIa )elia

<E6

July

2001

6i7e( ?ee o? US44%5b per li!ense

Dran1e S63

87

)* Briefing Paper
5icence ,rocess 0

/ountry Aer$any Aer$any Aer$any Aer$any Aer$any Aer$any )D)08

Date of 5icencin July 2000

Initial /ost(-S0) 4&%&0 4&%62 4&%63 4&%65 4&%60 4&%6& 0+2173

6perator *-2lus Aroup 3A Mannes$ann Mobil,o$ )-Mobile 9I0A Inter"o$ billion

Aree!e )D)08 +on1 @on1

0 6

July Septe$ber

2001 See ,o$$ent

2arti!ipants e7pe!te( to in!lu(e Dran1e5 +3A *urope5 #in(5 D*+5 ,os$ote5 Stet +ellas5 2ana?on 9o(a?one% ).ere :ill be a beauty !ontest - ?ollo:e( by an au!tion%

)D)08 +un1ary )D)08

G4

2001

In(ia )D)08

2001

In(onesia )D)08 Irelan( )D)08 Isle o? Man )D)08 Israel )D)08 Italy Italy Italy Italy Italy )D)08 Ja$ai!a )D)08 Japan Japan Japan )D)08 @orea -3ep o?/ @orea -3ep o?/ @orea -3ep o?/ )D)08 8atvia )D)08 8ie!.tenstein )D)08 8u7e$bour1 )D)08

< < *arly

2002 2001 li!enses :it. an esti$ate( pri!e o? US4116 - 4140$

Man7 )ele!o$

July

2001

$ini$u$ 100$ bi( per li!ense

D!tober

2000

42%01 42%02 42%01 42%03 42%00 010103

+3A Ipse #in( D$nitel )ele!o$ Italia Mobile billion 2 li!enses :ill be au!tione(

*arly

2002

<

June

2000

N)) Do,oMo J-2.one @DDI @)I,DM S@ )ele!o$ 8A )ele!o$ billion

<E6

G4

2000

41%10 41%10 40% 03107 est% aroun( US43%5$ per li!ense

so$eti$e

2001

6ebruary

2000

9I0A *uro2latt?or$

<

G4

2001

88

)* Briefing Paper
5icence ,rocess <

/ountry Malaysia )D)08 Mona!o )D)08 Ne: Cealan( Ne: Cealan( Ne: Cealan( Ne: Cealan( )D)08 Nor:ay Nor:ay Nor:ay Nor:ay )D)08 2olan( 2olan( 2olan( )D)08 2ortu1al 2ortu1al 2ortu1al 2ortu1al )D)08 3ussia )D)08 Sin1apore Sin1apore Sin1apore )D)08 Slova"ia )D)08 Slovenia )D)08 Sout. 0?ri!a )D)08 Spain Spain Spain Spain )D)08 S:e(en S:e(en S:e(en S:e(en )D)08 S:itBerlan( S:itBerlan( S:itBerlan( S:itBerlan( )D)08 )ai:an )D)08

Date of 5icencin *n( 2001

Initial /ost(-S0)

6perator

June January

2000 2001

416%&0 413%20 411%20 410%30 0211+0 411%20 411%20 411%20 411%20 0++170 4223%00 4223%00 4223%00 0$$*100 4'0%00 4'0%00 4'0%00 4'0%00 03$0100

Mona!o )ele!o$ )ele!o$ NC 9o(a?one Mobile NC ,lear )elstra Saturn $illion )elenor (11.2m per year) Net,o$ " <roa(ban( Mobile " )ele2 Nor1e " $illion 2lus ASM ,enter )el *30 $illion 8i!en!e 6ee 8i!en!e 6ee 8i!en!e 6ee 8i!en!e 6ee $illion )ele!el )MN Dpti$us Dny #ay

<

Nove$ber

2000

De!e$ber

2000

<E6

De!e$ber

2000

G3 0pril

2001 2001 455%20 455%20 455%20 01$21$0 $illion t:o 1uarantee( to t.e t:o e7istin1ASM net:or"s 4113%00 0113100 -reserve pri!e/ $illion 3 ?or in!u$bents5 2 ?or ?i7e( line 0irtel 0$ena )ele?oni!a J?era $illion 6ee plus 6ee plus 6ee plus 6ee plus $illion +I3A 0!!ess *uropolitan )ele2 Dran1e Sveri1e !onsortiu$ S:iss!o$ (i07 Dran1e )ea$ 3A $illion MobileDne Sin1)el Star+ub

< <H0

G4 Mi((le so$eti$e

2001 2001 2001 2000 4111%00 4111%00 4111%00 4111%00 0+++100 411%02 411%02 411%02 411%02 0++107

<E6

Mar!.

<

De!e$ber

2000

De!e$ber

2000

42'%00 42'%00 42'%00 42'%00 011$100

G4

2001

84

)* Briefing Paper
5icence ,rocess

/ountry ).ailan(

Date of 5icencin

Initial /ost(-S0)

6perator )D) -)ele!o$$uni!ation Dr1anisation o? ).ailan(/ ,0) -,o$$uni!ations 0ut.ority o? ).ailan(/

)D)08 ).e Net.erlan(s ).e Net.erlan(s ).e Net.erlan(s ).e Net.erlan(s ).e Net.erlan(s )D)08 ).e 2.ilippines )D)08 U%0%*% )D)08 U%@% U%@% U%@% U%@% U%@% )D)08 US0 )D)08 !6 auctionsI 0 0pril 2000 0 July 2000 4666% 0 4664%30 440&%00 4401%00 436'%00 028207110 8ibertel @2N $obile Dut!.tone )el?ort 3A <lue $illion

46%'0 46%44 4'%40 46%30 46%35 03213*

+ut!.ison 3A Dran1e 9o(a?one Dne 2 Dne <)3A billion

0F

June

2002

?egend6 Source6 9eneBuela 'TU%

)D)08

B6 beauty contestI ?6 fi#ed fee%

0 June 2001 ).ere :ill be a reserve pri!e o? US4100$ per li!ense

85

)* Briefing Paper

ANNEX #: LIST OF ISSUES FOR THE 8OR9SHOP TO CONSIDER

A"

T$ &n! () !**u$*

!1% @ow stable is the definition of )* .obileP @ow can the re.aining Dstandardi:ationE issues relating to )* be resolvedP !-% (hat are the technical issues generating concerns over a s.ooth .igration of -* to -%8* to )* .obile servicesP (hat .easures can be adopted to resolve these proble.sP !)% 'n what ways do technical issues affect the licensing processP To what e#tent should there be fle#ibility for licensed operators to choose their preferred technical platfor. to deliver )* wireless servicesP

T&$ d$3(nd %or 3G *$r+! $*

B1% (ill the absence of a single global technology affect the speed of )* roll,outP (ill regional,national .arkets for hardware and applicationsCservices developP 'f so, will this have any effect on the deploy.ent of )* in s.all and low,inco.e econo.iesP B-% @ow big is the .arket for )* likely to beco.e and do these forecasts Hustify the high prices paid for )* licences and network roll,outP "?or e#a.ple, to what e#tent does the e#perience with ;TT Do3o oEs i% mode service provide evidence of .arket de.and and will this apply also outside 2apanP& B)% arket take,up of )* .obile 'nternet will obviously depend on attractive pricing which in turn depends on fle#ible billing syste.s% (hat sort of pricing packages are likely to appeal to different types of consu.ersP B7% !re the costs of deploying )* likely to be an i.pedi.ent to roll,outP Under what conditions should cost sharing be per.ittedCencouragedP B8% To what e#tent have delays in the introduction of )* services been a .aHor proble.P !re delays only to be e#pected "since delays in the introduction of new technologies are co..on&P

C"

L! $n*!n- 'o)! !$*

31% (hat are the relative advantages of auctions and beauty contestsP 's it feasible to construct a DhybridE approach that opti.ises the advantages of eachP 3-% (hat broad principles should guide )* licensing "e%g%, transparency, non,discri.ination, efficient resource allocation etcW&P 3)% @ow .ight the special circu.stances prevailing in developing countries be recognised in )* licensingP 37% (hat sort of obligations .ight be placed on )* licensees "e%g, network deploy.ent, social obligations, environ.ental obligations etc&P @ow should possible delays in deploy.ent be handled by regulatorsP 38% Do the potential gains of infrastructure sharing e#ceed its costsP (hat conditions should be .et in order to help ensure that the gains of infrastructure sharing are .a#i.ised and costs .ini.isedP 34% Should spectru. trading be per.ittedP Under what conditionsP 35% @ow should radio spectru. left unused after the first round of issuing )* licences be dealt withP (hat factors should deter.ine the organi:ation of subseJuent licensing rounds "e%g% in order to assign the additional radio spectru. identified at (=3,-/// for ' T,-/// applicationsI additional spectru. will be needed between -//8 and -/1/ to acco..odate the e#pected increase of the )* traffic&P 3A% Should national and international roa.ing be part of a )* licence condition or left to .arket conditionsP (hat further regulatory safeguards are necessary to ensure ter.s and conditions that allow effective and affordable roa.ingP

8A

)* Briefing Paper

3+% *iven that is Juite likely that e#isting incu.bent carriers will gain control of licenses to be granted, should one or .ore of those license be reserved for new entrantsP 'f yes, under what conditionsP

D
D1%

En&(n !n- t&$ o3'$t!t!+$ )(nd* ('$

(hat regulatory provision should be .ade for resale of )* services and network capacityP

D-% Should access by obile <irtual ;etwork >perators " <;>s& to )* networks be inscribed as a license condition "e%g% as in @ong 1ong& or left to the .arketP D)% Under what conditions should infrastructure sharing be per.ittedCencouragedP D7% (hat are the i.plications of )* .obile 'nternet for interconnection arrange.entsP 's this an area for regulatory interventionP D8% 'n what ways will the different usage patterns engendered by the use of )* .obile handsets for voice, infor.ation retrieval, as well as .essaging reJuire changes fro. todayEs regi.e for interconnection arrange.ents, for instance to acco..odate Falways onG connectionsP D4% (hat characteristics in the licensing of )* .obile operators are likely to contribute to a reduction in interconnection rates and retail tariffsP

E
91% 9-%

G)o0()!*!n- 3G (nd t&$ ro)$ o% !nt$rn(t!on() (-$n !$*

(hat .easures can be adopted to address i.pedi.ents to international roa.ingP (hat .easures can be adopted to facilitate the global circulation of ' T,-/// ter.inalsP

9)% 'n what areas would closer international co,ordination help in resolving the regulatory and econo.ic issues raised by )* .obile servicesP (hat roles are international agenciesCorganisations playingP (hat roles should they be playingP 97% (hat role, if any, should the 'TU play in regard to the regulatory and econo.ic issues raised by )* .obile serviceP 98% 's there a role for the 'TU in efforts to resolve )* issues of an international nature, including interconnection disputes, roa.ing, and global circulation of )* ter.inals

8+

)* Briefing Paper

4/