Expansion of Mobile Digital Services: Dynamics, Theory and Policy Options

Master's Thesis, 2008

113 Pages, Grade: 1.3

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Table of Contents

List of Figures

List of Tables

1. Introduction

2. Development of Mobile Digital Services in the OECD Countries
2.1. Mobile Communications Market: Dynamics and Structure
2.2. Expansion of 3G Networks and Alternative Technologies
2.2.1. 3G Networks: Background and Current Development
2.2.2. WiMAX and WLAN as Alternatives to 3G
2.2.3. Interaction of 3G, WiMAX and WLAN
2.3. Mobile Multiple Play
2.3.1. 3G Data Services
2.3.2. Specific Case: Development of Mobile TV
2.4. Mobile Digital Services in Japan
2.5. Mobile Digital Services in South Korea
2.6. Mobile Digital Services in the EU and Germany
2.7. Reasons for Success of Mobile Services in Japan Comparing to Europe

3. Theories of Mobile Digital Services
3.1. Two-Sided Markets
3.1.1. Definition and Examples of Two-Sidedness
3.1.2. Platform Competition and Pricing Principles: A Model of Competitive Bottlenecks
3.2. Network Interconnection Pricing
3.2.1. Definition of Interconnection
3.2.2. A Model of Competing Networks
3.2.3. A Symmetric Model without Regulation
3.3. Theory Implications for New Generation Networks

4. Policy Options in the Mobile Communications Market
4.1. General Policy Trends in the OECD Countries
4.2. Mobile TV Specific Issues
4.3. European Regulatory Framework for Electronic Communications
4.4. Regulatory Environment in Japan
4.5. Mobile Policy in South Korea

5. Conclusion

Appendix 1: Allocation of 3G Mobile Licences in Selected Economies Worldwide

Appendix 2: Minimum Coverage Requirements for 3G Licensing

Appendix 3: Number of Operators in Service, June

Appendix 4: Carrier Number Portability and Carrier Pre-Selection

Appendix 5: Government Ownership of Public Telecommunication Network Operators (as of End 2006)

Appendix 6: Foreign Ownership Restrictions in Telecommunications


List of Figures

Figure 1: OECD Share of Mobile and Fixed Telecommunication Revenues (1998-2005)

Figure 2: Share of Mobile Revenue in Total Telecommunication Revenue

Figure 3: Mobile Telecommunication Revenue in OECD Countries,

Figure 4: Access Growth in the OECD

Figure 5: Mobile Connections per 100 Inhabitants

Figure 6: Competition in Mobile Infrastructure

Figure 7: Monthly Household Expenditure on Communications in Selected OECD Countries

Figure 8: Evolution to 3G

Figure 9: Cellular Mobile Subscribers per 100 Inhabitants,

Figure 10: Wireless Technologies

Figure 11: Typical Network Ranges

Figure 12: Start of 3G Networks in Western Europe

Figure 13: Connection Patterns of Data Services

Figure 14: Mobile Phone vs. PC Internet Activities in Japan (2005)

Figure 15: Mobile Subscribers’ Penetration in EU (2G and 3G)

Figure 16: Market Share of Mobile Operators

Figure 17: Membership and Usage Externalities

Figure 18: Connection through Service Providers

Figure 19: “On Us” or “on Net” Interactions

Figure 20: Multi-Homing

Figure 21: One-Way Access vs. Interconnection

Figure 22: Generic Telecommunications Model for the Provision of Transmission Capacity and Services to Mobile Customer Terminals

Figure 23: Fixed to Mobile Termination Rates (Price per Minute): Range in Rates, USD,

Figure 24: Regulatory Practice under the New European Regulatory Framework

Figure 25: Interconnection Charges for Call Termination on Mobile Networks (National Average on the Basis of Subscribers)

Figure 26: Cumulative Mobile Ported Numbers as a % of Total Mobile Numbers and Wholesale Price of Mobile Number Portability, October

Figure 27: NTT’s Reorganisation

List of Tables

Table 1: IMT-2000 Standards Established by the ITU

Table 2: Comparison of Orange Mobile TV Services (Orange World)

Table 3: Comparison of Vodafone Mobile TV Services (Vodafone live!)

Table 4: Comparison of T-Mobile Mobile TV Services

Table 5: Mobile Market Structure and Performance in Selected Countries

1. Introduction

At the beginning of the 21st century, information and communication technologies (ICT) play an important role in the globalisation process. Mobile communications market is one of the youngest and most important sectors of ICT and is characterised by significant growth rates across OECD. Nowadays, thanks to the Third Generation (3G) mobile technologies allowing high data rates one can speak of multiple play in the mobile service sector (voice, data and video). However, as regards mobile market dynamics there are considerable differences even among OECD countries. The aim of this paper is to show the differences and similarities of the expansion of mobile digital services in countries, which have achieved the most significant progress in this sector: Japan, South Korea and EU in general, as well as Germany in particular. Particular attention will be paid to the mobile TV as an emerging technology that is able to change our understanding of mobile digital services. Moreover, taking into consideration the theories of the mobile services, it should be shown how different regulatory approaches in the selected countries affect dynamics of their mobile markets.

In order to understand better the object of this paper it is important to give a definition of mobile Internet enabling mobile digital services. As defined by the OECD (2005, p. 129), “mobile Internet access refers to access primarily via mobile phone-based technologies”. A related category is portable Internet access (for instance, via WiMAX or Wi-Fi) where users access the Internet with devices such as laptops or PDAs (Personal Digital Assistant). The main difference between these is the coverage of the service. A mobile Internet user can access the Internet wherever cellular mobile service is available, whereas portable Internet access has a more limited coverage and users need to be in a hot spot or local area covered by a fixed wireless provider to access the service. The convergence of mobile and portable Internet access has already started and devices have been introduced, which enable to access both services depending on the user’s location and preference.

One of the most important features of the 3G technologies is that they allow mobile Internet access and data transfer. Eventually, as one can see on the example of Japan and South Korea, it has an impact on the economic development of the country because the Internet, especially mobile Internet, reduces transaction costs, facilitates product differentiation, accelerates the diffusion of knowledge and strengthens the internationalisation of economic relations (WELFENS ET AL., 2005, p. 1). The experts even suggest that a new economic revolution can result from the Internet – a real New Economy, because the Internet (in this context also mobile Internet) means a transit from the industrial society to the information society, or Internet society (WELFENS/JUNGMITTAG, 2002, p. V). Furthermore, Japan and South Korea even set an ambitious goal to achieve a ubiquitous network society in which it is possible to connect to the network “anytime”, “anywhere”, with “anything” and by “anyone” due to the convergence between mobile and broadband networks (ITU, 2005a).

Price and innovation competition is very intensive in the mobile communications market and regulation in this sector plays a crucial role, because fair competition ensures also lower costs and higher quality for the Internet users (WELFENS/JUNGMITTAG, 2002, p. VI). According to ANDONOVA (2006), mobile telephony can help overcome differences among countries and regions in the use of ICT, frequently called the digital divide: mobile technologies give access to information and telecommunications services in previously isolated regions because they are built on cheaper, easily re-deployable infrastructure and require less investment than fixed lines. The EUROPEAN COMMISSION (2005) also sees ICT and mobile technologies as one of the main driving forces that could improve the EU competitiveness in the context of economic globalisation.

This paper consists of three parts. The first part deals with dynamics of mobile digital services across the OECD countries including the following issues: development and recent trends in the mobile communications market in general, evolution from 2G (Second Generation) to 3G mobile services, convergence of WiMAX, WLAN and 3G. Furthermore, particular attention will be paid to new technologies allowing mobile television. Finally, the distinctive features of mobile services in Japan, South Korea and the European Union will be considered. In this context it will be very important to show how differences in vertical network relationships in Europe and Japan affect the expansion of mobile digital services.

The second part of the paper is theoretical. Here two theories will be introduced and described: the theory of two-sided markets and the theory of network interconnection. These theories contribute to better understanding of the mobile market regulation issues and help to choose an adequate regulation policy.

The third part of this paper mentions the most important regulatory issues and problems in the OECD countries and worldwide, particularly as regards mobile television. Further, the chapter will describe different regulatory approaches in the European Union, Japan and South Korea.

In general, this paper should contribute not only to a better understanding of the contemporary mobile communications and their significant role in the global economic development, but also outline new possibilities of their application in the future.

2. Development of Mobile Digital Services in the OECD Countries

Nowadays, mobile communications market is growing extremely fast and has strong positions in most OECD countries. This chapter will first describe the most recent developments and trends in the mobile sector in the OECD area as well as determine the leading nations in this market. Secondly, the 3G mobile technologies and their applications will be introduced. Furthermore, 3G will be compared to the potential rival or complementary technologies such as WLAN and WiMAX and a prognosis about their future interaction will be made. Finally, the particularities of mobile data services, especially of mobile TV, in the leading OECD countries such as Germany, Japan and South Korea will be presented. In this context it is also very important to explain the reasons for divergent development of 3G services in these countries.

2.1. Mobile Communications Market: Dynamics and Structure

Nowadays the telecommunications industry in the OECD countries is in the state of transformation and voice is still the key driver for telecommunications business. Voice continues to dominate in telecommunication firms’ overall revenues and an increasing percentage of these revenues is derived from the mobile sector (OECD, 2007c, p. 18). Mobile revenues in 2005 were USD 408 billion and they continue to grow as a percentage of overall telecommunication revenues: from 13% of total revenues in the sector in 1995 to 39% in 2005 (see Figure 1) (OECD, 2007c, p. 74).

Figure 1: OECD Share of Mobile and Fixed Telecommunication Revenues (1998-2005)

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2007c, p. 74)

As shown in Figure 2, the mobile sector has become one of the most important revenue generators for telecommunication firms. Here Japan, where the mobile communications bring about 58% of the total telecommunication revenue, is one of the leaders. In Korea mobile communications also have strong positions with 47% of the total telecommunication revenue, whereas in Germany the role of mobile communications is less important – their share is about 35% and lies below the OECD average.

Figure 2: Share of Mobile Revenue in Total Telecommunication Revenue

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2007c, p. 74)

In the United States, Japan and Germany the mobile sectors are among the largest in the world (Figure 3). The mobile markets in Japan and the US account for roughly 47% of all mobile revenues in the OECD area.

Figure 3: Mobile Telecommunication Revenue in OECD Countries, 2005

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2007c, p. 76)

Mobile subscriptions make up the largest portion of access paths in the OECD area at 59% and the market is growing (see Figure 4).

Figure 4: Access Growth in the OECD

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2007c, p. 18)

Comparing the mobile connections per 100 inhabitants in 2006 one can see that European countries Italy, Sweden, United Kingdom, Norway, Denmark, Germany, Finland and Spain belong to the world leaders (Figure 5). The Western European average is 98 connections and is higher than in the United States or Japan (BITKOM, 2007).

Figure 5: Mobile Connections per 100 Inhabitants

Abbildung in dieser Leseprobe nicht enthalten

Source: BITKOM (2007)

The process of liberalisation has been faster in the mobile sector than in the fixed telecommunications. The last monopoly in the mobile communications market was eliminated in 1998 (Figure 6). Figure 6 shows the number of mobile operators with their own facilities although in a number of countries there are also virtual mobile operators (OECD, 2005, p. 22).

Figure 6: Competition in Mobile Infrastructure

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2005, p. 22)

In almost all OECD markets v oice minutes are shifting from the fixed to mobile networks. This growth in total minutes leads to vigorous competition among mobile operators in many OECD markets, which pushes down prices for mobile voice calls. Hence, mobile operators are searching for ways to increase revenues and are looking to broadband data as a way to increase revenue per access path. Today broadband is quickly becoming the basic medium for service delivery on both fixed and wireless networks due to the transition from circuit-switched telecommunications to packet-based networking on the Internet. The modern broadband data platform is able to carry a wide range of telecommunication services and within the past two years mobile providers have started offering broadband-speed services over their wireless networks (OECD, 2007c, p. 19). For example, the Vodafone voice revenues in 2005 were at least 79% of all revenues in all countries. However, non-voice revenues such as SMS and mobile Internet data transmission accounted for up to 20% of revenues in Germany and the United Kingdom (OECD, 2007c, p. 75).

The analysis of monthly household expenditure on communications in selected OECD countries also shows the increasing role of mobile communications (Figure 7). Obviously, in many of the represented countries the monthly expenditure on mobile communications is a significant part of the total monthly expenditure on communications.

Figure 7: Monthly Household Expenditure on Communications in Selected OECD Countries

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2007c, p. 33)

For the selected countries monthly expenditure ranged from USD 220 a month to under USD 20 a month. Among the factors counting for difference among countries in monthly expenditure, is the availability of new services, such as broadband access, and the level of competition. Countries in which competition has helped to drive prices for communication services to relatively low levels have also often found that consumers use this consumer surplus to purchase more and different communication products and services (OECD, 2007c, p. 33). At the same time one should keep in mind that if in a certain country prices for mobile communications remain high, monthly expenditures in this country may be much higher then expenditures in other countries for the same basket of services.

In general, the communications sector in the OECD countries has benefited from a reduction in nominal and real prices as a result of the development of competition, improvement in technology and quality of service and the introduction of new technologies, such as broadband Internet access, allowing existing services to be offered at much lower prices. Competition has helped drive prices down to reflect costs, and costs have also been reduced through digitalisation and technological improvements (OECD, 2007c).

One of the recent trends in the telecommunications market is that the line between fixed and mobile calls is blurring (OECD, 2007c, p. 97). The phenomenon is called fixed-mobile convergence. This evolution is driven by declining average revenues per user in both the mobile and fixed markets, and competition from other technologies, as well as from voice over Internet Protocol (VoIP) services (OECD, 2007a). As the result, converged devices emerge. For instance, several fixed-line operators in the OECD area have introduced devices that place calls over the user’s fixed line when the user is at home and over a mobile network when the user is away. KT in South Korea, BT in the United Kingdom and Orange in France have launched phones that use the mobile network when away from home but can connect to the user’s broadband connection via Bluetooth or Wi-Fi at home to place calls at fixed rates. KT’s “OnePhone”, BT’s “Fusion” and Orange’s “unik” networks allow users to roam seamlessly between a mobile network and the Bluetooth connection without disrupting an ongoing call. These services are limited to fixed line calling at the user’s home and mobile networks when away (OECD, 2007c, p. 97). However, a number of combined Wi-Fi/mobile phones have already appeared in the OECD markets and could potentially become an even larger market for converged fixed-mobile services. For example, the Japanese cable company Jupiter Telecommunications announced that it would begin a trial for fixed-mobile convergence. This service will allow an existing mobile phone with Wi-Fi functions to transmit a landline telephone signal as an extension of the traditional household landline telephone.

Nowadays, two different views on the future of the telecommunication market have developed among telecommunication operators. On one hand, many large telecommunication firms see sustained value in offering a wide array of value-added services over their last-mile connections or wireless networks and focusing less on the revenues from the connections themselves. On the other hand, some telecommunication operators may decide to structure their business assets in a way that allows one side to focus on revenues derived simply from offering data connectivity over fixed-line or wireless infrastructure. These businesses believe that there is immense value in developing high capacity networks that will carry a vast amount of content for third parties and focusing the company’s energy on providing the most effective data services at the lowest cost. At the moment it is too early to say which of the two visions will prove dominant in the industry (OECD, 2007a).

2.2. Expansion of 3G Networks and Alternative Technologies

2.2.1. 3G Networks: Background and Current Development

The previous Second Generation of mobile phones appeared in the early to mid-1990 as a variety of digital technologies. Most 2G standards are based on circuit-switched technology and they have provided the mobile telecommunications industry with an exponential growth in terms of the numbers of subscribers as well as new types of services. Some 2G services used a CDMA (Code Division Multiple Access) technology, which was implemented in about 63 countries. In a number of countries, such as the United States, the TDMA (Time Division Multiple Access) standard was developed. The Global System for Mobile (GSM) was adopted throughout Europe and in other parts of the world including the United States. It is a combination of FDMA (Frequency Division Multiple Access) and TDMA and had become the most widely deployed 2G technology. Between the different 2G standards there has been little or no roaming capability (OECD, 2004).

Mobile technology upgrades have made 2G services appear to users like 3G services. For example, a main advantage of this technology upgrades is the capability for Internet access. However, the features of this upgraded technology do not reach the level of 3G technology and it is sometimes termed “2,5G”. One of the most popular technologies within 2,5G is GPRS (General Packet radio Service), which is an upgraded TDMA and GSM technology. Another 2,5G technology is HSCSD (High-Speed Circuit Switched Data) – this is the first enhancement to GSM service (OECD, 2004).

“The Third Generation (3G) mobile is a generic term for a set of mobile telephony technologies using a set of high-tech infrastructure networks, handsets, base stations, switches and other equipment to allow high-speed Internet access, broadband audio-visual services, and voice and data communications” (OECD, 2004, p. 8). It commonly refers to a group of mobile technologies, which have been approved in the International Telecommunication Union (ITU). The data rates of these mobile systems range from 128 Kbps to around 2 Mbps. Today even the Fourth Generation (4G) is often mentioned. However, the 4G technologies do not have any precise definition yet: they are defined generally as IP based technologies that realise much faster speeds than 3G and will allow more services (OECD, 2004). The five 3G standards specified as IMT-2000 (International Mobile Telecommunications-2000) are summarised in Table 1. Despite these five standards, there are only two main competing standards: W-CDMA (in Europe it is known as UMTS – Universal Mobile Telephony System) and CDMA2000. Most commonly CDMA develop into CDMA2000 and GSM/GPRS into W-CDMA.

Table 1: IMT-2000 Standards Established by the ITU

illustration not visible in this excerpt

Source: OECD (2004, p. 8)

The evolution process from 2G to 3G in Western Europe is represented in Figure 8. There have been built over 80 commercial 3G networks in around 40 countries worldwide by 2006. In Europe there were about 60 3G networks in 2006 (HENG, 2006).

Figure 8: Evolution to 3G

Abbildung in dieser Leseprobe nicht enthalten

Source: (HENG, 2006, p. 10)

Among the OECD countries 3G services are best developed in South Korea and Japan (see Figure 9).

Figure 9: Cellular Mobile Subscribers per 100 Inhabitants, 2005

Abbildung in dieser Leseprobe nicht enthalten

Source: OECD (2007c, p. 98)

Comparing to 2G technologies the 3G has many benefits. First, 3G technology enabled increased bandwidth of up to 2 Mbps in fixed applications, 384 Kbps at pedestrian speed and 128 Kbps when moving. Second, 3G is more user-friendly because for certain applications mobile terminals may be simpler to use and will help in promoting the use of mobile Internet (OECD, 2004). Third, roaming is generally much easier in 3G than in 2G. Finally, one of the strongest advantages of 3G mobile is the diversity of applications:

1. Video calling;
2. Camera phone:
3G mobile can be combined with other electronic equipment such as digital cameras. In Japan camera phones are particularly popular among users between ages of 20 and 30 who account for approximately 60% of total sales;
3. Mobile e-commerce (or m-commerce):
For example, in Japan DoCommerce has been launched. The service enables both DoCoMo’s 2G and 3G handset users to shop using their mobile terminal and pay on- line with their credit card (OECD, 2004);
4. Location based services which show subscribers where they are, how to find a certain place etc.;
5. Video games and sports events;
6. Broadband Internet access:
3G enables users to access the Internet with the speed similar to broadband networks, which means that it will be possible to use different functions simultaneously, such as voice and data services;
7. Broadband audio-visual services:

Broadband content can be delivered via 3G, which will enable the transfer of a variety of media, such as audio, video and pictures, to various users. For instance, in Korea KTF started to transmit TV pictures direct to 3G mobile phones in February 2003 (OECD, 2004).

2.2.2. WiMAX and WLAN as Alternatives to 3G

Along with the development of 3G, several other wireless technologies have appeared in the OECD countries, which vary in speed and coverage. These are WiMAX (Worldwide Interoperability for Microwave Access) and WLAN (Wireless Local Area Network) (see Figure 10).

Figure 10: Wireless Technologies

Abbildung in dieser Leseprobe nicht enthalten

Source: HENG (2006, p. 10)

Figure 11 shows a breakdown of common network sizes: wide area networks (WAN), metropolitan area networks (MAN), local area networks (LAN) and personal area networks (PAN). The technologies behind WiMAX cover the two largest geographic areas – wide area networks and metropolitan area networks. Wide area networks are also covered by 3G technologies, whereas WLAN technologies, such as those underlying Wi-Fi (Wireless Fidelity), have been very successful at delivering data over a range of 150 metres.

Figure 11: Typical Network Ranges

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Source: OECD (2006, p. 9)

The WiMAX Forum has estimated that a typical base station will service an area between three to ten kilometres without the need for line-of-sight. In this environment, the base station should be able to deliver data at 40 Mbps per channel for fixed and portable access applications. The actual maximum throughput will depend on the factors such as the size of the radio channel, spectral density, transmission power limits and geography. Some experts have an opinion that WiMAX may encroach on the mobile telephony and data markets that are currently serviced by mobile operators, because WiMAX cells may be able to provide faster data connections to users than current 3G networks. Nowadays carriers are looking forward to future 3G enhancements such as High Speed Downlink Packet Access (HSDPA) and further revisions to CDMA2000 that may offer speeds closer to predicted speeds for WiMAX (OECD, 2006). According to the OECD (2006, p. 11), “while 3G networks will likely remain the most spectrally efficient for voice, mobile carriers may still see some voice traffic moving off traditional mobile networks and on to VoIP services over WiMAX networks”.

WLAN enables Internet access in selected local areas (access points), usually called hot spots, such as hotels, airport lounges and coffee shops. By some WLANs and 3G could be viewed as competitive services in the wireless telecommunications market. Some analysts see WLAN and 3G as complementary technologies, whereas other analysts have argued that developments in WLANs can be a threat to 3G. For example, one research undertaken by Deutsche Telekom implies that 90% of data applications viewed as a potential market for 3G can be provided more efficiently by WLANs. This analysis concludes that 3G has a comparative advantage over WLANs only in rural areas where hot spots may be harder to develop. It has also been argued that 3G might not be necessary because consumers will prefer to use WLAN in hot spots such as at airports or hotels when they are away from home. In order to decide whether these technologies are substitutes or complementary, it is important to consider both similarities and differences between 3G and WLANs. Both 3G and WLANs are wireless technologies that enhance various degrees of mobility as well as enable users to use services without cabling. These technologies provide broadband Internet access and can be alternatives to wired broadband networks. Both service also will support “always on” connection that is an important factor particularly from users’ perspective (OECD, 2004).

However, there are also a number of differences between 3G and WLANs. The first difference relates to the business model of these networks. The 3G business model is a telecommunications service model in which operators own and manage the network infrastructure and provide services to customers on the basis of the infrastructure with charges. WLANs came out of the data communications industry, in which the primary business model is that equipment makers sell boxes to users. Sufficient business models for WLANs are still in development and often users of closed community WLANs are not charged directly. In this case the costs of providing wireless access are subsidised by the community. The second difference concerns the way in which networks are rolled out. The deployment of 3G networks is usually implemented in a top-down and centralised manner, whereas the deployment of WLANs often takes the form of bottom-up and decentralised. There is also considerable difference in the time and costs required for the network deployment. While it normally takes several years for operators to deploy their 3G networks that can be nationwide, the roll-out of WLANs is in most cases quite speedy, which is expected for small hot spots. The deployment of 3G networks by new entrants requires a great deal of investment. In contrast, WLANs require less deployment costs but the most important cost item for them is the ongoing operating expenditure to support access points (OECD, 2004).

In terms of services, one of the most critical differences between 3G and WLANs is considered to be the data transmission rate. Normally, WLANs are capable of providing much faster transmission speeds than 3G (up to 54 Mbps) (see Figure 10). The coverage of services also differs essentially. WLANs were designed as a local area technology and do not cover wide areas, whereas 3G is a wide-area broadband technology, allowing users to access services without finding a hot spot. Increasing of numbers of hot spots may reduce the relative advantage of 3G wide-area services. However, the wide-area technology can offer services that will not be available with WLANs, particularly for voice services and mobile Internet access. Another difference is that WLANs are not originally targeted at end-to-end services, whereas 3G has its roots in wireless voice telephony networks, and therefore an integral part of it is voice calls between end-users. In contrast, WLANs were basically designed as a consumer data communications network, but are evolving to provide end-to-end services such as Wi-Fi telephony using IP technologies (OECD, 2004). According to the OECD (2004), WLANs have the following additional disadvantages compared with 3G:

- Few or no roaming possibilities both nationally and internationally;
- Voice over IP (VoIP) is not as developed as mobile standards;
- Difficulty for seamless handover between networks when on the move;
- Low penetration of WLAN-enabled handhelds compared to mobile phones.

2.2.3. Interaction of 3G, WiMAX and WLAN

There is an opinion that the evolution of 3G networks could pose a threat to the success of WiMAX, because many 3G operators have shown less interest in mobile WiMAX and are more interested in technological upgrades to their own networks that would enable them to compete with WiMAX (OECD, 2006). According to other experts, 3G, WiMAX and WLANs will coexist and provide complementary services due to the differences in speed and coverage (OECD, 2004; OECD, 2006). For instance, taking into consideration the differences in the reach of WLAN and WiMAX, a conclusion can be made that WiMAX may enjoy a complementary relationship with Wi-Fi. In the future WiMAX connections can be used to provide backhaul connections to Wi-Fi hotspots over longer distances. While typical Wi-Fi installations can accommodate 54 Mbps of bandwidth within a 100 metre radius and among 32 users, WiMAX implementations will likely provide a similar amount of total bandwidth spread over a much larger area to many more users. Hence, users will have access to faster connections via Wi-Fi when it is available and will likely move to WiMAX or competing mobile technologies when out of range of a Wi-Fi signal (OECD, 2006).

On the other hand, the coexistence of 3G networks and Wi-Fi can also bring advantages for users, because 3G is ideally suited for wide-area mobile environments while WLANs are suited for lower mobility and higher data transmission rates (often on private networks such as enterprises, campuses and homes). The fact that operators could offer high-speed wireless access when a user is near a WLAN hot spot but provide 3G technology over a wider range will allow complementary services (OECD, 2004).

According to the OECD (2006), the interaction of 3G networks, WiMAX and Wi-Fi will most likely take place in the larger context of a converged network, where devices will connect to the fastest and most efficient networks available at any given time. When a mobile device moves out of range of a current connection, it will search for the next most-effective connection for a handoff. Under this scenario, 3G networks, WiMAX and Wi-Fi will be complementary technologies that simply serve different mobility demands.

2.3. Mobile Multiple Play

2.3.1. 3G Data Services

The shift to 3G services has not been smooth compared to 2G due to a number of problems. These included delays in handset availability, lack of capital financing to build-out networks, partly in some cases because companies had paid high licence fees for 3G spectrum. Today one speaks of mobile multiple play because mobile operators provide not only voice services, but also data and video services. In some countries 3G services started earlier. For example, Korean operators started in May and October 2001, a Japanese operator started in October 2001 (OECD, 2007b). In contrast to the European operators, Asian operators focused on data transmission services using packet technology at an early stage in addition to voice services. For example, the Japanese operator NTT DoCoMo started its service, i-mode, providing access to specific sites for mobile Internet access. On the basis of existing indicators (see Figure 9), Japan and South Korea are the leading countries in the demand for 3G. In Japan, for example, the proportion of data subscribers to total mobile subscriptions is around 90%. In Europe, Hutchinson Telecom started 3G services in Italy and in the United Kingdom in 2003 followed by other operators (see Figure 12). However, most customers are using SMS or MMS rather than other data services and data access is not being viewed as a killer application at present (OECD, 2007b). As a result, many operators have launched data-only plans for business users to help increase utilisation of their 3G network capacity (OECD, 2007c, p. 100).

Figure 12: Start of 3G Networks in Western Europe

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Source: HENG (2006, p. 5)

The OECD (2007b) names the following methods of data service classification:

1. Connection patterns (direct or indirect);
2. Distinction between private and corporate usage;
3. Flat rate or non-flat rate (packaged plan or occasional usage plan in the case of non-flat rate).

There are two main connection patterns between mobile handsets and Internet: one is the direct connection of mobile handsets to Internet, and the other is the connection of PCs to Internet by mobile handsets or net-connection cards (see Figure 13). In countries such as Japan, where NTT DoCoMo launched i-mode in 1999, 2G was also used for data services and mobile handsets were directly connected to Internet. The European operators provided Internet access through WAP. However, unlike i-mode, access to Internet using WAP has never taken off, although SMS services were highly successful. As 3G services were introduced, data services were provided indirectly through handsets or sometimes with net-connection cards. Nowadays, in some cases 3G operators are providing data services directly through mobile handsets. Some operators have introduced Japanese i-mode. For example, E-Plus in Germany launched i-mode services in March 2002, followed by the launch of services by KPN Mobile in the Netherlands, BASE in Belgium and Bouygues Telecom in France later that year. In Spain, Telefónica Móviles launched i-mode in June 2003, Wind of Italy did so in November 2003 and COSMOTE introduced i-mode in Greece in June 2004. United Kingdom (O2), Singapore (StarHub), Israel (Cellcom), Ireland (O2), Bulgaria (Globul) and Russia (MTS) launched i-mode services in October 2005. Other operators are making their own websites which are specifically developed for their mobile services such as Vodafone live!

Figure 13: Connection Patterns of Data Services

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Source: OECD (2007b, p. 23)

Direct and indirect data services are different in terms of their accessibility to web content. Direct services like i-mode mainly provide specific web access to sites developed specifically for mobile terminals. Here wider access to the Internet is also available but difficult to read using mobile terminals. Indirect data services usually using laptops provide unrestricted web access (OECD, 2007b).

According to the OECD (2007b), almost all operators differentiate between private and corporate usages for data services. Even though operators have a distinction, some do not strictly differentiate private usage from corporate usage and others apply the same prices for both categories. European operators providing services only for corporate users are Vodafone of the Netherlands, Vodafone of Spain, Vodafone of Sweden, and Orange Swiss of Switzerland. The price difference between private and corporate usage varies country by country. For example, Swisscom applies the same price whereas TDC Denmark, for example, sets the corporate price cheaper than the private price. Especially at the start of 3G services, operators tend to focus on corporate users at the beginning because prices are initially high and it is assumed that there will not be a rapid take-up in the initial period from private users.

The OECD (2007b) states, that for 3G data services 31% of all operators (16 out of 52 operators including corporate only usage) in 11 countries give subscribers the option of the unlimited flat rate. Almost all operators provide both non-flat and flat rate tariff plans in parallel. There are some variations in offering flat rate services. For instance, in Korea, KTF offers a flat rate tariff per day as well as per month. TeliaSonera of Sweden offers a “free” data tariff and in this regard it provides a flat rate, but they also charge connection fees that can be regarded as data tariffs. Almost all operators provide data services as a packaged plan including some Mb in advance and additional tariffs per Mb, where additional tariffs per Mb are not usually time limited. Usually operators, such as SFR of France, have minute-based charges. However, Vodafone of Germany offers both minute-based and quantity-based (additional tariffs per Mb) tariff plans. In some cases operators, for example TeriaSonera of Sweden and Vodafone of Ireland, charge connection fees for using data services. In some countries the leading operators use different charging structures. This is the case in Denmark and Korea, where one operator has adopted a flat rate tariff but the other has adopted a non-flat rate package. It is assumed that in these cases the market for mobile heavy data users is not large so that competition in this market segment has not developed.

2.3.2. Specific Case: Development of Mobile TV

Early in the decade some analysts believed that rollout of faster 3G data networks would make television on mobile phones popular (OECD, 2007c, p. 100). New network technologies, such as W-CDMA and EDGE, indeed allow the delivery of TV programming straight to mobile devices. In reality, coverage of the 3G network is still not sufficient, the spectrum resource is very scarce and demand for services is still in its infancy because of its pilot characteristics (OECD, 2007b). Consumers’ habits and the high cost of using the 3G networks for data-intensive applications has made streaming video over mobile networks mainly a tool for low-bandwidth/high-value content such as highlight clips from sporting events. The high price of mobile 3G data has kept most users from using mobile phones to watch ordinary TV programmes (OECD, 2007c, p. 100). In addition, the method of charging varies from operator to operator so that it is difficult to compare the services of individual OECD operators. However, a number of operators with affiliates in other countries (for example Orange, Vodafone and T-Mobile) offer the same services in these countries so that their prices can be compared (see Tables 2, 3, 4 as of March 2006).

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Expansion of Mobile Digital Services: Dynamics, Theory and Policy Options
University of Wuppertal
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ISBN (Book)
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ICT, mobile communications, 3G, UMTS, mobile multiple play, mobile TV, telecommunications
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Olga Syraya (Author), 2008, Expansion of Mobile Digital Services: Dynamics, Theory and Policy Options, Munich, GRIN Verlag, https://www.grin.com/document/229963


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