ITU Telecom World 2003

October 6, 2003
Evolution toward 2.5/3G challenge for GSM

Geetanjali Wadhwa & Pradeep Chakraborty

GENEVA -- Dr. Tim Kelly is Head of the Strategy and Policy Unit of the International Telecommunication Union (ITU), where he has worked since 1993. Before joining the ITU, he spent five years as a communications policy analyst with the Organisation for Economic Co-operation and Development (OECD) and three years with Logica Consultancy Ltd. Over the last eighteen years, Dr. Kelly has specialised in the economics of the telecommunications industry. He has written or co-authored more than 20 books on the subject including the ITU's "World Telecommunication Development Report", "Direction of Traffic" and "ITU Internet Reports."

Lara Srivastava works as a Policy Analyst in the Strategy and Policy Unit of the ITU in Geneva. Her work has centered on mobile and wireless technologies. She is responsible for monitoring and analysing trends in information and communication technology, policy, and market structure, with a particular focus on mobile communications. On the eve of ITU TELECOM WORLD 2003, Convergence plus spoke to Dr Kelly and Ms Lara Srivastava to find out about the challenges ahead for GSM and the roadmap to the next "one-billion subscribers." Excerpts from an interview.

Convergence plus: What are the issues confronting operators as they enter the next decade of GSM? What does the future of GSM hold?

Dr. Tim Kelly and Ms Lara Srivastava: GSM has succeeded in becoming the dominant standard for 2G digital cellular mobile services worldwide. While it is dominant in Europe and Africa, it is only one of several competing standards in other parts of the world. The main challenges for GSM include evolution toward 2.5 and 3G mobile standards, offering seamless transition path for users and providing interworking to the maximum extent possible; reduction of termination charges for calls to GSM mobiles (especially in Europe) and reduction of roaming charges between countries; continuing to expand geographical coverage, especially in those parts of the world that are currently underserved. This will require continuing reduction in the price of ownership of GSM, as well as the development of equipment that can serve lower population densities.

CP: A key question today is "how to get the next one billion subscribers?" How should the industry address this issue?

TK & LS: The "next billion" subscribers will generally be less well off than the first billion subscribers. They will also be more likely to be either much younger or much older than the first billion. As digital mobile cellular services enter the mass market, they will target those who are currently underserved either because they cannot afford the service, or because they live in a household with only one existing mobile phone. There are, currently, around one and a quarter billion mobile phone users worldwide shared between around one and a half billion families.

A quarter of a billion families have more than one mobile phone (including users who have a business mobile and a personal mobile, or multiple accounts). Half a billion families have one mobile phone and three-quarters of a billion families have no mobile phone.

The "next billion" will probably be reached by selling a further quarter billion mobiles to families that do not own one and around three-quarters of a billion to younger and older members of families in which one family member already owns a phone. In future, the gender balance in mobile phone ownership will also become more even.

CP: What sort of strategies should operators follow for mobile applications?

TK & LS: There are a number of factors that will enable the rapid and successful development of mobile applications, particularly as the industry moves toward higher-speed mobile networks. First, the wide availability and affordability of adequate Internet-enabled handsets will be a prerequisite for users. Mobile operators should ensure they work closely with equipment manufacturers during the handset design phase.

Second, simple and transparent billing models are required, taking into account the difference between voice and data services and the growing importance of content. Services such as i-mode combine monthly subscription with volume or packet-based billing. Always on GPRS billing models have evolved with the introduction of volume-based charges. With high-bandwidth applications and increased spectrum efficiency, operators will increasingly move towards flat rates for mobile data (as has happened with fixed data). A number of mobile operators are already considering flat-rate schemes for data services. Hutchinson Whampoa is offering flat-rate schemes for voice and multimedia on its 3G networks in Italy and the UK.

Third, ubiquitous and seamless coverage will be an important factor. Applications will gain popularity if they are available to users anytime-any place. This will require significant co-operation between service providers for facilitated roaming and interconnection agreements.

Finally, unrestricted and non-proprietary mobile Internet content needs to be fostered. Operators should be cognisant of the fact that services defined (or customised) by users (including pure user-generated content) will be the important drivers.

CP: How should operators adapt or create content for this potentially huge market?

TK & LS: What we have learned from the success and failures of data applications for the 2G market is that person-to-person (P2P) messaging, simple interfaces and timely content delivery will be the key to future service development. Mobile service providers must aim at providing users with a number of important elements which would add value to existing SMS and voice services: these include personalisation, entertainment value, location sensitivity and time sensitivity. Efforts should also be made to lift language barriers for truly global coverage.

It is clear that at this time, the majority of mobile data revenues are not stemming from simple Internet browsing. In order to build upon the success of messaging, operators are exploring ways in which to use SMS and MMS as an initial medium to deliver targeted content to users, rather than leaving users to browse Internet content, unguided. In Hong Kong, Hutchison Orange's UK premiership football service is a good example, which provides timely SMS-alerts of starting line-ups, goals scored and red/yellow cards issued during the match. Other types of services allow subscribers to find other users in their vicinity (that have opted-in to the particular service) to engage in games or chat sessions. In Japan, over 80 percent of respondents of a 2002 survey by the Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT) use their mobile to play video games on a regular basis. This large user group, combined with the number of messaging users can provide a significant business opportunity for operators.

CP: How can we use new media applications and technology to build on the existing base?

TK & LS: As many mobile markets are reaching saturation, mobile operators no longer need to focus on acquiring new customers, but rather on preserving existing ones and increasing ARPU, through the provision of simple but diversified services. As mobile applications become more and more widespread, users will use mobile devices for a wide variety of electronic communications. Service providers will need to provide platforms capable of integrating a growing number of systems and services.

Therefore, when creating and deploying applications for newer multimedia handsets, developers and operators should consider access for standard mobile phones and regular PSTN and Internet users. This will widen the overall reach of the given application. Companies should try to leverage existing systems when possible, and create platforms and services that are interoperable with existing ones, in order to shorten the time to market. On the whole, service providers must realise that these collaborative efforts and bundled service packages will go a long way in stimulating the market. Operators such as NTT DoCoMo, for instance, have launched 3G mobile phones with integrated WLAN capability.

CP: What is the potential for content crossing different platforms?

TK & LS: The essence of the digital revolution is that information can pass easily, in digital format, between different platforms. It also means that content owners have more choice of distribution channels in which to market their services. As an example, owners of rights to sporting events can now auction the rights to send highlights packages or results updates to mobile phones and to the Internet as well as to TVs, radios, newspapers, etc. Since content owners may feel uncomfortable about content passing between platforms (for instance, a song downloaded on a mobile being transferred to a computer), they may seek technical limits on the ability to do so. However, for user-generated information (e.g., photos, jokes, etc), the desire to pass information between formats (e.g., being able to use instant messaging services on a mobile phone) may be strong. Thus, manufacturers need to be able to offer content providers mechanisms both to encourage and to limit the potential for content crossing different platforms.

CP: How key are mobile portals for increasing ARPU?

TK & LS: Evidence from the Republic of Korea, which is probably one of the most advanced nations in the use of mobile Internet services, suggests that ARPU on high-function mobile phones (e.g., with colour screen or access to data services) is up to four times higher than basic mobile phones, used for voice only. Portal services that guide users to sources of premium content, as well as making basic messaging services more fun to use, are essential in increasing ARPU. Interestingly, all other things being equal, the availability of a colour screen seems to be what makes the most difference.

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