Tokyo Forum; November 21, 2002

Mobile and Wireless: Global Trends and Strategies

Jonathan Aronson (Professor, University of Southern California)

This is a summary of Prof. Aronson's presentation at the Tokyo Forum on November 21, 2002.

First, note the title of the session. It sometimes gets overlooked. It's Mobile and Wireless. Too often these terms are confused, but they are not the same. Mobile, cellular phones we carry around. That is different from wireless,　particularly with the rise of wireless LANs and WIFI.

Key questions: What is evolving in the wireless landscape? What kind of supply innovations or demand breaks might revolutionize business? What should policymakers do?

Although there have been many challenges and companies have not made much money, the growth of communications has continued. The number of voice and data conversations has doubled every 2 1/2 years since Marconi discovered radio in 1895. That pace is continuing. So we may overshoot from time to time and we may end up with some problems in financing. But demand continues to grow.

Mobile Market Evolution

We know about the simple mobile side, the movement from 1st generation wireless, basically analog cellular, to voice only. Then, to 2nd generation, digital, dual band, voiced and some limited text screens. At this point things got murky. Some have gone to what is called "2.5 G" or "Edge technology." There has been promise and despair about 3rd generation wireless, multi-mode, multi-band, voice and multimedia with global roaming. It has not come on as fast as anybody had hoped. To put this in perspective, in June 2002 the world passed one billion cellular subscribers, but the number on 3G is closer to 25 to 30 million. So 3G is coming much slower. Then, there is talk of 4th generation in the works. As of today, November 21, 2002, there are 26 commercial 3G operators providing some service in 13 different countries. (By the end of 2002 the number reached 33 operators in 16 countries.)

What does 3G mean? It depends on cost structure. What is the cost of broadband services? Is it mobile vs. fixed that you care about? Do mobile users or fixed wireless networks drive demand? What is the nature of demand? Who wants the service anyway? Where is it useful? What role does 3G play in the overall communication system?

The answers to these questions are going to determine over the medium term who wins and who loses. Are we going to have an SMS story? Are we going to have next-generation i-mode? Are we going true mobile broadband? It will differ from country to country. In Finland, for instance, SMS has been a great success. In the U.S., by contrast, it is almost non-existent.

Current View of Mobile-Wireless Landscape

With regard to the current landscape, the point is simple. The more ubiquitous the coverage that you demand, the less data you can put through the system If you have a few spots that are hooked together, you can run large amount of data through the pipes. You can watch movies in your local Starbucks, if you so choose. But if you are in the car or the train, it is much harder. So ubiquity and throughput have a definite tradeoff.

What is going to happen? What are core issues that will impact the shape and content of wireless networks? There are four issues.

First, there are technical considerations. Will affordable global roaming emerge? What will be the impact of increased spectrum efficiency? Will loop routing protocols allow massive video or not?

Second, there are policy issues. What will be terms and the availability of spectrum? How well will we succeed in finding policies that control interference. What will we do about competition and competitive policy? The third issue is business models. What types of traffic will drive demand? Are we looking at integrated or hybrid networks? What will be the role of equipment vendor? How we decide will tell what will happen.

Fourth, there is a user-driven model, and in many countries it is a specific user group. It is not business leaders. It may be the teenage girls who drive the model. We have chat. We have video gaming. We have e-commerce, which goes to a larger group. Which one is going to be dominant? Nobody knows. It will differ from country to country. Users matter. And what users want will in large part determine what takes off and what doesn't. That is all within the mobile network.

Wireless Market Growth

The wireless market is also growing rapidly. According to some estimates of wireless LAN users, we could well see a ten fold increase from 2000 to 2005. It is pushed by increased speed and lower prices. There is a widely adopted standard, laptop usage as primary PCs is growing in enterprise. Interoperability with wireline networks will exponentially increase users. It will come, but timing is difficult to predict.

With regard to 3G vs. wireless LANs, price matters. But, it is really price/MB that is important. It is noteworthy that 3G, which is so often decried as being slow to take off, has done very well in Korea which accounts for more than half of the 3G users of the world right now. It is striking how well they have done with 3G in terms of making money. But it will also happen with price. People will pay a lot of money for few bets. But if you are going to try and transmit large amounts of data, the price has to come down sharply, because people simply will not pay.

Finally, here are some key questions about future growth in the wireless industry. First, regarding the nature of demand, will enterprises or consumer applications drive wireless use? What is the market sweet spot for various services? In terms of spectrum, will 802.11 stay unlicensed and free? Will additional spectrum be made available for 3G? With regard to ownership structure, will the structure of services and operating networks remain integrated or not? Regarding applications, will applications driving growth be consumer or enterprise focused? Which applications drive growth, e-mail, messaging, gaming, streaming or something else? About equipment, what is the best IP strategy for component and equipment makers? And regarding business models, should revenue models change to reach small consumers vs. enterprise consumers?

I have asked you more questions than given answers. This is the advantage of going early in the program. My colleagues now have the opportunity to answer those questions and I will leave it to them. Thank you very much.