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I n the 16th centu ry there lived a genius w ho was ahead of hi s time. A man who dreamed of f lying, wh il e otherslooked at the ground.

A man who was a scienti st in a wor ld of poets, and w as a poet in a wor ld of w arri ors.

A man wh ose faith in M an m ade him imm ortal in our m emory.

L eonardo da Vinci, who availed him self of w hat was known, was using not his intelligence but h is memory.

A nd w ith h is passion f or i ntelli gence he revealed new r egions of k now ledge for fu tur e generations.

Five centur ies later w e open the present Foru m w ith thi s same passion f or i ntell igence, at a tim e w hen areas of k no-w ledge have but m ult ipl ied and their exploration call s for the endeavour of m any.

T hank you for sharing th is tri p.W elcome to the Futu re T rends Forum !

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3

Acknowledgement s

Our special t hank s to all members of t he FT F w ho have made possible the success ofthe second FT F m eet on thi rd-generation m obili ty (3G), especiall y to those w ho havetaken part actively i n t he production of t his publication:

o Javier Garca Cogorr o.o A ntonio Carr o.o Carl os M ira.o Juan Soto.

o Jens Shulte-Bockum.o Paul van D oorn .o Jos Manuel Pez.

M any thank s.Fundacin de la Innovacin Bankinter . [/Bankinter Innovation F oundation]

(c) 2004 Fundacin d e la I nnovacin Bankinter. A ll r ight s Reserved

Acknowledgements

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Int r oduct ion

uly 2004, Rit z H otel, M adr id : experts in m ul tiple disciplines meet at theFuture T rends Foru m (FT F), pri ncipal project of the Bankinter Inn ovationFoundation. For three intensive days they have been listening to, discussing,

analysing, and placing on the table multiple ideas about the future most probablyaw aiti ng the new generation of m obile telephones, known as 3G. W hat opportunit iesmay we expect to encounter, in which sectors, with what limitations and impedi-

ments? W hat is the potenti al lying before us for those new w ir eless communi cationprocedures that will exploit greater bandwidths, more sophisticated terminals, newappli cati ons, and new suppli ers of content? T hese were some of t he questions deba-ted.

T he end of th is experts' m eet w as merely the start for a study in to the matter, carri edout by the Foundation and its members. It was undertaken to analyse and assesseverything seen and heard at the Forum . T he cur rent temperature of 3G in the wor ldw as measured. M embers of the Forum and experts in the business of m obile telecom-munications were consul ted regarding the conclusions reached, the aim being to dr awup the present fi nal report .

What is underst ood by 3G?Under the heading thi rd generation, 3G, the mobile telephony industry br ings toge-ther a set of new procedures and technologies that wil l enhance and mul tiply t he ser -vices available in mobile telephony.

3G will include a multitude of new services such as videoconference and enhancedvoice, access to the Internet, electronic transactions with banks and outlets, locating,video games, music, and endless solutions that will combine the characteristics of thepersonal computers connected to h igh-speed network s on th e Int ernet, wi th those ofubiquity, portability, and penetration into the mobile telephone population.

But 3G is something more than multiple technologies and new services. It represents

the decision of an industr y, on the basis of vast i nvestm ent, to make a qualit ative leapin the use of m obil e telephones..Perhaps encouraged by the overly optimistic expectations regarding the Internet, in2001 a lot of the firms in mobile telecommunications invested heavily on the basis ofpredictions for the consumption of services by future users.

T he mass media attr ibu ted special signi fi cance to the astr onomical fi gur es reached atthe auctions organized by the governments of some countries in the 3G radio spec-tr um , the channels by w hich thi s new generation of t elephony w ould reach the custo-mer.

A lso, the success achieved in mobile telephony data services in some A siati c countr ies,

such as Japan and K orea, has greatly excited the optimism of E ur opean and A mer icanoperators in regard to these services.

5

Execut ive summary


Execut ive summar y

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A nd now, follow ing great expectations and heavy investm ent, w e come to themoment of tr uth , the start of t hi rd-generation telephony serv ices. T he dilemm a at thispoint lies in how we must manage all the related complications, such as technology,design of terminals, business models, invoicing models, and critical masses whereclients are concerned. W e have to mak e sur e w e do not come up against another bub-ble, as in the case of the In tern et.

Forum conclusions

W ith everyth ing on the table, the For um members were able to reach consensus incert ain areas. I t was basicall y agreed that t he fut ure for mobile telephony li es in the"all-pur pose Sw edish bl ade", a device that w il l combi ne the function of the present-day mobile telephones, electronic agendas, and personal computers with high-speedInternet connecti on, camera, credit card and general payment m eans, etc.

W ith out doubt i t w il l be necessary in the industr y to have technological standards andformat standards that apply to everyone. Especially in the interfaces of the mobiledevice itself, such as keyboards, screens, navigators, and memory cards.

T he takeoff of t his new generation of mobiles w il l also depend on the existence of a

critical mass of terminals in the hands of users, a mass that will encourage others topur chase services of t his new t ype. T his in tur n w il l call for contents and devices thatare cheap, simple, and easily accessible to the mass markets steadily more accustomedto handing electr onic devices.

In spite of all the advances that 3G brings us, the members concluded that the ques-tion is less one of rupture than one of the evolution of services currently offered.Perhaps by combini ng i n one single device the functionali ties curr entl y avail able in agreat many apparatuses. H ere it is dif fi cult to foresee the appearance of a new k il lerapplication capable of inducing a drastic change in users' customs, one reminiscente.g. of voice on the fi rst mobil e telephones or the shor t messages (SM Ss) that use digi -tal tr ansmission technology.

T here are many social f actors that w il l undoubtedly aff ect the development of t hesenew services, the sense of belonging to var ious social groups, changes in habits, timeemployed in public transport , the ideal m oment for using the mobile, the ageing of thepopulation, etc. T hese w il l have to be taken in to account in desinging content for t hetechnologies.

T he expert s also advise us that it is not so sim ple to extr apolate fr om A siati c successmodels (especiall y in Japan and K orea) to Eur ope and the US, since the social featu -res di ff er . Great care w il l have to be exercised in looking at these di ff erent m odels anddraw ing conclusions from one side or the other .

Finally, the acceptance of mobile telephony by large segments of the population in

advanced countr ies suggests that th ir d-generation mobile telephony w il l i n ti me w inover t he mass mark ets.

6

Not es

Execut ive summary


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CHA PT ER 1

Prologue

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Prologue

After many false starts it w ould fi nally appear that th ir d-generation technology(3G) i s going to r each Eur ope. T his coming Chr istm as the consum er w il l beable to choose from a broad range of equally fascinating products, as well as

fr om services either new or im proved.

W hat sort of im pact w il l w e see in the long ru n? A re w e w itnessing a technologicalrevolution or simply the enhancement of services already offered in mobile tele-

phony? T he Futu re T rends Forum has sought t o throw l ight on these questions, andsome of i ts thi nk ing i s sum med up in the present publi cation.

3G technology appears to be considered one of the greatest t echnological i ni ti atives inthe history of t he modern economy. A t the high point of the "new economy", exagge-rated by the success at w orl d l evel, and w ithout competi tion, of GSM technology inthe late 1990s, Eur opean policymakers smoothed the path toward the next stage in theconquest of m obile telephony: 3G spectr um li cences. T he mobil e telephony operatorsdidn 't have to thin k much about it before seizing thi s opportunit y. Fur ther, m obiletelephony w as a gold m ine where the collection of t axes w as concerned.

So what point are we at, now that the technology has attained to legal age?

33G/U M T S is a fu ll y standardized, broadband mobile technology, i.e. it i s not a pro -prietary one. It operates on a spectrum with licence and offers an omnipresent servi-ce, as w ell as absolute mobili ty. 3G netw ork s offer more capacity than G SM netw ork sand provide vid eo suppor t of an acceptable quality. T hanks to the overall backing ofthe industr y, the costs in u sing i t w il l di min ish. T his w il l sooner or later l ead to exten-sive coverage in the developed mark ets. W ith the early success of 3G t echnology, andw ith t he insatiable demand for broadband having been met, the 3G extension devicessuch as H SD PA , which provide connection to 2 M bps, wi ll be used f rom 2005onward.

3G technology has sufficient potential to affect at least four types of service offering:

1. A ccelerate the replacement of f ixed voi ce2. L end support to new types of data service for consum er mobiles.3. Facilitate wireless access to broadband.4. Mobili ze the pr incipal appli cations for businesses and f ir ms.

Current mobile telephony services entail high premiums for mobility, at least inEuropean m arkets. A lth ough in pr inciple mobil e telephony i s perceived as somethin gthat cannot be improved on, the high prices and the doubtful, lower quality of voiceconveyance have in the past slowed down the transition from stationary to mobile.T he 3G netw ork s w ill help to overcome both barr iers: netw ork s of the futur e w ill bevir tuall y unrestr icted i n capacity w here voice is concerned and w il l pr ovide sound ofhigh q uality, matching that offered by the fixed networks. T heir use in mark ets w ith

low premiums for mobility, such as the US, suggests that the replacement of fixed

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Prologue


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voice is not onl y possible but also economicall y vi able. U lt im ately t here is no reason tobelieve that the use of fixed telephony can survive.

H owever, w hat about data? W here are the killer applications?

W e beli eve that data appl ications are inherently heterogenous. I n the consum er mar-ket, a small percentage of the user base becomes a big user of specialized applications(e.g. games via mobil e). T he ind iv idual pr eferences are highly f ragmented, as may be

seen i n easil y observed use patterns. H owever, several l ong-term tr ends in consum erbehaviour w il l smooth the way tow ard the use of data via mobile. Replacing traditio-nal social m odels, the consum er w il l d emand a higher level of in teraction over a dis-tance. Our firms, which are attaining to adulthood and thinking about health andsafety, wi ll add to the demand for new services. People wi ll look for new w ays of dea-ling with the complexities of day-to-day life. Finally the workplace concept will betr ansformed in the in formation economies and i n th e services of tom orr ow.

T he trend w ould seem to be toward the following:

1. Good comm unications: for example, on the basis of vi deo, to share experiences with those communities with which there are strong links.

2. I nform ation avail able at any point : for example, personalized tr ain ing andan envi ronment that i s in telligent and aware of the context.3.Entertainment ("w ithout a moment of boredom"), including vir tual expe-

r iences in h ighl y animated 3D envi ronments.4. Commerce and transactions: for example, medical and financial services,

and t r ips without unpleasant surpr ises, based on in telli gent systems and personal pr e-ference parameters.

5. Storage and personalization: for example, term inal personalization accor -ding to personal taste and access to own digital rights and personal data libraries.

T he 3G mobile netw ork s w ith suff icient broadband and capacity, w hich in addit ionfacil itate things li ke locali zation, payment, and presence, wi ll provide the platform for

this new world.

3G technology also wil l m ake possibl e access anyw here to broadband d ata. T w entyyears after telephony begins to f unction w it hout cables, businesses and consum ers w il lhave the option of connecting to the Internet w ith a mobile phone no m atter w herethey may be.

Businesses speak about secur it y and i ntegr it y, speed, and r eli abili ty as their three prin-cipal needs in relation to mobility, and 3G technology will contribute to their beingachieved. It is predicted that the applications market for mobile telephony will triplebetw een 2003 and 2008. A lso w e expect that the fir st w ave of appl ications for mobiletelephony where businesses are concerned will be centred around basic

functional/hor izont al needs. It i s highly pr obable that the second w ave w il l m eet m ore

Not es

Prologue


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complex requi rements and in addit ion guarantee deep in tegration w ith business pro-cedur es. M any of the applications w il l r equi re a real-time connection that i s reli able.T hey wi ll include di rect access to ERP and other back -end compu ting systems, andwill be much more data-intensive.

Only one convincing ver ti cal comput ing application w il l be possible for mobiles if theISV s, the systems integrators, and th e OEM products seek the w ay to enter the fi eldand meet the client's needs fr om star t to f in ish. W ithin th e consum ers' dom ain, the

suppliers of media contents and other industries directed at the consumer will have tolearn the way mobiles are used and collaborate with the operators in order to reachthe users of m obiles and pr omote the mobil e as a new channel. T he combination ofthe operator's capacities and those of the firms supplying content, integration, andfunctionality of the terminal can lead to rich economic ecosystems in the world of"in fo-enter tainment" and of productivit y based on w ireless technology.

W ith an increase in the economic possibi li ties and a radical r edi recting of costs awayfr om the physical and back to the experi ent ial (leisure, discoveries, tour ism, enter -taintm ent), the prior condi tions for comm ercial success are there. T he magnitude ofthe change that we see now w il l depend on the abil it y of the industr y to launch inno-vative, easy-to-use services, as well as to develop commercial models that make sense

from the client's point of view

Jens Schult e-Bock umD ir ector of C orporate Strategies, V odafone Group

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Prologue


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I nt roduct ion to the Foundation andto the Futur e T rends Forum

CH A PT ER 2

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Int r oduct ion t o t he Foundat ion

and t o t he Fut ure Tr ends For um

A new and impat ient r ealit y

A ll that we today possess, use, or un derstand w as not l ong ago an idea, an intent ion,a possibi li ty, a tr end. T oday th is cyclic sequence quickens its step, and most of theseadvances come to be realit ies long before the mark et and our society can digest t hem.In many respects our reality does not succeed in making space for another impatientreality t hat is in stock . T hus, on occasion, a future ends up devour ing another fu tur e.Examples, in greater or lesser measure, we all know.

In this new scenario, where present and future become confused, there appears acloud of proofs and cert ainties that i t w ould be opportu ne to clear . T he search for sha-red and more accurate information, the monitoring or discovery of trends, and con-textualization reveal themselves as the most reliable clues for leading us to a greaterfamili ari ty w ith our new technological f utur e.

Fur ther, in t his context of accentuated and strongly i nteractive change, although newbusiness opportuni ties tr ipl e, the capacity f or taki ng hold of them becomes very m uchmore compl icated. I n a sense because what is yet t o come is already on the way out.

In short, the new rules require keener attention, a broader perspective, a more awake

and active disposition.To consolidat e innovat ion

T hus Bank inter sets up it s Fundacin de la Inn ovacin, or I nnovation F oundation,w ith the aim of achieving some infl uence over t he present through look ing toward thefu tur e, as well as of stimulating and consolidating an i nnovative postur e in Spanishbusiness. A n ambi tious project, and cer tainl y an inn ovative one, of w hi ch the mainobjecti ves are to heigh ten the social awareness of technology and to stim ulate the cre-ation of business oppor tuni ti es based on the technologies seen to be emerging. A pro-

ject t hat in addit ion seeks to reassert Bank inter 's comm it ment to society.

Fut ure Tr ends For um (FTF)

T he pri ncipal project of the Bankin ter F oundation is the Future T rends Forum(FT F). A forum w ith an input f rom a select and exclusive number of expert s belon-ging to various areas of knowledge, including scientists and intellectuals of the firstorder, at international level. Some of the most prestigious minds seeking to anticipa-te the immediate future, with a horizon of 3-6 years, detecting social trends, economictrends, and technological currents on the takeoff runway, analysing their potentialim pli cati on in various contexts and determin ing the conclusions that should be disse-minated to t he str ategic points of society. FT F bases it s methodology on mul tidiscpli -nari ty, neutrali ty, and globality, th ree essenti als in vi rt ue of w hich it can guarantee tosociety that no new response to the future will be affected by interests or favouritismof any k ind.

T o this end, in a fir st vi r tual phase, the members of the FT F, work ing through an

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Int roduction t o t he Foundation and t o t he Futur e Trends Forum


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extr anet, propose freely, vote, and fi nally decide on t he theme that w il l later be deba-ted in depth, in the company of the finest specialists, at one of the meets held twiceyearly. In the months following, the conclusions will be studied and the impact theymay have on the new futu re w il l be considered.

Responses, st imuli, and oppor t unit ies

Finally, each of these processes w il l conclude with d issemination to the businessmen,

professionals, execut ives, fi rms, and insti tu ti ons of t he resul ts of such r esearch. T hi sdissemination will be effected through conferences, which will go over the mainpoint s w here Spain i s concerned, and via this publ ication.

T hus on these pages you w il l f ind the conclusions of the fi rst FT F m eet, at w hich atheme was debated that they judged to be of pr ior ity status for our im mediate future:

The t hir d generat ion of mobilit y (3G/ UMTS)

T he Bank inter Foundation hopes on the one hand that thi s publ ication may provideyou w ith answ ers, stimu li , and oppor tun it ies. And on the other hand, that the com-mitm ent and disinterested eff ort of so many persons may result in the defini tive con-

solidation of innovation as a fundamental value and that, further, they may in ourcount ry serve to promote a clear int enti on to go forw ard.

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Int roduction t o t he Foundation and t o t he Futur e Trends Forum


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T he present state of 3G

CH A PT ER 3

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What is underst ood by 3G?

3G, understood as thi rd generation, is a collective term for new procedur es in com-munication, new standards, and new devices that will enhance the quality and speedof services in mobile telephony.3G termi nals w ill combine the functionalit y of a mobile telephone w ith that of a PD A 1

and a personal computer w ith broadband connection to the I nternet, whi le the com-muni cation netw ork s, accordi ng to the I nternational T elecomm uni cations U nion

(IT U ), w il l enable devices thus prepared to transmit or r eceive data at 144 kbps2

orabove. (In practice the technology is facilitating ratios around 384 kbps, very muchabove the 14.4 kpbs of G SM or the 53.6 kbps of G PRS.)

Some of t he most i nteresting fun ctionalit ies w ith 3G, apart fr om i mpr ovement i n th equality of voice transmission, will lie in its instantaneous communication capacities(fax, email, transmission of large files, transmission of images, etc.), broadband con-nection to the Internet (news, videos), videoconference, multimodality 3, processingcapacities that facilitate complex applications by telephone as if with a personal orga-nizer (PD A ), GPS functionalit ies, payment systems, identi fi cation systems, communi -cation w ith radiofrequency, inf rared, transmission by commutation w ith packets gre-ater than poin t-t o-point (alw ays online), global roaming, etc.

What is 3G?

384 kbps

2 Mbps

Low velocity (pedestrians)

Stationary wireless

transmission

ITU requeriments for 3G

144 kbps High velocity (cars)

Table 1. Minimum veloc i t ies set by t he ITU f or 3G t r ansmiss ion.

I t should be tak en i nto account that w hi le 3G is associated m ain ly w ith the avai-lability of greater bandwidth for the transmission of data and voice via mobiledevices, the developm ent of t hese netw orks w il l be accompanied by an increase inthe processing, memory, and mu lt im edia content capaciti es of the term inals. T hi sincrease w il l l ead to the appearance of a more attractive mix w hen the time comesto design new uses in the context of mobili ty.

1 T he Personal D igi tal A ssistant is a pocket

computer that acts as a personal or ganizer.

2 K bps, ki lobytes per second. A t t he end of

the pr esent d ocument there i s a glossary

containing definitions of the technicalterms here used.

3By multimodality is meant the capacity

that telephones wi ll have in the futu re to

interact with the user in various manners

simultaneously, e.g. facilitating access to

telephone appli cati on m enus via keyboard

or voice, according to preference.

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The present st ate of 3G


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Acronym soup

In many cases the popularization of a new technology is preceded by the appearanceof a str ange soup of acronym s. W ith t im e the sit uation becomes sim pler. Someacronym s disappear, others acqui re a more precise meaning. I n some cases the origi-nal meaning is replaced by a popular one.

Such a soup has come for th w ith thi rd -generation mobiles. A nd perhaps it is being

made yet thi cker by t he long w ait between the fi rst m ent ion of services associated w it hthe new generation and their actual avail abil it y for the majori ty of users. UM T S, 3G,CD M A , W CD M A , ED GE , I -mode, and many more are among the ingredients.

I n t he present chapter w e'l l t ake a qui ck l ook at all the technologies involved, at t hevarious w ork groups and fora, at t he devices, and so on, the aim being to sort out t hisconfusion. A t th e end of the docum ent there is a glossary of t hose term s, used thr oug-hout the text, that are newer or more technical.

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33G net works

I T U has approved, as off icial 3G standards, a set of systems that have arisen f romagreement between various companies, grouped under the general nameInternational M obile T elecomm uni cation 2000 (IMT2000), including five radio-tr ansmission technologies:

Of these five standards, basically three technologies have been popularized, namelyCDMA20004, W C D M A 5 and ED GE.

CMDA2000.

T he plan is to int roduce thi s protocol into countr ies w ith cdmaOne6 network s, sinceit is a natural development f rom the latter, approved by the IT U as standardIM T -2000.

T wo phases are envi sioned for the takeoff of th is protocol. Fir st, int roduction ofCMDA2000 1X, which offers approximately double the bandwidth of the currentcdmaOne, wi th 144 kbps (back compatible). T he second phase wi ll include two fur -ther developments of t he protocol, namely the DO version and the DV version of theCD M A 200 1xEV (Fig. 2).

IMT 2000 radio-transmision technologies

IMT-DS Direct Sequence (referred to as UTRA-FDD, W-CDMA, UMTS-FDD)IMT-MC Multi-Carrier (referred to as CDMA2000)

IMT-TC Time Code (referred to as UTRA-TDD) and China's TD-SCDMAIMT-SC Single Carrier (referred to as UWC-136/EDGE)

IMT-FT Frequency Time (referred to as DECT)

37

21,6 21,3 18,4 17 15 11 7 7 5,2Verizon China

UnicomSprint SKT KDDI Vivo KTF Reliance ALLTEL LGT

Ten principal CDMA operators

Fig. 1. Source: QUALCOMM, May 2004.

20


4 Code D ivi sion M ult ipl e A ccess 2000.

5 W ideband CDM A.

6 Cur rent mobil e commu nication standard

in some countr ies, especiall y A meri ca and

A sia.


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WCDMA

T he idea behin d th is 3G technology is to off er high bandw idth f or voice and data,w ith velocities up to 2 M bps, suf fi cient for such appli cations as vid eoconference. T his

technology is a good choice for the mid term or long term, since it offers greater pos-sibil it ies. T his in spite of it s greater complexity. F or example, the receptor algor ithmis computationally more complex than that of telephones of t he preceding generation.

EDGE

T his is not really a 3G pr otocol, since the aim behind it s design w as to enable GSMand T D M A , netw ork s of the second generation, to tr ansmit data at 384 kbps w ith intheir frequency space. Ericsson developed this technology for those operators of 2Gnetwor ks that w ere outside the 3G spectrum auctions, hence it w il l be adopted main lyby those companies that encounter problems in having available a spectrum that willallow them to transmi t w ith CM D A 2000 or W CD M A , perhaps as an interm ediatesoluti on un til they have a spectrum.

GSMHSCSD

115 Kbps

PDCPDC-P

14,4 Kbps

cdmaOne76,8kbps

GPRS

171 Kbps

EDGE

384 kbps

EDGE Fase 2

473 kbps

EDGE Mejorado

2 Mbps

WCDMA FDD

WDMA TDD

2 Mbps

WCDMA HSPA10 Mbps

CDMA2000 1x144 307 kbps

CDMA20001xEV-DO Fase 1

2,4 Mbps

CDMA20001xEV-DV Fase 2

4,8 Mbps

Second Generation Third Generation

TDMA

CDPD43,2 Kbps

Fig. 2. The evolut ion of t he var ious prot ocols available, wit h t hei r t heoret ical maximum veloc i t ies .

Note how 3G prot ocols fol low on f r om cert ain of t oday's 2G prot ocols . Source: UMTS World.

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Concepts such as ubiquity, locating, and identification are associated with the newmobile telephones. A long w ith th e capacity of the new term inals for high-speed datatransmission and m ul timedia (music, photos, video), they wil l r evolut ioni ze the appli -cations and services offered to 3G users.

I t i s general opinion in the industry (as reflected i n U M T SW orld 7) that 3G will notint roduce a k ill er application8 that m ight tip the balance in favour of thi s technology,as has occurr ed w ith others. Rather i t i s a large group of them th at w il l take advanta-

ge of the new bandw id th avail able as well as the capaciti es in processing, memor y, andmu ltim edia of the new term inals.

T he UM T S Forum divides possible appli cations into tw o large groups: connectivit ycontents (the telephone as a unit of equipment that can exchange information) andmobility contents (the telephone as a portable unit that "we always carry with us").A nd these in tur n in to six gr oups:

I t i s possibl e, of course, to fi nd many other classif ications. For exampl e, thr ough agre-ement w ith N OK I A , 3G applications and servi ces w ill be divi ded i nto six l argegroups:

Personal appli cations that combine entertainment and i nform ation.M ul timedi a message services.

M obile access to int ranets and extr anets..M obil e access to the Internet.L ocati ng systems.Enr iched voice.

33G applicat ions

7 UM T SW orld is an important and known

forum , independent of the In ternet, w hose

aim i s to provide fr ee and ind ependent

inform ation regardin g 3G industries andtechnology (http://www.umtsworld.com).

8 See the glossary at th e end for a defin it ion

of the term ki ller application.

W ir eless adverti sing.M obile information.Bu sin ess solu ti ons.

M obile tr ansacti ons.M obile entertainment.Person-to-person communications.

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It may be concluded that mobile applications of the future will be based on what itmeans to have a mobile telephone of the present generation, i.e. with the capacitiesand service avail able today. W e can thus ident if y four br oad uses for the mobile of thefuture:

T he mobile as telecomm uni cati onsequipment

T he mobil e as remot e control

V oice enhancement , videoconference, radio and d igi talT V , In ternet sur fi ng, access to in tr anets, tr ansactions,

geolocati ng, navigation

In teractions wi th local equipment at home or i n theoff ice, autom atic tellers, vendi ng, payment in shops

T he vari ous fun ctions of a mobile

T he mobile as mult imedia computer Games, organization, off ice automata, music, video

T h e m obi le as cont ai ner Pur se, cr ed it car d, con tai ner for cer ti fi cat es

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3Market division

Int r oduct ion

It is not simple to give any single figure for the distribution of the 3G market for thesimple reason that there are different opinions as to exactly what 3G is. In additionthere are many details regarding the telephony contracts of operators that are notpubli c, or else they are stati sti cs suppl ied by operators or manufacturers but based onestimates and not on solid data.

H owever, the UM T SW orld forum has endeavoured to compi le statistics on thedeployment of UM T S/3G networks. T hese fall into thr ee types:

The maker s of inf r ast r uct ure f or mobile communicat ions

H ere the undisputed leader, whatever the generation, is Er icsson. Accord ing to sour -

ces in the Yank ee Group, i ts share in 2002 was 27% (F ig. 3). It is foll owed by Siemens,N okia, and M otorola.

I n 3G, Er icsson has know n how to maintain this leadership . It was leader for exam-ple in 3G W CD M A in 2003 w ith 38% of the market (Fig. 4). I n addition i t is the lea-der in ED GE technology, so that it is in a positi on to off er a 3G soluti on to operatorsthat w ith 2G G SM or T D M A netw orks not have secured broadband in the W CD M Aspectrum.

Communications infrastructure.Users' terminals.Operators and subscr ibers.

Ericsson 27%Nokia 14%

Motorola 10%

Nortel 9%

Lucent 11%Siemmens 11%

Alcatel 6%

Others 12%

Shares in the mobile infrastructure market

Fig. 3. Sour ce: Yankee Group. Dat a: 2002.

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The makers of mobile t erminals

In recent years the global market

9

for mobile term inals has grow n beyond all expec-tation. More than 515 mi ll ion m obile telephones w ere sold i n 200310, 20% up on theprevious year . It is in Europe, the N ear East, and A fr ica that th e market show s thestrongest gr owt h (and G artner D ataquest r eports that sales in EM EA grew by 35.5%in 2003). A lso, terminals are in str ong demand in China.

W here companies are concerned, N oki a in F in land r emains und isputed leader w ithmore than 179 mil li on telephones sold i n 2003 (19% up on the previous year). W ith amarket share of 34%, it i s foll owed by M otorola in the U S, Samsung i n K orea, andSiemens in Germany. (See Fig. 5 for global market figures.)

Fig. 4. Sourc e: UMTSWorld, 200 3

Nokia 34,8%

Others 20,9%

Motorola 14,5%

Samsung 10,8%

Siemens 8,4%

LG 5,3%Sony-Ericsson 5,3%

0

20

40

60

80

100

120

140

160

180

200

Nokia Motorola Samsung Si emmens LG Sony-Ericsson

2003 2002

+20% crecimiento 2003

N

umberofterm

inals(x1m

illion)

Fig. 5: Wor ldwide sales of mobile ter minals 2002-2003. Source: Gart ner Group and other analyst s.

9W orld m arket for m obile telephones of

every generati on. Mor e than 600 mi ll ion

term in als are predicted for 2004.

10 A verage fi gures on the basis of studies

carr ied out by the Gartner Gr oup and

Str ategy A nalyti cs.

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A ll the leading m akers of m obile term inals have hurri ed to develop new m odels com-patible wi th 3G technologies. H owever, the major penetration of 3G in K orea and thehigh l evels of t elephone turn over there mean a boost for the K orean fi rm s Samsungand L G i n the race for the broadband telephone market.

Operat ors and subscr ibers

T he mobile mark et

V arious sources estimate that by late 2004 there wi ll be 1379 mi ll ion subscribers tomobile telephones thr oughout the w orld, up 186% in fi ve years.

In China, though penetration there is low in percentage terms, there are almost 300million subscribers. It is thus the biggest market on the planet, followed by the USw ith 164 mil li on, Japan with 82, and G ermany w ith 64.4 (Fig. 6).

A mul ti tude of operators are to be found in thi s vast mark et. A t the end of 2003 thebiggest in terms of subscript ion w ere China Mobile, V odafone Group, and ChinaUnicom (See chart).

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

1991 1993 1995 1997 1999 2001 2003 2005 2007

123m

56m62m

ChinaUnicom

41m

Orange

China

Mo

bile

Vodafone

119m

T-mobile

ATT

27m 27m

TelecomItalia

27m

Singtel 22m

Cingular

19m

Telefnica

Mviles

296

164

82 64 53 50 39 39 33 33

China US Japan Germany UK France Brazil KoreaItaly Spain

Subscribers(x1million)

Fig. 6: Pr inc ipal markets and operat ors . Sources: UMTSWorld and eMarket er ,

November 2003.

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3G

W here count r ies are concern ed, the leader in 3G is wi thout doubt South K orea11, wi th21% penetration among the population. T hi rt y per cent of the mobile telephones inSouth K orea are 3G, follow ed by other count ri es in A sia, Canada, and northernEurope. (See Fig. 7 regarding m obile broadband penetration.)

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

120,00%

South

K orea

H ong

K o n gCanada Ta iwan Iceland Denmark Belgium Sweden Aust r ia

M obiles overall

M obiles 3G

Penetration of m obiles

Fig. 7. Showing the nine count r ies wi t h highest 3G penet r at ion in 2003 in compar ison wi th overal l

mobi le penet r at ion, in each case in relat ion to populat ion. Note t hat in some count r ies , e.g.

Taiwan and Hong Kong, ther e is mor e t han one mobi le per inhabi tant , which gives us f igures over

100%. (Source: ITU, late 2003.)

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11 See Appendix A for a study of 3G in

K orea.

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3Demand

T he considerable growth of m obile second-generation telephony in r ecent years, lea-ding alm ost t o saturation in many developed count r ies, suggests a promising fu tur efor solutions in 3G telephony, mainly data applications. It is clear that there arevarious factors that w il l facil itate this development, such as the foll owi ng:

Social

T echnologies

M ark et tr ends

A lso there are inhibiti ng f actors, however, such as the foll owi ng:

Em ergence of a society w ith a computer culture.A mong the population, an increase in m obilit y and t ravell ing.D igit ization of m any processes12.

Falling price of electronic devices.A ppearance of i ntegrated mult im edia applications.A ppearance of devices that are steadi ly r icher in features, more usable, andmore attr acti ve.

Rapid penetration of mobile telephones.A doption of the I nternet.D evelopment of electronic trading.D evelopment of portable devices and PD A

12 See the glossary at the end for a

definition of the term digitization of

processes.

I n m any cases there is no clear bu siness model (hence there are not suf fi cientincentives for the content developers).For many of the services off ered there is no w ell -defined demand. (W e fi nd

ourselves faced w ith a suppl y m arket. Such a situation, w ith it s attendantbad experience, arose with electronic trading on the Internet.)T he question is one not of technological ruptu re but of t echnologicalgrowth, for which reason it is not so easy to persuade people to adopt thenew technology.It may prove expensive, i.e. the consumer may see the price as exceedinghis/her own value appraisal.T he consum er w ith w hom advanced mobili ty tr ium phs is the city user, whoin many cases has a high level of t echnological k now ledge and spends a lotof ti me on publi c transport (Japan, K orea). T his profil e is unli kely f or sometim e to show up in Eur ope or the U S.

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3The sect or

Int r oduct ion

T he deregulation of comm uni cations, the rapid and forcefu l penetration of mobil etelephony, and the emergence of new businesses, such as that of data via mobi le, haveencouraged, especially in recent years, many firms to become part of this sector.Operators, generators of content, the makers of infrastructure technology, and themakers of mobile term inals crowd in to the value chain of t his industr y.

M ost of these companies are tak ing up posit ions in r eadiness for the th ir d generation.Operators are choosing the technologies most conducive to the takeoff of their net-works, looking for their business models in the new applications and services, andplanni ng for penetration in to the mark ets. Manufactur ers are developin g technologiesand preparing for any r edeployment of investm ents (Fi g. 8). A nd naturall y the gene-rators of content, who at present assume greater importance with the appearance ofmany new applications and services that exploit the advantages of 3G, are also gett ingready.

Value chain

One of the keys to the success of 3G li es, w ithout doubt , in establishing a sui table busi-ness model, one that is valid for all those making up the value chain.

H ere the value chain can be seen as made up of f ive great l inks, namely content sup-pl iers, content aggregators, suppli ers of communication services (operators), suppl iersof communication infrastructure (network), and final distributors (see figure below).

GSM/GPRS/EDGE60%

cdmaOne/CDMA2000

23% TDMA 10%

WCDM 7%

Shif t to investm ent i n network inf rastru ctur e

2002

GSM/GPRS/EDGE41%

cdmaOne/

CDMA200023% WCDMA

36%

2007

Fig. 8. Source. The Yankee Group

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T he content pr oviders undertake to design and develop services via m obile. A lthoughvoice, the pri ncipal service at thi s time and k il ler application13 in mobili ty, is a serviceprovided by the actual operator. D ata services, includ ing mBank ing, mCommerce,GPS, the Int ernet, music, and video, are provided by thi rd parties.

T he content aggregator is the value chain l ink that m akes it possible to group all theservices on off er in such m anner that t he user may easil y f ind w hat he needs. T his isthe case, for example, w it h the I nternet sit es on mobil es14, the searchers or aggregators

of vari ous types of inform ation.

Operator and netw ork are basic inf rastr ucture link s, normally dominated by telepho-ne companies. I n most count r ies today they are the parties in charge of invoicing theclient . T he success of the business model depends to a great extent on how they orga-nize thi s invoicing, and on w hat par t is transferred to the other link s.

T he final l ink in the chain is the distr ibutor of the service, basicall y the telephone ter -minal. In the case of 2G, notewor thy success has resul ted fr om the contr ibut ion madeby other li nk s to i ts costs. H owever, the client has in consequence got used to the ideaof paying l it tle for the hardw are (the telephone), alth ough he pays somewhat m ore forthe service (norm ally in the form of call s). T his w il l have to be taken in to account in

the development of t he 3G business model.The business model

T he business model in telephony (f ixed and m obile, voice and data) may beil lustr ated as fol low s:

13 See the glossary for a definition of the

term ki l ler application.

14 A s is the case of I -m ode (referr ed to as

E-mocin in Spain) and V odafone Li fe.

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Initially a single company held a monopoly in all telecom services.

L ater the operator and the access networ k becam e disjoi nt, and i n addi ti on the ter-m in als w ere fr eed. T hi s m odel appeared both i n cable telephony and i n w ir elesstelephony.

T he value chain becomes compl icated when data services are offered, atwhich point the content supplier is clearly distinguished from the operator.A lso it i s possible to discern an extr a li nk w ith the function of content aggregator (or site), init iall y offered by the operator.

T he business model in sofar as concerns data via mobile telephone, and th is clear ly isthe 3G m odel, w ould appear to rest on a set of start ing poin ts:

A problem for coming years is that of decidin g whether thi s business model w il l haveto be altered.

L essons to be learned from the success of I nternet vi a mobi le in Japan

In the appendices we look at the considerable success of surfing via mobile in Japan(especially w ith N T T D oCoMo's I-m ode). > Fr om this model w e can derive lessonsfor possible appl ication to incipi ent 3G business in Europe and the US.

T he content suppli er receives a par t of the operator's invoicing, so that, on the

one hand, i ts busin ess may be pr ofi table.

T he user m ust contin ue paying a single invoi ce (the phone bil l), though i n reali ty h e is paying f or all t he value services he receives. T he operator h as to d is

tr ibu te these revenues along the value chain.

T he term inal conti nues to be subsid ized by the other elements in t he chain,

since the user does not ascri be too much value to the hardw are.

I n Japan there is no legislati on already w ork ed out. Rather t here is sw if terderegulation, and the competiti on is adm itt ed m ore sw if tly than in other countr ies16.16 T he deregulati on of var iou s aspects of

mobile telephony began sooner in Japan

than in other countries.



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Third gener at ion in Spain

T he UMT S18 li cence auction i n Europe in 2000 cost E ur opean operators over 100,000mil li on euros. T he rationale behind this vast layout was based on such unrealisti cexpectations as that of supposing that by 2004 there would be ten million 3G users inGermany, when in reality the various companies, having launched their 3G services,enjoy only an insignificant number of subscribers.

T oday, in 2004, w it h expectations much m ore conservative, studies by vari ous consul -tancies suggest that 3G operators are unli kely to recover their investm ent in less thanten years, and in many cases are lik ely to have overrun their li cence period before they

do.

In these circumstances the Spanish Government in 2004 made the conditions morefl exible. T hese concern m ainl y periods and coverage, though agreements relati ng toinvestments will be maintained (11,200 million euros in ten years) and the creation of16,000 jobs within five years is expected.

Of the four companies aw arded U M T S licences in Spain (T elefnica, V odafone,A mena, and X fera), only T elefnica and V odaphone have so far undertaken to placeterminals on sale. T his they did, somewhat ti m id ly, in late M arch 2004. T hus it i s toosoon to speak about established market shares or business models.

T he domi nant mobile operator, N T T D oCoMo, had a clear strategy for coordinating the entire business model, the key to developing a technology with agreat many associated systems (terminals, software, gateways, contents, andnetwork s) and D oCoM o dominated the enti re value chain 17.

D oCoM o provided economic incenti ves for the development of content, forexample 91% of the content f ees remain w ith content pr oviders. I n addi tion thetechnology was flexible and was introduced in steps (with the appearance of

color, Java, etc. in different stages, while back-compability was constantlymaintained).

T he choice of technology was the ri ght one. I-m ode uses cH T M L , a subassembly of H T M L , well known to the developers, instead of W M L , whi ch usesW A P. W A P is a new language that th e developers have had to learn.

T he Japanese, unl ik e the Europeans, have aimed not only at the youth m ark etbut also at older people and at the business mark et, developing appropr iatelyvert ical systems

17 U niversal T elecommun ications System,

the evolution of mobile telephony from its

curr ent state (second generation ) to th ir d

generation.

18 A ccordi ng to analysts' r eports, in 2003

the num ber of SMSs sent per month was

156 mill ion, whi ch figure would corres-

pond to 19,000 mi ll ion euros.

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33

F ir st comm ercial t r ansm ission of a telegram(M arconi)

1898

F ir st t ransm ission of voice by radio w ave(F esseden)

1906

Police cars equi pped w ith w alk ie-talk ie, N ewYork Ci ty .

1920

F ir st m obil e telephony service in St L ouis, U SA .A single cell , operated m anuall y.

1946

Sw eden sets up, on an experi m ental basis, the f ir stautomati c system of cell ul ar telephony.

1956

Fi rst comm ercial m obile telephony netw ork , T ok yo.1979

F ir st por table m obile telephone (M otorola). F ir stcomm ercial netw ork in the U S (Chi cago).

1983

Fi rst com m ercial netw ork in G erm any.1985

T elefn ica in Spain off ers a telephony servi ce for cars.1977

JT A CS system i nt roduced in Japan1989

F ir st comm ercial GSM telephony netw ork operati ngin Finland.

1991

M ost of t he big operator s off er G SM services.1992

D - A M PS services in the U S.1994T he U M T S Foru m is set up t o develop theW CD M A standard

1996

N T T D oCoM o offers servi ces in I -m ode.1999

Fi rst comm ercial CM D A 2000 (3G ) netw ork in K orea.2000

Fir st com m ercial W CD M A netw ork in Japan.2001

Fi rst 3G ED G E telephone offered by N okia.2002

V ideo tr ansm issions thr ough 3G netw ork s in K orea2003

Pr incipal Eur opean operator s off er 3G servi ces.2004

M -com m erce in Japan and K orea.2003

Analogtelephonyage(1

G)

Dig

italtelephonyage(2G)

Highspeedtelephonyage



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3Conclusions t o t he chapt er

"3G" is a collective term embracing new communication procedures, standards, anddevices aimed at enhancing the quality and velocity of mobile telephony and at facili-tating the developm ent of new applications, such as videoconference.

W ith a few excepti ons, such as K orea and European N ord ic count ri es, 3G is sti ll morea prom ise than a reali ty i n m ost advanced count r ies, and, alt hough few analysts expectit to take off in the shor t term, generally t here are seen to be many factors that w il l i ntime heighten the demand for these services and products, such as the digitization of

many services and the high penetration of second-generation mobile telephony.

T he leaders in 2G know that there w il l be heavy investm ent i n 3G, and they carefu ll ywatch developments in the field.

Finally, it is clear that the basis necessary for 3G to take off is to be found in the esta-bli shm ent of the ri ght business model, one in w hich account is taken of all elementsin the value chain. I t w il l h ave to be understood th at t he 2G model is not necessar il ysusceptible of extrapolation to the new model, and that what works well in onecount ry (Japan) may fail to w ork well in others (e.g. in Europe).



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Conclusions at the Forum

CH A PT ER 4

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T he futur e has many names: for the weak , the unachievable; for thefearful, the unknown; for the valiant, opportunity.

V ctor H ugo

I never think about the future; it comes soon enough.Albert Einstein

Int r oduct ion

I n M ay 2004 its Chairman, Csar A li er ta, said that T elefnica had thr own 6000mil li on aw ay w hen it pu rchased European U M T S li cences. T hey had served fornoth ing, he added. T elefnica had to amort ize the enormous losses in 2003, w ithser ious consequences for the prof it and l oss account. By then the Eur opean operatorsin telecommunications, anticipating a 3G takeoff, had together paid out 109,000mil li on euros for l icences. W ithout doubt this w as one of the greatest t ransfers of cashfr om the pr ivate sector to the publi c in h istory. T he money paid up w as in f act a k ind

of tax, paid by the operators for the privilege of using radio frequencies lying withinthe spectrum contr olled by Eur opean governm ents.

N evertheless the technology has failed to take off , to the fru stration of those who hadsuch h igh expectations. T he sector, exhausted by bi dd ing w ars, has not yet been ableto derive profit fr om the new technologies. Onl y th is year have they begun to offer 3Gservices, so far w it hout gr eat success. T he thi rd generation w il l not succeed unless thecompanies, once the great sums paid out have been discounted, are able to adapt theiroffer to real market needs.

T he forum experts are making a stud y of our present circum stances in the hope ofdetermining what those factors are that are essential to the success of 3G, as well asdetermini ng w hich sectors and segments w il l m ost benefi t f rom the new technology.

Conclusions at t he Forum


4.1 Conclusions at t he For um

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Technology

A s regards the level of matur ity of th e technology, the members of the Forum w ereinclined to agree that this level is good for the launching of services, although someth ings were seen as needing to be fur ther developed. T he excepti ons were amongsome with profiles more oriented toward businesses that felt further investment intechnology would be necessary before 3G services could be launched on a large scale.

Net wor ks

I ntelli gent netw ork

W hen we speak about 3G w e are in reali ty referr ing to new communi cation procedu -res, standards, and devices that wil l take us beyond the current ly available qualit y andvelocity of mobile telephony. T he key concept here is that of mobility. 3G will berequired, where necessary, to facilitate permanent connection to a broadband tele-communications network.

T he present-day mobil e telephony netw ork s w il l be graduall y replaced by a netw ork

featur ing greater capacity and qualit y. W il l such a networ k di ff er f rom those of todayonly in vir tue of i ts w ide band? A n expert at the Foru m took th e view that the factordistingui shing a 3G netw ork fr om th ose we know w ill be its "intelli gence", and t heterm he used was Int elligent I nformation N etw ork( I IN).

I IN would k now the identit y of each user, would k now h is/her tastes, and w ouldknow what he/she needs in order to succeed. Behind this concept is the idea that acommon platform is needed that can f eed data to the rest of the system, which w il l besteadi ly seethi ng w ith advances in technology. 3G w il l thu s entail layers that are inte-

grated and controlled by the intelligent n etw ork , wh ich w ill in tim e be the key ele-ment in the system. T he expert s at the Forum agree that the appearance of thi s in te-lligent network is a necessary condition for the development of 3G technology. It isbroadly agreed that the intelligence of the system cannot reside only in the mobiledevices.

H ow i s an in tell igent network set up? T o begin w ith it i s understood that the netw orkmust be stable and long-endur ing in order to provide stabili ty to the system. I ts archi-tecture must anticipate and accommodate advances in radiotelecommunications andstate-of- the-art technology. A lr eady a great many pr ovid ers of mobile services use IPto carry data, SM S, M M S, and even voice. T here are technologies, such as M PL S(M ul tiprotocol L abel Swi tching, developed in concert by the pri ncipal makers of tele-

communications equipment), that make it possible to separate the traffic between

"T hin k of I IN as the eye of the hur ri cane. I t i s alw ays advancing and fee-ding the storm around it, w hil e itself it remains calm ."



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private networks and high-quality networks, the aim being to deal with each packetin accordance with its requirements.

H owever, the icing on th e cake is the intelli gence installed in t he netw ork . T he inte-ll igent layer provides the operator w ith fu ll contr ol over n etw ork tr aff ic, so that he candiscrim inate betw een entr ies on the basis not only of t raff ic volume but also of t heirnature.

T his netw ork (whi ch wi ll function invisibly for th e users) wi ll be developed not onlyin ord er t o increase access velocity but also in or der to facil it ate the admin istration andmanagement of the data (repositaries in the network) providing intelligence. In thisw ay it w il l not be necessary to carry all the inf orm ation w ith oneself since one w il l beable to access the resident in formation m ore qui ckl y.

Intelligent networks will make possible a variety of invoicing models, by way of ins-pecti on of packets, thus facil it ating value based chargi ng. T hus on the basis of theemployee's profile it will be possible, for example, for a company to assign consump-tion f igur es of d if ferent natur es. A lso possible wi ll be prepayment models, post-pay-ment models, etc.

I n t he context of securi ty (self -pr otective netw ork s not onl y pr oactive but also reacti -ve), an intelligent network will also be able to manage filters for the inspection of ille-gal content, consumption time for certain services, etc., the aim being to increase theemployees' productivity.

D rink or sip?

T he field of telecomm unications is advancing t oward a "netw ork of networks", wherethe most important thing is not what network is accessed but rather the option toremain connected as long as required. In this regard third-generation mobile tele-phony, even in Europe, goes far beyond U M T S. T his w as one of the poin ts mostemphasized at the expert m eet. T echnologies such as GPRS, W L A N , W iM A X , and

i-M ode w il l have to facil itate a fl uid i nterconnection.

T hanks to the I nternet, the worl d i s today connected by a wor ldw ide IP network ,w hich in itself continues to be a netw ork of network s. A ll the indivi dual netw ork s areconnected and speak the same IP language, from the biggest access provider up togovernm ents, fr om large business network s dow n to small network s at hom e or i n thesmall f ir m. T hus the basic requir ement f or 3G i s essent iall y the same, i.e. it must beable to i ntegrate all cable-f ree-access netw ork s.

A n i mpor tant characteri stic of these netw ork s w ill thus be their horizontality. T heywill be able to manage different access technologies and to distribute to differentmobile devices in a manner t otally t ransparent for the user . A m obile user m ust be

able to connect to the best netw ork avail able.

Not es



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W ith thi s "system convergence", in w hi ch the user may access hi s connecti vi ty andmul timedia services independentl y of the access network available at a given m oment,the idea is that t he call w il l be routed to the operator that has the user 's profi le infor -mation.

N ot all netw ork s w il l have the same data transmission capacity, of course. T he userw il l not always be able to "dri nk " fr om an abundant source, and at ti mes w il l have to"sip", a byte at a tim e, if he finds himself in a spot w ith poor coverage. But the netw ork

of networks will have to facilitate constant and compatible access to any mobile devi-ce. T hi s is one of t he cr iter ia on w hich the success of 3G w il l depend.

L ayered str ucture

T hus it is clear that 3G m ust rest on a structur e of hor izontal layers. A t one end w il lbe the content providers, which will rest on certain applications, and these, in turn,w ill be distr ibuted by this netw ork of netw ork s.

A t the other end, the user w il l have fu ll access via the electr onic device of h is choice,wherever he may be. It is the operators who will grant access to the system, but only

those will succeed who guarantee a high level of interoperability. It is thus essentialfor an operator to have that role of principal agent, the layer that contracts, manages,and invoices in respect of services to the user.

Between both ends, perhaps forming part of the network of networks, will be theint ell igent netw ork (the eye of the hur r icane we referred to above). T his is w hat w il lregulate, manage, and organize the traff ic w hil e it facil itates the dynami c incorpora-tion of new technologies, netw ork s, or appli cations.

Standards: public or private?

So that all these layers may function in an integrated manner, the experts believe, it is

desir eable that the ind ustry agree on standards in relati on to operating systems, hard -w are for mats, secur ity systems, and programming languages. T he problem so far i sthat few firms dare to opt for one single way of proceeding, and the majority arehighly cauti ous. One thing they fear i s that i f they invest i n a cer tain operating system,and later the mark et opts en m asse for another standard, th eir investm ents w il l havebeen l ost. SON Y had to l earn a hard lesson w hen it opted f or the Betamax v ideosystem w ith out li cencing it to others. JV C, on the other hand, undertook to populari -ze its VH S system as much as possibl e, and in the end SON Y had to adapt i tself tow hat t he mark et w as producing.

T he experts agree that standards are fundamental if 3G is to take off . In parti cularthey believe there must be standards in relation to such interfaces as navigators,

memory cards, and infrared connectors.



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T hey conclude that i t w ould be desir able to have cooperation between t he vari ousagents (operators, integrators, content providers, manufacturers of mobile devices) inorder to launch 3G technology effectively. It is not considered necessary that someparticular company lead the takeoff with such force that the others opt to follow itsspecif ications. H owever, this is one of the most open points at the Forum . Referenceis made to the example of Japan, where the apparent in tegration of all l ayers is due tothe alm ost exclusive force of a powerful company, namely N T T D oCoMo. T he coo-peration exemplified by the Internet is perhaps not valid in this case, since the net-

w ork was constr ucted by speciali sts on the str ength of publi c subsid ies (which wil l notbe granted i n the case of 3G) and services w ere provided w ith the netw ork already i noperation.

Governments are thus necessary, in the opinion of some experts, for the constructionof t he technological system i n collaboration w ith the various agents. So far the publ icsector has restricted itself to controlling broadcast frequencies and to collecting thehigh tari ff s im posed on operators. H encefor th t hey wi ll have to take on a major rolein setting the rules of the game. Otherwise the industry will have to await a leaderready to lay down the guidelines at its own ri sk .

Following collaboration between various international standardization bodies, it

would appear to be the architecture IMS (IP Multimedia Subsystem) that is gainingground. T hi s establi shes three broad levels for t he netw ork : access and tr anspor t level,session control level (on which would rest a large part of the network intelligence),and the services level (voice, mu lt im edia, etc.). T he IP netw ork s, ini tiall y developedon fixed networks, are highly decentralized: there is no operator to centralize theinformation regarding the user, as there is in the case of 2G mobile networks.A ccord ingly w hat the operators want, using IM S architectur e, is the control that so farthey have not had w ith IP.

W ho has my data?

T he problem w ith the intelli gent netw ork , form ing part of this structure of l ayers, isthe adm ini stration of the data managed w ith in it. W ho contr ols the intelligent net-

work? Is it acceptable that a supplier of technology, in many cases unknown to theuser, should manage sensitive data from firms and from individuals? It is this pointthat gives r ise to major problems. T hus the objecti ons and reservations regarding thedeposit of data in a shared netw ork .

T he experts at t he Forum stressed w ith gr eat convi ction that users w il l alw ays beready to surrender a little of their privacy in return for value-added services, sincethey have so acted in t he past: w hen GSM mobile telephones appeared, and even w henthe first conventional phones appeared, the consumer sacrificed privacy in return forusefu l services (call ident if ication in the case of mobil es, option to receive calls at anymoment, etc.). In addi tion, w hat w orr ies the present-day user of m obile telephony isprecisely the possibility of not being online. One of the experts makes the telling com-

ment that on average it takes eigh teen hours for a person to realize he has lost acredit card, but only six minutes to realize he has lost his mobile telephone.



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But it is clear that w ithout a rigi d guarantee in respect of securi ty and pr ivacy, the userw il l shy away fr om 3G i f th is technology is based on an intelli gent shared-i nform ationnetwor k . T o take an example, it was commented at the Forum that a mobile devicecould serve in the future as an identification document and as a credit card. From atechnological point of v iew, in fact, thi s is alr eady f easible. W il l governm ents and thebank ing authori ties perm it that these data be in the hands of pr ivate firms? W hatguarantees w il l be requi red?

Such questi ons remain unresolved. A s always, technology i s ahead of legislation. T hecompetent authorities will have to consider the matter before conflicts arise, and at amin im um thi s should be done at European level.

Terminals

I m portant elem ents

One of the poin ts most addr essed at the For um w as the design of m obile devices. T obegin w ith, it seems clear that 3G is not going to t ake off unt il there is a cr iti cal m assof suitable terminals in the hands of users.

T he most impor tant f actor here is user experi ence. T he level of convenience and ofadaptation to the needs of terminals is what will determine the degree to which thetechnology is made use of. T o take an example, it i s beli eved that the time spent inusing a mobile telephone is in dir ect proportion to it s ease of use.

T here is a cer tain tendency among operators to establi sh isolated alli ances w it h themanufactur ers of mobile devices, beyond the tr aditional financing of term inals. T heobjective is to have these latter support a standardized interface provided by the ope-rator . T hus the operator (who so far m anages the relationship w ith th e fi nal user) w is-hes to assure itself of the fidelity of its clients even if they change terminal.

But the question arises whether the design and the functionalities of the "old" 2Gequi pment w il l be valid f or all the applications that appear under t he umbrell a of 3G.

If we restrict ourselves to the mobile telephone, a small screen and a keyboard that istr ick y to use w il l not be acceptable. Indeed, they are alr eady so viewed. Screens tendnow to be larger , and there are already telephones w ith expanded keyboards. T hereis a tendency away from equipment dealing mainly with voice to equipment dealingmainly w ith data.

T his tr ansit ion w il l not be easy. "3", the H utchison W ampoa operator that launchedthe fir st 3G service in t he UK , used compatible terminals. H owever, their poor suc-cess, according to some analysts, is due to terminals that are too big and involved.

Regarding the question as to w hat term inal elements are more im portant for the user ,it was commented to begin with that user experience would be successful if the user

were not conscious of the developments where that element is concerned: in other



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words, if a component is so highly developed that the user does not have to concernhimself with the service rendered by the device, in the same way that it does not mat-ter to us w hat type of cylinder w e have in a car if the car is per forming per fectly. W ithhigh-technology products there is always technological " in terior ization" . T he user hasno w ish, nor is he able, to concern h im self w ith the most f undamental elements of theproduct, which are assumed to have been perfected before the device becomes some-th ing used dail y. T o cont inue wi th the example of the car, the user does not concernhimself w ith t he motor 's cooling system, since thi s is taken for granted, even though

w ithout it the car w ould not function, whi le on the other hand he does concern him -self with accessories, such as a sun-roof, and these can influence the buyer's choice ofcar . T his is not to say that t he sun- roof is more impor tant than the cooling system.W hen the user takes for gr anted a cer tain keyboard, for example, thi s is because thatkeyboard enables him to interact effectively with the device, not because it may haveceased to be important .

Perhaps for this reason there was little consensus as to what the most important ele-ments of a mobile device might be. T o take an example, reference w as made to shor tbattery life as something that discourages use. But the battery, which is a crucial partof any m obile term inal, begins to be "internali zed" by the user in the sense that no one,unless it s duration is excepti onally shor t, worr ies about hours in use befor e recharging

is necessary.T he design or aesthetics of the uni t w ere referr ed to as "of l it tle impor tance".H owever, poll ing of potenti al users in the UK make it clear that one of the reasons forrejecting 3G is that the term inals are "ugly". T he doubtf ul honour f or least attractivedesign w ent t o the Motorola A 830.

T he technology shoul d facil it ate in teraction betw een user and device. T he ease of th isin teraction is what w il l determ ine the user experience. H erein li es the attr action ofaccess mul timodalit y. A mobile device shoul d be activated by voice, keyboard, touchscreen, or any other medium avail able. T he appli cations that 3G facil itates w il l r equi -re th is sw if tness and fl exibil ity of i nteraction.

Compatibility and cost

A nother of those factors that m ost contr ibut e to a negative user experience w ith 3G isthe incompatibil it y of term inals. W hen a user sends an M M S, he or she doesn' t haveto know whether the message is received in visible format or distorted.Standardi zation i s a recur rent subject in a 3G context, but it becomes di ff icult to optfor a single system.

T he high cost of 3G terminals may be an entr y barri er w ork ing against the massacceptance of the new technologies. T he fact of t he matter is that the manufacture ofmobile terminals is a tremendously competit ive business, w ith steadil y narr ower mar-gins, in which fi rms need an annual gr owth r ate of at least 10% sim ply to avoid los-

ses. Since licences were auctioned in 2000, the manufacturers of mobiles have been



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caught in a vicious cir cle. T here have not been suff iciently many users to pr oduce thecritical mass that would allow lower prices, while high prices prevent the formationof such a mass. It may be, though at a late stage, that we are already seeing the lightat the end of the tunnel.

I n any case there are those who beli eve we are heading for w hat some experts call the"Sw iss-arm y k ni fe" of telecommuni cations. A mobile device w il l f uncti on as a came-ra, as a means of paym ent, as a personal computer, as an agenda, as GPS, as music pl a-

yer, and, of course, as telephone. A lt hough perhaps, unless mobil e telephones andPD A s converge, the user w il l f ace the di lemm a of having to choose betw een voi ce anddata. In t his regard it i s not known w hat wi ll h appen.

Cont ent

It is not an easy task to develop specific applications for wireless devices. It is not aquestion sim ply of tak ing in to account the various 3G netw ork s (UM T S and i ts ver -sions thr oughout the world), of pr ogramm ing for the mobile telephones of very dif fe-rent makers, PD A s, portables, or any other device, of effectively d istr ibut ing every-thi ng to the final user , and of collectin g for services rendered. T he indu str y has to becapable of integrating all of these things in ord er t o make a reli able, technological, rea-

sonably pr iced scale model fr om w hich to der ive these appl ications. I t is not surpr isingthat our experts should fail to be in agreement as to what type of application wouldbest contribute to 3G expansion.

Data

T he unexpected success of the SM S caught the industry by surpr ise. Shor t messagestoday account f or 12-14% of the revenues of E ur opean operators . Since the payout ofenormous sums at the radio spectrum auctions, the operators have been anxious torepeat the success of the SM S wi th more advanced data tr ansmission appli cati ons.A lr eady attempts have been m ade to of fer videoconference services by m obile, butw ith li tt le success.

Four years later, however, there appears to be growing interest in high-speed datatr ansmission. T he most interesting i ni ti atives are in areas of specif ic demand, such asthe down loading of m usic among the younger segment of the population. T he manu-factur ers of m obile telephones have begun to seek joint ventu res in thi s fi eld in orderto be ready for a promising fu tur e. (If the downloading of tones is so popular, they ask ,w hy not also that of complete melodies?) In thi s line Motorola has joined up w ithA pple, the leader in legal down loading of m usic via the Intern et, w ith its iT unesM usic Store, w hil e N oki a has done the same w ith L oudEye, another vi r tual m usicshop. But i t i s stil l too ear ly to k now w hether these ini tiatives w il l f ind a mass marketor prove mere curiosities in wireless telecommunications.

Our expert s cite not onl y music but also vid eo, MM S, and geolocating services as

potenti al mass appli cati ons of h igh -speed data tr ansmission. On the other side there is



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persistent reference to the possibility of installing sophisticated sensors in any objector on any person it may be desir ed to moni tor , wi th everyth ing connected to a contr olcentre.

T he interesting aspect of t he matter i s that i f the operators succeed i n m aintaining t heprimary relation with the final client, they will be the principal beneficiaries of themovements of other firms in the sector because they distribute data via 3G networks.

Voice

But w hat happens w ith voi ce tr ansmission? N o one w ants to appear in publ ic associa-ting 3G with yesterday's voice transmission, i.e. with conventional telephone calls. Itw il l sell better t o speak about novel and even futu r isti c appli cations. In additi on, voiceis not sufficient to justify a higher velocity in the networks.

H owever, and to the sur pr ise of m any, some of our experts beli eve that the appli ca-tion most likely to contribute to the success of 3G will be low-cost telephone calls.T hir d-generation netw ork s make it possible to transmit voice at a fraction of thecurrent price, thanks especially to the fact that they have up to three times as muchcapacity for the transmission of call s as the present -day netw orks. T hi s could encou-

rage operators to promote the use of 3G mobile terminals by offering calls even chea-per than those via fixed line, with packets of minutes at very low cost. It might thenhappen that 3G would become popular, which development would in itself be para-doxi cal: after years of praise for the vi r tues of 3G as a means of hi gh-speed data trans-mission to w ir eless equi pment, i n t he end the old, overly- fami li ar telephone servicesw ould constit ute the kil ler application of 3G.

"T he K iller A pplication"

A lthough, cer tainly, no one is speaking about a ki ll er application, wh il e some of theexperts at th e For um conti nue to beli eve that i t w il l appear.

Four years ago everyone was speaking about videoconference as the breakthroughapplication in 3G. It sounded good, but it s launching in Japan, South K orea, the U K ,and I taly has been a failure. N o one uses videoconference. (Cur iously, i t appears thatwomen are especially reluctant to be seen while they are on the phone.)

On the other hand M M S w ould appear, in vi ew of the overwhelming success of SMS,to be a firm candidate for the title of killer application. But in general it has failed totake off , even though i t has been around f or some time. Japan and South K orea,where messages can be sent with photos and tunes, are notable exceptions.

But in no case, say the experts, will the development of a killer application lead

directly to the success of 3G. If it comes it will follow the consolidation of the newtechnology.

Not es



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Value chain

Who invest s?

T he money invested in the radio spectrum auctions in Europe has been discounted.Firms and shareholders have entered into the profit and loss account the enormouspayment that had to be faced up to in the year 2000.

H owever, expenses for the operators did not f in ish here. T he consul tin g fi rm i Suppl iestimates that these firms must spend the same amount over the period to 2007 inord er to develop the U M T S netw ork s. In the face of such a prospect, some, so thatthey are not obliged to invest, have opted to return to the governm ents the li cences forw hich they had paid. T he venture conti nues to be highly r isky. T he mobile telephonyoperators are those most interested in the success of 3G.

But other fi rm s must also opt for the new technology if they wi sh to be among thosew ho benefi t. T he experts say it is the content generators and the manufacturers of ter -minals w ho m ust invest m ost heavily (after t he operators) if 3G i s to be a success stor y.

Some point out t hat, given the high " tax" paid by the pri vate sector to governm ents in

order to have access to thir d-generation m obili ty, governm ents should contr ibute tothe investments necessary through grants to technological development and fiscalincentives.

Revenues

H ere we should look at a question relating to th e int erest taken by the industry i n pr o-moting 3G. T he experts agree that w hat w e see now is not a revolut ion bu t r ather anevolution. But if 3G does not in reality entail a radical break with older technology,w hy has the telecommuni cations industry p laced so mu ch hope in it? W hy w ere suchexhorbitant amounts paid out t hat the actual industry could have been endangered?

A s the num ber of people wit h m obile telephones has grow n, the ARPU (average reve-

nue per user) has dimin ished. T hi s is because the most valued clients, those w ho m akethe most calls and use the most services, were the fi rst t o adopt t he technology. Otherusers spend much less. In a saturated market (already exceeding 85% in mostEuropean countries), with prices steadily more competitive and a cost structure thatdemands high growth rates, the industry began to look for a way of offering value-added services, such as video and Internet access. T hus the im por tance of 3G.

W ho coll ects?

W ith the cur rent mobile telephony model, it is the operator w ho manages the rela-tionship w ith t he end user and collects for the service. In addi tion th e operator acts asin termediary in coll ecting f or thi rd -party services: downloading of t ones and logos is

paid f or v ia the monthly invoice issued by the operating company, and thi s latter paysa part to the content supplier.



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Some experts at the Forum questi on w hether thi s model can be sustained, and to i ll us-tr ate their point they cite the case of the I nternet. T he user pays di rectly t o the contentprovider, not to the telecomm uni cations fi rm that sell s him the connection, for theservices he contr acts on the W eb. A nd in spi te of i ts slow takeoff , far behind the exag-gerated expectations of the late 1990s, e-commerce would appear to be the viablemodel for the long term.

A nd so the question is, W ho w il l charge the end user for 3G services? W il l i t conti -

nue to be the operator? Or will it be the content provider?

Operators

T he operators may fall in to the temptation of passing on to the consum er the highcosts that they have had to pay for 3G l icences in Eu rope. T he expert s refer t o thi sdanger, and predict that 3G w il l take off only i f pr ices are made more flexible, the aimbeing to create a critical mass of consumers, and if the losses occasioned by the auc-tions have been discounted. But will the shareholders show sufficient patience afterhaving borne such l osses in recent years? Could this be a factor affecting the 3G busi-ness model?

A signi fi cant proporti on of the experts consult ed believe, in any case, that i t w il l con-tinue to be the operator w ho charges, i.e. that t he present model w il l be maintained,with a monthly invoice that includes connection charges as well as charges for addi-tional products and serv ices contr acted. T hey argue in thi s case that their pr incipaltools for competing are confidence, security, and competitive price.

N ow if voice services conti nue to account for a large part of 3G revenue, the operatorsmay seek to encourage the use of the new devices by dr asticall y r educing the cost ofcall s. I ndeed, the off er of packets of m inutes at very l ow cost is encouraging many,especiall y among young people, to dispense w ith a fi xed li ne. A t all events the opera-tor s are terr if ied of enteri ng a pri ce w ar, since an excessively att racti ve pr ice reductioncould eat up th eir revenues if their most active cli ents took fu ll advantage of t he dis-

counts. But this may be inevitable: in addition to the increase in wireless competitionthat will result from 3G, the operators will have to contend with the low prices offe-red by "voice via IP" technology, presence of which is already being noticed.

A s regard s data traffi c, w ithout doubt t here is the temptation to charge accordi ng toconnection time or volume, since for the operator such a procedure seems the mostnatural one. H owever, the experts at the Forum w ere sur e thi s model w ould not beviable. T hey beli eve that the operators must do the same as they di d i n t he case of theI nternet, i.e. impose a flat r ate for 3G connections. T he door i s thu s open f or contentproviders to charge for their services, which would in turn lead to a model similar tothat of th e I ntern et: the operators w ould charge for pr ovid ing the connection, and thecontent manuf acturers would charge for t he services they off er .



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Content providers

It is possible that finally the operators will themselves be the content providers. Butmost expert s believe this wi ll not happen, that outside fi rms w il l produce content andengage the operators to di str ibut e it. A question then ar ises. I f the content providersare not themselves operators and they wish to charge the user directly (e.g. for adownload), how are they going to do so? W il l a payment means be buil t into themobile device? W il l t he cost be added to t he operator 's month ly invoice?

Various problems would be entailed if changes were made to the charging model sofar used. F ir st, the user w ould have to be convinced that the new model w ere better,though this is not always clear. Second, the operators would without doubt be veryreluctant to lose the control they now hold over relations with the client. And third,there is also the logisti c problem of charging independentl y of l ocation. Clear ly t hereare security problems when payment is made at a distance via credit card. If mobiledevices end up having a secure, uninversally accepted means built in for payment, assome predict, the content pr oviders wi ll be able to charge dir ectly. Otherw ise they w il lcontinue to depend on the operators, both for sending their products to the end userand for coll ecting f rom h im /her. A t all events the standardi zation of such a means ofpayment is neither easy nor im minent.

H ow is charging effected?

Few are in favour of a variable charge corresponding to the duration of the connec-tion or to the number of bytes dow nloaded. Fr om the fl at rate for I nternet connectionit is alm ost impossible to retur n to the traditional system employed w ith f ixed telepho-nes, with its monthly charge and also its charge for connection time. On the otherhand an i nteresting argument put forward by some experts is that a charge in r espectof data downl oaded would h ind er broadband use.

So how shoul d charging be eff ected? T here are basically tw o possibi li ties, namely byservice un it and via fl at rate. T he expert s beli eve that a combination could be the idealsolut ion. T here would be a fl at r ate for connection fr om any w ir eless device, but at the

same time some services would entail additional cost. Indeed, the Internet alreadyfunctions in t his manner: there is a fl at r ate (e.g. w ith an A D SL contr act), but in addi -ti on there may be a charge for a value-added pr oduct or service (e.g. music, vid eos).

T here is only one small objection to such a system. I f the pri ces were too accessible,this might lead to a volume of traffic at peak hours that the incipient 3G networkcould not accomm odate. A t all events the costs for access to the new technology arefor the moment very h igh, and the fau

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