3g mobile Licensing Policy

This case has been prepared by Audrey Selian , ITU. 3G Mobile Licensing Policy: GSM Case Study is part of a series of Telecommunication Case Studies produced under the New Initiatives program of the Office of the Secretary General of the International Telecommunication Union (ITU). The author wishes to acknowledge the valuable guidance and direction of Tim Kelly and Fabio Leite of the ITU in the development of this study. The 3G case studies program is managed by Lara Srivastava <lara.srivastava@itu.int> and under the direction of Ben Petrazzini <ben.petrazzini@itu.int>. Country case studies on 3G, including Sweden, Japan, China & Hong Kong SAR, Chile, Venezuela, and Ghana can be found at . The opinions expressed in this study are those of the author and do not necessarily reflect the views of the International Telecommunication Union, its membership or the GSM Association.

1Introduction

Prior to the market liberalization of the 1990s, European telecom markets were firmly controlled by national governments and their respective PTT monopolists. Over the past decade, European telecommunications policy has been characterized by principles of market liberalization, harmonization of conditions of the regulatory framework, and the promotion of the European telecommunications industry. “GSM momentum” has been born of this environment, and is by far the biggest 2G system, with pan-European coverage and systems also installed in Asia, Australia, North America and more recently in South America.

The deployment of GSM is most aptly characterized by the commitment of twenty-six European national phone companies to standardize a system, and the working process responsible for this accomplishment has been deemed a great success worthy of replication. Essentially, those countries and firms involved realized the advantages of a cross-border standard and the amount of money and energy that can be wasted when competing for mobile technology ‘world domination’.¹ Generally speaking, the story of the establishment of GSM is of interest to anybody studying the growth and trajectory of digital technology and its commercial applications. After all, as some have argued, the nature of digital economies implies that control over network evolution translates into control over the architecture of the digital marketplace.”² The GSM case has proven that a hold over national networks has global economic ramifications.

Among the factors that helped to precipitate the creation of GSM, was the realization that localized solutions to the development of mobile communications would not be able to generate the economies of scale – from the R&D, production as well as distribution standpoints – necessary to attain very significant market penetration. With strides in the development of the realm of R&D came also the realization that only international market penetration goals could justify such extensive programs of investment. Long-term economic goals would be subjugated to the constraints of an unstandardized mobile communications sector, unless action could be taken to create some sort of consensus.

The existence of tremendous potential value in the network itself, following the logic of Metcalfe’s Law and network economies, in addition to the value of scale economies in equipment markets, ensured that no government would lose out by agreeing to merely multilateral solutions when more widely cooperative institutional options were possible. After all, GSM was a network standard – not merely a product standard – and this had considerable significance in terms of the potential benefits to be derived from associated network externalities. Disharmony and the licensing of competing operators actually helped to make GSM a significant success in Europe: quality of service prior to GSM was low, and handsets were expensive. Thanks to a series of rather fortuitous market occurrences as well as to the efforts of Germany, the necessary impetus was provided to get GSM off the ground. European markets happened to open up to competition right around the time that the GSM standard was developed, resulting in a massive surge in demand for cellular phones. It is important to note that success came about in two parts: the initial interstate bargain, and the ensuing collaborative implementation once agreement was reached. The purpose of this paper is to examine the major factors surrounding and contributing to the creation (and success) of Europe’s 2^nd generation ‘GSM’ cellular system, and compare and contrast it to key events and recent developments in 3^rd generation ‘IMT-2000’ systems.³ The objective is to ascertain whether lessons from the development of one system can be applied to the other, and what implications 2G has for the deployment and assessment of 3G technologies.