My view on regulation
|The European politicians have an incredible lack of visions about the mobile future|
|There is no doubt that the mobile industry in Europe is large, innovative and has created an enormous amount of jobs and wealth, but how are politicians – that have the overall responsibility for this industry and its future success – reacting?|
Here at Strand Consult, we believe the mobile industry in Europe is suffering due to a lack of visions and understanding about this industry from the European politicians, an industry that has meant so much for Europe and from where the GSM standard evolved in the Nordic region.
If you look at the historical facts, there is no doubt that the technology that is today dominating the world market for mobile telephony derives from Europe, dating back to September 7th. 1987, when the GSM vision was created when a whole group of operators from thirteen countries signed a MOU in Copenhagen. There were 15 signatures in total: France, Germany, Italy, Sweden, Norway, Denmark, Finland, Spain, the Netherlands, Belgium, Portugal, Ireland and, from the UK, two independent operators – Cellnet and Racal-Vodafone
The first GSM operators launched around 1991-1992 and in most countries the launch of GSM was used to liberalise the mobile market and issue a licence to a new operator that would compete against the old Telecom monopoly that often receive the first GSM licence.
The aim was to increase competition by introducing parallel networks that would compete against each other. In this way the two market players could both compete against each other on pricing, but also on who could offer the customers the best network coverage.
The idea with the competition was partly to reduce prices and at the same time give the two providers the possibility to compete on other parameters than just the price. The expectations of how high a mobile penetration there would be were rather limited, but the combination of decreasing handset prices, subsidising of handsets, aggressive marketing and the introduction of prepaid products made penetration explode and mobile handsets went from being an expensive product for corporate customers, to becoming a product for ordinary private customers.
The desire for more competition!
The politicians wanted to increase competition to reduce prices and in that way ensure that the consumers would be the big winners.
The way to increase competition was extremely simple – issue more mobile licences so that operator number 3 and 4 and 5 could launch more networks parallel to the already existing networks. The politicians declared this strategy as a success and many regulative authorities felt that there was a connection between the will to invest and the number of operators that a market could justify both in the short, medium and long-term.
But they forgot that operator number 3 had the same costs as operator number 1 that already had a large customer base. They forgot to assess how the market would develop over time and they forgot to analyse whether it would be possible for many of the newest operators to create a profitable business. In countries like Denmark, Holland, Austria, Iceland and Finland it turned out that many of the new players had a difficult time in creating a profitable business.
In a country like Denmark with a population of 5.5 million, France Telecom and TeliaSonera both lost over a billion euro on their mobile investments and Orange chose in the summer of 2004 to leave the country as they finally had to admit they would never be able to get a profitable business up and running.
Many of the operators that launched as number 3, 4 or 5 had to admit that they could not compete unless they were satisfied with a lower profit. This was due to that they partly had the same costs as the larger operators, but also had a significantly smaller customer base to get a return on their investment.
When looking at how the financial markets view these operators, there was no doubt that many operators received financial artificial respiration due to the “bubble” that the Telecom industry experienced up to the year 2000. Today we can see that many of these operators either have to live with a significantly worse business, or are forced into the consolidation we are seeing across Europe.
What has the mobile industry meant for Europe?
If you look across the European scenery and try to get an overview of the importance of the mobile industry for Europe as a region, it is impressive. The industry has created a great many knowledge heavy workplaces – regardless of which part of the mobile value chain you look at, you will find highly educated people earning good money and all contributing to influence society in the direction that many politicians would like to see it move.
The introduction of mobility in everyday use has opened up the possibility of faster and limitless communication, which is positive for so many people. Companies and employees have become more accessible and as human beings we have eliminated one of the heaviest barriers for communication – the copper wire that the past hundred years has been the prerequisite for being able to communicate with people over large distances.
The mobile telephone has changed the way we live and the way we communicate. From a world where multiple people shared one telephone number, we have moved to a world where everyone has their own telephone number and we have become accessible in a completely new way regardless of time or place.
If you look at these changes they can be divided into short medium and long-term changes. The short-term changes were research, development and implementation of mobile technology – the mobile operators were founded and mobile networks were launched.
In the medium-term people bought mobile telephones, penetration increased and owning a mobile telephone went from being something reserved for a few businessmen, to becoming something that everyone, both the young and old and rich and poor could have – communication could begin.
In the long-term it is about creating an industry – an industry that is one of the most important in a knowledge-based society. This industry does not only create jobs and deliver products that give the possibility for limitless communication, but it also invests in the basic research that is the foundation for the next generation of mobile technology. One could be tempted to ask what is a knowledge-based society without mobile communication – could it work and what importance will wireless technology have in the future society?
In Europe there are many politicians that are focusing on industries like farming, the airline industry, the textile industry, the car industry, shipping, the windmill industry etc.
These same politicians are talking about globalisation and its importance for jobs in Europe, they are talking about focusing on knowledge-based workplaces and that it will be this type of workplace that will ensure our prosperity in the future.
One could be tempted to ask how many politicians have realised that the mobile industry in Europe is an industry that is just as important as many other industries and how many of these politicians have realised that the mobile industry is a successful industry that is not just creating workplaces and wealth, but is also an industry that is one of the most important prerequisites for a future knowledge-based society to function – without communication no knowledge-based society.
There is no doubt that this industry has created workplaces, wealth and value and a country like Finland is are very good example of how this industry has had an enormous importance for a nation that back in the eighties was close to bankruptcy. A country like Denmark has had many opportunities, but the lack of political understanding combined with bad management meant that Denmark went from being one of the world’s largest manufacturers of mobile telephones, to leaving that market, in just a few years.
There is a large difference in how politicians in different countries view this unique industry and what individual countries have received from politicians that have been responsible for the basic conditions and legislation that the industry is governed by – countries like Finland, Sweden and Korea are all good examples of how a cooperation between the industry and society can affect a nation in a positive direction.
Those politicians that have not realised that the mobile industry is the heart of the future society ought to consider whether they have the necessary qualifications to be in the position where they are creating the framework for the knowledge-based society that everyone is talking about, but that lacks politicians with visions.
What has mobile services meant to us?
Mobile communication is much more than just communication. It started with speech, then came SMS and with the mobile operators’ introduction of revenue sharing models, in just a few years a whole industry was created that develops and markets mobile services to end-users. In the beginning these were services that were mostly fun and entertainment, but they have gradually developed to also incorporate serious services.
The first services were ring tones and logos that people downloaded by the million. We personalised out while telephones to give them an individual touch, I had my mobile with my own phone number and my own ring tone – the mobile telephone became personal.
Then came TV interaction – the TV broadcasters found out that they could use SMS for voting and to get the viewers feedback on individual programs. This was something that they had for years thought would happen via digital TV and digital set-top boxes, but instead suddenly happened with a combination of TV, mobile phones and SMS. Suddenly it was not us voting via our fixed line telephone, but instead me voting on tonight’s winner in the European Song Contest or in Idol. Again the mobile phone showed that it could do something that many others had dreamed of but not had success with and all without television stations having to invest in expensive digital set-top boxes for viewers.
There is no doubt that ring tones and television voting has had a huge importance, not just with regard to that type of mobile services but also regarding other mobile services due to mobile customers finding out that their mobile telephone can be used for a lot of other things than just for talking. In all Nordic countries you can today pay for parking your car using your mobile phone, you can do your online banking, check-in at the airport and these machines communicate with other machines without having access to old-fashioned copper cables.
New terms like Mobile workforce mean that millions of people daily read their e-mail on their mobile telephone and have access to company information that they previously only could get from a PC or terminal in the company. The mobile employee is not a dream – it is a reality that many of us already experience through our work.
How have the politicians reacted?
When you examine the mobile industry you cannot help but examine how the political system has viewed this industry and the politics and legislation they have exerted on the mobile area. The European politicians have had three areas of focus:
1. Increase competition by allowing multiple parallel networks
2. Lower prices for end users
3. Use the battle against the mobile companies to achieve personal attention
From a PR point of view it is easy to understand that so many politicians have use the mobile sector to get positive attention from the ordinary voter on the street. It is easy to declare war on 3 or 4 operators and thereby be perceived as a kind of Robin Hood, fighting for lower mobile prices for the man on the street.
All over Europe there are numerous examples of how politicians, without any knowledge of the mobile industry at all, have made statements without any understanding of how this huge industry actually works and how value is created – it does sometimes seem that politicians just believe that a company in the mobile area has unlimited financial resources.
The largest misunderstanding about this industry and what it can achieve, can probably be seen in the implementation of the 3G auctions across Europe, a process that meant that the European countries sold a large number of 3G licenses at a total price of 110 billion euro and without any investment being made in networks, handsets or services etc. You would be justified in saying that the 3G auctions was a massive taxation of an industry that was welcomed by the State treasuries around Europe.
Why did it go wrong with the 3G auctions and what was the result? You can spend days discussing what went wrong and I must admit that the industry probably holds part of the responsibility themselves for things developing as they did.
3G was launched by the infrastructure suppliers as the biggest revolution ever, a revolution that would turn the mobile market upside down, make turnover explode and make customers significantly change their habits.
This industry created a hype that made the mobile operators rub their hands at the thought of billions in revenue and at the same time a number of smart politicians saw the opportunity to take a slice of those future billions immediately and actually during their election term. From a political point of view, the billions in revenue they could receive today from 3G licenses could spread a lot of joy in their election term and the fact that in the longer term they would result in lower tax income, less investments and less jobs would be affecting somebody else’s election term in the future. One could say that the politicians put the short-term interests above the long-term interests by holding the 3G auctions.
If you examine what politicians chose to do in two of the mobile telephony’s native countries Sweden and Finland, they put aside the short-term interests and held the 3G auctions as a beauty contest, focusing on which operators would offer the end users the best coverage and solutions. You could say that the politicians in Sweden and Finland, home of Ericsson and Nokia, chose to look after the industry rather than the taxation – food for thought?
The rest is history. The hype that gave the politicians the incentive to hold the auctions, also made the companies bid staggering amounts that most likely will never be justified. The industry dug their own grave, first by creating hype and then by accepting the political decisions that these auctions were an acceptable way to proceed.
All this happened in a region where the EU at the same time gave massive subsidies to an inefficient agriculture industry and where one is fighting to maintain jobs in a similarly ineffective textile industry and on a market where alternative energy and shipping have special taxation rules to help stimulate these sectors and their activities.
Who said double standards – it is pitiful that the politicians are focusing so much on helping some industries whose days are over, while at the same time ensuring they are doing everything possible to create the worst possible conditions for an industry that will be the backbone of the future society.
The European mobile politics in a different light!
It is tempting to ask what is most relevant for the future, and inefficient agriculture industry and textile industry that receives huge subsidies from the EU to maintain old-fashioned production methods and lack of product development – or mobile communication.
It is also relevant to ask oneself what would be best for the future of Europe – textiles, agriculture and manufacturing cars – or high technology like mobile communication and mobile solutions.
It is a fact that both GSM and UMTS are European standards driven by European companies – companies like Nokia and Ericsson, that have created enormous wealth in competition with other companies from other regions like the USA, Japan and Korea.
Europe has been a significant locomotive in the mobile development and the results speak for themselves. The combination of jobs, growth, technology and communication has created a sector on the same level as many of the other major sectors in Europe. Which industry has the most employees, agriculture or the telecom industry and which industries will be most important for our future society? There are many questions and it is very difficult to find politicians that can give honest answers about why they have reacted as they have up to now. It is also very difficult to find politicians with visions for the mobile industry that is visions that are not only focused on consumer viewpoints.
Perhaps one should start by suggesting that we give other industries in Europe the same conditions that the mobile industry has today:
Let us tax the agricultural industry for using the sun and rainLet us tax the shipping industry for sailing on the seasLet us tax the Windmill industry for using the windThe list of areas that can be taxed is long and it is very easy to find areas that can be regulated in the same way that the telecom sector is being regulated today. How many industries would be pleased to have their prices compared on public Internet pages, how many industries would be pleased to have to every six months publish what they have sold and how many customers they have – this information is in the annual telecom statistics, no other industry has to publish this type of information. The list is endless and the political focus seems to be only about ensuring end-users the cheapest possible prices, any other considerations are eliminated in the political debate and in a world where politicians happily speak about knowledge-based societies, globalisation and the focus on growth industries.
The future – what does it hold?
It is tempting to take a peek into the future and hope that maybe politicians will wake up and see the possibilities there lie in a high technological industry and the workplaces it has created and will create.
Maybe there will be a day where the mobile industry is perceived in the same way as all other industries are in society. If you look at them as companies that need structured conditions they can relate to and that can be the basis of the investments they put into technology, customers and back into society.
Strand Consult believes that it is possible to combine industrial politics with consumer politics and that being more careful in how legislation is passed for the mobile industry is not the same as putting consumers in a bad situation. Industry politics and consumer politics can be united and quite honestly, today most consumers in almost all countries are in a much better position when buying telecom products, than when they purchase many other products.
The alternative is to continue the current policy, focusing on reducing prices, putting additional taxation on the industry and continuing the one-sided focus on consumers. If the politicians choose to continue with this model instead of an industrial political model, one might be tempted to suggest it would be much easier to nationalise the mobile industry, remove all the parallel mobile networks across Europe, limit the operators investments and operational costs – all with the sole objective to reduce the production price of a mobile minute.
In countries like China, Japan, India, Korea and the USA, the political system understands to a much greater extent that the mobile industry is an industry. It seems like the European politicians do not believe that we will see any competition from that part of the world – who knows perhaps we will one day see a European mobile industry that will need government aid – just like the agricultural and textile industry receives today in Europe.
The politicians in Europe face a choice – a choice of whether they should see the mobile industry as an industry and use industry politics to strengthen that part of society, or whether they want to continue with their consumer politics, with a minimum of regard for the workplaces, research, innovation and the growth in wealth and value that the mobile industry has already given – and can continue to give Europe in the future.
In our opinion the choice is easy. Long live politicians with visions, the millions of people in Europe that are dependent on this industry deserve better conditions than those politicians are giving them today. It is a fact that many politicians believe it is more important to focus on Italian tomato growers, Spanish textile workers, German automotive employees and Danish shipping companies than the backbone of the future society – the mobile reality.