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By Xiaoni Zhang and Victor R. Prybutok MARKETS DIFFER IN CHINA, THE U.S., AND EUROPE Market differences include communications standards, price structures, government regulations, customer demographics, usage patterns, business potential, and technology adoption strategies. Despite the 2001 downturn in the global telecommunica-tions market, the mobile penetration rate in China is increas-ing due to the elimination or reduction of mobileconnection fees. The mobile market worldwide is dynamicin terms of technology development, and competition isaggressive. The potential size and growth rate of the Chinese,U.S., and European mobile markets warrant examination ofthe state of their wireless development. Here, we explore thatgrowth by examining the differences among the threeregions, especially those in mobile consumer demographics,Short Message Service (SMS) usage, and 3G technology.
COMMUNICATIONS OF THE ACM March 2005/Vol. 48, No. 3 China. The Chinese market is predominantly
China to turn off their phones in order to save money.
voice-centric, but the rapid rise of prepaid subscribers It is also common for them to use cellphones only for and the continued growth of mobile services within the market's low-end segment continues to push Europe. A growing number of European operators
down the average revenue per user. Despite the offer customers the ability to access their accounts diverse economic development going on in China and get help identifying the most cost-effective plan today, most Chinese in rural areas cannot afford a available. In February 2003, Agcom, the Italian tele- cellphone, a satellite dish, or the related communica- com regulatory agency, imposed a tougher pricing tion equipment. Some wireless telephone operators structure on mobile termination charges. Specifically, are trying to target rural areas and smaller cities, but it ordered Italy's mobile operators to slash mobile ter- because people there make less money than their mination charges levied on fixed-to-mobile phone counterparts in the big and mid-size cities, the value calls. Other European telecom regulators have since to them from these markets remains to be seen. followed suit. Before this regulatory change, control- Before 1999, Chinese telecom operators encour- ling the amount spent on calls while traveling was dif- aged consumers to use telecom services first and pay ficult due to pricing discrepancies. their bills later. However, this strategy caused the Prices for roaming throughout Europe are heavily telecom companies to lose millions of dollars in the criticized by customers, and mobile phone companies form of unpaid bills. In some areas, up to 50% of the have been accused of fixing prices. Vodafone intro- users did not pay their bills. At that time, China duced a unique tariff for its customers traveling lacked the computer technology needed to track abroad, though it requires them to select a partner identification numbers, and in most cases, unpaid network via mobile phone when in a different coun- bills could not be collected. To deal with the increas- try. Users are inconvenienced by having to know how ing problem of unpaid bills, most operators adopted to select other networks, as well as which network a prepaid strategy. In the second half of 1999, China provides the best price. Although diverse pricing Unicom notified its agents that it would tolerate a exists in Europe, Tariff Matching Guarantees were maximum of 15% of its customers not paying their introduced by Orange UK, Vodafone Telecel in Por- bills, and that those agents who could not meet this tugal, and other operators. They program competi- target could not represent China Unicom. Within a tors' tariffs into their billing systems. Over 60% of few months of the company instituting these mea- active mobile phone customers in Europe use prepaid sures, the situation improved. After 2000, the major- services [2]. The pool of prepaid mobile users is likely ity of consumers were moved to prepaid plans for to keep growing as a segment of the mobile market their mobile units, and only a limited number of for the next five years. People use the prepaid method contract subscribers were maintained. According to in order to control their spending and hence prevent BDA (a telecom consulting firm in China), as of future credit problems.
2001, the numbers of prepaid users continued to U.S. Americans use mobile telephones primarily
dominate new subscribers, accounting for over 90% for spoken communication and sometimes for send- of new users. Although prepaid plans present little ing brief text messages. Phones are also, though rarely, risk for the operators, they also result in lost revenue used to surf the Web; this limited use probably results due to the limits imposed by prepayment. With pre- from U.S. customers' sensitivity to time. Compared payment, consumers are more conscious of their to China and Europe, the cost in the U.S. of making spending and better able to plan how much they a call is relatively low. In North America, most mobile actually spend [4]. telephone subscribers (approximately 90%) pay their According to China Mobile in March 2004, the bills after they've incurred charges (known as post- average customer was using 240 minutes of mobile phone time per month. This number has risen as The Yankee Group estimates that the number of mobile phone usage has become more affordable for U.S. mobile phone subscribers will increase by 50% Chinese city dwellers. But mobile phones are expen- to 200 million by the end of 2006 and has reported sive compared to landlines. It costs Chinese mobile that nearly 30% of nonbusiness calling minutes in phone users 40 cents per minute for local calls and 80 the U.S. during the third quarter of 2002 were car- cents per minute for roaming, whereas landline users ried on mobile phones (www.yankeegroup.com). As pay 10 cents per minute for local calls and 20 cents much as 4% of U.S. consumers have discontinued per minute for long distance. Making or receiving their use of landlines in favor of mobile phones, with calls with cellphones is comparatively expensive in an even greater percentage predominantly using cell- China. Thus, it is common for cellphone users in phones for personal calls [5]. Unlike Europe, there March 2005/Vol. 48, No. 3 COMMUNICATIONS OF THE ACM are few roaming agreements among operators in the making a phone call, young people there quickly U.S., but both the caller and the customer who embraced its advantages. SMS is usually used in addi- accepts an incoming mobile call in the U.S. also pays tion to voice services. SMS popularity was a pleasant for the call.
surprise to mobile operators because the cost of send-ing and delivering messages is low. SMS remains a Short Message Service
lucrative revenue stream and does not occupy the SMS is a way to send text messages (up to 160 char- same spectrum as voice traffic. Text messages use little acters) to mobile phones using Global System for bandwidth, and carriers do not have to deliver them Mobile (GSM) communications networks. SMS in real time, as they do with voice transmission in tele- growth is being driven by inexpensive, convenient, phone calls. A recent analysis found that SMS use in interpersonal communication, as well as by applica- Western Europe could continue to grow until 2006, tions in shopping, stock trading, business, and while mobile messaging revenue outside Europe is games. Most SMS users are in the Asia/Pacific region unlikely to grow until 2007 [7]. and in Europe, following the heavy adoption ofGSM mobile phones and devices there. SMS is a rel- atively convenient and cost-effective approach when The term 3G stands for the third-generation of compared to the cost of airtime charges for voice mobile phones, providing a range of new functional- calls or wireless Web access with short messaging.
ity. Until now, mobile phones were primarily used to SMS offers several other advantages: messages can be carry voice messages, with only some SMS text stor- received while making voice calls; in situations age. 3G technology now allows the simultaneous where talking on a cellphone is inappropriate, mes- transfer of speech, data, text, pictures, audio, and sages are silent and discreet; most carriers offer SMS video. It also provides high-speed Internet access, alerts (such as stock quotes, sports scores, and news) entertainment, videoconferencing, mobile shopping, delivered to the phone at regularly scheduled inter- and travel information. vals. SMS has recently begun to gain popularity in Many countries worldwide are preparing to transi- the U.S., indicating that the U.S. is beginning to tion from 2G (CDMA, TDMA, or GSM) to 3G catch up in terms of mobile commerce.
technology (CDMA2000, UMTS, or TDSCMA).
China. Alternative messaging methods using com-
Depending on a region's current technology, mobile puters and the Internet are relatively expensive operators could be expected to upgrade to some because computers in China are expensive, thus limit- interim 2.5G technology (GPRS or EDGE) before ing computer access. Moreover, people who have moving to 3G; in many cases, a move from 2G to 3G computers in China do not use them regularly. For would involve steep license costs and be complicated example, even though most university professors have by a lack of demand and available applications. computers with Internet access, few check their email Chinese administrators are evaluating a number regularly. Chinese users were expected to send 550 bil- of options, including TD-SCDMA, Qualcomm's lion short text messages in 2004, doubling mobile CDMA, and the Japanese- and Europe-backed phone operator revenues to $6.7 billion [6].
WCDMA standard. In China, mobile operators are U.S. Alternatives to SMS (such as email and pag-
largely (70%) state-owned enterprises with close ing) are more viable in the U.S., while Europeans send affiliations with the Chinese government. China more SMS messages. One key difference is that an Mobile operates a GSM network, and Unicom SMS message must be typed on the small, awkward operates both GSM and CDMA communications.
keyboards built into mobile telephones and take con- China's government recently allocated two 55MHz siderably longer than leaving a voice message. Further blocks of the 3G radio frequency spectrum to TD- complicating U.S. adoption of SMS is that, unlike SCDMA but only one block of 60MHz to each of Europe, mobile operators in the U.S. employ a variety the other two 3G standards. This may indicate the of technologies to provide wireless services. Calling or government favors that homegrown standard.
sending short text messages to friends and relatives in Europe has favored the WCDMA standard, while other states may be impossible due to incompatible the U.S. prefers Qualcomm's CDMA2000. China networks. There's a good chance that SMS technology does not want to repeat mistakes made by European will be popular in the U.S., possibly as email on telecom regulators with the 3G license bidding mobile phones or voice-activated instant messaging process. As a result, the Chinese government has for wireless phones that are as easy to use as regular been cautious in 3G licenses and standards because it views 3G technology as not mature enough for a Europe. Because SMS in Europe costs less than
decision on 3G standards.
COMMUNICATIONS OF THE ACM March 2005/Vol. 48, No. 3 China's 863 Program includes research and investment intended to go beyond 3G. The coun- The mobile and wireless markets in China, the U.S., try made a strategic decision to involve itself in the and Europe have experienced rapid development, but early stages of 4G development, enabling participa- standardization represents a major challenge. China's tion in the standard-setting process and in global government is dealing with competition, policy, and telecommunications competition. Although appli- the regulatory consequences of mobile telephony.
cation of 4G is scheduled for 2010, preparations The Chinese market presents unique characteristics, began in 2000, and in November 2001 the govern- along with enormous potential. China is destined to ment formally approved the 4G development ini- be the only country in the world that allows the simultaneous existence of multiple 3G standards.
U.S. The U.S. Congress has directed the Federal
Meanwhile, it is emulating marketing strategies and Communications Commission (FCC) to auction concepts found in the U.S. and Europe. While it will scarce wireless spectrum resources. While fulfilling take time for China to catch up to its Western coun- these guidelines, the FCC has the opportunity to terparts in delivering services, such initiatives will cer- encourage small businesses to involve themselves in tainly increase mobile data adoption [6]. wireless development and services, allocating a large In the U.S., government regulation is often unpop- portion of the airwaves for 3G services. The U.S.
ular, and large companies set their own standards. As allows several competing technologies, including a result, several different standards are being used CDMA, GSM, and TDMA. concurrently, resulting in incompatible networks.
AT&T Wireless upgraded its technology to 3G Many users also have to choose from among differ- in July 2004, to become the U.S.'s first 3G voice and ent providers for long-distance and local telephone data network in San Francisco, Seattle, Phoenix, and calls, as well as from a number of different technical Detroit and extended 3G services (in September solutions; determining which is best is difficult. 2004) in Dallas and San Diego. Verizon Wireless Meanwhile, each country in Europe is a relatively launched high-speed wireless data service on about small market unto itself, so most European mobile 20% of its network. However, the U.S. lags Korea, telecom companies operate in three or four coun- Japan, and Europe in implementing wireless data tries. The result is increased interest in participating services. Despite this lag, the U.S.'s largest operators in standardization procedures, so their products can are committed to building 3G networks. The Yan- be used in as many countries as possible. c
kee Group reports that 82% of mobile users do notuse wireless Internet services because of the high cost, complications, slow speed, or lack of availabil- 1. Dhaliwal, J. Seamless migration is the key to 3G success. New Media Age (Nov. 25, 2004), 9–11. ity of mobile Internet in their service areas (see 2. Donegan, M. and Lunden, I. G-men crash the mobile payment party.
Total Telecom Mag. (June 2004), 20–22.
Europe. Several European countries have auc-
3. Elkington, H. and Naville, M. After the hammer falls. Telephony 239, 8 (Aug. 21, 2000), 78–81. tioned 3G licensees, prompting mobile telephone 4. Fan, Z. China Unicom fights against delinquent accounts. Qilu Night operators to bid huge sums [3]. Consulting firm (Apr. 5, 2000).
5. Newman, J. Landlines not needed, some phone users decide. Wisc. State Gartner Group projects that by 2007, WCDMA J. (Aug. 9, 2003); www.madison.com/wisconsinstatejournal/local/54485.php. will account for 11.3% of data revenue [8]. The 6. Pienaar, I. Mobile and wireless technology: Chinese SMS to top 500bn.
European Commission has granted antitrust clear- (Aug. 30, 2004); www.itweb.co.za/sections/comput- ance to a set of agreements intended to give manu- facturers of 3G mobile equipment better access to 7. Shukhevich, R. More than missives, SMS provides variety. St. Petersburg patents. Improved access to patents paves the way Times (Russia) 946 (Feb. 24, 2004).
8. Wieland, K. Vodafone plays its 3G data card. Telecom. Intern. Ed. 38, 3 for introduction of 3G mobile services in Europe.
(Mar. 2004), 12; research.analysys.com.
However, operators have been cautious in launch-ing 3G; seamless migration from existing telecom- Xiaoni Zhang ([email protected]) is an assistant
munication platforms to 3G is the key to 3G professor of management information systems in the Department ofInformation Systems in the College of Business Administration at success [1]. Market information firm Taylor Nelson Northern Kentucky University, Highland Heights, KY.
Sofres reports that 42% of mobile phone customers Victor R. Prybutok ([email protected]) is a Regents Professor
in Europe are interested in 3G services; approxi- of Decision Sciences in the Information Technology and Decision mately 47% of users have expressed interest in Sciences Department and Director of the Center for Quality and Productivity in the College of Business Administration at the downloading music files via their mobile phones, University of North Texas, Denton, TX.
and 40% also want to view video clips (seewww.tns-global.com). 2005 ACM 0001-0782/05/0300 $5.00 March 2005/Vol. 48, No. 3 COMMUNICATIONS OF THE ACM

Source: http://cs.furman.edu/~chealy/fys1107/PAPERS/mobile%20markets.pdf