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
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
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 . 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
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 .
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 . 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 .
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).
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 .
WCDMA standard. In China, mobile operators are
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
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.
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 .
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-
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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-
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However, operators have been cautious in launch-ing 3G; seamless migration from existing telecom-
) 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 . Market information firm Taylor Nelson
Northern Kentucky University, Highland Heights, KY.
Sofres reports that 42% of mobile phone customers
Victor R. Prybutok
) 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
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