Mobile Policy Incorporated
By Dmitri Ragano, Thu Apr 18 00:00:00 GMT 2002

A balanced relationship between business and public benefit will be the key to successful regulations of the mobile Internet.

Mobile Internet policy is being developed in a regulatory landscape where the private sector plays an increasingly powerful role. During the mobile telephony boom of the past ten years, multinational operators have replaced national governments as the primary providers of telecom services throughout the world.

Mobile became a mass market just as many governments were beginning to experiment with deregulation and privatization in the telecom sector. It was private entrepreneurs that leaped into this market, in nations ranging from the United States to Tanzania, and seized the mobile opportunity. Where governments had moved slowly and ineffectively in providing previous generations of fixed-line telecom services, private companies moved with lightning speed. The results have been dramatic: after only a decade, mobile will overtake fixed line networks as the dominant form of global telephony.

These entrepreneurs have become some of the world's largest conglomerates, playing an prominent role in key policy issues that will determine the course of the mobile Internet, such as standards setting, spectrum allocation and open platforms for content and applications.

Profits and public services (Or, the lesson learned in Morocco)

The trends toward privatization have succeeded on many levels - not just in creating lucrative business opportunities but also in enabling of the altruistic aim of many policy-makers to provide telecommunications to the majority of the world's population.

The importance of telecommunications as a key public service, like health care, education and basic infrastructure, has been a key concept in policy creation for national governments and international organizations such as the International Telecommunications Union (ITU), a division of the United Nations.

As early as 1984, an international development commission headed by Sir Donald Maitland titled "The Missing Link" argued that the lack of telecommunication infrastructure in developing nations has a primary obstacle in economic growth. "Access to information is a measure of power in society," the commission reported. "And thus the digital divide reflects how power is distributed." But even the Maitland Commission did not predict the extent to which private, entrepreneurial activity would play in bridging the digital divide around the world.

"What we have learned from the experience with mobile is that the private sector is better at providing services than the government," said Dr. Tim Kelly of the ITU in Geneva, Switzerland.

One example of how privatization has succeeded is Morocco. In 1999, it licensed a second operator Medi Telecom for an auction price of $902 million (a record sum for a developing nation). Later, the same year, it sold 35 percent of the incumbent state operator Maroc Telecom to Vivendi. Morocco has since jumped from last to first in telecom access, with 95 percent of the population covered by a cellular signal. Using a pre-paid system, Moroccans can buy a handset and service for $36, which is roughly 2.6 percent of annual income.

They designed an auction where the companies were evaluated based on the price they promised to charge consumers. The company with the lowest price was selected and is now one of the most successful operators in the continent. Although it is the poorest nation in North Africa, it moved more quickly than other countries to deregulate and introduce competitive mobile operators. As a result, Morocco jumped from last to first in nations.

Yesterday's Davids, today's Goliaths?

For all of the upside the private sector has delivered, there are plenty of concerns that corporations' growing power creates a conflict of interest in a critical area of public service. Corporations exist to maximize profits. And yesterday's small, scrappy mobile entrepreneurs are today's multinational conglomerates, sometimes dwarfing the nations that they serve in wealth and scale.

"There is a concern that operators and other private companies have become so powerful that they could challenge national sovereignty and security," said Kelly. A company like Vodafone, for instance, has a larger market capitalization than the gross domestic product of some nations in Africa and Asia where it provides mobile networks.

"Ultimately, policy has to enhance consumer welfare," said Johannes Bauer, associate professor in the Department of Telecommunications for Michigan State University. "In an ideal world, government would recognize where public policy is needed (and where it is not needed) and implement the best approach. Industry would cooperate in sharing technology and business expertise. In practice, industry is lobbying governments to enact policies in their favor."

Already, industry consortia have replaced governmental agencies as the driving force in standards setting for new technology. Operators will also have the opportunity to control access platforms for content and applications, leading to the "walled garden" portals that shut out third-party providers. Corporations have also grown stronger due to the commercialization of mobile technologies that were previously only available to governments.

"Private industry now has capabilities, such as positioning location-based services, that were only available to the military twenty years ago," said Kelly. "The private sector is now more involved in issues in privacy. And there are risks in the diminishing role in private security. The implications of this still are not understood from a policy perspective."

Even if telecom corporations created a "win-win" situation during the first decade of mobile growth, getting rich and connecting the masses at the same time, can this logic hold true indefinitely? What happens when profit concerns diverge from the public benefit, as will inevitably happen sooner or later? And how will the new regulatory climate treat this conflict of interests given the omnipresent influence of the new multinational giants?

A new generation of services and challenges

These questions are key for mobile Internet regulation, since 3G and next-generation networks are suited for different challenges than the voice-based mobile networks of the 2G era. The "missing link" of telecommunications service that Maitland referred to is gone but it has been replaced by a new kind of digital divide in level and quality of Internet access.

In a recent report by the ITU assessing the progress of telecommunications policy goals, the organization pointed to the importance of this new gap. "The Internet is of little use to people who are not able to exploit electronic access to information to improve their lives..." according to the report. "The nature of the divide is shifting: from basic to advanced communications, and from quantity to quality." This new digital divide can be bridged through effective deployment of mobile Internet services.

"In a country like Egypt, there are five times as many mobile phones as PCs," said Kelly. "Most of the population cannot speak English or use PCs, so they are happy with a service like SMS. Messaging and text retrieval through a phone-computing device is much more attractive."

Paying the price for mobile Internet

During the past 5 years, governments around the world have been following the United States' lead in selling off the spectrum to the highest bidders. Industry observers fear that the enormous sums paid for spectrum will drive consolidation and tighter corporate control of services in the mobile Internet era. Operators have paid more than $130 billion to acquire 3G licenses, Kelly of the ITU estimates, and will pay another $130 billion to build the networks.

"You need global scale to manage those types of costs," said Kelly. "The onset of 3G and more sophisticated mobile networks will probably mean even more consolidation in the industry - leading to a handful of multinational conglomerates that could control networks, technology and handsets all over the world," said Bauer.

Bauer believes a big risk of license costs is that firms will want to protect their right to use the spectrum and their ability to derive revenue from it by providing access only to a select group of content and transaction providers. Bauer is concerned that mobile Internet companies without their own network platform (e.g., Mobile Virtual Network Operators) will have a more difficult time getting access to networks.

The i-mode phenomenon in Japan, Bauer argues, is one case in point where consumers have easy access to a select group of service providers but difficult access to the open Internet. Another example where the closed model is more obvious is the cable television industry, which had to be forced open in the United States through regulation to allocate channels for independent programmers.

Rethinking regulation

There are already policies in place in many countries that serve as a legal basis for preventing closed mobile Internet networks. Sweden and Ireland, for instance, already require 3G network providers to make the network available to third-party content providers. And the European Union's framework empowers regulators to open network platforms if service providers become dominant, controlling more than 50 percent of the market. In the United States, the Wi-Fi boom, using unlicensed parts of the spectrum, could lead to a broader array of opportunities for mobile Internet providers.

"Wi-Fi is in many ways complimentary to 3G," said Bauer. "Given the high costs for licenses, some 3G service providers may be inclined to get their feet into Wi-Fi and perhaps lobby for privatization of unlicensed spectrum. To create an environment where the mobile Internet can provide both tangible and intangible value, the new regulation will need to find a careful balance of public service goals and the needs of business. The organic growth of the World Wide Web from an offshoot of academic and government institutions has been the ultimate example of how great ideas can thrive when they are controlled by neither government or business, but have the support of both. This is the balance that the policy-makers should strive for in regulating the mobile Internet.

Certainly the comparison between mobile Internet and television broadcasting is not lost on policy-makers. Television has always been a relatively closed medium, which is still predominantly controlled by a handful of broadcasters. One of the reasons that the Web continues to steal usage time away from TV in industrialized countries is infinitely open nature of the media. If mobile Internet platforms were to fall under the influence of a small group of providers, it could easily diminish its appeal as a vibrant forum for free information exchange.

Even in the 18th Century, Smith warned against industry-backed regulation that "widened the market and narrowed the competition". Such regulation, he wrote, "comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

It's Regulation Week on TheFeature. Be sure to check back daily for original reports, interviews, analysis and discussion covering the mobile data industry!

Dmitri Ragano is a consultant for Intervision-Razorfish in Tokyo.