Competition in the European Mobile Phone Industry

Competition in the European mobile phone industry: Introduction of UMTS in Spain

Unique characteristics of the phone operator compared to traditional manufacturing sectors

Many of the fundamental characteristics differ between manufacturing and services. These include the following:

* Ability to develop and protect proprietary technologies: Imitation is simpler for a phone operator; manufacturing process/system patents are more difficult to obtain and protect.

* Incremental nature of innovation versus discrete technology transition: Because of competitive pressures and the relatively low cost of modifying service provision (compared to changes to manufacturing processes), services offered by phone operators can continually evolve.

* Technology Development. A key distinction is the nature of research and development. Manufacturing firms conduct a larger share in house, and the output of that internal activity is more likely to be a proprietary technology. For phone operators, little research occurs in house, and the development activity that occurs is primarily related to enhancing, redesigning, or reconfiguring others' proprietary technologies. Whereas manufacturing firms license/purchase others' technologies in the form of intellectual capital or equipment to be used to produce proprietary technology, phone operators would purchase others' technology in the form of equipment to be modified and integrated into their operational system to deliver modifications to existing products. In addition, manufacturing firms strategically, through their research, introduce new technologically advanced products and processes to anticipate new consumer wants; whereas phone operators strategically, through information gathering, modify existing products to meet existing consumer needs.

Will the introduction of UMTS be successful? Which factors will affect the success or failure of UMTS?

UMTS is bound to be a huge success since it is the ultimate convergence of fixed and mobile, voice and data, content and delivery. Some of the many "usable-on-the-move" applications that can be implemented by UMTS are:

* Messaging services like multimedia messaging

* Content specific applications like news, music, and other entertainment services.

* Personalized services like ring tones, interactive games, virtual communities

* Mobile Banking, Mobile Commerce - buying digital content

* Business services requiring secure connectivity

* Access to the Internet and intranets

* Access to collaborative applications like managing list of contacts, meeting arrangers etc.

* Synchronization with PC (address book, agenda, e-mails, etc)

Key success factors for UMTS from various standpoints are listed below.

Technology:

* Network Performance - Capacity Planning & Management, Encryption and security

* Interoperability/roaming - Maintain constant service levels between different service providers.

* Backward Compatibility - towards older commercially deployed systems.

* Broad band Technology- Voice and Data (e.g. TV)

Business:

* Marketing Strategy - Need and Service oriented, transparent pricing structure, product bundling

* Usage scenarios - Services embedded into users daily life

End user:

* Attractive - Single point of entry to value added services focused on customer needs

* Availability - Anytime and Anywhere, Instant access

* Convenient and secure - Plug and Play, End-to-End security

* High quality - Always at the same level

* Pricing - Low access flat rate as well as flexible pricing structure (nights, weekends, working days, etc)

Did it make sense for phone operators to pay license fees in the billions (in markets where licenses where auctioned off)? Please be specific.

Paying huge licensing fees for UMTS does not make sense especially with the uncertainty over payback period, return and profitability. Phone operators will suffer from distorted competition that will arise through the unprecedented high sums that have had to be paid, thus causing market fragmentation. Having paid huge sums for the UMTS licenses,