We had an interesting discussion at Forum Oxford about measuring how much a country is ahead or behind in mobile telecoms. As regular readers of this blog know, Motorola is the inventor of the mobile phone, but ironically today the USA is a backwaters to mobile telecoms, with almost the whole Industrialized World having passed them already in this technology, with only Canada lagging behind the USA.
So I thought I'd adapt that posting here for us at the Communities Dominate blog, to help provide some measures and facts to explain why some countries are ahead and why some are not. It may surprise people, that for example Finland and Sweden are not among the leaders anymore. Or that inspite of all the hype and hoopla that came with the iPhone last year, the USA still lags on all the relevant measures.
There are four significant measures for leadership position in mobile telecoms. Each measure will also give a different view to what kind of leadership is involved. Not the same countries are holding the lead by each of the different measures.
And I do want to warn any American readers of our blog. Please do not think that I am somehow "against the USA" on this issue. I want to report the facts. I think it is very dangerous to be deluded on this. There has been great progress in the American mobile telecoms industry, especially last year relating to the hype around the iPhone. But the USA was seriously lagging behind, and the rest of the world did not sit still. This may hurt a bit.
Penetration rates as a measure
The first and perhaps the most used measure for who is ahead and behind is subscribers. Americans are constantly amazed by their domestic cellphone subscriber numbers - currently in the 80% per capita range. And yes, while TV set penetration rates and fixed landline telephone penetrations and internet and broadband penetration rates tend to be measured against household penetration rates, mobile phones are measured against per capita rates. Not against "adult" populations, but the whole national population, from babies to great-great-grandparents. Everybody alive. Against that measure, the USA cellphone penetration rate is about 80% per-capita at the end of 2007.
That is more than fixed landline phones yes. That is an impressive number indeed, until one looks at the rest of the OECD countries and finds that the average for the industrialized world is over 100% per capita subscription penetration rate and the leading countries are at the 140% range such as Hong Kong, Taiwan, Singapore, Italy and Israel. And to be very clear. Yes, 100% penetration rate per capita does mean that there is a cellphone for the 2 year old who can't do the numbers to make calls, and also for the 102 year old who has forgotten numbers and can't hear anymore to speak on a mobile phone. 100% penetration per capita means that if the country has 60 million people, there are 60 million mobile phone subscriptions. As the babies and some very elderly (and some very poor) won't have phones, it does mean that a part of the population has two or more phones to reach 100% national per capita penetration rate. And again, that was not a misprint. The leading countries in the world now are at 140% penetration rate (and still growing.....)
How far behind is the USA? Finland, Sweden and Italy reached 80% in 2000. Hong Kong, Israel, Norway, Denmark reached it in 2001. UK, Singapore, UAE, Portugal, Austria and many other countries in 2002. The USA hit 80% only in 2007.
Yes, it is an impressive number and it dumbfounds many US based analysts (who incidentially are very mistaken if they claim the US cellphone industry is near saturation - trust me on this, I wrote THE book on the business of mobile telecoms, m-Profits, the global bestseller in 2002; the USA cellphone penetration rate is nowhere near saturation; won't be for several years to come).
But if all other industrialized countries except Canada have already reached this level of 80%, and the first countries did that seven years earlier and have grown much further since then, then yes, clearly the USA is dramatically lagging the rest of the world in mobile telecoms, on this measure.
Now obviously the USA is ahead of all of Africa and most - but not all - of Latin America and roughly on par with Eastern Europe (several Eastern European countries are far ahead of the USA on this measure, and the USA has fallen so much behind on the technology it invented, that it is now about on par with Russia)
Impacts of penetration rates
Why is this important? As we passed 60% penetration rate (in industrialized countries) we get the phenomenon of second subscriptions. In Europe half of all mobile phone owners have two or more phones. The worldwide percentage in all markets, not only industrialized world, last year was 28% according to Informa. But again America lags, only about 10% of Americans have two or more subscriptions. So - one symptom of a more advanced mobile market is that many of its users have two or more cellphones. Think Blackberry users. Even in America very many Blackberry owners (or iPhone owners) have two or more subscriptions and phones.
Secondly rising penetration rates mean younger users join the cellphone user set. In Europe it is normal for under 10 year olds to have their own personal cellphones. Normal. Like we wrote in our book Communities Dominate Brands, in Finland for example most kids get a major portion of their allowance directly to their cellphone account to pay for their calls, messages, videogames etc they consume on the phone. In Japan and South Korea its so common that they make custom NEW cameraphones for UNDER 10 year olds. In Europe at least the child gets an old hand-me-down phone from the parents. In Japan and Korea now kids don't want the hand-me-down, the market for childrens phones is so big that they make custom childrens phones - cameraphones - to that market. We know well that in America it is still a "teenager thing" with the age of the first time phone owner dropping into the 12-13 year bracket, perhaps even lower. But few parents in the USA will have phones for 8 and 9 year olds. In Israel and UK in 2005 they were reporting that the market had shifted to 6 year olds being first-time subscribers.
Finally when the penetration rate of cellphones approaches, and then passes, that of fixed landline phones, we get the assumption that most calls will be originated on mobile phones - and - the numbers we always call first are the mobile phone numbers of whoever we try to call. Telecoms traffic shifts from fixed landline to fixed landline by default, to calls from mobiles to mobiles. When we start to call the mobile phone number as the default calling attempt, that in turn helps bring about Reachability (Tavoitettavuus), a concept that I first explained in my book m-Profits in 2002. Reachability is what introduces the addiction to cellphones which we don't have with fixed landline phones. Only those executives of our industry who understand Reachability can deliver services that will be mass market successes. Reachability explains why the Blackberry is such as "Crackberry" and why the addiction of SMS text messaging exceeds that of email, instant messaging and is on par with cigarette smoking.
For me personally, I like to think the subscriber penetration ranking is a good proxy for determining how much society has evolved to embrace mobile telecoms technology. So if you want to learn how radically society as a whole will change because of mobile phones, go to Hong Kong, Taiwan, Singapore, Italy or Israel, these five countries lead the world today on this measure.
Networks as a measure
The second most common used measure of who is ahead and who is behind in mobile telecoms is network generation. We have deployed and commercially launched three generations of cellular telecoms networks. What is now called 1G, were the early analogue cellphone (and often carphone) networks like NMT and AMPS. The world's first 1G network was launched commerically in Japan in 1979. Then came 2G second generation networks, which were digital, like GSM, TDMA and CDMA. The first 2G networks were launched in Finland and the UK in 1991 and 1992. Now we have third generation networks, 3G networks like WCDMA/UMTS and CDMA EVDO, which were first commercially launched in 2001 in Japan and South Korea. The USA (and Canada) have been dramatically behind in adopting each of the 1G, 2G and 3G networks.
There are also interim network generations, so-called 2.5G generations like GPRS, CDMA 1x RTT, and EDGE; and 3.5G like HSDPA. And there are ancilliary network technologies such as the digital TV solutions like DVB-H, DMB, 1Seg and MediaFlo as well as the Felica near field payment technology from Japan. However, these also tend to follow the "usual gang" of the same countries who led in the major network deployments, such as 1X RTT in Korea, DVB-H in Finland and Felica in Japan.
Impact of networks
Why network generations are relevant, is that they enable innovations. We couldn't move beyond the cellphone being only a voice calling instrument, until we had 2G and the digital networks that started the expansion of services with SMS text messaging (now used by over 2 billion people on the planet, nearly twice as many people use SMS as use the internet worldwide). And with 3G we had the early jittery TV services that now are expanding into better network technologies with digital broadcast TV to cellphones. And so forth. The innovation requires newer technology networks.
For me the network generation adoption is a good proxy for determining how innovative the mobile industry is in the country. With the second generation (mostly still current technologies) the innovation leadership was in Europe, mostly in Scandinavia; but now with the third generation, the innovation has shifted to Japan and South Korea.
To put it concretely through examples, in the late 1990s we found such innovations as payments by phone (coca cola vending machine) and the downloadable ringing tone in Finland, or for example mobile parking in Norway. In 2000 we had SMS ticketing in Austria. In 2001 we had SMS-to-TV chat and mobile phone check-in for airlines from Finland and TV-voting from the UK. Now consider most of the news we report here at this blog as major innovations in mobile, from Kamera Jiten the Cameraphone Dictionary and Otetsudai Networks, 2D barcodes and Mogi the location-based mobile phone game (all from Japan) or musicphones, TV phones, Cyworld social networking, Ohmy News citizen journalism and Kart Rider gaming (all from South Korea).
And yes, if you want to see the future of services, applications, innovations, business models, etc for mobile telecoms, Japan and South Korea lead the way.
Handsets as a measure
The third measure is handsets. This is less easy to quantify with absolute figures and needs much more opinion and comparison and contrasting. But what I mean is how advanced are the phones in any given country.
A good indication of this is the reception of the iPhone. Granted, it is an innovative and sexy phone, but it was hardly the most advanced phone on the market even last June when it launched, or even in January 2007 when it was announced. The national reception and excitement involving the iPhone shows well how advanced the rival phones are in that country or region. In the USA the iPhone was seen as the hottest technology. In Europe they were mildly interested, some loved it, some felt it was very deficient. But in Japan and South Korea, the interest was lukewarm at best, with most local experts pointing to far more advanced phones, and arguably that the iPhone was more of a copy of ideas already there (such as the industrial design -winning phone by LG that is known now as the LG Prada phone, which is has very similar outwardly appearance as the iPhone but won its award in South Korea back in 2006)
So we know full well that the American telecoms and IT industry went gaga over the iPhone last June. But when I was visiting the UK last December to run my short courses at Oxford University, I picked up the two local consumer magazines that specialize on mobile phones. One of the two gave the iPhone 5 out of 5 stars as the best phone of the month for December, but the rival magazine gave it only 3 out of 5 stars and gave several other reviewed phones better scores including the more expensive Nokia E90 Communicator which was reviewed in the same issue. So while Americans raved about the iPhone, clearly the British had more mixed feelings about it. My point is that there is a far more advanced selection of phones in Britain than in the USA, to be compared with the iPhone. Now in Asia, Japan, South Korea etc, the iPhone opinions last summer were very dismissive and lukewarm at best. Obviously the iPhone has not been formally launched there yet, and there is no point in even trying before they get a 3G version for Japan and South Korea.
The world's most advanced phones are made in Japan (partly because they are made uniquely to that market in far smaller production runs than Nokia, Motorola, Samsung etc, which all provide handsets for global or regional markets). You really need to visit Tokyo to understand. Its not just the Felica chips (mobile wallet phones, invented in Japan) and 1Seg digital TV tuners, but really, the fashion pattern is such that new phone models are released for the Spring collection and the Fall collection, like the fashions in the apparel industry. Japanese women do coordinate the phone with the shoes and handbags they use that day. You don't want to be seen with an old phone. For young employed adults the replacement cycle is 6 months. Japan invented for example the (mass market) cameraphone.
The next most advanced phone market is South Korea. They invented the MP3 player musicphones and the digital TV phones (on the DMB standard). In Korea a 5 megapixel cameraphone is only middle of the range with up to 10 megapixel cameraphones on sale (compare that with 2 megapixels on the iPhone). The phones in these two markets are years ahead of all other countries (well, perhaps Taiwan excepted). Next comes the industrialized GSM world, ie all of Europe, Australia, the other Asian Tiger economies ie Malaysia, Singapore, Hong Kong, Thailand etc. Then comes the mixed CDMA-GSM industrialized world ie North America. After that comes the developing world.
If we look at the USA again, take Nokia. They do not bring their top models into the USA when they are launched in the rest of the world. These are seen as too expensive and difficult to market in America (because it lags) and Nokia rather sells those top models in such "backward" countries as the Philippines and Indonesia and South Africa, where buyers are quite accustomed to phones costing 1,200 dollars and beyond, and don't recoil in shock when the iPhone is announced at prices of 499 and 599 dollars. Its not just Nokia. The same is true for Samsung and SonyEricsson, which both make many phones at the top end which they don't bother to introduce to the USA market.
Even when the big makers bring their top phones to the USA, they bring them there with a severe time lag, often 6 months later. Consider the Motorola Razr, the Blackberry and the LG Prada. These are all considered high end phones in the USA but mid level phones in the mainstream GSM world.
Impact of handsets
Why are handsets relevant? To me that tells us how mature are the users. The more advanced phones that are requested and bought, the more knowledgable is the consumer in that market. Here too, Japan is the world leader and South Korea the only real rival. If you want to study the behaviour of future mobile phone users, study Japanese and Korean users today.
Mobile Services as a measure
The last measure is mobile services. This is most difficult to measure, because obviuosly there are thousands of services already out there, and few are uniform across all markets. But we have one reasonably good measure: SMS usage, as near a global service as there can be. Again, USA is last (with Canada) among industrialized nations. It may astonish Americans to find that already there was one SMS message sent per cellphone owner per day across all networks in the USA on average at the end of last year. ("Suddenly everybody is sending SMS text messages"). Well, whoop-te-doo, we had that statistic in Finland in the last decade. The UK hit that level of one SMS sent per day per user in 2002. The world average in 2007 is 2.6 SMS text messages sent per day per subscriber. The three world leaders, Koreans average 10, Singaporeans 12 and the Philippinos 15 SMS text messages sent per day per subscriber. (Note that Japan does not have SMS, they have short emails - somewhat similar to SMS and normal emails similar to our Blackberry email on their phones; but messaging on phones are very heavily used, in numbers very similar to Korean levels)
I would hesitate to go that far to say the Philippines has the most advanced mobile services industry, simply because the Philippines is a developing country. So they have almost no meaningful 3G services, only limited 2.5G/GPRS services and not that much even in WAP, but for the most simple services, built on the SMS platform, the Philippines rule. In the Philippines it is for example not unusual to receive your whole paycheck paid to your mobile phone account. And you can then make various payments and money transfers via SMS. The various TV show interactivity that we see with American Idol for example and the politicians using SMS in their voter drives - these have been staples of the Philippine market for this whole decade. The Philippines is definitely the most advanced country among the developing world by far, when it comes to mobile telecoms.
But I would definitely count South Korea, Japan and Singapore among the world leaders in their domestic mobile data industries. In Europe I'd say the leaders (lagging the Asian ones) would be Italy, UK, Austria, Ireland, Norway, Finland and Sweden in no real particular order.
Impact of services
What specific part does this tell us? I think the mobile service maturity is a good proxy for how mature the mobile industry is in that country. Again, its no surprise that South Korea and Japan lead - those were for example the first countries where all-you-can-eat data plans were introduced. In Japan and Korea the industry revenue-sharing is split approximately 90/10 in favour of the content owner (ie CNN gets 90% of every dollar charged) where many lagging countries in the developing world still try to perpetuate 50/50 splits. And by no surprise again, the USA is a laggard compared to the rest of the industrialized world by the maturity of its mobile industry. Is it no surprise that the Sprint 1000 public relations fiasco happened in the USA.
But again, if you want to understand which telecoms markets are most mature in the Industrialized World, South Korea, Japan and Singapore are the three to watch.
So who is ahead
Ok, there is a recurring theme here. By networks, handsets and SMS usage, South Korea is a consistent leader finishing in the top on three of the four measures. Adapting Japanese wireless email and short messaging numbers, Japan joins to that leadership position also with three out of four. But remember the subscriber penetration numbers? It may be surprising to find that both Japan and South Korea are still under the average of the Industrialized World in subscription penetration numbers, having not even reached 100% yet. When we include penetration rates, Singapore emerges as a major candidate as well scoring on the top with two of the four measures. And I can tell you that Taiwan is very close on all of these measures. So as a whole, depending a bit on how much we focus on the handset or subscription, network or service, the global leaders are in Singapore, South Korea, Japan, Taiwan (and perhaps Hong Kong and Israel). What is very clear, is that the leadership position that Northern Europe held in the second generation, has shifted to Northern Asia in the third generation. Europe's current leader is Italy. And yes, North America, alas, is far behind both continents.
And on the USA
Finally, I don't mean to dump on the Americans. The cellphone was invented in the USA. I lived in the USA for 12 years (plus a year in Canada) and worked in New York City for 6 years after I graduated, and I love the country. I always say competition is good for the industry, and it breaks my heart that the once proud giants of the mobile industry from Motorola and Lucent on down, are all struggling to make it in this industry. The big wireless carriers are underperforming in the USA market compared to any of their major rivals abroad, and again, looking at the performance of German controlled T-Mobile in America over the past 4 years shows how far better the German-controlled management understands the industry than all purely domestic rivals.
But it is true, that there are primarily four ways to measure leadership in mobile telecoms - the penetration rate ie the number of cellphone subscriptions; the network generation(s); the handsets; and the services. By all of these four measures, the USA lags the industrialized world, mostly being all the way in the back.
But it is getting better. For two decades the North American IT, telecoms and media industries were obsesssed with the internet and ignored mobile. But two years ago the biggest American internet player, Google, started to say that the future of the internet was mobile. And we've seen Google make a massive play into mobile. Microsoft has a Windows version for mobile, as a smartphone operating system. Apple entered phones last year. Yahoo has its Go portal. Dell is on its way to mobile. Intel is already there in some ways as is Cisco. And Qualcomm is doing quite well in mobile, as are Canadian players RIM (Blackberry) and Nortel. MTV is very big into mobile. Even Disney figured it out and are re-entering this field, after their disasterous failed MVNOs of Disney MVNO and ESPN MVNO in the USA which they have folded, they now are launching Disney as an MVNO in Japan.
So don't count the Americans out of this game. But it is absolutely vital for any USA based executives involved in wireless, to close their eyes to the USA market, and go study the Japanese and Korean markets, if they want to understand the future of the mobile telecoms industry. (Perfect lesson was Disney - its USA MVNO was not run with the knowhow from its Japanese affiliates, now they have finally learned the hard lesson and I trust their Japanese venture will do far better). If not, American players are condemned to follow Lucent and Motorola into perpetual failure by misunderstanding the industry by focusing on the laggard USA customers and industry at the cost of insights from more advanced markets.
So case Finland
One last case - So I am from Finland, and used to work for Nokia. It is very hard for me to admit that Finland is no longer a leading country in mobile telecoms. But for American readers, consider this when you think about how far ahead or behind is the USA. Consider Finland. A vast country for Europe (about the size of the State of Montana or half the size of Texas) with only 5 million people mostly living in the South. Yet just about anywhere you might drive your car, you'll find perfect cellphone radio coverage by all three national networks. Tunnels (the few that we have) - no problem, full coverage. Inside the tunnels? Yes. Perfect coverage. The underground/subway trains - in Helsinki the subway was built to be a bomb shelter, it is dug deep into the bedrock of pure granite (no radio signals penetrate that far) - yet perfect cellular coverage on all subway trains and stations, even at the peak of rush hour.
More than half of Finnish households have abandoned the fixed landline altogether as all household members have their personal mobile phones (in the USA the fixed-to-mobile substitution statistic for households is only about 10%). In Finland phones are not SIM-locked. Unlimited data plans are available. DVB-H Digital TV broadcasts are available onto TV-phones. Content owners get approximately 80/20 revenue sharing deals. The per-,minute and per-SMS text message costs are among the lowest in the Western World.
Libraries in Finland will send book alerts by SMS, dentists will reschedule appointments by SMS. Do your American libraries and dentists do that today? Chicago was just trialling a cellphone parking solution, in Finland we've had cellphone parking since 2001. A Canadian airline just announced it will adopt cellphone based mobile check-in, Finnair has had it since 2001. More than half of Helsinki's public transportation single tickets to the trams and underground are paid by cellphone. Every grandparent uses SMS, children use their own cellphones to report to parents when they've come home from school. More than half of the revenues of commercial TV in Finland come not from advertising or subscriptions anymore (like in the USA) but from SMS interactivity (like votes on American Idol).
That is mobile telecoms in Finland today, and within Europe, Finland still is one of the leaders together with Italy, UK, Sweden, Austria, Ireland, Norway and Denmark. Yet Finland has fallen severely behind Japan and South Korea (by two years according to my measurements).
So yes, the American market has evolved a lot last year with the iPhone, but the rest of the world did not sit still, and thus the USA is probably 4 years behind the mainstream Industrialized World and 6 years behind the leading countries. I'm sorry to say...
We can help
And then a plug - Alan and I arrange workshops obviously around the 7th Mass Media topic and understanding digital convergence (and any topics around our book Communities Dominate Brands, obviously), etc. That is no surprise. But as I now live here in Hong Kong, I have good contacts into both the Japanese and South Korean markets. I can help arrange executive tours and visits here into those countries (or others such as China or Singapore etc) organized with some of my partners here, if you and your staff would need a local tour here to get deep immersion into the mobile industry and to meet local players. Contact me at tomi at tomiahonen dot com and we'll take it from there.