Who is ahead and who is behind on mobile telecoms

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.

Comments

[Roland]

Data gets old really fast, Tomi. For some of the latest news in what your refer to as the "most advanced mobile services industry", the Philippines, you may want to occasionally visit my blog, Textra Extra (http://www.textraextra.com). I'd be more than glad to share my experience in this neck of the woods.

[Sami]

Great post! Maybe you should make a more formal model around this, one that draws some kind of a quarterly "mobility index" per country once you punch in the numbers. Could be a popular thing. Seriously.

My pet peeve about megapixels arose there as a tiny part.. It's pure insanity to have anything over 5MP in a cameraphone, even that's too many. I hate to see the same disease that only leads to unnecessarily big files and degraded image quality affect phones the way it's affecting compact digital cameras. Subsequently I'd say that the people in a country who first have the common sense to break away from the megapixel race deserve a big bonus plus on your index ;)

[Brendan]

"I think the mobile service maturity is a good proxy for how mature the mobile industry is in that country." - WOW!

[Rudolf]

One of the important elements in determining being ahead or being behind: usage is missing. The US is leading in use. In the United States the average amount of call minutes is around 800 compared to around 100 in the EU. This is because the United States doesn't use the Calling Party Pays system, but instead uses Bill and Keep, where you don't pay for terminating.

Terminating fees are blocking any real form of competition between networks by setting a bottom price to the price per minute being equal to (1 - marketshare)* terminating price=min retail price. In reality prices are set way above terminating prices. Funny thing is that the marketshare component means that the larger market parties are benefiting more than the smaller networks. All in all, quite simple to see why the telco's prefer the CPP model, but it doesn't benefit the end-use.

[Tomi Ahonen]

Hi Roland, Sami, Brendan and Rudolf

Thank you for the comments.

Roland - great site, good info, thanks

Sami - good points. And yes, megapixels are a false promise, but you also know well, that the top end makers are now going with branded high quality optics as started by Nokia and their partnering with Carl Zeiss. LG and Sony also already offer phones with branded optics. Megapixels are not the only way to improve the quality, but are also a relatively fair indicator of an evolution in a digital camera. Certainly early VGA quality stand-alone digital cameras were worse than the "Megapixel" cameras that followd, which were superceded by the 2, 3, five etc megapixel ranges. No counting pixels is not the answer, but for comparisons, its about the only measure we can have for the camera feature?

Brendan - thanks

Rudolf - good point. I do totally disagree with you, but I understand where you're coming from. Certainly one way to measure the industry is by the minutes used of telephone traffic on mobile networks. And by that measure (alone) the USA leads. And as you say, the reason this number is so lop-sided for the USA is the concept of "Calling Party Pays" (which has been adopted now in almost all countries of the world) and the older, faulty method of "Receiving Party (also) Pays" which the USA and an increasingly small number of other countries still use.

The American Receiving Party (also) Pays model has prevented all meaningful innovations and natural maturing of the telecoms industry. Only by abandoning the concept of Receiving Party Pays, can a consumer discover Reachability. Without Reachability there is no addiction. Without addiction the mobile telecoms industry has no particular advantage. When countries abandon Receiving Party Pays, and adopt Calling Party Pays - then Reachability will be discovered by users. After that the whole industry model changes.

I could go on for hours on it. Lets "cut to the chase". Yes, the USA consumer puts more minutes on their phones than those of any other country. But the USA consumer also pays the highest rates (with Japan). European consumers on average pay only about half of what Americans do, for better calls, on better networks, with far better network quality, far less congestion, more services, and far more users (Metcalfe's Law ie the utility of a network grows at the square of the number of users in the network).

American carriers are trying to engineer around the concept of Calling Party Pays without deploying CPP. So they are forced into a contest of free minute buckets (with then strange rules that occasionally punish given customers). American consumers pay the highest phone rates for their cellphones, and get the worst service in the world. In Europe and Asia, the consumers are charged for use, get very reasonable phone rates (here in Hong Kong the normal domestic cellphone per minute rate to any network is under one US cent per minute).

But the phone service is not prohibitively expensive. So all have the phones and services, even those very poor can afford it, getting a second hand phone and a pay-as-you-go (prepaid) subscription. Everybody can join, everybody is connected and the benefits of mobile telephony reach all.

The network providers (carriers) have a real incentive to constantly upgrade the quality of their networks and reduce congestion, because of that rule of economics, that comes to play with Calling Party Pays, and produces the concept of the termination revenue. It is totally economically feasible to bring a cellular network base station to a poor village where unemployment makes conventional (outbound) phone services economically unviable. But the employed kids of those people are in the cities, they send old used second-hand phones to their parents and cousins in the poor villages, and then the employed kids will call the parents, at their cost.

This model totally does not work in the USA model. The network is perennially congested. The carriers have no incentive to expand their networks. They have oversold the "free minutes" to their customers. In the Calling Party Pays model, the carriers have every incentive to bring the network to every nook and cranny where there are people who could RECEIVE calls, even if they are too poor to make calls.

All benefits of CPP are better than Receiving Party (also) Pays. That is why so many countries have abandoned the model and gone to CPP. The USA is struggling now with a legacy system that is delaying benefits and forcing false economies. The only "benefit" to American consumers is an enormous bucket of minutes, on networks that often cannot deliver their "free" calls. For that they pay the highest rates in the world. Ask any of them would they prefer to get better phone services for half the price, and they'd jump at it.

ALL people I've ever talked to, who have lived in both a Non-USA/Canada mobile telecoms market and the USA/Canada mobile telecoms market over the past 10 years, say the USA/Canada is the worst of the two, whichever country is the alternate, including many in the developing world.

Sorry, Rudolf. I totally disagree with you. The American customer is punished by paying through the nose for a system which is archaic.

Thank you all for writing

Tomi Ahonen :-)

[Paul Ruppert at Mobile Point View]

Nice analysis, as a 'globalized American' I assure you we know we're 5th and falling when it comes to 'cellular' country competition. But you've made a critical oversight: ultimately the value of any commercial concern is the market valuation of the company. Bits and bytes, penetration, usage should all roll into what is the value of the company or the in-country industry as reflection of finacial markets' capitalization. That would be an interesting comparision layering over your data against the relative market values of operators in those countries. The winner I think would be...perhaps China Mobile?

[Steve]

Wow - nice post. Great info. It's fantastic to see quantified information that helps measure the market from the consumer's perspective.

As a Brit who is now lifing in the US, I am constantly confounded by how backwards the US mobile market is. I've been here 4 years, and I still feel like I had better service in the UK when I lived there. And don't start me on the devices and the proveder's stranglehold!

I agree with Sami - I'd love to see a quarterly update on the state of the industry.

[Gerry]

Great blog post, it will be interesting to see how the new telecoms legislation will effect the mobile market in the USA, Im not optimistic however

[Sharon]

I really agree, and been saying this for years, about how lagging we are in mobile comparatively to the rest of the world - and I blame one thing and one thing only: 'provider stranglehold' as an above commenter called it.

The reason we are not at 100%+ saturation is because a user in the U.S. has to sign into a company for a year or more for service. There are hefty fees for stopping service early. This is ridiculous.

Additionally the false impression has been built up to consumers that hardware (phones) are locked to certain providers (service.) That's B.S. unlocking is not neurosurgery, yet still the providers strangle the U.S. into the locked mentality.

This, and only this, is why we are so behind in usership and in innovation.

[Tomi Ahonen]

Hi Paul, Steve, Gerry and Sharon

Thank you all for writing.

Paul, yes, market capitalization is one way also to look at the industry, but has two major flaws - one is the expectation vs reality - stock market evaluations of given companies is almost always strongly weighted with the expectations, not just reality today, but what the market thinks of the tomorrow for that company. So its quite an imprecise measure of only "achieved" performance. And on international comparisons, the fluctuations in international currency exchange rates can play a dramatic role, such as the recent rapid decline in the US dollar's value compared with most other major currencies.

Still, you're right, China Mobile is currently the biggest telco by market capitalization. But I wouldn't really go that far as using this as a primary measure of who is ahead, more perhaps of an additional indicator.

Steve, thank you. As to quarterly updates, ha-ha.. I wish I had that much time (or someone would pay me for it.) I'll see if I can do an annual update in 2009, ha-ha.. I do have a day job, and we get no money at this site (no ads), so for Alan and me this is purely a hobby, to share info.

Gerry, legislation is important of course, but I'm far more confident in the free marktets. How long will American stockholders put up with American carriers (and equipment makers) underperforming compared to their global peers - see now for example Motorola taking steps to get rid of its underperforming handsets unit. If American management can't do it, then bring in European/Asian management - or the cannibals will come in and eat up the industry - as it should in a free market...

Then competition will fix the matters in the long run. Here in Hong Kong we have 6 mobile operators/carriers (serving a country of 7 million) and we have 140% per-capita handset penetration. The competition is fierce, the per-minute call charges are at one fifth of one US cent per minute.

Finland is another country of severe mobile competition - was the first country where national competition was introduced for mobile in 1991 when the world's first GSM operator - my former employer Radiolinja/Elisa Group - launched. Today Finnish handset penetration level is at about 115% per capita and the standard price of your annual contract costs at the low end - get this - one dollar per month (66 Euro cents). Then your per-minute and per-SMS text message costs are 10 US cents each with no free bundled minutes. But think about that, if you're a kid and just want the occasional use - a monthly fee of one dollar. Perhaps a bit better?

Of if you want a bundle of 500 free minutes per month and 100 free text messages, in Finland today that will set you back 30 US dollars per month (2O Euros). The effective price is then 5 US cents per minute.. Competition will fix the problem over time. But unfortunately, in the USA it will still take a lot of time, ha-ha...

Sharon - I hear you. It is most frustrating, to find out that in other parts of the world there are better services, and then to notice your American carriers lock you into long-term contracts and lock your phones as well (and on the CDMA technology, won't even provide you with the SIM card ability to switch to other handsets and networks which you at least have in the GSM networks).

But I'm afraid you are actually barking at the wrong tree. You said is only because of the carrier annual contracts (with penalties) and locking of the phones, that the American market is so behind and the customer so badly served. Actually, if you look at the rest of the world, in many advanced markets there are similar long-term contracts, UK, Finland, Japan just three to mention - and the latest Ofcom (UK regulator) data finds that in the UK the contracts have recently gotten longer - shifting from 12 month contracts to 18 month contracts. There are SIM locked phones in many countries - all Japanese phones are SIM locked, and for example Vodafone in the UK tends to lock its more expensive phones, and the iPhone for example is locked in all European markets where it is sold. That alone is not enough to explain the problem.

Actually the biggest reason for the American lag is a fundamental misunderstanding of the industry. American carriers still for the most part are stuck in the mindset of a cellphone replacing the fixed landline. We got past that thinking in Finland in 1998, when evidence emerged that there were customers getting cellphones who never would have even had a fixed landline. And then we explored reasons for that - and discovered Reachability (we carry our cellphone 24 hours a day, not because we might need to call someone - but rather because an unanticipated emergency with someone ELSE may happen, and THEY need to get in touch with us).

Reachability was obvious to why SMS is addictive (proven in university studies to be as addictive as cigarette smoking, and today already over half of American cellphone owners send SMS text messages. That will grow to 85% in the next four years, to catch up with European averages). Reachability incidentially is why the Blackberry is "so addictive" to American users, and so not-particularly-addictive to the rest of the world... 75% of all Blackberry users are in North America.

So yes, reachability. If the cellphone becomes addictive - then you can understand that users will want two of them... Most Americans still find this surprising. It is NOT for cellular network coverage reasons (which Americans do understand) but just "because". Two phones. Its now a sign of being cool, if you're young, to have two phones.

When American carriers start to understand how much more important cellphones are than fixed landlines - then they can start to build real business around it.

SMS texting is obviously the biggest single key. Now in Europe many operators already say, the primary use of the mobile phone is texting, and only the secondary use of the phone is voice calls. The Finnish Prime Minister says don't leave me voicemail, send me a text message instead. This kind of thinking is still very "weird" for Americans - and hence, the carriers struggle trying to make little profits out of poor quality networks and selling price and the "my bucket is bigger than your bucket" kind of marketing.

It will change.. :-)

But yes, my view is that the primary reason why American carriers are so bad at it - is because they don't understand it. Want to find a good US based carrier - try Virgin or Helio.. They are signs of the way things will become one day, also in America.

Thanks for writing

Tomi Ahonen :-)

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Nice post. I enjoyed reading your article.
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[Tomi T Ahonen]

Hi Cellular..

Thanks. The blog entry is from February obviously. I had then refined the thinking, and included it as the last chapter of my new book Mobile as 7th of the Mass Media - where it is rewritten (and updated and cleaned-up) as "Why America Lags".. You might find that also useful (if you happen to pick up the book..)

Thank you for commenting

Tomi Ahonen :-)

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There is a lot theory in here and I agree is a great post. However I live in a emerging country of southamerica and we had never reached 100% penetration witn MPP model. We've moved to CPP ten years ago and penetration have been growing much faster since then.
One practical example regarding mass adoption. In a CPP you can have a prepaid phone first or second hand and pay only when you need to do calls. Many people of low incomes and young people uses those prepaid only to receive calls (reachability). That would be impossible in a MPP scheme.

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That will grow to 85% in the next four years, to catch up with European averages). Reachability incidentially is why the Blackberry is "so addictive" to American users, and so not-particularly-addictive to the rest of the world... 75% of all Blackberry users are in North America.
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We've moved to CPP ten years ago and penetration have been growing much faster since then.
One practical example regarding mass adoption. In a CPP you can have a prepaid phone first or second hand and pay only when you need to do calls.

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