Chapter 24

Could Europe create another GSM success?

The Political History of GSM offers some insight into just how GSM was shaped into the success it turned out to be. But there is another way to address the question and that is to look around today at the three great consumer revolutions of the past 20 years that we all enjoy today and these are the World Wide Web, the Personal Computer (PC) and the GSM mobile phone. What they all have in common is that they are all global. The World Wide Web will hit 1.5 billion connected PC's in the world by 2010, the PC itself must now be several billion and of course the GSM mobile phone has passed a staggering 4 billion.

Another thing they all have in common is that their success flows from rigid adherence to a common technical standard and the benefit of this only becomes so transformational when that common standard is both pervasive and global.

But what is even more insightful is that all three took radically different routes to their global standardisation success.

The history of the World Wide Web is well known. A talented individual took time out from his day job (of helping to smash atoms) to work on an idea that did not even have anything to do with the organisation he worked for. This happened just at the critical time when the Internet was at a juncture between heading towards a series of large walled gardens or a fully open space and the champions for an open Internet could not get hold of and propagate the new World Wide Web standard fast enough. It was a lucky “one in a million” shot!

The problem with lucky one in a million shots is that it does not form a sound basis to reproduce it in other areas. This is where the PC and the GSM mobile phone offer models with much more reasonable odds of success.

GSM was a political/regulatory intervention. In fact, as I have shown earlier, it was 4 interventions. The first was the engagement by governments with the long term direction of national mobile infrastructures and a willingness to do this at the European level. This led to the statement from the 1986 European Council. This political support gave the mandate to the European Commission to make a regulatory intervention in the form of the GSM Directive. Whilst many have deliberately misrepresented this as governments imposing a technology on the market, as I have shown, the actual mechanism was that government’s offers new spectrum “with strings attached” to support a public good of a harmonised system across Europe. Industry was free to accept this spectrum or not. Then there was the technical standard where government were more involved than they are today. Finally was the mechanism to harness this set of political initiatives to the powerful market forces that would create the commercial success. This was the GSM MoU. Again the MoU as a policy instrument has not been well understood. What it did was to harness the combined procurement power of every single mobile radio operator across Europe and then compress this into a very narrow time window and a bit like nuclear fusion – this created an explosion of industrial energy all the way down the industrial eco-system. It was the spark that ignited the GSM success as a mass consumer product on a global scale.

What was almost as remarkable as the success of GSM was the way all European Governments, Regulators and the Commission then walked away from this model just as it delivered Europe's most successful high technology intervention! They had all bought into a new ideology coming largely out of the USA that all of these things were best left to the market, market forces would always deliver optimal outcomes and decisions about infrastructures and their technology was a matter for the private sector.

So can the private sector consistently create global standardisation successes? The answer is “yes” given the right model of capitalism. Here is where the Personal Computer offers the best and most consistently successful model. It began with IBM, the overwhelmingly dominant computer company at the time, imposing the PC architecture on the global market. The story is then followed up by Microsoft, the dominant supplier of operating systems for the desk top PC. Technology cycle after technology cycle for the operating system Microsoft has used its massive market dominance to impose its technology as a global standard on the market. As uncomfortable as many Europeans are with market dominance – it has to be said that Microsoft has created an enormous public good in respect of global interoperability. Tens of thousands of software companies have been able to deliver thousands of PC software applications with the scale economies to make them affordable to a large number of consumers and businesses. In addition the dominance of Microsoft has led to the success of Word, Excel, Power Point – which have all been vital to commerce and industry improving their competitiveness.

This is certainly no lucky accident. It is a product of a US industrial policy over many decades that comprises:

• allowing the emergence of a dominant global company (providing they do not abuse that dominance),
• Governments staying out of mandating technical standards
• granting such private companies a monopoly on their new technology (80 years in the case where the technology is protected by copyright),
• protecting that monopoly with fierce global intellectual property right laws and
• allowing the dominant players the super profits needed to support large future investments in R&D to maintain their dominance over many cycles of new technology.

There are at least 4 other large US companies today in IT and Communications (ITC) that have the size to exert dominant market power and successfully force industry standards onto the global market.

The USA has shown that private industry (“the market”) can produce great global standardisation results - given their model of free market capitalism.

Europe has only bought into half of the US model which involves governments and regulators pulling out of any involvement in the technology for new infrastructures and leaving standards to “the market”. Similarly Europe has effectively de-coupled spectrum policy from public infrastructure and in some cases even moving towards spectrum becoming a commodity to be traded (and, as an aside, potentially fracturing spectrum re-farming cycles that have been critical in fuelling new technology revolutions since the days of Marconi). It also rigorously upholds Intellectual Property Rights.

But Europe has rejected the other half of the successful US model. European competition authorities go to great lengths to pre-emptively forestall market dominance and intervene to foster new market entry eg reserving a 3G licence for a new entrant. And the more successful they are in achieving this goal, the less likely that new global standards will emerge out of Europe driven by a single company. The result is much more likely to be piece-meal investments and in the longer term, damaging fragmentation

For communications infrastructures fragmentation seriously erodes the economic externalities and damages national competitiveness.

But the number of players is not the only issue.

The US model of free market capitalism also allows super profits (that comes with dominance) and this provides the money for investment in next generation technologies.

In the European model for the mobile radio market there is a single minded regulatory pursuit of ever lower prices – where mobile operator profits are not only competed away but also regulated away. This happens without regard to where the money is going to come from for substantial investments in R&D, new generations of mobile networks and universal coverage from those new networks? This is not a conscious choice by the European regulator – it is simply that, in the European model, it is not the regulator's job.

The European model has been slowly driven the European mobile industry between two stools. It leaves Europe just hoping for the “one in a million” lucky shot in terms of new GSM sized successes. It is not an ideal place to be.

The European mobile radio market has been largely shielded from the adverse consequence of the regulatory model it has been pursuing since 1993 only by virtue of the network investment cycles being relatively long and the huge momentum created by the GSM “big bang” that carried Europe through into 3G.

But it is only possible to eat the seed corn for so long... the patchy implementing of GSM EDGE, relatively low investment by companies like Vodafone in R&D, the truly massive number of data-speed “pot holes” in 3G coverage, falling behind in rolling out the next generation mobile technologies are all signalling that Europe has lost the will to be at the leading edge of mobile radio.

As little as two years ago this analysis would have looked like nostalgia for a long lost by-gone age. Governments and regulators, not just for mobile radio but across the entire economy had bought into the belief that “market forces” alone would deliver near perfect outcomes. Had I been asked the question two years ago “Could Europe create another GSM success” my answer would have been – around a one in a million chance!

Then the world was taken by the financial services industry, seen by everyone as the model of the success of unfettered “market forces”, to within inches of a total melt down of the global economy!

It took this near economic catastrophe for illusions about leaving everything to “market forces” to shatter and for governments to re-awaken to the fact that they have a job to do, amongst others, as stewards of national infrastructures and in the EU Commission's case - pan-European infrastructures.

There have been a number of European government reviews signalling a re-engagement by governments on the strategic direction of telecommunications networks.

In the UK's case Lord Carter led the way with his Digital Britain Report that embraced the need for the next generation mobile technology and the extensive deployment of optical fibres. This has been followed up with the Digital Economy Bill that would place on the independent regulator, Ofcom, the duty to promote investment in infrastructure alongside its duties to promote competition.

In October 2009 the outgoing EU Commissioner announced that she wanted to harmonise the technical conditions of use for the 790-862 MHz sub-band so that the Single Market was not fragmented when EU countries open the sub-band for new services in their country. Service providers and makers of devices and applications could then do business across borders, while consumers would find it easier to use 'roaming' services when they travel. What was most remarkable was the Commissioner adding the comment - a similar approach laid the ground for the emergence of GSM mobile phones in the 1990s!

At the same time the GSMA (the association of mobile radio network operators) unveiled an imaginative European Mobile Manifesto of new opportunities which it believed the mobile industry could help to achieve – given the necessary supporting regulatory measures.

Europe appears to be travelling back (or forwards depending upon your viewpoint) towards the earlier successful European model of capitalism whereby governments (or their regulators) have the opportunity to set the long term strategic objectives for modernising infrastructures and the competitive energy of the private sector is harnessed (to the extent possible) to deliver it. What is likely to follow will be the re-coupling of key internationally harmonised radio spectrum with strategic national objectives

Many would say I am being unduly optimistic and certainly in January 2010 it was far from yet being a full circle… but enough elements are in place for Europe to be able to create another GSM type success and certainly both the European economy and the mobile radio industry have need of it.

...and as we saw with GSM, the best help that can be given to local industry is their involvement in defining the opportunities and the very fast speed in bringing those opportunities to market

...and why limit this successful model to just mobile radio?

...and why limit it to just Europe?