Dear ITS members and friends , We welcome you to this years European Regional Conference of the International Telecommunications Society (ITS) at the Helsinki School of Economics, again in conjunction with EARIE (European Association for Research in Industrial Economics). The European regional ITS meetings have a long tradition, with previous events in Madrid (Spain), Dublin (Ireland), Lausanne (Switzerland), Turin (Italy), Tel Aviv (Israel), Geneva (Switzerland), Khania (Crete), Budapest (Hungary), Juan Les Pins (France), Stuttgart (Germany) and twice in Leuven (Belgium). They are complementing the larger biannual ITS meetings - the14th Biannual took place last year in Seoul, South Korea - and give ITS a more regional presence. Already regional meetings in North America (together with the ICFC Conferences) are taking place regularly. Last year we also had regional meetings in Asia and Australia and again this year and are now trying to establish them in Latin America as well. As you may be aware, the International Telecommunication Society (ITS) is a long-standing, independent, non-profit association of professionals (academics and practitioners in operating companies, consultancies and government agencies) with an interest in the growing field of telecommunication planning, policy formulation and economic decision analyses. ITS aims "..to provide a forum where academic , private sector, and government communities can meet to share research results and solutions to problems, identify pressing new problems and issues,..." (from the ITS Mission Statement) On behalf of the program and local arrangement committees we would like to express our deep gratitude to the authors, who submitted so many abstracts and papers, to the reviewers who diligently reviewed them and the chairs and discussants who are helping to make this a truly interactive event. Our thanks go also to the colleagues at the Helsinki School of Economics, who have invited us to join them in their own task of organizing a much larger EARIE conference and have allowed us to use their splendid facilities. Thank you very much for your interest in ITS. We are looking forward to meeting you during the next few days of the meeting. Jürgen Müller Berlin School of Economics for the Organization Committee ITS Europe2003 Special Thanks to our Reviewers: Special Thanks to the following colleagues who have acted as reviewers Hasan Alkas, Deutsche Telekom AG Edmond Baranes, Université de Montpellier Johannes M.Bauer, Michigan State University Stefan Bechtold, Universität Tuebingen, Germany Boris Begovic, Center for Liberal-Democratic Studies Fernando Beltrán, Universidad de Los Andes Erik Bohlin, Chalmers University of Technology Bernardo Bortolotti, Università di Torino and FEEM Stefan Bühler, University of Zurich - Sozioeconomic Center Vladimir Bulatovic, Bouygues Télécom Jim Chen, University of Minnesota Andrzej Cieslik, Warsaw University João Confraria, Universidade Católica Portuguesa, Lisboa Isabelle Crocq, Francetelecom Richard Curry, London Business School Peter Druga, PD Consulting Dieter Elixmann, WIK GmbH Willis Emmons, Georgetown University Stephen Farago, Australian Competition and Consumer Commission Natascha Freund, Telekom Austria AG Hidenori Fuke, Kansai University Rajni Gupta, Univeristy of Toronto Justus Haucap, Universität der Bundeswehr Hamburg Kenta Hayashi, Osaka University Momin Hayee, British Telecom Anders Henten, Technical University of Denmark Tim Kelly, ITU - International Telecommunication Union Guenter Knieps, Albert-Ludwigs-Universität Freiburg i. Br Djuro Kutlaca, Institut Mihajlo Pupin Michael Latzer, ICE-Austrian Academy of Sciences Gilles Le Blanc, Cerna, Ecole des Mines de Paris Peter Lewisch, Cerha, Hempel & Spiegelfeld, Wien Lurdes Martins, University of Minho - Campus de Gualtar Georg Merdian, LambdaNet Communications GmbH Bengt Mölleryd, EVLI Bank Abp, Stockholmsfilial Banani Nandi, AT&T Shannon Laboratories Tung Q. Nguyen-Khac, AOL Deutschland Nicolae Oaca, Romtelecom S.A. Elizabeth O'Callaghan, Australian Competition & Consumer Commission Paul Phumpiu, OSIPTEL, Lima Brigitte Preissl, DIW Albon Robert, Australian Competition and Consumer Commission Edward Roche, Columbia Institute for Tele-Information Stefan Schmitz, ICE - Austrian Academy Koji Shinjo, Kobe University John Small, University of Auckland Pablo Spiller, University of California Berkeley Gerrit Tamm, Humboldt University of Berlin Masatsugu Tsuji, Osaka University; OSIPP Svein Ulset, NHH Bergen Margit Vanberg, Zentrum für Europäische Wirtschaftsforschung GmbH Pierre Vialle, Institut National des Télécommunications Heleen de Vlaam, Delft University of Technology Scott Wallsten, AEI-Brookings Joint Center David Waterman, Indiana University Bjorn Wellenius, The World Bank Thorsten Wichmann, Berlecon Johan Willner, Department of Economics and Statistiks Abo Akademi Univ Glenn A Woroch, University of California Julian Wright, University of Auckland 4.ABSTRACTS CSI COUNTRY STUDIES I: CHAIR MR HENTEN DISCUSSANT:MS PREISSL CSI 1.1 INNOVATION AND COMPETITION: AN ANALYSIS OF THE DANISH TELECOM MARKET Authors: Morten Falch, Anders Henten ,Knud Erik Skouby, Reza Tadayoni Technical University of Denmark The paper analyses the innovation development in the Danish telecom sector. Three main questions are examined: The relations between innovation and competition The general innovativeness in the Danish telecom market The role of policy and regulation in the innovation development Innovation and competition The paper discusses, on the one side, the implications of competition on innovation activities and, on the other side, the implications of innovation on competition. The overall conclusion is the liberalization and the introduction of competition has increased the innovation activity in the telecom sector. Secondly, it is concluded that it cannot clearly be concluded whether it is the incumbent operator or the newer operators, which are the most innovative. Furthermore, the innovation activities of the operators in the present situation must be characterized as service development, while more long-term research and development activities are located with the equipment manufacturers. The general innovativeness in the Danish telecom market Denmark has traditionally been one of the countries with the highest diffusion of telecom networks and services. In a period right after the early liberalization of the Danish telecom market, this lead to a position as kind of test market for new products and services. Still, Denmark is an advanced market for telecom networks and services, but it has lost its position as a test market. The role of policy and regulation In the liberalized and market driven telecom sector, sector specific regulation and policy initiatives still have an important role to play. This applies not only to the traditional price and competition questions, but also to the more qualitative and pro-active questions regarding the divisions of labor in the innovation activities in the sector. In the paper these issue are analyzed and discussed. The paper is based on a report delivered to the Danish NRA. CSI 1.2 PUBLIC POLICY AND THE TELECOMMUNICATIONS EVOLUTION: THE CASE OF GREECE Authors: Theodore Apostolopoulos, George Kakouros, Xanthi Psiakki, Athens University of Economics and Business, Greece In this paper we present the evolution of telecommunications nation-wide, as a result of an appropriate public policy, namely state intervention aiming at telecommunications services improvement. In order to model the issue, a general approach is used based on a structured methodology. The methodology comprises a) definition of the public issue to be handled, (including historical data, entities involved called “participants” and interactions among them), b) alternative solutions c) selection of a solution based on specific criteria d) implementation and finally e) assessment of the policy adopted. A graphical depiction is used for the better comprehension of the problem in its definition phase, comprising a multilayer model where the problem’s participants are presented, positive or negative interactions among them, their claims and their respective economy values. Based on the general approach, the case of Greece is explored in detail focusing on specific parts of the general approach, that is definition of the problem, implementation of the policy adopted and assessment since we are at a time point where solutions are already decided, selected and implemented. Thus, particular emphasis is put on the assessment, as at this time point, it is considered the most useful tool for the planning of future strategies. Given that state intervention is selected as the most appropriate policy, we examine and assess the measures and projects undertaken by the state, during the last years, aiming at the motivation of both the public and private sector towards telecommunication advancement and liberalization regime. The paper’s structure follows specific time periods with certain features. [1] Monopoly regime, development and liberalization, regulation issues as well as the market’s reaction in the different time periods are discussed, describing the main issues for each period pointing out the results of the state intervention. To be more specific, the first phase (1930-1980) comprises the establishment of the Greek Telecommunications Organization (OTE, 1949) and massive investment in network infrastructure in order to provide telephone services. During the second phase (1980-1990) OTE becomes part of the public sector but its performance is more and more deteriorating. The third phase (1990-2002 and beyond) is characterized by improvement in network infrastructure and slow shift towards liberalization. The third phase, as the focal point for this paper, is further divided in three sub-periods. A) Beginning of the ‘90s, marked by the absence of national policy on telecommunications and the establishment of two pilot research networks operating at low speed. B) Mid ‘90s, characterized by the adoption of a first national plan on the development of telecommunications in the country. It was implemented via specific projects, mainly in the academic and research area, that are still operational (Academic and Research Network Backbone, Academic Access Network, Education Access Network, MAN ATM Pilot, National Information System, Public Administration National Network etc). [2] In addition, the National Regulatory Authority (National Telecommunications and Post Commission) was established aiming at liberalization enhancement. The market reacted slowly to the new regime, among others it is worth mentioning the development in Internet Service provision, the establishment of the ISPs Interconnection Point, named Athens Internet Exchange (AIX) in 1997 and the initiation of the liberal regime in mobile telephony. Two operators other then OTE shared the market with high penetration rates. Nevertheless, in general terms, the evolution of telecommunications in Greece was lower than the EU average. C) Year 2000 and beyond, where the successful projects of the previous period continued and new policy elements appeared, namely regulation [3] aiming at liberalization and market opening. EETT was activated and started numerous initiatives towards enhancement of competition covering all aspects of telecommunication infrastructure and services (licensing, numbering, universal service, wireless communications, leased lines, local loop unbundling, interconnection electronic signature, UMTS, radio equipment and telecommunications terminal equipment (R&TTE)). The response to EETT’s policy measures has been very optimistic. (Until 10/2001, 92 General Licenses have been issued and 41 special licenses covering all telecommunications technology areas mentioned above). [4] OTE responded to the regulatory regime and competition by offering a variety of advanced products and services which would cover the demands of its customers, both individuals and companies, such as fixed telephony, ISDN, standard access, Internet, telecommunications cards and mainly for companies tele-applications, fixed and mobile phones, Internet, ISDN, Company Networks, promotional and specialized services. Finally, the assessment of the public policy is presented based on specific indicators compared to EU and OECD data. The results show that significant progress has been achieved in all sectors of telecommunications during the last 5 years. Liberalization regime and regulatory issues, although delayed, are successfully implemented. In addition, important steps towards a real open competitive market have been made. Quantitative results are quite satisfactory: The network infrastructure is seriously upgraded, fully digitalized with a choice of advanced alternative technologies. The density/population ratio in voice telephony has significantly increased; prices are reduced but are still higher than the average EU. Alternative operators have appeared very recently. Mobile communications are the most competitive sector among the Greek Telecommunications Services; mobile telephony penetration equals the EU average while it has the highest increase rate in EU Internet penetration, although increased during the last years with a rate double than the average EU, is still very low for household and business. On the contrary, academic and research Internet penetration is very high reaching 100%. [5] JEL Code/Keywords: Keywords: telecommunications infrastructure and services, state intervention, telecommunications deregulation CSI 1.3 THE GREEK TELECOMS MARKET BEFORE AND AFTER LIBERALIZATION Authors: Demetrius Yannelis, University of Piraeus, Greece Helen Gaglia, Hellenic Telecoms Organization, Greece The paper examines the state of the Greek telecoms market before and after the liberalization of the fixed telephony that took place in January 1, 2001. Specifically, we will examine the strategy that the Hellenic Telecommunications Organization followed before the liberalization in order to face the upcoming competition. As with many incumbents facing competition, OTE has chosen to expand its activities by investing in the fixed and mobile telephony in neighboring telecoms operators in the Balkan area. At the same time, OTE tried to develop very fast its domestic mobile services and get a large share of the domestic market, as its mobile license was granted four years after the first two mobile licenses were granted to its main competitors. Despite the great success of OTE with regard to the second goal, its first goal to become a leading telecommunications provider in the Balkans does not seem to be very successful, due to unforeseen international difficulties as well as domestic problems with its main equipment supplier. The paper also examines the market for mobile services and the strategy that the different players have followed. We will draw particular attention on OTE’s subsidiary Cosmote and the strategy that it followed, so as to become the provider with the largest market share in terms of subscribers. Competition in the mobile market is rather tough now with prices falling drastically. This was mainly due to the government’s will to award a third license to Cosmote that broke the duopoly that existed for four years in the market for mobile services. Two years after the liberalization of the fixed telephony, OTE still holds a very large market share. This is mainly due to the slow process of signing interconnection agreements and the high cost of local loop unbundling. It is only very recently that the National Regulatory Authority has imposed prices for local loop unbundling after the failure of the incumbent to provide cost oriented tariffs for the local loop. Another obstacle that entrants in the fixed telephony face is the very high cost of termination charges on mobile networks that are set and controlled by OTE and mobile carriers with significant market power. The denial of the incumbent to offer wholesale prices for leased lines, the late introduction of carrier pre-selection and the expected introduction of number portability are also some of the factors that impede the development of competition in the fixed telephony. The paper examines the role that the NRA has played before and after the liberalization of the market. Although its actions show to a large extent regulatory capture before the market liberalization, its independence has been strengthened after liberalization improving its regulatory functions by taking effective interim measures. JEL Code/Keywords: JEL Codes L11, L96, L51, L41 Keywords Liberalization, Regulation, Unbundling, Fixed Telephony, Mobile Telephony Armstrong, M., Cowan, S. and Vickers, J. (1994), Regulatory Reform: Economic Analysis and British Experience. Cambridge: MIT Press. Kiessling, T. and BlondeelY. (1998), “The EU regulatory framework in Telecommunications”, Telecommunications Policy, 22 (7), pp.571-592. Laffont, J.-J. and Tirole, J. (1993), A Theory of Incentives in Procurement and Regulation. Cambridge: MIT Press. Melody, W. (1997), “On the Meaning and Importance of Independence in Telecom Reform”, Telecommunications Policy, 21 (3), pp. 195-199. The Single Market Review (1997), “Telecommunications: Liberalized Services”, Office of Official Publications of the European Communities and Kogan Page Publishers. Xavier, P. (1997), “Price Setting and Regulation for Telecommunications in the Absence of Reliable and Detailed Cost Information”, Telecommunications Policy, 21 (3), pp. 213-233. CSI 1.4 LIBERALIZATION?! WHAT LIBERALIZATION? Author: Dr. Nicolae Oaca, Rom Telekom, Romania World Context Telecommunications crisis was triggered by very optimistic forecasts on demand for fixed and mobile telephony. Some years ago, optimistic forecasts on transport capacity triggered the establishment of many carriers, while today many of them have filled for bankruptcy. Three years ago, very optimistic forecasts on ARPU of UMTS services triggered a fight for UMTS license in UK, Germany, etc., while today there are big problems: technological, financial (DT or FT have some US$60bn debts), etc. Central and Eastern Europe In last few years fixed telephony in C&E E is in stagnation: penetration rate in Hungary or Czech Republic established to some 37%, while for Western Europe penetration is still increasing. Could be 37% or 40% maximum penetration C&E E countries could afford? If yes, which is the value Romania, a country having GDP three time less, could afford? Incumbents’ competitors seems to face problems – Poland Elektrim. In the same time mobile telephony is increasing rapidly, mobile penetration being higher than fixed. Romanian telecommunications Romanian telecommunications have developed at a slower pace mainly because of monopoly and state ownership, unable to manage and to finance a sector with a high growth rate. Where competition was permitted results were outstanding. Fixed telephony Telecommunications infrastructure has developed at slower pace, largely due to the fact that in the past RomTelecom, national telecommunications operator, collected insufficient revenues to maintain the system properly. This was because of incoherent tariffs, far lower than necessary to recover the cost of an efficient system. On December 30th 1998, OTE of Greece paid US$675m for a 35% stake and 16% voting rights, becoming RomTelecom’s strategic partner. In early 2003 a new stake in Romtelecom was sold to OTE, which now is a majority shareholder – 54%. Mobile telephony The launch of GSM mobile operators (MobiFon and Mobil Rom) in 1997 has created a strong competitive environment with outstanding results some 5.2 million mobile subscribers by the end of March 2003, while the growth rate in mobile subscribers, seems to be among the highest in Europe. Late in 2001 a new mobile service Zapp Mobile, based on CDMA450 was launched, providing voice and data at 154Kb/s and challenging the existing GPRS services or future UMTS services. Preparing for liberalization An independent regulatory body – ANRC - was established in September 2002, which started immediately to elaborate on the legislation for liberalized market. Today Romania seems to be one of the most advanced countries in Europe to use EU recommendations. Liberalization Liberalization landscape shows many small players (mainly ISPs) competing in the most lucrative market – international – to provide much cheaper VoIP services, while markets requiring higher investments (local mainly) show a desolated landscape. Liberalization, wrong time? In last 13 years, Romanian fixed telephony was positioned as a social service, while sector reform was postponed. Add higher investments (more than 600US$/line) in fixed telephony compared with mobile telephony (~300US$/line), and lower tariffs, making fixed telephony less attractive. Why to invest in a fixed telephony network? In Central Europe liberalization of a shrinking industry coincides with the world telecommunications crisis, and mainly with the beginning of fixed-line crisis in region. So, what is impact of market liberalization for a country like Romania? What to do? How to fill the existing gap between fixed and mobile telephony? Eliminating tariffs limits? Increasing fixed telephony tariffs, which for time being are lower than for mobile telephony. Or, should states fill this gap, via subsidies, or other incentives if really wand to boost an industry with problems? JEL Code/Keywords: Keywords: alternative infrastructures, liberalization, C&E European and Romanian telecomm. PAPERS NOT TO BE PRESENTED: NATIONAL INNOVATION SYSTEM (NIS) OF MONGOLIA: INTEGRATED NETWORK OF INFORMATION TECHNOLOGY (INIT) IN MONGOLIA Author: Kwan Young Kim, Ulaanbaatar University, Mongolia Mongolia stands high in public estimation by Information and Communications Technology (ICT) and transformation. However, Mongolia depends upon a telephone line through modem to connect the Internet. However, Mongolia shows an ironical phenomenon that people who are compatible for more than fifty percent of Mongolian population use mobile phones. In spite of the poor surroundings in Information and Telecommunications, the Mongolian compatibility for Information and Telecommunications is defined as much better than any other developing nation. Government of Mongolia proclaimed the importance of ICT that would be major accelerator for the development of Mongolia in the twenty-first century with the reformation of management and economy. How should the concept lead Mongolia to advanced level of ICT-oriented nation? It is necessary to provide favorable conditions for the development of Government-Legislation Framework (GLF), Business-Economic Framework (BEF), and Civil-Society Framework (CSF) that require establishment of state policy and regulatory regimes. Every framework has to have its own strategic plan of action. Government-Legislation Framework (GLF) should take the chance to promote a favorable legal environment of ICT with setup of policy coordination and regulatory system. Eventually Government Information Systems (GIS) is acquired to develop and enhance the GLF. What Business-Economic Framework (BEF) brought about is to expand ICT business and make it a highly efficient economic sector. Also, it is expected to establish “Efficient Operative Information Systems (EOIS) for business and its economy”. Civil-Society Framework (CSF) has to provide opportunities for active and equal participation of citizens in social relations by using ICT. It is absolutely required to establish Civil Information System (CIS) accessible to every citizen that would implement ICT in social services. The concept of ICT Development in Mongolia will help achieve the development of a knowledge-based society and get the improvement of quality of people’s lives. That is called to “National Innovation System (NIS)” of Mongolia. To achieve the goal of the GLF, the government has to build a well-informed social structure and the main provider of open information resources. To create a business environment capable of ensuring efficient integration into the world economy, the BEF should enhance domestic intellectual potentials and improve the competitiveness of national products. To create a favorable environment for Mongolian citizens to communicate freely among themselves with the world community, the CSF is to ensure opportunities for their equal and active participation in social life and improve quality of people’s lives. The establishment of the advanced and efficient NIS is able to implement through empirical analyses such as Delphi Analysis and Question Analysis. Eventually, NIS will bear fruit such as advanced NIS of Mongolia that will achieve by integrating the three frameworks. That is to be called to “Integrated Network of Information Technology (INIT) in Mongolia” that would finally stand for Mongolia toward other nations in terms of ICT. Therefore, people who are concerned with Mongolia’s ICT organization such as enterprises, NGOs, International Organizations, the Government of Mongolia are obliged to get the chance to contact with the INIT system. RTS: RESTRUCTURING THE TELECOM SECTOR CHAIR: MR WHALLEY RTS1.1 GIANTS AND DWARFS – UNDERSTANDING SCALE WITHIN THE EUROPEAN MOBILE COMMUNICATIONS MARKET Authors: Jason Whalley, Peter Curwen, Strathclyde Business School, UK It is often stated that telecommunications is a global industry, with companies spanning the globe as they provide telecommunications services in many different national markets. Such companies seek to judge themselves not against their national peers but against a select handful of similar minded global telecommunications companies. However, the internationalisation of the telecommunications industry has not been as complete as we have been led to believe and many of the globally minded players have seen their strategies come unstuck in recent years. Moreover, even if the geographical scale is reduced to a region such as Western Europe or South-East Asia few of the leading telecommunications companies can claim to have a true regional presence. This paper will explore the notion of scale within the European mobile communications industry. In doing so it will present data that demonstrates the widely divergent scale of multiple 2G and 3G licence holders across 39 countries. The paper presents for the first time in the public domain detailed data that describes which mobile communication companies owns what licence. We will highlight the gap in scale between Orange and Vodafone on the one hand and all of the other multiple licences holders on the other hand. The paper will illustrate that the smaller multiple owners of licences are not homogenous, and that they can be differentiated in several ways. One way in which they can be differentiated is the degree to which they are present in the largest five European markets (Spain, Italy, UK, France and Germany) whilst a second is the extent to which they have constructed regional presences for themselves. A third differentiating characteristics is the mode of entry into mobile communication markets. RTS 1.2 QUALITY IMPROVING PORTFOLIO EFFECTS IN EUROPEAN UNION COMPETITION POLICY Authors: Mark A. Jamison, Clifford A. Jones, University of Florida, USA The European Union Competition Commission (Commission) has applied the concept of portfolio effects in recent merger cases. There is some disagreement over the precise meaning of the term portfolio effects, but in general it means that a firm has a portfolio of products that rivals have difficulty matching and the portfolio is a source of competitive advantage. The Commission applied this concept in denying the proposed GE/Honeywell merger,1 a merger that the U.S. and Canada had already approved. The Commission’s decision stimulated considerable debate about the Commission’s reasons for denying the merger and renewed debate about why competition authorities from different countries might disagree on mergers. (See, for example, Patterson and Shapiro, 2001; Schmitz, 2002; Monti, 2001; and James, 2001.) One of the Commission’s concerns in the GE/Honeywell case was that the combination of GE Capital with certain other products would allow the merged company to develop product innovations that rivals could not match. For example, the Commission concluded that the combination of GE Capital and the merged company’s aircraft engine business would allow the merged company “to take more risk in product development programmes than any of its competitors.” (¶ 108) Issues of product quality and product features have also taken center stage in Commission decisions and proceedings involving network industries. In the WorldCom/MCI merger, the Commission required the merging companies to divest significant portions of their Internet backbone assets based in part on the concern that the merged company would have the ability and incentive to degrade quality for interconnection with rivals. The Commission denied the proposed WorldCom/Sprint merger based on similar concerns. The Commission has considered and is considering complaints against Microsoft that are based in part on concerns about the quality of the interface between Microsoft’s software packages versus the quality of interface between Microsoft’s software and rivals’ software. The effects of market structure on firms’ incentives to degrade the quality of interfaces between networks have been analyzed in the economics literature (see, for example, Crmer et al., 2000). Missing from this literature is an examination of the effects of market structure on overall product quality, including the quality of interfaces between products. In this paper, we analyze the effects of market structure on product quality and how competition authorities in different countries may disagree on mergers and antitrust actions in network industries. We develop our results by considering a model in which a country can approve or deny a proposed merger that could increase the product quality of one firm, which we call a, relative to the product of its rival, which we call b. The firms’ products are rival networks and the firms may interconnect their networks. By an improvement in quality, we mean that there could some change in a’s product such that the demand for a’s product would increase relative to the demand for b’s product. We assume that customers have innate preferences between firms. We accomplish this by assuming that customers are uniformly distributed along a line segment and a customer’s location on the line segment represents her product preferences. a and b are also located on this line, but not in the same location. All other things being equal, a customer located closer to a than to b prefers a’s product to b’s product. After a country has made its decision on whether to approve or deny the proposed merger, firms decide whether to stay in the market or exit. Each firm that stays in the market chooses network quality, including the quality of its interface with rival networks, and a single uniform price to maximize its own profit. After firms choose quality and prices, customers perfectly observe the prices and product quality. 1 General Electric/Honeywell, Commission Decision, Case COMP/M. 2230, July 3, 2001. Each customer who chooses to purchase buys from the firm that offers her the greatest net consumer surplus. We examine both a single-country situation, in which both firms are from the same country and all customers are in this country, and a two-country situation. We develop conditions under which the merger would improve a’s product quality, including conditions that would cause b to exit the market because producing would result in negative profits for b. We also develop conditions under which the two countries would disagree on whether to approve or deny the merger. Our model is theoretical, so we illustrate the results with simulations. JEL Code/Keywords JEL classification L40, L 11, L50 RTS 1.3 A NEW SYSTEMIC RISK IN THE INDUSTRY? SOME NEW QUESTIONS Author: Jean Paul Simon, International Regulatory Strategy, France Telecom, France RTS 1.4 PRIVATIZATION AND ECONOMIC GROWTH: EVIDENCE FROM MENA COUNTRIES Author: Anastassios Gentzoglanis, University of Sherbrooke, Canada Inadequate levels of investment in the telecommunications industry in MENA countries resulted in a network unable to meet demand, with poor service quality, limited choice of services, low productivity and inappropriate tariff structure. There is a strong need to speed up the privatization and liberalization of telecommunications in Arab countries to attract investments in the provision of universal service and the development of information and communication technologies. This approach to promoting investment in infrastructure is gaining popularity worldwide. Nevertheless, it is not clear at all, neither theoretically nor empirically whether privatization and entry lead to an increase in investment in infrastructure and in social welfare. Using a theoretical model, I examine the incumbent’s and the entrant’s strategies in terms of investment in an open regulatory framework. The theoretical results are ambiguous. Using recent data from MENA countries, I examine the investment behavior and overall performance of the telecommunications firms that have experienced some form of entry and privatization. Preliminary results show that privatization and entry do increase investment in the sample countries examined. JEL Code/Keywords: Keywords: privatization, investment, MENA countries, technological change, mobile telecommunications. S1: STANDARDIZATION: CHAIR: MR WEGBERG S1.1 THE GRAND COALITION VERSUS COMPETING COALITIONS: TRADE-OFFS IN HOW TO STANDARDIZE Author: Marc van Wegberg, University of Maastricht, NL The standardization landscape in the Information and Communication technology industries is highly fragmented. Standardization tends to involve many different standardization bodies, industry consortia, and alliances. Some of the coalitions involved cooperate with each other, while others compete. The existence of competing standardization coalitions may prevent coordination on a common standard. There is a lot of debate among practitioners and analysts about whether this fragmentation creates a coordination failure. This paper takes a middle ground in this debate. Competition between standardization coalitions may indeed harm compatibility, but it also helps to mitigate coordination failures within standardization bodies and coalitions that occur due to negotiation in committees. A notable coordination failure is sluggishness in setting a standard, due to delaying tactics by delegates in a committee. Introducing competition between coalitions can speed up negotiations within them, and thus help to overcome this intra-committee coordination failure. A game theoretic model explores the effect of competition between coalitions on the speed of decision making and standardization. JEL Code/Keywords: JEL Codes D7, L2 Keywords coalition competition; standardization S1.2 THE ROLE OF INTEROPERABILITY IN THE DEVELOPMENT OF MOBILE INTERNET IN EUROPE Authors: SergioRamos, Claudio Feijoo, Jorge Pérez, Luis Castejón, Universidad Politecnica de Madrid, Spain In the last few years, the telecommunications industry has witnessed two of the biggest phenomena in its recent history – the Internet and mobile telephony – which have contributed decisively to making it one of the principal sectors of the world economy. In the past, mobile telephony achieved its greatest success in Europe, where the combination of, among other factors, a common standard (GSM) and a non-intrusive regulatory framework that gave operators considerable freedom contributed to successful market development. Consequently, mobile telephony services become very popular in Europe within a short space of time, attaining a very high penetration rate. Nevertheless, the privileged situation of mobile telephony in Europe is not matched by the development of the Internet, where the US leads the field worldwide. Low Internet penetration is one of the reasons behind the bulk of efforts by Europe’s governments and the industry to move forward to the next generation of mobile telephony. Demand for new mobile services based on convergence between the Internet and mobile communications, plus the EU’s interest in capitalising on the competitive advantage over the US in order to make progress in the deployment of the Information Society, have stimulated the development of new thirdgeneration (3G) mobile systems in Europe. As a result, European operators began a race to develop the new generation of mobile systems, with the novelty of offering broadband access to Internet content, services and applications. However, it was not to be: progress towards 3G has been fraught with obstacles that have prevented its implementation in Europe to date. This momentary failure can be attributed to the regulatory model applied, based on creating a single pan-European market in network infrastructure and handsets which would guarantee standardisation and certification of equipment, thereby generating major scale economies. Until Vodafone’s arrival as the first pan-European operator, services were traditionally provided by domestic operators in their respective countries. Although there was not a single market, users could use their handsets throughout Europe since continuity of service was assured by roaming agreements between operators. Moreover, the fact that spectrum is a scarce resource that must be regulated and controlled made it necessary to limit the number of operators, which led to a peculiar scheme of introducing new players by technological cycle or generation, and requiring them to roll out their own communications networks. This model led to domestic oligopolies where the provision of end services was solely in the hands of the phone companies, which had a vertically-integrated value chain. With this model, regulators sought to reward the risk assumed by players through their major investments in the sector and to ensure that, for the first time, networks would be built in a competitive market situation. The combination would enable players to earn a rapid return on investment, thereby assuring not only the viability of the model but also continued investment in the development of new generations of mobile systems and the installation of the related infrastructure. These were the arguments used when designing the transition to 3G, which in Europe involved the adoption of a new standard: UMTS. At the same time, the WAP open standard was boosted for the development of new mobile Internet services, the intention being to transfer the philosophy underlying the Internet and TCP/IP to mobile telephony. This strategy of continuity appeared to be sufficient to assure further success and it generated great expectations about this technology of the future, which unfortunately failed to materialise. Firstly, the technology fever had a very negative impact on the sector, since the business plans designed by the operators in conjunction with equipment manufacturers did not fully gauge the risks and efforts involved in migrating to 3G. Consequently, operators bid enormous sums for mobile licenses in Europe, generating a windfall for governments. The bursting of the tech bubble and the subsequent economic crisis undermined confidence in the sector, which proved unable to bring the new services to market. Moreover, recent years have seen fierce competition between different access technologies (ADSL, cable, LMDS, PLC, UMTS, etc.), which has created even more uncertainty by diversifying R&D expenditure in the midst of a major crisis. This competition has been detrimental to the mobile industry, since cutbacks in investment have delayed the development of 3G. Finally, and most importantly, the European model has been totally distorted due to the inability to develop UMTS on schedule and to adapt GSM to the new mobile Internet paradigm sufficiently in advance. The last few years have shown that the new market in mobile data services requires that the value chain be opened to new players, mainly the software industry, which can stimulate the creation of an offering of services that is attractive to users. At the same time, there is a perceived need to attain more compatibility, above and beyond the telecommunications network, so as to enable the development of new services that are conceptually similar to the Internet. The question now is how to adapt Europe’s traditional operator-centred model to the Internet paradigm, which is centred on the software industry? Interoperability has recently been proposed as a key factor (though not the only one) that can facilitate the development, deployment and marketing of advanced data services accessible to mobile users. The EU considers that 3G is one of the vehicles that will provide citizens with access to the Information Society in the coming years. In this connection, the use of open interoperable platforms theoretically guarantees that users have freedom of choice in accessing new mobile Internet content, services and applications while also fostering their rapid development. However, this preliminary analysis by the EU fails to respond to such questions as: What are the risks of interoperability? How will it affect the European industry? What strategies are the various players applying? What role will governments play? This article will try to shed light on some of them. References Colegio Oficial de Ingenieros de Telecomunicación (2002): The Potential of Technological Convergence in the Development of the Information Society. Thoughts for Discussion. Informal Meeting of EU Ministers for Telecommunications and the Information Society. Vitoria, 22-23 February 2002. Spanish Presidency of the EU. European Commission (2002). COM(2002) 695 final: Eighth Report from the Commission on the Implementation of the Telecommunications Regulatory Package European Telecoms Regulation and Markets 2002. European Commission (2002): Public Consultation and Public Hearing on a Report on Remaining Barriers to the Achievement of Widespread Access to New Services and Applications of the Information Society through Open Platforms in Digital Television and 3G Mobile Communications. European Commission (2002). COM(2002) 301 final: Towards the Full Roll-Out of Third Generation Mobile Communications. European Commission (2001). COM(2001)141 final: Introduction to Third Generation Mobile Communications in the European Union: current situation and future prospects. Foro de las Telecomunicaciones (2002): Horizonte de las Telecomunicaciones Españolas. Colegio Oficial de Ingenieros de Telecomunicación. Gretel 2002 (2002): Nuevo Diseño Europeo de las Telecomunicaciones, el Audiovisual e Internet. Colegio Oficial de Ingenieros de Telecomunicación Ramos, S., Feijóo, C., Pérez, J. & Castejón, L. (2002): Mobile Internet Evolution Models. Implications on European Mobile Operators. The Journal of the Institution of British Telecommunications Engineers. Volume 1. Part 2. July-September 2002. Ramos, S., Feijóo, C., Pérez, J. & Castejón, L. (2001): Implications of the i-mode Business Model on the Framework for European 3G Mobile Communications. International Telecommunications Society, 12th European Regional Conference. Srivastava, L. (2001): 3G Mobile Policy: the case of Japan. Info, number 6 volume 3, 459-484 JEL Code/Keywords: Keywords mobile communications, mobile internet, interoperability, regulation, public S1.3 A STUDY ON THE DEVELOPMENT OF INFORMATION AND COMMUNICATION STANDARDIZATION INDEX MEASUREMENT MODEL Authors: Seung-Hwan Lee, Myeong-Cheol Park, Sang-Woo Lee, Information and Communication University, Korea Kyoung-Cheol Koo, Telecommunication and Technology Association, (TTA), Korea The standard issue in the information and telecommunication industry is increasingly important with the rapid development of technology. This paper proposes an index model which can measure the degree of standardization in the Korean information and telecommunication field. We first classified ICT sector into 14 sub-sectors. Then for each subsector, we considered a set of important determinants to measure the level of standardization, and constructed a linear equation using this set of determinants. Finally we estimated the relative degree of importance of each determinant using the AHP methodology. The proposed model found that overall level of standardization in the Korean ICT industry is relatively low, and “IMT-2000 technology” and “computer network technology” among 14 sub-sectors are highly standardized sub-sectors. Finally, the validity of the proposed model was also partially proved using two different methods, holistic and historical approach. Key words : Standardization, AHP, Information and communication, Index model CNI CONTENT AND NETWORK I: CHAIR MR.HENG CNI 1.1 US Cable Industry: Technological Developments and Regulatory Setting Causing a Shift in Focus from Content to Telecom Services? Author: Claudia Loebbecke, University of Cologne, Germany Olli Rehn,University of Helsinki, Finland The US Cable Industry - Market and Technological Infrastructure More than 95% of total households in the US are passed by a cable system. Almost 75% of these households subscribe to cable. By 2002, the US cable industry had consolidated to the point that five main players, so called 'multiple system operators' (MSOs) - dominated the market, serving about 80% of the industry's customers. One of the latest concentration activities was in November 2002, when Comcast - at that time number '3' in the market - acquired AT&T Broadband, then number '1'. Most cable operators use a so-called 'Hybrid Fiber / Coax' (HFC) architecture. They apply fiber optic transmission technology to replace upstream coaxial trunk and feeder lines while, downstream, the incumbent / existing coaxial feeder and drop lines were kept intact. Thus, by replacing coax with fiber optic lines upstream, MSOs had improved signal reliability and picture quality. The HFC architecture also permits MSOs to install modules that activate a reverse path, allowing customers to send data or voice signals from their home to the head-end. Such a reverse paths, for example, allows users to push the 'Buy' button in the context of pay-per-view applications. Furthermore, this new architecture allows a significant increase in channel capacity and thus offers high-speed Internet access (through cable modems) or cable delivered telephone service. Finally, back in 2001, cable operators began to replace analogue set-top converters with digital home communication terminals, which employed compression technology to significantly increase channel capacity. The combination of fiber optics, amplifier upgrades, and compression technologies laid the foundation for cable operators to offer 'video-on-demand' (VOD) and a further variety of interactive multimedia services. As of 2002, some MSOs have moved VOD beyond technical trials and offer it as a commercial product in selected markets. Competitive Situation in the Field of Video Content Services - Position of Incumbents In spite of such technological improvements, MSOs increasingly face competition from satellite operators in the market to provide video content services. In 2002, almost 25% of US subscribers obtained video content services from some company other than their local cable operator. Direct Broadcast Satellite (DBS) accounted for more than 19 million customers by the end of 2002. The few satellite players are big. DirecTV has more subscribers than all but two cable operators, and the number '2' in the DBS market, EchoStar, has more customers than all but three MSOs. Competition also arose from facilities-based broadband companies such as Knology or WideOpenWest. Finally, competition has emerged from telecom operators such as Quest which delivers video content in the metropolitan Phoenix area based on VDSL technology. Being challenged by other players and other technologies in their traditional field of video content provision, cable operators have responded by offering telecom services, especially high-speed Internet access. Provision of High Speed Internet Access - Position of First Movers Broadband competition goes beyond the provision of video content services. Cable operators took early leadership in developing the market for high-speed Internet access. Soon after, a profusion of competitive offerings from various telecom players began to emerge. Notably, the deployment of cable modem services triggered a nation wide roll-out of Digital Subscriber Line (DSL) offerings. The four major incumbent local exchange carriers (ILECs), BellSouth, Qwest, SBC Communications and Verizon, offer DSL and accounted for more than 5 million customers at the end of 2002, 3rd Quarter. The regulatory environment, particularly two decisions taken by the US Congress, also influenced the competitive situation. In 1992, the US Congress required that vertically integrated MSOs, such as AOL Time Warner, make their programming services available to competitors at fair terms. The 1996 Telecommunications Act kept this requirement but otherwise more or less deregulated the cable industry. It was said that cable regulation would expire in 1999 and most barriers for telecommunication and cable companies to enter each others markets were removed. Nevertheless, by 2002, most ILECs had reduced their originally ambitious plans to enter into competition with cable companies by 'overbuilding' cable operators' networks with their own HFC infrastructures. The lack of enthusiasm can easily be explained by some economic insights. (1) Compared to the cable operators' networks, ILECs face a cost disadvantage in building HFCs from scratch. ILECs mostly lacked coaxial cables for the last mile between their fiber nodes and customers' homes. Their existing twisted copper lines were designed to carry narrowband voice transmissions but were not sufficient for transmitting video signals. (2) ILECs (as well as cable operators) could not escape the fact that increasing competition between both groups would lead to unwanted price cuts to end users paired with increasing programming and marketing costs. (3) The 1996 Telecommunications Act had granted Regional Bell Operating Companies (RBOCs) permission to offer long distance services, as soon as they fulfilled the requirement imposed on them to cooperate with competitive local exchange carriers wishing to leverage ROBCs' facilities. In spite of declining long distance prices, decent gross margins still tempted ILECs to enter the long distance market before tackling the seemingly risky and obviously expensive video market. Summary and Outlook Satellite service subscription growth rates, market entrance of other multi-channel video providers as well as MSOs' own technological innovations (digital, high storage, intelligent settop boxes) have put high pressure on MOSs' traditional business lines. At the same time, MSOs have more than successfully entered the market of high-speed Internet access. Cable operators' high speed cable modems account for almost 65% of all US customers. It seems that the combination of technology, timing of market entry and regulatory environment (persisting constraints on ILECs with string impact on their cost structures) let the Internet access market tip to MSOs. Customers are increasingly indifferent to who is offering them which application or service and which infrastructure the provider uses. This has led to significant shifts in the markets of traditional telecom as well as video content services. It has been hypothesized that the shifting focus from content to telecom services in the US cable industry is influenced by technological developments and the regulatory setting. Although the European situation is on some counts quite different, for example broadband service delivery is still dominated by DSL providers as opposed to cable or satellite operators in most European countries, the authors propose to extend their research to examine the recent developments in the European telecom market(s) in the context of broadband convergence.. CNI 1.2 VIDEO CONTENT SERVICES AS A TRANSFORMING INDUSTRY Authors: Claudia Loebbecke, Michael Staudinger, University of Cologne, Germany, Ian MacInnes, Harvard University, USA Introduction The purpose of this paper is to show how video content services are transforming as a result of the introduction of new technologies. Video content service providers include cable distributors (e.g. ComCast), television broadcasters (e.g. ABC), cable channels (e.g. CNN), satellite companies (e.g. DirectTV), and Internet services including news websites (e.g. real.com; cbc.ca). In general the content is prepared for consumption by many potential viewers and is unidirectional. Thus the definition does not include videoconferencing services. Manufacturers of equipment such as set-top boxes serve and influence the industry. There are several factors that could possibly lead to revolutionary change in the video content service industry as outlined above. In our ongoing research, we are interested in future industry realignment with a focus on issues such as 'concentration versus specialization', 'proprietary or open standards applications and equipment devices and their impact on competitiveness', and 'actual rent-(profit-)based power shifts among players and along the overall industry's value chain'. We have started by investigating the situation in the United States, and later will investigate how and to what degree our US findings can be transferred to selected European markets. Background In the United States, the cable distribution industry, which provides content from many broadcasters and cable channels via coaxial cable, has traditionally been organized with regional operators as exclusive providers. Terrestrial broadcasters also had regional franchises but faced greater regulation in the areas of content and spectrum obligations. Because these industries used dissimilar technologies and were subject to different types of regulation, they evolved independently from each other. Satellite providers of video content services entered the market and, given the high costs associated with establishing a satellite network, there have been only a few providers in the United States, including DirecTV and EchoStar. In contrast to cable and broadcasters, satellite companies have been able to serve an entire continent with a single signal. Entry by satellite providers resulted in greater competitive pressure for cable distributors. Industry Value Propositions: Drivers of change The paper examines driving factors that have implications for the industry value chain for video content services including digitalization, increase in broadband connectivity to the home - combined with increased processing power for network servers, and personal video recorders (PVRs) - including intelligent set-top boxes with cheaper storage and faster processing. Digitalization of all sorts of content has facilitated the process of Internet-based distribution, and thus also increased the product spectrum. As a source of entertainment, the Internet indirectly competes with television-based video programming. The increase in broadband connectivity to the home introduces new products such as always on Internet access and thus competition. Several video content providers could offer programs for download or live streaming. Such Internet-based television programs could easily reach viewers in other countries. This, however, raises rights issues, which have not been settled yet. Hollywood movie studios, for example, will want to separate the licenses they sell for traditional video distribution from potential new licenses for Internet distribution. As well, the number of substitutes for traditional video programming is increasing as individuals can distribute home videos and companies can offer product demonstrations on demand. Similarly, the incorporation of personal video recorder (PVR) features into set-top boxes is likely to have a strong impact on video content service provision. While digitalization and broadband connectivity have enabled distribution across traditional geographical and political barriers, PVRs reduce the need for temporal coordination between programmers and viewers. PVRs help users choose and organize the programming that they would like to watch at the times they want to watch them. They act as a personalized agent that automatically finds programming of interest to them. Users do not need to know the time or day when the program is broadcast. Users are also able to avoid advertising if they choose. These capabilities, together with the potential demise of prime-time scheduling, will have an impact on the broadcasting and advertising industries. Programming, for example, may become more specialized and the audience more fragmented. Revenue models would have to be adjusted. Although PVRs have not yet had great commercial success, this can be attributed mainly to high prices and the difficulty of communicating product features and functionalities. These problems should decline as some cable companies (e.g. Time Warner Cable) put their weight behind the distribution of intelligent set-top boxes that incorporate PVR features. To further increase complexity concerning the industry value chain, users may also be able to connect their PVRs over the Internet and share programming and other types of content within and between homes. Overall, the US video content services industry is facing a crucial stage of development that coincides with the review of ownership restrictions for media companies by the Federal Communications Commission. Regulatory issues thus will continue to play a substantial role in the industry's future. Outlook Observing the way the video content service industry is evolving has shed light on the specific drivers that could lead to competitive advantage. Obviously, the incorporation of new features depends on the value that these can provide to customers who are not necessarily end users. The primary customers for set-top boxes, for example, are the cable distributors and these are not going to want features incorporated that may reduce overall profits even if they add value for end users. For example, their desire to promote PVR features will depend on their ability to find a viable business model to tackle competition from other providers such as the satellite players and / or to more than offset revenue losses in other initiatives such as video-on-demand from proprietary servers. Additionally, widespread use of PVRs capable of skipping TV advertising would lead to reduced revenues for cable channels, thus indirectly affecting the revenue models of cable distributors promoting PVRs. Considering our first insights to be investigated further, we see different developments in different parts of the industry. Concentration is rising drastically among cable operators and also among their set-top box providers. We currently observe a push for proprietary standards among set top box providers (and thus cable operators), but expect increasing use of open technologies for a variety of standardization areas. Finally, our analysis so far suggests an additional power shift from content providers to content distributors. Among the distributors, satellite - although still small in user numbers and budgets - could carry strong economic arguments. We are still investigating the likelihood and the likely timing of a potential market power shift from cable to satellite. Increasing use of new technologies such as PVRs and Internet based distribution seems to put the current business model of cable channels at the highest risk. CN I 1.3 THE MUSIC INDUSTRY IN AN EVOLUTIONARY CHANGE: HOW NEW TECHNOLOGIES CAN TURN AN INDUSTRY UPSIDE DOWN Author: Tung Q. Nguyen-Khac, AOL Germany Introduction During the last decade, the fast-paced technological development of the IT industry in regard to transmission possibilities of digital information has exerted a massive influence on all media industries. There are two aspects that have mainly contributed to the redevelopment of particular fields in the media economy or that will make them redefine themselves. Most notably, the increasing penetration of the internet, which has reached more than 50 percent of the relevant population groups in highly developed countries, but also the sharp drop in prices for highly advanced hard- and software in the consumer market need to be mentioned. Apart from some segments of the publishing industry, the music industry has been largely affected for more than three years now. The music industry’s position and connected strategic challenges are the subject of the following examination of the authors. Goals, Proceeding and Scope Of This Study It is the authors’ goal to give a short and practice-oriented, yet comprehensive overview over the historical development and structure of the music industry. This encompasses the description of the recent status quo of the music economy, as well as the analysis of potential scenarios which could arise due to recent developments on the technology side. Technological progress is increasingly questioning existing structures and processes of the music industry. Taking a look at the industry’s value chain, especially production, marketing, rights management and content distribution are areas where significant changes can be expected. A related question is to what extent a sustainable business model can be established within the music industry. The music business is influenced by a number of different disciplines and areas. That is why the authors chose the constellation analysis. This is more or less an interdisciplinary approach: by analysing influence factors from diverse fields, such as IT, economy, law and politics. Even though this article has an interdisciplinary approach, it focuses more on economic aspects. For this reason and due to the limited extent as well as the high complexity of particular areas legal (e.g. copyright and digital rights management) and technological aspects will be touched lightly but cannot be dealt with in great detail. Is The Music Industry In A Dilemma? A Quick Look At Recent Figures Just a glimpse at recent figures illustrates the current dilemma of the music industry and thus which challenges it is facing. The International Federation of the Phonographic Industry estimates that about one billion illegal CD-copies were circulating in 2002. Comparing this figure with 2.3 billion officially sold CD albums, it is understandable that the music industry is in a rather bad mood. Germany too, meanwhile the world’s third largest music market, is affected by this trend. According to the German Phonographic Association (Deutscher Phonoverband) the size of the German music market had to face a decline of roughly 25 percent. In 2002 alone, industry revenues dropped by further 11.3 %. Half a decade ago, in 1997, the music industry still had revenues of about 2.6 billion Euro, while in 2002 the turnover was only about 1.97 billion Euro. Obviously, there is a lot at stake for the music industry and the recently ongoing consolidation (e.g. take over negotiations between BMG and Warner Music) shows that the industry is on the move. Possible Answers For The Music Companies’ Problems Analysing the reasons for this development, it becomes obvious that, similar to other fields of the media industry, there are a variety of endogenous and exogenous factors affecting the music industry. Only their combination and their concurring effects led to the development of the current status quo. The technological influence factors in the consumer market need to be mentioned first. About ten years ago, it was still too expensive for the private user to buy the hardware that is necessary for writing, copying and saving music files or CDs. Today, private consumers – for a decent investment - have the technological capabilities to do that. Reaons: The increasing and accelerating degree of maturity of hardware (combined with parallel designed user software), progress in industrial production and associated economies of scale. Furthermore, with the help of today’s fast PC processors, private consumers are able to process a large amount of digital data (required by digitalized songs) and to save them on CDs and large hard drive capacities. Another relevant factor is the increasing internet penetration in industrialised countries as well as improving possibilities to transmit a larger range of bandwidths. In combination with the compression format MP3 a faster transmission of a large amount of digital data is possible. This strongly influences the possibility to create, to market and to distribute digital music data. Additionally, due to the increasing maturity of hard- and software in the field of music, artists took the opportunity to influence the development and production of music content during the past ten years. For creating and marketing music content a private person is not solely dependant on the big music corporate groups any longer. The industry’s attitude acts as a further aggravating factor, in so far as instead of strategically build artists and formats, it has always focused on short-term profit maximisation. It is mainly the rapidly-spreading Peer-to-Peer (P2P) or File Sharing Technology that has had a massive influence on the established industry structure over the last three years. The introduction of the illegal download platform Napster, which made file sharing of MP3 data available to a larger user base for the first time, and the establishment of its successors Morpheus, BearShare and most of all Kazaa have boosted the illegal, i.e. unpaid, spreading of music content. Taking into consideration, that Kazaa’s download software alone has been downloaded more than 230 million times, it is comprehensible which further consequences this might have on profit and loss situation of the music industry. Interestingly, the music industry has not been able to find acceptable solutions for this development so far. There have been numerous attempts in co-operation to establish competing download platforms. However, to date they have not been accepted by consumers and therefore are unsuccessful. This is surprising, since the national and the international music industry have more or less the structure of an oligopoly. Disregarding single independent labels on the national level, the number of the relevant music companies is lucid: BMG, Warner Music, Sony Music, Universal Music and EMI. In the past these Majors dominated a music market that was characterised by increasing turnover and high profit margins. Yet, the problems that the music industry has to deal with today, are partly self-inflicted. In booming years, whith stable revenues, it has neglected to fight against structural problems, such as the lack in sustainability in the creation of artists and their development. Moreover, the industry did not manage to create a sustainable business model focused on the new media and technologies. Consequently, the industry was late to realize the imminent danger of increased internet usage and the high advanced PC equipment in private homes. Are there keys to a solution of the dilemma? The developments described above, require the industry to rethink their processes in the fields of artist management (A&R) marketing and distribution. The question is whether the music economy needs to reinvent itself. The problem has become virulent for the music industry. However, the right answers still need to be found. Will the CD stay the music medium No. 1, given that huge amounts of MP3s can be saved on current hard drives which are getting smaller and smaller and increasingly handy? Will the music industry be able to earn money with a format that you cannot touch, which can be exchanged in large quantities via internet? Will enough money be circulating in a reshaped music economy to keep the conventional “Star System” alive? There is perhaps one example that could pave the way for the industry: In 2003 a company from an unrelated industry, in a way a nobody, succeeded with a new product: PC producer Apple known for its personal computers for users in the creative sector, presented its new “I- Tunes Music Store”: For the first time a working music download model based on the internet. With more than two million paid downloads within two weeks after its introduction, I-Tunes Music Store has demonstrated some first, convincing successes. During this short period, Apple had a higher turnover than the competing download platforms of the Majors (e.g. Musicnet and Pressplay) in their whole first year of operation. What was the success formula? Difficult to say after this short period but Steve Jobs, CEO of Apple, succeeded in long-lasting and difficult negotiations to convince all Majors to make their content available on this platform. Currently there are only about 200.000 songs available on Apple’s platform. Yet, in combination with an easily comprehensible and attractive price model (99 cent per download), with extended usage and license terms (unlimited usability on several media) and a successful PR Promotion, the “apple from an unrelated industry” provided a new impetus in a market characterised by lethargy. With the introduction of the “i-Tunes Music Store” pressure on the music industry has risen. In Germany the big providers Universal Music, Sony Music, Warner Music, BMG and EMI, together with Deutsche Telekom as technology partner, prepare a common download platform which is supposed to be launched at the end of this year. The name of this new music web catalogue: Phonoline. The platform will be based on an electronic distributional system that has already been existing for years and which will be operated jointly by the record labels. The question whether this offer will be successful and accepted from the market is still open. From today’s point of view, Phonoline is rather a compromise than a thoroughly designed marketing system designed for the needs of the consumer. In contrast to its competitors, Phonoline is just a bunch of offers by the participating companies. If a consumer decides to download a song by Christina Aguilera (who is under contract at a BMG label) they buy the song under the terms and conditions of the respective Bertelsmann subsidiary. For playing a song by Jennifer Lopez for instance, the consumer will have to conclude a contract with Sony. As all companies set their prices irrespective of each other, there is no stringency for the offer. First Hope Is Justified, Yet, A Further Structural Problem Remains A first slight hope? At least the music industry can make out a ray of hope at the dark horizon and got some hints on their seek for a solution. This, however, should not hold back the industry to face a further challenge: the long-termed building-up of artists and their further development. After all, despite the threat deriving from new technologies, there are artists such as Herbert Grönemeyer, Nena, Robbie Williams, Madonna or Eminem who still succeed in selling millions of copies of their albums. On the one hand Eminem’s album “The Eminem Show” was the album with the most downloads in 2002, but on the other hand it was also the album that sold most copies in the USA. The music industry has realised its dilemma and is forced to develop and implement quickacting counter measures and strategies. A challenge to be won? BPL BROADBAND POLICY LESSONS. CHAIR: MR BAUER DISCUSSANT: MR MARSDEN, MR ZIMMERMANN BPL 1.1 FROM BASIC SERVICE TO BROADBAND: STRATEGIES FOR RURAL AND DEVELOPING REGIONS Author: Professor Heather E. Hudson2, University of San Francisco, USA Recent innovations in technology and policy are significantly increasing access to basic telecommunications services in the developing world. For example, in many developing countries, there are now more wireless lines than fixed lines; for many new subscribers, their mobile phone is their first and only phone. This dramatic growth in connectivity is due partly to the advantages of wireless technologies in fast deployment of new networks, but perhaps more to the innovations in regulation and policy that have fostered innovation. Where countries have introduced competition in wireless/mobile services, rates have come down, and innovative wireless carriers have introduced features such as “pay as you go” using rechargeable cards, and inexpensive text messaging. The result has been dramatic growth in access to basic communications. Yet basic voice communications are still not available in many rural and isolated areas. Furthermore, access to broadband that would allow use of the Internet’s Worldwide Web and other advanced services such as distance education and telemedicine, is still very limited and/or expensive in most rural and developing regions. This paper examines how technological and regulatory innovations might bridge this broadband divide. The paper also explores how targeted subsidies may be used to increase broadband access. The paper concludes with a summary of lessons learned from these innovations in technology and policy that could help to accelerate access to affordable and reliable broadband connectivity in rural and developing regions. BPL 1.2 BROADBAND UPTAKE IN OECD COUNTRIES POLICY LESSONS AND UNEXPLAINED PATTERNS Authors: Johannes M. Bauer, Junghyun Kim, Steven S. Wildman, James H. Quello Center, Michigan State University, USA International comparisons of broadband diffusion reveal widely differing penetration rates. Most attempts to explain this diversity narrowly focus on single causes (e.g., prices or policy measures). However, to assist policy makers in formulating effective broadband policy frameworks a multivariate analysis of the factors shaping uptake is required. As a first step in this direction our paper reports the results of a cross-national econometric study of broadband uptake in the 26 OECD countries in 2001. The paper first reviews the nexus between the broadband policy framework and network and service deployment. Based upon this analysis, we formulate a structural model of the broadband market. The main variables included on the supply side are the degree of competition in the market, the condition of the network infrastructure prior to the introduction of broadband, and cost factors such as the density and distribution of the population. Disposable income, the availability of substitutes, the prices for broadband and substitute services, and the availability of content are the main factors included on the demand side. In addition, we model the effects on supply and demand of the policy regime and of the "preparedness" of a country to adopt broadband. We use the reduced form of the model to derive OLS parameter estimates. Data were collected from a number of sources, including the OECD, the International Telecommunication Union (ITU), national regulatory agencies, and service providers. Limitations in the consistency and availability of data necessitated a cross-sectional approach. However, elements of a dynamic perspective are introduced via lagged explanatory variables. As Korea is a unique case, we performed the analysis with and without it to test for the robustness of results. We find that the results are somewhat sensitive to whether or not Korean observations are included. Estimates based on the full sample produce several statistically satisfactory model specifications. As expected, broadband uptake is positively related to population density and the preparedness of a nation (measured alternatively by the availability of computers and of network infrastructure) and negatively related to the price of broadband service. However, our estimates also show some unexpected results. For example, the inclusion of policy variables did not produce significant parameter estimates. Moreover, once other factors are controlled for, our estimates show a negative link between income per capita and broadband uptake, which could be the outcome of a leapfrogging effect. We also find a negative relation between the price of dial-up service and broadband penetration, which may reflect the presence of budget constraints. Overall our study explains only about one third of the variance in broadband uptake. In part this may be due to the statistical challenges of working with a cross-national data set. It also seems to affirm our view that unique effects are at work that deserve further study and which may only become fully visible at a regional or local level. We conclude the paper with policy implications from our findings and avenues for future research. References Bauer, Johannes M., Kim, Junghyun, & Wildman, Steven S. (in print) “Broadband deployment: toward a more fully integrated policy perspective,” in: A. L. Shampine (ed.) Down to the wire: studies in the diffusion and regulation of telecommunications technologies, Hauppauge, NY. Bauer, Johannes M., Michel Berne and Carleen F. Maitland (2002) “Internet access in the European Union and in the United States,” Telematics and Informatics 19, 117-137. Bauer, Johannes M., Gai, Ping, Kim, Junghyun, Muth, Thomas A. and Wildman, Steven S. (2002) Benefits of broadband, Report prepared for the Michigan Economic Development Corporation and MERIT, East Lansing, Michigan: Quello Center for Telecommunications Management & Law, October. JEL Code/Keywords: JEL Codes : L96, L86, L5, O57 Keywords: Broadband, broadband policy, OECD, structural model, cross-national comparison, econometric study BPL1.3 COMPARATIVE ANALYSIS OF BROADBAND POLICY. A METHODOLOGICAL APPROACH Authors: Inmaculada Cava, Regional Government of Valencia, Spain Antonio Alabau, Luis Guijarro, Polytechnic University of Valencia, Spain Alberto Jordan, Polytechnic University of Madrid, Spain This paper deals with the early results of the Broadband Infrastructures Working Group (BIWG) of the Regional Government of Valencia (Spain). This group was created to study the Broadband Policy issues as a first step to elaborate a Strategy and an Action Plan to accelerate the deployment of broadband networks, especially in non-competitive areas of the regional territory. Broadband is considered as being an accelerator for economic development. Nevertheless, the extent to which broadband infrastructure will cover entire populations or geographic areas is still not clear. This fact has led governments to place emphasis on facilitating access to broadband networks, especially in non-competitive areas, to avoid what is called “digital divide”. In fact, during late 90s, many Administrations in OECD countries have released their broadband strategies (OECD, 2002). There is a wide range of government initiatives structured in different ways and with specific targets and expected results. In this context, the main concern of the BI-WG in its initial stage has been to examine these initiatives and to build a clear taxonomy of adopted actions. This paper deals with the description of the BI-WG activities and the results obtained so far. The first step consisted of gathering information about the public initiatives being carried out by government agencies in the Broadband Policy arena. The BI-WG members gathered information about the following public initiatives: Wales (UK) (Analysys, 2001), Sweden (Ministry of Industry, Employment and Communications, 2001), Italy (Task Force on Broadband Communications Innovation , 2001), Canada (National Broadband Task Force, 2001) and USA (FCC, 2002). The second step consisted of defining a Reference Framework to be used as a methodological tool to create a taxonomy of adopted initiatives. The Reference Framework is based on the Savage model (Savage, 2001) and sketches the adopted actions that constitute the intersections between the targeted elements, the agents and the funding models. This approach allows defining a comprehensive set of possible actions to cover all the range of possibilities regarding Broadband Policy. The third step consisted of evaluating this framework by using it to analyze the collected initiatives. This task yielded some concluding remarks that are detailed in the final version of the paper. Finally, this paper ends up with some ideas for further work. References 1. Analysys, Commissioned by the Welsh Development Agency. (2001). Ubiquitous Broadband Infrastructure for Wales. 2. FCC, Federal Communications Commission. (2002). In the Matter of Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable And Timely Fashion, and Possible Steps To Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996 [on line]. URL http://www.fcc.gov/broadband/706.html 3. Ministry of Industry, Employment and Communications, Sweden. (2001). The development of the IT infrastructure - A publication about one of the priority areas of Swedish IT policy [on line]. URL http://www.industry.ministry.se 4. National Broadband Task Force, Canada. (2001). The New National Dream: Networking the Nation for Broadband Access [on line]. URL http://broadband.gc.ca 5. OECD, Organization for Economic co-operation and Development. (2002). Broadband Infrastructure Deployment: The Role of Government Assistance [on line]. URL http://http://www.oecd.org/pdf/M00020000/M00020255.pdf 6. Savage, James. (2001). International Models (Draft) [on line]. Canada National Broadband Task Force. URL http://www.broadband.gc.ca 7. Task Force on Broadband Communications Innovation, Minister for Technologies (Italy). (2001). Report about Broadband Communications [on line]. URL http://www.mininnovazione.it/broadband IS INVESTMENT STRATEGIES: CHAIR MR ALKAS IS 1.1 BUILDING THE REPUTATION OF FIRMS AND THE ROLE OF INSTITUTIONS Author: Paul F. Phumpiu, Osiptel, Peru Considering that telecom firms build their reputation from the continuous satisfaction of its customers, we try to measure how the knowledge and information that telecom users have, and their individual opportunity costs, affect their decision to file a formal complaint. The provision of goods and services in an industry does not end with the market consumer purchases. In the market chain, the follow-up on customers is as important, if not more, than just selling. How well a firm does on the follow-up of its customers’ satisfaction is critical for its survival and profitability. This is because the reputation of a firm or the brand it sells in the market is partially built on customers’ satisfaction and how well they rate them. If the customers’ rating is poor, then the market reputation of a firm or brand due to its customers’ satisfaction would also tend to be poor. Thus, when customers are not satisfied word of mouth is spread in the market and, current or potential, customers are likely to stop buying or recommending those services. On the other hand, if the customer’s rating is good, the brand builds a solid market reputation and the firm can expect to survive and, possibly, grow on its market share. In a competitive market non-satisfied consumers can try new brands produced by other firms, but when the market is not competitive they may have fewer choices or no substitutes at all. In this case, the role of market institutions that care for the well-being of consumers tends to be much more critical. Market institutions have to build market incentives through incentive regulation, supervisory actions, and activities that inform and guide consumers about their rights, so that the firm(s) in the market will behave as if they are in a competitive environment. Thus, when there are substitutes goods or services, consumers penalize the firms with bad reputation by not buying their products. However, when there are no close substitutes, consumers can not penalize a firm with monopoly power or dominant position, and the institutions that supervise the evolution of markets play the consumers penalizing role; usually, by imposing sanctions. Our estimated results for the telephone service in Peru show that the probability of users filing a formal complaint is much higher when firms and market institutions have dissimilar information and knowledge processing objectives, rather than when these objectives are alike. Also, as the users tolerance to non-satisfactory contractual relationships decreases, the complaining probability increases. In this context, dissimilar objectives between the regulator and the regulated firm is not a sustainable situation, as customers would not only be insatisfied with the firm that provide them with services, but also with the regulator. IS 1.2 INVESTMENT BIAS AND ORGANIZATIONAL CODES Author: Erik Bohlin, Chalmers University of Technology, Sweden Sven Lindmark This paper will elaborate on some possible drivers to investment bias, and in particular the inertia of codified organizational practices in the face of technological change. Lately, investments in telecommunications networks have been hotly debated, and examples of overinvestment (3G, dot.com) have been widely publicized. However, there are also cases of underinvestment, and this paper will in particular address drivers to under-investment by elaborating upon the relations between organizational codes, technology and incentives. There are several possible examples of under-investment: for instance technologies for cyber security and dependability. Another example is the introduction of the next generation Internet protocol - IPv6. IPv6 is a “classic chicken-and-egg” problem. Operators and ISP providers have few incentives to introduce IPv6 networks since there is little demand at present. Users do not demand IPv6 since there are not yet any perceivable benefits to the new protocol. Manufacturers have consequently been slow to implement IPv6. However, IPv6 would clearly seem to be the better protocol in the long run. First and foremost IPv6 improves the addressing and routing capabilities of the Internet, which is increasingly becoming a problem with the current Internet standard (IPv4). For instance, there are reportedly “fewer domain addresses available for China than either for Stanford University or MIT”. 3 Clearly, this lack of addresses could create a problem for China as Internet penetration rates there rise, as well as in other growing regions. With IPv6, IP increases address size from 32 bits to 128 bits. This represents an increase in address space by a factor of 296 (2128/232), totalling just over 4 billion*4 billion *4 billion *4 billion addresses. IPv6 also defines a multi-level, hierarchical global addressing architecture. This feature is important since the Internet backbone depends upon a hierarchical address system similar to that of a telephone network. Without an address hierarchy, backbone routers would have to store table information on the reachability of every network in the world. However, most players seem to be somewhat locked-in to IPv4 and its possible enhancements, such as alternative ways to solve the address problem. Even for actors in regions endowed with many IPv4 addresses, there may be reasons to adopt IPv6. For instance, wide-spread adoption of the third generation mobile networks will require the adoption of IPv6. On a theoretical level, what are then some possible drivers to technological inertia, and investment bias? Starting first with some definitions, investment bias is a systematic deviation or skewness with respect to some standard or norm (here economic efficiency). Moreover, the efficiency consideration that is of interest is from an ex ante point of view, ex post the inefficiency could be due to random events. Technology is viewed in a dual sense, including both knowledge and artifacts. The dual aspect of technology raises additional complexities. The type of knowledge that is associated with a physical artifact may not be one-dimensional but be thought of as a complex ‘multi’-kind: multi-technology, multi-relational, multi-nature, multi-competence. Thus, an artifact can be viewed as an embodiment of a web of competencies that is interrelated with the behavioral and material environment in complex ways. Finally, investment decision making is considered in an organizational context, i.e. that decisions are made in a multi-layered organization, where several organizational units may be involved in a given investment decision. In an organizational context, an artifact can be viewed as an embodiment of a web of competencies that is interrelated with the behavioral, organizational and material structure in complex ways. Put more concretely, the diffusion of a new technology within an organization has consequences not only for the physical asset base, and is not only affected by the economics of the existing physical assets, but also brings a momentum of organizational and individual change which may be at odds with the existing structures. In particular, given the strong increasing returns properties of the knowledge aspect of technology together with durability of the physical capital, there will be inter-generational consequences developing. To see how the inter-generational consequences develop, consider first the increasing returns properties. Due to the durability of the physical capital, the unit must keep alive the set of competencies that fit with this physical capital. Since the competencies for the old physical capital have already been ‘acquired’, or more precisely assimilated by the agents in the unit, there is generally a low cost of keeping these competencies due to the increasing returns properties of information and knowledge. For instance, when knowledge is used there generally occurs not a decay but a positive form of depreciation (learning). Moreover, knowledge has public good properties due to the non-exclusive properties in consumption; i.e. 3 European Commission (2002, p 7). transmitting the knowledge comes without loss of the knowledge. In a more restricted sense, the knowledge may have quasi-public good properties, i.e. a mix of private and public, due to the tacit nature of the knowledge, in which the degree of the private nature increases with the tacit nature. Within organizational units in which tasks are narrowly defined, e.g. functional units, the degree of tacitness will be lower within the unit, but higher between units. Conversely, when units have more broadly defined tasks, there will be less degree of tacitness between units but also comparatively higher tacitness within units due to the wider range of activities. Moreover, there are specific features with respect to the knowledge aspect of technology that create even stronger increasing returns properties: codifiability (conferring cumulation). Technology can be codified by governing laws and functional relationships to a greater extent compared to many other forms of knowledge (such as management). Not only is there a codifiability in terms of abstract knowledge: the physical artifact is itself codified knowledge. The artifact becomes the ‘book’ by which agents learn by doing and teach others. As a set of artifacts share the same basic properties, agents can generalize from a sample of artifacts, which is useful when faced with similar types of artifacts. Depending on the type of code (e.g. level of abstraction), and depending on the task associated with the artifact (e.g. R&D or maintenance), the dissimilarity of a new artifact will have differential impacts. More generally, one can consider that there is a technological distance between different types of artifacts and different types of technological knowledge, the distance being defined by both the level of aggregation (abstraction) and the factorized ‘components’ making up the identified aspect. Put more concretely, from the point of view of an abstract and aggregate description of a technology, there may be similarities, but from the point of view of an artifact there may be great dissimilarites due to design variations and differences in the interlocking of several technologies and sub-technologies within an artifact. Thus, one can associate technologies with different kinds of codes and sub-codes, depending on the task that is to be carried out with respect to the the technology. In turn, by learning the appropriate code and sub-codes, by acquiring skill in using it and in generalizing with respect to that code, the code will have a cumulative nature, although temporarily so if there are discontinuous technology changes. Put differently, there will be increasing returns with respect to continuing with the acquired code. For each organizational unit there will then emerge an organizational code corresponding to the task of the unit, and the task of the unit will become the organizational goal. 4 The organizational code will in turn be highly influenced by the set of artifacts that the unit is responsible for. Thus, one can conceive of technology-related codes that are specific to an organizational unit. Moreover, as technologies and the corresponding artifacts become more mature and the diffusion process reaches higher levels, the codes will become increasingly solidified. If we now allow for the necessity to search for decision alternatives within an organizational unit, what may happen is that the local generation of decision alternatives is constrained by the codes, which in turn are constrained by the definition of the organizational goal, which in turn was based upon the appropriate division of labor at an earlier stage of technology. In Simon’s (1964) terminology, the goal constraints and the objective function of each organizational unit together generate decision alternatives, the generation being determined by the organizational algorithm. There will be a reinforcing tendency toward stability, though, since the process of local search has its own momentum due to increasing returns to local search. Specifically, there will be a linkage between generations of agents in the unit, since there will be an overlapping pattern of artifact replacements and replacement of human agents. As a new agent enters into an organizational unit, this agent could in principle create a momentum of change since the new agent comes from a different environment and with a different code. However, there will be a strong tendency for new agents to assimilate the organizational codes and the sub-codes, since by the codes, groups and sub-cultures are created 4 The idea that organizations develop an internal code so as to minimize costs of information transmission received early attention by Simon (1964) and Arrow (1974). and sustained. With a shared sub-code there will be low costs of communicating. In turn, this process is reinforced by the long durability of artifacts and the fact that agents and artifacts are not replaced simultaneously. Furthermore, once the code has been acquired there will be a strong incentive to keep using it since learning a new code will be viewed as a considerable investment, the viability of which will be compared with the variable costs of the competence in place. Now the question is whether the local increasing returns properties by themselves can create inefficiencies (such as investment bias), without any agency-type incentive problem being present. Both Simon (1964) and Simon (1969) intimate that this can be the case, even with satisfying goals. When action-outcome sequences are not additive, i.e. non-independent, we can never be certain that a partial sequence of actions that accomplishes certain goals can be augmented to provide a solution that satisfies all conditions and all goals, even though they are satisfying goals. Being interpreted, with an organizational division of labor that in essence has institutionalized different search paths through the task assignment, the local search may generate global inefficiencies while satisfying some (local) goals. This problem becomes particularly acute as the local decision generators are put in place so as to achieve division of labor, being interlinked in a means-end hierarchy, or with an alternative analogy, consisting of decomposed and interrelated ‘algorithms’ in which the goal and constraints are influenced by decisions in other units. The chain of decisions will then lead to overall inefficiencies, driven by locally increasing returns. If there are information costs due to limited rationality, this inefficiency will persist longer. To change the local search paths, interventions are needed. However, what is not necessarily clear is that this inefficiency would occur ex ante since the decision sequence is characterized by search, i.e. the alternatives are not fixed from an ex ante point of view. What emerges is the need to adapt, rather than investment bias. However, if we now include personal costs (from incentives) in this local increasing returns system, it may suffice with small personal incentive costs to get large inefficiencies. Put differently, due to the underlying increasing returns dynamics, the addition of a small selfinterest-driven cost may have large consequences for organizational inertia. Even though agency theory has captured the critical influence source, it is hypothesized that it is the combination of locally increasing returns and agency that creates large inefficiencies. Consider for instance retraining. Retraining will involve personal effort and possibly hurt personal pride, while keeping the current competence has low costs. Moreover, it is not only that the code taken by itself is costly - the interdependence among codes will make the change even more costly. Viewing the technology competence question as an investment, the presence of an interrelated structure of codes and sub-codes will impose adjustment costs, making the hurdle rate for the knowledge investment even higher, all else equal. These adjustment costs may accrue when a new code is not only an addition to existing codes and skills, but necessitates relearning and changes in related skills and codes. Thus, there will be a strong tendency of inertia with respect to organizational codes for cost reasons, not necessarily involving any opportunism or guile. (If personal motivations are added, though, the personal impact may be comparatively far greater than taken by itself due to the increasing returns properties of the codes.) Changes in organizational codes will be justified only with considerable differences in cost and benefits between an old and a new code (from an ex ante standpoint), and the costs of change will be increasing with the complexity of the existing code. Put differently, the more interrelated an existing code is, the greater ex ante economic difference there will be between a new and an old code before it is adopted by an incumbent, all else equal. (This is a case of constant adjustment costs per code interdependency.) Further, the more disruptive (competence-destroying) a new code is, the greater ex ante economic difference there will be between a new and an old code before it is adopted by an incumbent, all else equal. (This is a case of increasing adjustment cost per code interdependency.) However, there are also combinatorial possibilities that accrue with an interrelated set of codes that are compatible, at least weakly so. One can conceive of ‘distances’ between codes in terms of dissimilarities and correspondences. With too much compatibility (too little distance), the codes will be exact copies, and no new combinations will emerge. With too much incompatibility, communication will not be possible; and with a sufficient degree of incompatibility between the new and old organizational codes, all of the old code must be replaced, at great cost for the incumbent agents. If relearning is more costly for incumbent agents compared to new agents, the incumbent agents will also tend to be replaced, all else equal. However, before the replacement of skills and management is undertaken, a competitive disadvantage may have emerged due to the combination of agency problems and competencerelated increasing returns. This is a way to make the asymmetric transition costs of Ames and Rosenberg (1963) more precise. To recapitulate, an incumbent will not necessarily be disadvantaged relative to an entrant who has a new technology (new competence) and new agents, given that new agents can be hired by the incumbent firm and that managerial resources are not limited. In the extreme, the incumbent can simply scrap the whole firm, fire all of the agents (if there are differential learning costs) and replicate a new firm at no disadvantage, or alternatively fire agents working on a specific project and create a new project. Still, this simplistic logic does not hold when competition is not perfect and when firm-specific assets are involved. Put differently, the existing competence base may be useful depending on the interdependencies of the existing codes and on the combinatorial possibilities that exist with the new competencies. Thus, when there are increasing returns accruing from existing competence bases and firm-specific assets, there will be an incentive to keep them from a managerial point of view. Finally, there are selective intervention costs, and these may be quite high. For instance, if intervention can be expected to come continuously, agents will adjust their behavior, possibly seeking to influence the expected intervention for their own ends. Moreover, with management always on their back, lower levels will not be motivated to carry out their tasks in the best way. The outstanding idea of economics since Adam Smith has been that decentralized decisionmaking leads to the best possible state, and decentralization has been a central management idea with known results. Thus the circle starts to close. In general, due to the combination of competence-related increasing returns and durable artifacts, decentralized decision-making and agency problems, there will be a trend toward technological conservatism. There will be strong forms of organizational inertia when a technology changes and there will emerge a need to intervene and change in order to tilt the decentralized decision-making. However, due to increasing returns momentum and information asymmetries between management and the organizational units, and to costs of intervention, the process may have come quite far, and the change may come comparatively late. In order to change the set of internal codes and create new patterns, intervention may be quite drastic. From a total cost point of view, intervention costs are not only related to incentives but also due to the interdependence of organizational systems and the costs associated with organizational changes. Thus, organizational inertia may be obtained despite the fact that from a partial investment point of view, organizational change is warranted. Investment is just one of the activities in a firm, and the firm consists of a complex web of interrelated activities, assets and competencies. Thus, we see here some organizational properties that may mitigate against the adoption of new technology, such IPv6, despite its possible advantages. IS 1.3 REGULATORS VERSUS MANAGERS: WHO HAS A STRONGER INFLUENCE ON STOCK PRICES OF TELECOM OPERATORS? Authors: Lutz Johanning5, Ludwig-Maximilians-Universität, European Business School, Germany Ernst-Olav Ruhle6, Law Firm Piepenbrock Schuster, Germany Over the last years telecom companies’ stock prices have seen a strong up an downward development. Incumbent operators often argue that some regulatory decisions had a very negative impact on their stock price performance. The purpose of this paper is to find out whether management activity or rather regulatory decisions are responsible for the stock price performance of telecom companies. Therefore we analyse the impact of the ten most important regulatory decisions and ten significant management decisions on Deutsche Telekom’s stock price for the time period of 1996 to 2002 by using event study methodology. Management decisions focus on e.g. M&A activity or the decision to enter in the UMTS market in Germany. Regulatory events cover important decisions on interconnect or unbundling of the local loop as well as e.g. the introduction of Carrier Selection in local networks into the German Telecommunications Act. All events have been taken from the period 1996 to 2002. We find out that the influence of regulatory decisions is relatively small. We also show, that the majority of management decisions have negatively impacted Deutsche Telekom’s stock price performance. Thus, Deutsche Telekom’s negative stock price development is mainly a result of poor management performance and not a result of decisions of the regulatory authority influencing the competitive environment BS: BROADBAND STRATEGIES: CHAIR MR VANBERG DISCUSSANT: MR MARSDEN, MR HAUCAP BS 1.1 RENAISSANCE OF THE WIRELINE INDUSTRY: PROFITABLE REVENUE GROWTH AFTER THE PARADIGM SHIFT IN THE TELECOM INDUSTRY Author: Dieter Lange, A.T. Kearney, Germany Philip Zimmermann, Carsten Zimmermann, Ronald Klingebiel, Cambridge University, UK The repercussions of the burst of the Internet bubble and the worldwide economic recession have hit the Telecom industry harder than any other industry. Whilst several mobile operators were forced to exit geographical markets they had just entered at considerable cost, several incumbent telecom operators themselves moved dangerously close to the brink of insolvency. In contrast to those gloomy outlooks for incumbent wireline operators, a study on profitable revenue growth jointly carried out by AT Kearney and Cambridge University reveals that the downward drift for European incumbents is stoppable. This is also authenticated by the results of an extensive operator survey and key expert interviews. Furthermore, findings predict a renaissance for those wireline incumbents that do not excessively engage in pure cost cutting but instead stimulate Organic Growth. While it is apparent that there is no universal master plan for all European Operators, commonly applicable patterns have been identified from best practices. These patterns include levers, which encase the telecommunication value chain and 5 6 Ludwig-Maximilians-Universität, Munich, and European Business School, Oestrich-Winkel. Law Firm Piepenbrock Schuster, Düsseldorf. focus on product management, strategic pricing and product commercialisation, as well as indepth analysis of key product offerings such as DSL, IP and Content solutions. It will be unequivocally made clear that fixed incumbent operators need to understand – viscerally, and not just intellectually – the imperative to reinitiate Organic Growth by effectively balancing the CapEx/Revenue/Productivity-Equation. BS 1.2 HOW TO SUCCEED IN THE WLAN - A LESSON FROM WIRED ADSLS IN KOREA Author: Jae-Kyung Kim, KT, Korea It is irreversible trend from wired into wireless. It’s not an exception in the Internet. Korea is the most developed country in the field of wired broadband Internet services and now tries to keep the fame in the wireless Internet. The subscriber number of broadband Internet services using the ADSLs and cable modems, is well over 10 millions as the date of October 2002. That means more than 70% of populations are using broadband Internet, or 22% of households nationwide. . Recently, Wireless LNA (WLAN) is important as the methods of wireless broadband Internet. KT, the first service provider in Korea, supplies the WLAN service (NESPOT). There are about 7,500 hotspot zones and 12,000 subscribers are using the WLAN service. The objective of this study is to find out key success factors to the WLAN services from the lesson of ADSL in Korea and the problems to be solved for the development of WLAN services. Firstly, on the side of supply, Korea has a distinctive feature at the high geographic density. About 80% of the populations live in the big cities, and it is possible to approach the critical mass more rapidly. Moreover, service providers have the benefits from cost reduction, especially due to the bundling wired and wireless broadband Internet services. For example, the customers using the ADSL can enjoy a WLAN service unlimitedly only at the price of additional 1/3 of ADSL (about US$8). Secondly, on the side of demand, there are a lot of people and communities who are familiar with Internet usage and want to share their experiences through the Internet, and they are the major customers for the wireless Internet. To meet these demands, there is a big progress in the field of contents in both quantity and quality. For example, Internet traffic into Korea from other countries has reversed that of out of Korea, Thirdly, on the side of policy, Korean government is driving the Internet educational programs and has the plan to develop new IT services such as digital TV, next generation mobile services, post PC, digital content, etc. WLAN, however, has some problems to be solved for the success in the market. Firstly, there is no technological standard for the unlicensed frequencies, 2.4 GHz. Nowadays, government plans to reallocate 2.3 GHz from the use of fixed wireless local loop into the use of ‘portable Internet service’ which gives the any where and any time connectivity regardless of wireless terminal. Both WLAN service providers and mobile service providers want to receive the frequencies, which will make the technological standard more difficult. Secondly, It isn’t easy to expand the hotspot zones because of cost problem and necessary outdoor solutions to interoperate among other operators WLANs. I hope these Korean WLAN implications give the help to other service providers that want to succeed in the risky new service market and share their experience as well. BS 1.3 GERMANY’S BROADBAND NETWORKS –INNOVATION ON HOLD Author: Stefan Heng, Deutsche Bank Research, Germany Editors: Antje Stobbe, Sabine Kaiser • Advances in technology are whipping up competition between formerly unrelated segments: as a means of internet access, fixed-line telephone networks could potentially be challenged by broadband TV cable and powerline. • Germany’s cable network is handicapped here by its technical structure. It is designed for large-scale, general dissemination of images rather than direct contact between specific individual connections. So it urgently needs upgrading. • Fragmented organisation and ownership of the German cable network are blocking essential investment; outdated infrastructure is obstructing promising new fields of business. The network must be totally restructured. • The cost of modernisation is enormous; all cable business in Germany hence entails high risk. Ultimately, only big players with long-term business models have a realistic chance of weathering the competition. To be successful at all, network operators will have to market the advantages of their technology much more effectively. • Powerline is another means of accessing the web. It is offered by electricity utilities: data are delivered on piggyback with electricity. Customers were not sufficiently keen on powerline, however. But its lack of success was largely due to technical problems, and is not a reason for abandoning the idea of using powerlines for data transmission. • Inhouse powerline, a powerline offshoot, is an alternative with prospects in certain areas. Inhouse powerline combines powerline technology within the premises with telephony beyond the premises. It is not suitable for the large household market. But it does have good prospects in public buildings where multiple web access is required. • In the medium term, the telephone network will remain the main means of internet access for the bulk of customers in Germany and elsewhere, for technological and economic reasons. But alternatives such as cable or inhouse powerline have good chances of being successful in certain niches. ICT IMPACT OF ICT I: CHAIR: MR BARANES ICT 1.1 TELECOMMUNICATIONS INFRASTRUCTURE AND ECONOMIC DEVELOPMENT Authors: Ishaq Nadir*, New York University, USA Banani Nandi, AT&T Shannon Laboratories, USA *Support from the C.V. Starr Center for Applied Economics of New York University is gratefully acknowledged. The authors also wish to thank Hyunbae Chun and Ayda Erbal for their valuable help on this paper The term infrastructure generally describes large social overhead capital such as roads bridges, sewer facilities, electricity generation and distribution, and communication networks. These infrastructures provide the basic framework for a nation to support essential public services in order to achieve higher economic growth and a better quality of life. Communications infrastructure, particularly the telecommunications infrastructure, provides facilities for communications and saves time, energy, labor and capital by condensing the time and space required for production, consumption, market activities, government operation, educational and health services. In recent years, the world has experienced an explosive growth in infrastructure technology and its applications, particularly, in telecom industry. Therefore, for optimum utilization of this technological change, it is extremely important to evaluate the contribution of the telecommunications infrastructure to economic growth and productivity. There are several studies that use aggregate time series and cross section data to investigate the relationship between telecommunications investment and economic development. Their analyses show a strong positive relationship between the investment in telecommunications and economic development. These aggregate level studies though very useful, do not distinguish between the direct and indirect contributions of investment on telecommunications infrastructure towards the growth of various industries and the aggregate economy. The direct contribution of the investment in telecom sector to the aggregate economy emerges from superior productivity growth in the telecommunications industry whereas the indirect effect results from the use of telecommunication services in other sectors in the economy. For example, due to rapid technological change and productivity growth, the prices of telecommunication services have declined significantly together with significant improvement in quality. This phenomenon has encouraged all other industries to substitute telecommunication service inputs for relatively high priced traditional inputs, such as labor and capital and increased the cost efficiency. These effects along with the network externality effects of telecommunications infrastructure are difficult to identify and measure. These effects could be best analyzed in a more disaggregated framework. Based on the existing research in this area, two measurement methodologies are highlighted in this paper. One approach is to use the Input-Output (I-O) framework (Cronin at el, Sunders Associates) and another approach is to capture the contribution of telecommunications infrastructure by estimating econometric cost model (Nadiri and Nandi). Analysis in this paper suggests that the benefits derived from the telecommunications infrastructure capital is positive and varies considerably across industries. At the aggregate level, the total benefits from this infrastructure is rather sizeable, about 30% to 40% and the effects of this type of capital on input such as labor, material, and capital are not neutral. Bibliography: 1. Cronin, F. J., Edwin B. Parker, Elisabeth K. Colleran, and Mark A Gold (1991), ‘Telecommunications Infrastructure and Economic Growth: An Analysis of Causality’, Telecommunications Policy, 15(6), pp. 529-535. 2. Cronin F. J., E. K. Colleran, M. A. Gold, P. L. Herbert, S. Lewitzky (1993), “Factor Prices, factor substitution, and the relative demand for telecommunications across US Industries”, Information Economics and Policy, 5 (1993), pp. 73-85. 3. Cronin F. J., E. K. Colleran, M. A. Gold, P. L. Herbert, S. Lewitzky, (1997), ‘The Social rate of Return from Telecommunications Infrastructure Investment’, memo. 4. Nadiri, M. I. and T. Mamuneas (1994), ‘The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of the U.S. Manufacturing Industries’, Review of Economics and Statistics, 76(1), pp. 22-37. 5. Roller, L.H. and Waverman, L., (1996), ‘The Impact of Telecommunications Infrastructure on Economic Development’, in Peter Howitt ed., The Implications of Knowledge Based Growth for Micro-Economic Policies, The University of Calgary Press, Canada. 6. Saunders, R.J., J.J. Warford and B. Wellenius, (1994), Telecommunications and Economic Development, Second Edition, A World Bank Publication, The John Hopkins University Press, Baltimore. 7. The NITA Infrastructure Report, Telecommunications in the Age of Information, and (1991) Washington DC: U.S. Department of Commerce JEL Code/Keywords: JEL Codes D24, D57, D62 Keywords: Telecommunications Infrastructure, network externality, economic growth, productivity ICT I 1.2 AN UPDATE ON ECONOMIC GROWTH AND TELECOM INFRASTRUCTURE IN LATIN AMERICAN Authors: Federico Kuhlmann7 and Laura Jácome8, Instituto Tecnologico Autonomo de Mexico (ITAM), Mexico The construction of analytical models to establish and study the correlation between economic growth and telecommunications infrastructure has been the topic of numerous studies, and there is no doubt that economic and telecommunications indicators are positively correlated, even though defining which one is the cause and which one the effect is often still a matter of disagreement. Most discussions agree on the fact, that an adequate level of telecom infrastructure, even though not sufficient, is necessary for economic growth, but that telecom infrastructure, by itself, cannot guarantee economic growth. Frequently, the relation between economic growth and technology is represented by line penetration (teledensity) and economy by indicators based on GDP. For example, in a cross-country analysis, by fitting a nonlinear model to teledensity and GDP data, it can be speculated that a country whose data are below the curve, can expect a fast growth of the existing infrastructure since it displays a deficit in telephone lines and has an economic level that would act as enabler to stimulate telecom infrastructure deployment. Similarly, a country located above the model, has probably more lines than it needs in order to continue its development at a similar pace as in the past. The aim of this paper is to provide a frame of reference to analyze the correlation between telecommunications infrastructure deployment and economic growth for Latin American countries. This frame of reference uses simple econometric models, based on time series for a set of 19 Latin American countries in an interval of 25 years, which relate economic level with development of access infrastructure. It must be stressed that countries in the Latin American 7 8 Telematics Engineering, kuhlmann@itam.mx Computer Center, ljacome@itam.mx region share some characteristics (social, economic, political and demographic) that cannot be found in European or other North American nations. It is found that 7 of the 11 countries whose teledensities are located above the adjusted curve, have a state-owned monopoly in the local service market (Honduras, Costa Rica, Panama, Belize, Uruguay, Bolivia and Ecuador), while only 2 of the ones which are located below the curve have a monopolistic operator (Nicaragua and Paraguay). The introduction of competition and privatization under the prevailing regional conditions (such as the lack of access to capital markets, strong dependency between regulators and government, political and economic turmoil) has not necessarily produced the expected growth results in terms of fixed line access. In Latin-American countries where competition has replaced monopolistic regimes, the market structure did not change much: liberalization did not stimulate market entry of many operators willing and able to compete in quality and prices, the state owned monopoly was rather replaced by one or two great (often multinational) companies), and governments have not necessarily succeeded in attracting neither a sufficient number of operators nor sufficient capitals. In our frame of reference, some monopolistic operators have shown that they can indeed satisfy the market demand and foster economic growth, provided their operational structures and methods are suitably modified to make them more efficient, and imposing growth and development goals (universal access goals, in which new operators are frequently not included). For most of the smallest economies in Latin America, a monopolistic market structure has been sufficient to reach and sometimes exceed the teledensity levels that could be expected according to their GDP per capita, as displayed by the model. In contrast, bigger economies like Mexico, Argentina and Venezuela (3 countries located below the curve) operate in a competition regime. Thus, it can be argued that, at least in some cases, competition has not (so far) lived up to expectations, since infrastructure development and growth are still below the required levels to support and foster long term economic growth. These facts could lead to the question, if following the fashionable world-wide trend of liberalization, was timely and adequate in many of the Latin American countries under study. In fact, even though significant numbers of new competitors are active in the region, the established former monopolistic operators have retained significant portions of their markets. This study does not pretend to draw conclusions based purely on simple analysis tools, but rather tries to identify countries, whose evolutions show behaviors which are significantly different from what could be expected under the circumstances, leading to discuss and explain possible origins of these behaviors (for example, inadequate legislation or non-independent regulators). The importance of an adequate telecom infrastructure, particularly in undersupplied countries, cannot be overemphasized. Whether or not telecom development is cause or consequence of economic growth, both of them are undoubtedly necessary for narrowing the digital divide between and within nations. Telecom development, however, cannot be guaranteed simply by modifying the structure of the sector. ICT I 1.3 Parallel Session: DEVELOPMENT OF INTERNETACROSS TRANSITION ECONOMIES Authors: Maria Vagliasindi, European Bank for Reconstruction and Development, UK Pietro A. Vagliasindi, University of Parma, Italy In a global and innovation driven economy, firms using the tools of the “New Economy” are expected to have a comparative advantage in terms of productivity and growth. Future economic competitiveness will depend on their ability to survive and successfully expand their business operation in this new framework. More specifically, to improve their competitiveness, the use of the tools provided by new telecommunications technologies such as the Internet, can play a crucial role to reduce transactions costs and to allow exchanges that otherwise would not take place. There has been an extensive literature trying to quantify the contribution of technology in general and in particular of Information Technology (IT) in achieving the US productivity acceleration of the late 1990s with has generated a lively debate. The role and contribution of IT to increase productivity and growth has been also been extended for selected OECD countries. There is still limited empirical evidence on transition and developing economies, also due both to lack of adequate or reliable census data, with most of the analysis focusing on cross-country analysis. This paper attempts to tackle similar issues considering new microeconomic evidence from survey data from a major enterprise level survey (implemented by EBRD and the World Bank in the summer of 1999) and on business case studies consisting of in-depth interviews of general directors and senior management of enterprises across selected countries in the region carried out in the summer of 2000. It discusses some of the key features of the Internet sector across transition economies, describes the key explanatory variables influencing the use of the tools of the “New Economy” (here measured by the use of Internet), such as the degree of innovation and the extent of competitive pressures to which firms are exposed and country level variables (including control variables, such as GDP growth and political and civil freedom, as well as infrastructure development). It also attempts to measure the contribution of the new economy (use of the Internet) to better enterprise performance, controlling from the other enterprise level factors influencing performance. In particular we use ordinary two-outcomes probit regressions to analyze what types of enterprises are more likely to adopt and use the Internet and standard OLS analysis to quantify the contribution made by the use of the Internet in terms of enterprise performance. Our key regressions results and can be summarised as follows: (i) Private enterprises (particularly private de novo) are more likely to adopt the Internet. This result confirms that private sector orientation increases the likelihood of Internet use. The size of enterprise is also very significant and positively correlated to adoption of the Internet. In terms of other enterprise-level variables innovation as well as pressures from competition is positively and significantly associated to the use of Internet. We also control for urbanization effects, as captured by different population density dummies to find out empirically which of the countervailing forces leading towards agglomeration or de-agglomeration prevails. As expected we find out that Internet is likely to be associated with greater agglomeration, raising concerns on the risks on a digital divide. Internet is associated to better enterprise performance and is more likely to be adopted in countries characterised by higher income, democracy, better basic infrastructure. (ii) The use of the Internet is positively and significantly associated to better enterprise performance, even controlling for many of the other enterprise and country level variables that are associated with enhanced performance. Summing up, the use of advanced telecom services represents a great opportunity for transition economies and accession countries to accelerate progress in the transition process. However, for them to make a solid contribution to long term growths markets must be allowed to work and not be held back by non-supportive regulatory frameworks. References Estache, A., M. Manacorda, and T. Valletti (2002) “Telecommunication Reforms, Access Regulation, and Internet Adoption in Latin America”, World Bank, mimeo, March 2002. Hargittai, Eszter (1999) “Weaving the Western Web: explaining differences in Internet connectivity among OECD countries”, Telecommunications Policy 23, pp. 701-718. Kiiski, S. and M. Pohjola (2002), “Cross Country Diffusion of the Internet”, Information Economics and Policy, 14, pp. 297-310. Norris, P (2000), “The Global Divide: Information Poverty and Internet Access Worldwide”,available at http://www.ksg.harvard.edu/people/pnorris/acrobat/IPSA2000.pdf JEL Code/Keywords: JEL Codes D4, F14, O52, P31 Keywords Internet economics, New Economy, Public policy, Transition economies EC NEW EVIDENCE ON E-COMMERCE IN EUROPE: CHAIR: MS PREISSL DISCUSSANT: MR WHALLEY EC 1.1 E-BUSINESS IN SERVICE INDUSTRIES: USAGE PATTERNS AND SERVICE GAPS Author: Brigitte Preissl9, German Institute for Economic Research, DIW, Germany 1 Introduction The handling of internal and external business procedures in electronic networks (short: ebusiness10) has provided opportunities for process and product innovation in all industries. These opportunities have been taken up by firms in different industries with varying intensity (see E-biz Market Watch 2002). The present paper will examine usage patterns and impacts of e-business in selected service industries. Particular attention will be paid to the heterogeneity within the service sector and to country differences. Service industries have long been regarded as industries with little scope for the use of technical systems, poor productivity improvements over time and a mainly local orientation (see, for example, Miles 1996 and Miles and Boden 2000). This has changed dramatically with the introduction of information and communication technologies (ICT) and the new options available in globally oriented electronic networks (Barras 1986, Miles and Boden 2000). Many services show a high information intensity, and hence, tools that facilitate the proceeding and diffusion of information are likely to have an impact on the way services are generated and delivered (Miles 1993). Especially the options arising from internet-based e-business models may be used by service firms to streamline procedures or to develop new innovative offers. Services that have a high information content and those which assist other firms in realising networked systems benefit from the diffusion of information technology and are drivers of technical change in their own business as well as in that of their customers (Preissl 1998). Indeed, computer services show the highest share of innovators of all business services in Germany (Czarnitzki/Spielkamp 2003). However, it can be assumed that due to fundamental differences in the nature of services provided, not all services can benefit to the same extent from electronic systems. Furthermore, the use of e-business may differ between service sectors in different countries because of differences in business climate or market dynamics (Preissl 1998). The impact of e-business on service activities and eventually on performance and market constellations will depend on the type of services considered and the drivers of market development. It can be assumed that services that have used information technology intensively over the last decade will also be intensive users and/or forerunners in the adoption of e-business. The empirical data presented here have been derived from a company survey which has been conducted in eight service sectors across the EU. From these eight sectors four sectors have been chosen for the present analysis. The criterion for selection was comparability with respect to market orientation, regulation intensity and performance indicators. The dynamics of growth of the service industries analysed here varies between countries (E-biz Market Watch Group 2002, see also Preissl 2000). Country comparisons allow to observe specific specialisation patterns and possible deficits: Complete data sets are available for France, Germany, Italy and the UK. It will be particularly interesting to have a closer look at the situation in Germany, since this country is generally considered a ‘service laggard’ (see summaries of the debate in Cornetz/Schäfer 1999 and in Stille, Preissl, Schupp 2003). On the basis of the empirical material on e-business available from the survey, it will be possible to check, if the general lack of service sector dynamics also holds for the introduction of innovative technology-based business models in service firms. If service sectors in Germany, compared with their main 9 The author would like to thank Andreas Gildner and Philipp Köllinger for useful comments. E-business is used in this paper as comprising external electronic links, i.e., e-commerce relationships with suppliers, business partners and customers as well as the use of integrated networked systems in a company’s internal procedures. 10 competitors in Europe are reluctant to introduce e-business adoptions, the service gap gains another dimension. The gap is usually identified in oversimplifying terms of shares of services in total employment and value added in a country compared with other countries. It has been pointed out that these indicators are not relevant to estimate the structural ‘soundness’ of an economy (Stille, Preissl, Schupp 2003) which rather rests on the systemic context that makes a particular mix of industries successful. However, undoubtedly, the performance of services that provide essential inputs in many processes of production and efficient services to private households plays an important role in generating a modern services-manufacturing mix. Here the use of advanced network technology and its implementation in successful business models is a key driver. This leads to two central research questions which will be discussed in this paper: (1) how is the heterogeneity of services reflected in their use of ICT and e-business adoptions across Europe? and (2) do German service industries differ from other European countries with respect to the use of e-business opportunities? EC 1.2 A EUROPEAN PANEL APPROACHOF THE E-CONSUMER11 12 13 Author: David Flacher, Ecole national Superieure des Telecommunications, France Retail consumption on Internet did not experienced until now the radiant future that was predicted. Should we conclude that the low take-off of B2C means that Internet is not the core of a revolution of exchange forms? The question should probably be raised in a different way. Internet can play various roles in intermediation between consumers, producers and distributors. The notion of “quasi-consumption”, introduced here, seems to be more suitable than the one of “consumption”. From the Netvalue panel in four European countries (England, France, Denmark and Italy) and over two periods (April 2001 and April 2002); we investigate the navigation and quasi-consumption habits in these countries. Constant facts can be exhibited, but also learning, specializing and lassitude phenomena. These analyses are carried out mainly using data-mining tools. This research was funded by a European grant (STAR project, IST programm - Socioeconomic Trends Assessment for the digital Revolution). This paper is planned to be presented in a workshop organised by project STAR on “Experiences at the frontier of Virtual Marketing”. The workshop includes three presentations on e-CRM (Assessing e-CRM developments, e-CRM in the Financial Industry, its Employment Implications) and contrasts them with US experiences (e-commerce in the home mortgage sector) and the present paper. The author acknowledges Bernard Burtschy for his help and suggestions, Ludovic Lebart for his comments, Isabelle Bloch for her advices, Laurent Gille and Claire Charbit for their encouragements. 11 This research was funded by a European grant (STAR project, IST programm - Socio-economic Trends Assessment for the digital Revolution). 12 This paper is planned to be presented in a workshop organised by project STAR on “Experiences at the frontier of Virtual Marketing”. The workshop includes three presentations on e-CRM (Assessing e-CRM developments, eCRM in the Financial Industry, its Employment Implications) and contrasts them with US experiences (ecommerce in the home mortgage sector) and the present paper. 13 The author acknowledges Bernard Burtschy for his help and suggestions, Ludovic Lebart for his comments, Isabelle Bloch for her advices, Laurent Gille and Claire Charbit for their encouragements. JEL Code/Keywords EC 1.3 STATUS AND DYNAMICS OF VIENNESE B2C ECOMMERCE COMPANIES Author: Michael Latzer, Stefan Schmitz, Natascha Just, ICE-Austrian Academy of Sciences, Austria During the last two years the number of empirical studies of B2C eCommerce increased. Most of the studies are based on nationwide US-data with regional aspects being mostly neglected. The neglect is largely based on the assumption that B2C eCommerce is a ubiquitous phenomenon leading to deterritorialization. In our study we focus on the status and dynamics of B2C eCommerce companies in Vienna in order to assess the importance of regional context in B2C eCommerce. Furthermore, we analyze widespread hypotheses on disintermediation, market transparency and market structure in the sector. In January and February 2001 we conducted an in-depth-survey among 58 B2C eCommerce companies in Vienna. We generated data on company characteristics (e.g. number of customers, pure online vs. multichannel company), company strategies (e.g. disintermediation, marketing, outsourcing, cross-promotion, customer acquisition costs, pricing strategy) and the role of deterritorialisation as well as regional economic and technology policy. In February 2002 we circulated a second short questionnaire to gather data on success factors and revenue growth in 2001. This paper presents the most interesting results concerning the status and dynamics of Viennese B2C eCommerce companies in 2001/2. We supplement the descriptive statistics with statistical tests and relate them to econometric analysis. In section 1 we present the outline of the paper and formulate the underlying research hypotheses. In section 2 we provide the details of the two surveys and the sample selection process. Section 3 focuses on the status of B2C eCommerce in Vienna, on the relation between virtual and physical presence and on regional advantage. We find evidence of synergies between virtual and physical activities of B2C eCommerce companies. Further important B2C eCommerce success factors are regional infrastructure in the areas of ICT (information and communication technology) and logistics as well as regional market size. In section 4 we discuss the implications of our results concerning disintermediation, market transparency and success factors on the “Threatened Intermediaries Hypothesis” and on market structure. Contrary to widely held views the evidence shows that disintermediation is not a widespread phenomenon in B2C eCommerce. The data reveal that market transparency and the intensity of competition in B2C eCommerce are lower than expected. Endogenous sunk costs play a major role in shaping B2C eCommerce markets. In section 5 we analyze the expectations and the realizations of the growth rates of B2C eCommerce revenue in 2001. We find that Viennese B2C eCommerce accurately estimated their revenue growth rates in 2001, despite the worsening conditions of B2C eCommerce worldwide. Section 6 concludes EC 1.4 THE EMERGENCE OF M-BUSINESS : AN ANALYSIS OF THE CASE OF THE FRENCH MARKET Author: Pierre Vialle, Institut National des Telecommunications, France Mobile Internet and M-business applications have been presented as a promising opportunity for suppliers of equipment and services, as well as for business users. In Europe, the presence of a common GSM standard and the high penetration rates achieved in most countries, raised the expectation that Europe could reach a leader position, in contrast to its backward position in Internet business compared to the U.S.A. In this paper, we analyse the emergence of mbusiness and its perspectives from a realistic point of view, from the case of the French market. We first present the specificity of the French Information and Communications market and industry. Second, we analyse the present and future technological and service environment, the present market situation and customer expectations, as well as possible future market development. Third, we analyse the strategies of suppliers and the emergence of a m-business value chain, with a particular focus on co-operation and competition between complementary actors. Finally, we conclude by discussing the relevance of m-business opportunities from a business user perspective. JEL Code/Keywords: Keywords: m-business, m-commerce, wireless Internet, mobile Internet, GSM, GPRS, UMTS, e-commerce, innovation, co-operation, networks. PPI PUBLIC POLICY ISSUES: CHAIR MR. CHEN DISCUSSANT: MS VAGLIASM PPI 1.1 SUBSIDIZED RURAL TELEPHONY AND THE PUBLIC INTEREST: A CASE STUDY IN COOPERATIVE FEDERALISM AND ITS PITFALLS Author: Jim Chen, University of Minnesota Law School, USA Even as the Supreme Court has directed the devolution of regulatory power from the federal government to the states, Congress and the FCC have infused a new set of regulatory duties and goals into telecommunications law. These devolutionary and deregulatory agendas, however, are fundamentally incompatible. Devolution does not destroy regulatory power; it merely diverts it, often in distorted form, from federal to state government. The usual defenses of federalism – substantive diversity, administrative efficiency, and enhanced political participation – behave perversely in an industry marked by convergence, interoperatibility, and network efficiencies. “Cooperative federalism” in telecommunications, at least insofar as it purports to promote deregulation, is a policy at war with itself. I shall test the coherence of cooperative federalism in the administration of the federal Universal Service Fund (USF). The Telecommunications Act of 1996 directs state regulatory commissions to determine carriers’ eligibility for universal service support in rural and high-cost areas. Universal service combines one of the objectives of traditional public utility law with the deregulatory orientation of the 1996 Act. By requiring state commissions to determine whether the presence of multiple eligible telecommunications carriers (ETCs) in rural markets advances the public interest, section 214(e)(1) of the Act invites the states to exercise independent (albeit not unconstrained) judgment. High-cost support under the USF therefore represents a prime instance of cooperative federalism. The high-cost program shows that delegation to state regulators has almost systematically invited incumbent protection. State regulators frequently succumb to the temptation to discriminate based on a carrier's incumbent status or its technological platform. Controversies over "local usage," “wireline equivalence,” carrier-of-last-resort obligations, and advertising demonstrate the states’ propensity to burden competitive carriers. The states routinely fail to recognize crucial elements of the public interest, especially competitive neutrality, technological neutrality, consumer choice, and rural/urban parity. Worse, they treat the purported impact of additional ETC designations on the solvency of the USF as a pretext for denying eligibility for funding to competitive carriers. Although a forwardlooking universal service financing mechanism, in lieu of the FCC's existing embedded-cost approach, would facilitate the full portability of support between incumbent and competitive carriers, neither the FCC nor the states appear prepared to adopt that solution. State-law recalcitrance within the high-cost program is so extreme that aggressive preemption will be required to restore equal legal footing to wireline incumbents and wireless competitive carriers. Deregulation contains its own technology policy, and a successful one at that. The public interest in subsidizing rural telephony rests in the aggressive roll-out of advanced telecommunications infrastructure to the nation’s geographic and economic limits. State administration has failed to honor competitive neutrality, portability of support, and parity between rural and urban Americans. The result – reflexive opposition to competitive entry in rural telecommunications market – represents the antithesis of the 1996 Act. In short, decentralization translates, jot for jot, into massive resistance against deregulation. PPI 1.2. ASSESSING MARKET FAILURES IN ADVANCED TELECOMMUNICATION SERVICES: UNIVERSAL SERVICE CATEGORIES Authors: José Luis Gómez Barroso: Universidad Nacional de Educación a Distancia, Spain Jorge Pérez Martínez: Universidad Politécnica de Madrid, Spain The universal service in telecommunications is almost unanimously considered as a dynamic concept. The debate over its extension, which shall therefore have a permanent validity, requires its base to be more solid than the one that supports many of the usual positions, which are frequently mere declarations of wishes. Any opinion regarding the opportunity and magnitude of the extension should be based on a prior analysis of the possible presence of market failures in advanced telecommunications services (categorization as public or merit goods, externalities, market situation, effect on economic development and equity). Strictly speaking, only the existence of market failures can justify public intervention which, additionally, should be adjusted according to both the intensity with which such motives appear, and which one is considered to be preponderant. The catalogue of duly assessed and ordered market failures, represents at that point a solid foundation from which to defend each political position or opinion added to the debate. Since the interpretation of its significance (and even of its existence) is far from being uniform, the resulting patterns of action are disparate. Proceeding accordingly with this criterion, the different interpretations on the significance of the market failures give place to four basic positions: not extending universal service, or doing it according to one of the three conceptions we call “correcting”, “driving” and “vertebrating” universal service. – The first of them rejects public intervention since it considers either there are no market failures, either their resolution would bring on more costs than benefits. – The second considers that advanced telecommunication services are more tan just a simple consumer good and, thus, it would be necessary to act in the areas where it is apparent it will take too long for the market, main responsible for their spreading, to arrive. Relatively long wait periods until market activity is known and services that can be considered widespread (thus deserving to be considered universal) are identified characterize this option. – When telecommunications are considered to be a significant good from an economic, and even social, point of view, intervention becomes more generous and compelling. However, the ambition of the objectives cannot avoid the cost resulting from such an action. At a second stage, the consequences of the possible measures taken on shall have to be examined should the financing be taken from the companies in that industry or, should the cost be publicly faced, “budgetary realism” would probably impose the resource to public election criteria. – The cost of providing the universal service is no longer the first consideration when the new services are considered to be a “basic social good”. In this case, equity criteria make it necessary for an immediate and widespread extension of the universal service. As a basic social priority, it can be placed alongside any of the remaining basic policies (healthcare, education). The existence of a widely accepted basic definition cannot hide the fact that universal service is a complex concept subject to strong disagreements. Its apparent simplicity hides, on the contrary, disparate interpretations that have not been adequately described. A first classification of universal service was carried out from a practical perspective, bearing in mind network development stages. The assessment of market failures leads to a more conceptual classification. Additionally, these diverse categories of universal service provide a logical connection between the theoretical opinion and the practical scope, linking to each interpretation the set of measures to be promoted, should they be consistent. Main references Bar, F. and Munk Riis, A. (1997). "From welfare to innovation: toward a new rationale for universal service", Communications & Stratégies, 26, 185-206. Bergman, L.; Doyle, C.; Gual, J.; Hultkrantz, L.; Neven, D.; Röller, L.H. and Waverman, R. (1998). Europe's network industries: conflicting priorities. Telecommunications: monitoring European deregulation 1. Centre for Economic Policy Research, London. Faulhaber, G.R. (1997). "Public policy for a networked nation", The University of Florida Journal of Law and Public Policy, 8, 219-242. Forestier, E.; Grace, J. and Kenny, C. (2002). "Can information and communication technologies be pro-poor?", Telecommunications Policy, 26(11), 623-646. Graham, J., Cornford, J. and Marvin, S. (1996). "The socio-economic benefits of a universal service telephone network. A demand-side view of universal service", Telecommunications Policy, 20(1), 3-10. Langtry, B. (1998). "The delivery of universal service: exploring ethical motivation" in Langtry, B., editor, All Connected: Universal service in telecommunications, 119-134. Melbourne University Press, Melbourne. Stiglitz, J. E. (1988). Economics of the public sector. W.W. Norton & Company, New York. JEL Code/Keywords: JEL Codes:L 96, L 98, H 54, D 70 Keywords: universal service, market failures, advanced telecommunication services, incomplete markets, merit goods, equity PPI 1.3 REGULATION AND INTERNET USE IN DEVELOPING COUNTRIES Author: Scott Wallsten, Brookings, USA (papaer to be presented by the discussant) Concerns about a worsening “digital divide” between rich and poor countries parallel the hope that information and computing technologies (ICTs) could increase economic growth in developing countries. Little research, however, has explored ICT growth beyond nothing that it is correlated with standard developmwent indicators, and no empirical research has explored the role of regulation. I use data from a unique new survey of telecommunications infrastructure development, ubiquity of personal computers, and time trends, I find that countries requiring formal regulatory approval for Internet Service Providers (ISPs) to operate have fewer Internet users and hosts than countries that do not require such approval. Moreover, countries that regulate ISP final-user have higher Internet access prices than countries withour such regulations. These results suggest that developing countries’ own regulatory policies can have large impacts on the digital divide. JEL Code/Keywords: JEL Codes O1, O3, L5, L96 Keywords Regulation, Internet, Telecommunications, Developing Countries I thank Rosario Kaneshiro for excellent research assistance. I am grateful for helpful comments from George Clarke and Greg Rosston. I am of course responsible for all erros and options. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. PAPERS NOT TO BE PRESENTED: CITIES, ELECTRONIC COMMERCE, AND LOCAL POLICIES Author: Gerhard Fuchs, Center for Technology Assessment, Germany Hardly any other internet related application has attracted such a wide attention like the buzzword Electronic Commerce. In spite of the downfall of the „New Economy“ Electroni Commerce and Electronic Business are still on virtually everybody’s mind. These constitute fancy marketing concepts for software as well as IT hardware companies. Visionary concepts of future data processing, trade, innovative applications in marketing, procurement, sales, in human resources development, training are linked to these concepts. Electronic Commerce still looks like a growing billion $ market for the crisis ridden IT and telecommunications industry. Not only companies are concerned about Electronic Commerce, but also politicians, economic development actors, for some of them it is becoming a central field of action. This is also true for local and regional economic development agencies. This paper analyses options that regional intermediary actors in the field of Electronic Commerce – focussing on the business-to-business sector – have at hand or use to promote Electronic Commerce. Empirically the situation is examined in three different regions of the state of North Rhine Westphalia in the west of Germany (Aachen, Dortmund and Bielefeld) and three region in the southern state of Baden-Württemberg (Ost-Württemberg, Karlsruhe and Mannheim). Specific supportive strategies are analysed in detail in these regions on the basis of extensive questioning and secondary analyses. Experts from institutions for the promotion of the economy, from chambers of commerce as well as chambers of artisans on the one hand and selected managers responsible for decision making within enterprises of the goods production and information economy on the other hand are in the centre of attention. A result of this analysis has been the development of a typology which allows us to distinguish between different types of activities and promotion strategies NSA NEW SERVICE APPLICATIONS. CHAIR MR TSUJI NSA 1.1 WHAT ARE THE LESSON’S FROM JAPAN’S MOBILE INTERNET SUCCESS STORY? IMPLICATIONS FROM A COMPARATIVE STUDY Authors: Erik Bohlin, Sven Lindmark, Chalmers University of Technology, Sweden The paper presents European policy implications for future advanced mobile networks, building on findings that include an overview of the Japanese success factors in mobile Internet. The main lesson is that there is a need to develop a more explicit European industrial policy for 3G, taking into account the need to sustain new initiatives and to enable complementary infrastructures, such as for electronic payments. The Japanese experience with i-mode suggests that the critical success factors revolved around sufficient size for the dominant actor to take risky steps in getting the new market started, and on “non-monopolistic” payment schemes for new mobile Internet services. Without the size and dominance of NTT DoCoMo, the new service platform, enabled by i-mode, would not have been deemed credible by the market community. Moreover, the monopolistic temptation of short-run profit maximization needed to be tempered by a more long-run service growth orientation, as the DoCoMo payment scheme conveyed. (In this scheme, the new “official” service provider keeps 91% of the service revenues, while DoCoMo takes 9% for administration of billing, etc. “Unofficial” service providers are outside this arrangement but generate traffic revenues for DoCoMo.) The European market-place, with its multitude of market players and license conditions, will need to be supported by increased policy and regulatory coordination, in order to develop a similarly credible institutional framework as in Japan, and urgent steps to facilitate efficient service platforms such as a micro-payment structure need to be taken. MOST RELEVANT BIBLIOGRAPHY ITEMS Bohlin, E. (1998) “Digitization and Strategic Opportunities – On the Roots to the NTT Divestiture Debate”, Keio Communications Review, No. 20, 1998. Bohlin, E., (2001) “The European 3G Paradox”, info, Vol. 3, No. 6, pp. 451-457. EC/JRC/IPTS/ESTO project “3GE: Prospects for the third generation mobile systems”. see www.jrc.es. Fransman, M. (2002) Telecoms in the Internet Age: From boom to bust to ?, Oxford University Press, Oxford. Funk, F. (2001) The Mobile Internet: How Japan Dialed Up and the West Disconnected, ISI Publications, Hong Kong. Lindmark, S. (2002) The Evolution of Techno-Economic Systems – An Investigation of the History of Mobile Communication, Doctoral Thesis, Dept. of Industrial Management and Economics, Chalmers University of Technology, Göteborg, Sweden. JEL Code/Keywords: JEL Codes: L96, O31, N8 Keywords: mobile Internet, i-mode, NTT DoCoMo, 3G, industrial policy, coordination, standardization, competition, innovation NSA 1.2 AN ANALYSIS OF THE JAPANESE TELECOMMUNICATIONS MARKET IN TRANSITION - FOCUS ON VOICE OVER IP Author: Masatsugu Tsuji, Osaka University, Japan Accompanying recent technological development, industrial transformation has been taking place in the Japanese telecommunications market. Such transformation is summarized as: (a) shifting from fixed to mobile telephone; (b) broadband; and (c) voice over IP (Internet telephony). In Japan, the number of mobile telephone subscribers has already exceeded that of fixed telephones, and the number of Internet users is now the second largest in the world, following the U.S. Above all, broadband access such as DSL (Digital Subscriber Line) has recently shown a remarkable increase, and DSL representing subscribers are more than 5 million, and with Japan taking the lead in FTTH in the world. The current framework of the Japanese telecommunications market was established base3d on the 1996 Telecommunications Act of the U.S. which was aimed to introduce new entrants in the monopolistic market through such unbundling network elements, line sharing, and interconnection charges calculated from on LRIC (Long-run Incremental Cost). The transformations mentioned above have been changing the existing telecommunications market by giving rise to issues such as eliminating the difference between telecommunications carriers of the first and second category, sharing the costs of NTT locals’ subscribers’ lines by Internet Access such as DSL, and destroying the framework of the interconnection charges. This paper attempts to analyze the transformation of the Japanese telecommunications market and the policy scheme in the age of ubiquity and broadband by focusing on Internet telephony. Especially, we focus on the speed of its diffusion and its effect on the voice service of the telecommunications market. In summer 2003, Internet telephony will be assigned a telephone number, which will enable access from fixed telephones. This is expected to promote the number of subscribers, since its charges do not depend upon communication time and distance. Thus, the sharp decrease in traffic of fixed telephones is inevitable. This will leads to a decrease in sales of current carriers such as NTT locals. Thus, NTT locals will be unable to maintain their local networks any longer. This gives rise to the following two issues: (a) interconnection charges; and (b) provision of universal service. The current interconnection charges is based on presumptions such as increase in traffic. NTT locals have stopped investing in new facilities related to exchange. Thus, a new scheme for interconnection charges will be required. Regarding universal service, NTT locals cannot afford to make provision for it. This also makes it necessary to have a new framework similar to that of the U. S. This paper attempts to provide solutions to these issues. NSA 1.3 HUMAN CONSTRAINTS FOR MOBILE COMMUNICATION Author: Dr. Jari Veijalainen, Waseda University, Japan Pasi Tyrväinen, University of Jyvaskyla, Finland Expensive mobile communication equipment were used first for professional purposes, but consumers have fast followed business users in adopting mobile telephones, hand-held computers, and PDA equipment to daily use. The number of digital handsets currently exceeds already one billion in the world. Borderlines between a laptop and mobile telecom terminal, as well as other gadgets, such as game consols, radio receivers, and TV sets are vanishing due to the miniturisation and digital convergence of information processing and communication technologies. At the communication side, extensive use of IP protocol in all device categories and within the core network is a paramount example. The digital convergence has also mixed the usage patterns of voice telephone, datacommunication, and computer equipment making it harder for the operators to estimate the future use of communication capacity. This estimation task has to take into account the time users are villing to spend on communicating as well as the communication needs of the users. However, the communication needs cannot be analyzed solely based on the amount of data communicated. This paper elaborates the estimation task by combining and analysing research from the following five viewpoints. FIrst, the amount of information produced and used globaly as estimated by the project "How much information" at Berkeley. Secondly, measurements of organizational communication based on genre analysis reported in recent case studies give an base-line for the average amount of communication an employee communicates per day related to his/her assignments. Further this communication is divided into verbal communication, communication using equipments to mediate interactive communicaiton, and communication using paper or stored digital artefacts, such as digital documents or information systems. Third, previous research comparing organizational use and individual consumer use of communication technology. Fourth, cost models for communication capacity use and their key findings based on time users are villing to spend on communicating. And finaly, limits of human information processing from cognitive viewpoint. These five viewpoint are combined by analyzing their results with respect to interactive mediated communicaiton of humans limited mostly by time spent by users and communicaiton using digital artefacts constrained mainly by data communication capacity. Further development is analyzed with respect of change of communication practices of organizations, emergence of band-with intensive applications requiring high QoS and other emerging trends. MSI MOBILE SERVICES AND 3G POLICY ISSUES I: CHAIR: MR HAUCAP DISCUSSANT: MR MÖLLERYD, MS VANBERG MSI 1.1 THE ECONOMICS OF MOBILE TELEPHONE REGULATION Author: Justus Haucap, University of the Federal Armed Forces Hamburg, Germany This paper analyzes how competition works in mobile telecommuncations markets and, bases on this analysis, we discuss whether regulatory intervention in mobile telephone markets is justified from an economic perspective. Starting point of our analysis is the observation that an evaluation of regulatory interventions into mobile telecommunications markets cannot be made without a deeper understanding for competitive processes in mobile telephony. What is of decisive relevance for understanding competition in mobile telephony, is the fact that building a mobile telephone network requires highly specific investments, which take place under significant uncertainty, as investments in 3G networks such as UMTS illustrate. An inevitable consequence of specific investments are sunk costs. Hence, one can only expect firms to extensively invest and innovate if firms can hold a justified expectation to work profitably after they have invested. To cover their capital costs, which are largely fixed and not avoidable, firms need to follow a pricing policy that involves prices above incremental costs. Hence, a key determinant for mobile operators' price policy lies in their cost structure, which is characterized by high fixed and common costs that are also sunk and relatively low incremental costs. In such situations, efficiency demands so-called Ramsey pricing structures, which involves different mark-ups for different services. In contrast, a situation with uniform mark-ups will generally be inefficient. Instead, services with an inelastic demand should carry relatively high prices, while services, for which the demand is rather elastic, should be priced close to marginal costs. Exactly such a pricing structure results when unregualted firms are left to maximize their profits. Hence, the factor that prices and mark-ups differ between different services and markets is an efficiency imperative and not a sign for market failure. Nevertheless the necessity of interconnection and fixed-to-mobile termination may give rise to competition problems. As we argue in this paper, closer analysis shows that these problems do not automatically imply that sector specific regulation is warranted. The same hold for the question of regulated mobile number portability. Instead, an ex post introduction of sector specific reguation can be regarded as a brech of the implict regulatory contract by the State. This Government hold-up socializes and redistributes operators' profits, while the operators carried the initial investment risk. Such a Government hold-up reduces firms' incentives for investment and innovation and, thereby, also harms consumers in the long run. In addtion, there is a real risk of regulatory failure, as empirical evidence demonstrates. Based on these considerations, this paper fiercely advises against sector specific regulation of mobile telephone markets. The social welfare loss that would arise from such regulations are estimated to be enormous. JEL Code/Keywords: JEL Codes: K21, L13, L51, L96 Keywords: Mobile telephony, Competition, Regulation, Interconnection, Call Termination, Number Portability, Roaming MSI 1.2 THE IMPACT OF INDUSTRY STRUCTURE AND PRODUCT ARCHITECTURE ON THE SUCCESS OF MOBILE DATA SERVICES: A COMPARISON BETWEEN EUROPEAN AND ASIAN MOBILE MARKETS Authors: Jarkko Vesa, Helsinki School of Economics, Finland There is propably not a single person involved in mobile business who has not been wondering about the reasons behind the success of NTT DoCoMo's i-mode service as compared to the limited use of mobile data services in Europe. As our earlier analysis of NTT DoCoMo's business model and success factors demonstrates (Saarinen et al., 2002) the Japanese mobile data services business model appears to be much more comprehensive that what we are used to here in Europe. In Japan, mobile operators control the network, the terminal sales, and the content offering. This gives them better possibilities to manage the total user experience, to offer clear technology and service roadmaps, and to develop the business with a longer perspective. In this paper we will look more closely into differences between the successful mobile data services markets in Japan, and the not-so-successful European mobile data services in order to better understand the key characteristics of each. Our analysis indicates that these two markets have very different characteristics in terms of industry structure (vertical vs. horizontal) and in terms of product architecture (integrated vs. modular). We have analysed in detail the reasons behind these differences - and the implications of these differences on consumers, on mobile operators, and on the mobile internet services markets as a whole. The main contribution of this paper is to highlight the importance of the mobile business ecosystem for the development of new mobile data services. In this paper we will introduce a descriptive tool-kit for gaining a better understanding what is the current status and the likely next development phase in various markets. Implications are drawn for future research on structural differences between mobile data services in various markets. We will also discuss the concept of supply chain for services. JEL Code/Keywords: Keywords mobile data services, industry structure, product architecture MSI 1.3 THE EFFECT OF SWITCHING BARRIERS ON CUSTOMER RETENTION IN KOREAN MOBILE TELECOMMUNICATION SERVICES Authors: Moon-Koo Kim*, Korea, Jong-Hyun Park, Electronics and Telecommunication Research Institute, Korea Myeong-Cheol Park**, Information and Communication University, Korea This paper aims to investigate the influence of the interaction between customer satisfaction and switching barriers on customer retention in mobile telecommunication services. The detailed factors regarding switching barriers are classified based on the related literatures. Furthermore, the hierarchical regression analysis is used to analyze the extent to which the factors affect customer retention. The results are as follows: First, among the factors of switching barriers, switching costs, such as continuity cost and contractual cost, interpersonal relationship, and attractiveness of alternatives are key factors in determining customer retention. Second, continuity cost and interpersonal relationship have an adjustment effect between customer satisfaction and customer retention. The findings can help the mobile operators establish a customer-oriented strategy by identifying a few key factors strengthening the linkage with customers. PAPERS NOT TO BE PRESENTED: DETERMINANTS FOR MAPPING THE WIRELESS MOBILE MARKETS Author: Vaida Kadyte, Åbo Akademi University, Finland The presence of the telecommunication networks revolution and popularity of mobile computing devices such as mobile phones is promising the astonishing growth in the number, types and novelty of mobile applications and services for end-users. This work provides a comprehensive market evaluation methodology that businesses can use to assess the mobile cellular communication market readiness and potential. International nongovernmental organisations have been collecting a relevant data for decades in order to facilitate the transparent and rapid development of a new economy. Even though this data is available, very few businesses have been able to realize the actual information value out of the flux and perform the right investment decisions. Using a Self-organising Map (SOM) technology, the paper is intended to provide a worldwide picture of overall composition of mobile market and facilitate a gap analysis between undeveloped and industrialised countries. A wide set of social and macroeconomic data was used to perform worldwide market analysis of the wireless mobile telecommunication industry. Key enables of mobile markets, such as mobile communication technology infrastructure and access, income per capita, literacy rate and business environment are identified as weighting factors to aid in assessing mobile market readiness. The Kohonen’s SOM network aims to perform cluster analysis in mobile telecommunication markets worldwide according to the readiness and potential determinants altogether, therefore paves the way for further research beyond traditional statistical techniques. JEL Code/Keywords: Keywords: wireless mobile telecommunication markets, readiness and potential, Selforganising Map SP SPECTRUM POLICY: CHAIR MR. NETT SP 1.1 SPECTRUM TRADING IN GERMANY, AUSTRIA AND THE UK: THE INFLUENCE OF REGULATORY REGIMES AND EVALUATION OF CRITERIA ON COMPETITION IN THE EUROPEAN MOBILE TELECOMMUNICATION SECTOR Author: Ewald Lichtenberger14, Wollf Theiss & Partner, Austria Spectrum is one of the most important and valuable assets of mobile telecommunications operators. According to the options provided in the European Directives, national legislative bodies are in the process of defining the regulatory framework for spectrum trading. While the details of the individual regulations in the various member states may differ, spectrum trading will, in any case, confront operators with a new challenge encompassing potential competition, complexity, risks and opportunities. In Germany, a first draft of the new law has been presented for public discussion. In Austria, after a discussion process last year, the new law was supposed to be enacted before the summer of 2003. In the United Kingdom, a draft communication bill is subject to broad and intense discussion. Despite the fact that all concepts are based on the European framework, when analysed in detail, the differences among the various countries are significant. This paper describes three national concepts, thereby showing the range of possibilities and considers the competition law criteria that national regulatory authorities (NRA) might utilise when deciding whether to approve individual transactions. In section 1, after a general description of the regulatory framework as the basis for all national laws, the competition criteria stipulated in and derivable from the European framework will be analysed. Section 2 will focus on the status of regulation in Germany. According to the current draft of the new law, rights of frequency will be transferable with the prior consent of the NRA, who sees to it that any transactions comply with competition law. Beforehand, the NRA may - after a public discussion process - under certain conditions (e.g. improved efficiency and interest of operators) declare specific frequency bands to be tradable and provide a framework for trade if certain results are to be expected and the general goals of regulation are not endangered. The paper will show how criteria specific to the sector and general competition law might be utilised when individual frequency trading is subject to approval by the NRA. In section 3, the concepts contained in the Austrian draft will be presented. When auctioning new spectrum, the NRA may consider certain spectrum tradable. This provision might be understood to mean that frequency trading is only possible for new spectrum. In fact, this has been the main topic of discussion in Austria thus far. In case the NRA decides on an individual transaction, the technical and competition-related effects must be taken into account for the sake of preventing any distortion of competition law. Section 4 describes the situation in the UK, according to the current discussion and draft Communications Bill. The issue of frequency trading has been subject to broad discussions in the UK since 1996. The study "Review of Radio Spectrum Management" arguments for frequency trading under a regime keeping transaction costs low, with clear definitions for rights of use and publicity. The Radio Communications Agency's "Strategy for the Future Use of the Radio Spectrum in the UK 2002" delivers arguments for an adequate regulatory framework for spectrum trading, taking into account that competition must not be distorted and finding mechanisms for guaranteeing the occurrence of transactions without interference. Section 5 develops possible scenarios and transactions in the three relevant markets and tries to provide answers to how the NRA might apply the criteria to individual transactions. Section 6 tries to answer the question of how different standards for frequency trading regulation in the member states might influence competition in the three markets, especially 14 Partner, Wolf Theiss, Attorneys at Law, A-1010 Vienna, Schubertring 6 related to pan European operators and whether the regimes of frequency trading might influence the European consolidation processes in mobile telecommunications markets. SP 1.2 THE FIRST COMBINATORIAL SPECTRUM AUCTION Author: Christian Koboldt, Dan Maldoom, Richard Marsden, Dotecon London, UK In June 2002, Nigeria held a sealed bid combinatorial auction for regional fixed wireless access (FWA) licences. This was the first time that combinatorial bidding has been used for allocating radio spectrum. The choice of format was influenced by the outcome of an initial application stage, with bidders submitting potentially binding applications at a reserve price, which revealed information about the structure of bidder demand and inter-regional synergies. The format also met the significant logistical constraints of running a spectrum allocation procedure in Nigeria. In this paper, we analyse the design, implementation and outcome of the allocation process. We also draw some conclusions on the potential applications of sealed bid and combinatorial format auctions. Some 67 of the 80 available licences were allocated, with successful bids totalling 3.78 billion naira (38 million US dollars). The process was widely praised within Nigeria for both its transparency and success in allocating licences. SP 1.3 PROPERTY RIGHTS AND WIRELESS LICENSE VALUE Author: Tom Hazlett, The Manhattan Institute, USA The Economics of Broadband Regulation (lengthy analysis of unbundling regulation for broadband; includes international comparison of BB pen rates, showing that highest BB deployment occurs not where unbundling is most common but where technologies compete) Cable TV Rate De-Regulation in the United States: The Saga Continues (following rate deregulation in March 1999, real rate increases for cable TV systems have actually moderated from the pattern seen in the 1993-99 period when rates were ostensibly rolled-back by 17%) SP 1.4 THE ECONOMIES OF FREQUENCY TRADING Authors: Ulrich Stumpf, Lorenz Nett, WIK GmbH, Germany Radio frequencies are an essential and scarce input for electronic communications services. National regulatory frameworks, in particular, should ensure that frequencies are allocated to their most efficient uses and that spectrum allocation fosters competition. Traditionally the focus of spectrum management is on the primary allocation of frequencies (using beauty contests and/or auctions). So far, national regulatory frameworks in the European Union do not provide for spectrum trading, and secondary markets for rights of use spectrum do not exist. The resulting problem with the traditional approach clearly is its lack of flexibility in reallocating spectrum. Technologies and markets change and the primary allocation of spectrum may become largely inefficient. The difficulty in reallocating rights to use spectrum may also prevent market expansion or new entry of competitors and thereby lesson competition. According to a recent FCC Report, three technological trends are of major importance: (i) The development of spread spectrum technology has increased the demand for contiguous broadband spectrum allocation. (ii) Technology is making increased use of higher frequencies, e.g., of bands above 50 GHz that previously were considered to have limited utility. (iii) The development of frequency-agile technology creates a potential for services and uses that are not tied to specific frequency bands. These technological developments increase the scope for efficiency improvements through flexible re-allocation of rights to use spectrum. With spectrum trading, rights to use spectrum could move more easily from low-value uses to high-value uses and scarcity of spectrum for specific applications would be alleviated. The full potential of spectrum trading, however, would only become apparent if at the same time frequency user plans were rendered more flexible. The new EU regulatory framework for the electronic communications sector has acknowledged the current lack of flexibility in spectrum (re)allocation and explicitly provides for the possibility of spectrum trading. The Framework Directive explicitly allows Member States to make provisions for undertakings to transfer rights to use frequencies to other undertakings. A number of Member States such as Germany France, Spain and the UK are currently debating the introduction of spectrum trading or have already drafted new legislation that that provides for spectrum trading. This paper distinguishes spectrum trading from administrative spectrum reallocation by two characteristics: (i) It is the current holder of a right to use spectrum that initiates its transfer to another firm. And (ii) the price achieved for the transfer is (at least partially) retained by the original holder of the right. The paper highlights the case for introducing spectrum trading in the EU and, more specifically, discusses institutional arrangements for spectrum trading that meet the goals of moving spectrum rights to the most efficient users, foster competition on end-user markets for electronic communication services, and is transparent, objective and nondiscriminatory. In more detail the paper deals with the following issues: First, we briefly sketch the new EU regulatory framework for spectrum trading. In the following section, we examine the guiding principles for frequency management (e.g. to promote an efficient usage of spectrum, create incentives to invest and innovate, to ensure competition, to be non-discriminatory, objective and transparent, practicability of the system, be in line with international obligations, set aside spectrum for public safety and defence, to pursue government public policy goals such as cultural diversity). In the subsequent section, we provide an economic analysis of major issues related to frequency trading such as efficiency of spectrum use, internalisation of external effects, how to pursue public policy goals, frequency trading providing an incentive to give up hoarding, measures to ensure the intensity of competition, how to deal with windfall profits, big-bang auctions as a proactive approach to introduce frequency trading and retrospective introduction of spectrum trading. Afterwards, we discuss various aspects of institutional arrangements that may govern spectrum trading under the new EU regulatory framework. Alternatives include (i) an arrangement, where trading is governed by individual transactions between undertakings only subject to general regulatory principles, (ii) an arrangement, where trading is performed under the close supervision of, and on the basis of a trading platform run by, the National Regulatory Authority (NRA), and (iii) other alternatives between these polar cases. The scope of frequency trading is addressed in what follows. We analyse the incentive to trade depending on the initial assignment procedure (e.g. beauty contest, auctions, first-come first-served, lotteries) as well as the frequency fee (e.g. fees which cover administrative cost, economic incentive pricing as the guiding principle for the calculation of the fees). In the subsequent section we focus on the most relevant aspects of an institutional arrangement, on the question of a step-by-step versus simultaneous introduction, and a discussion of additional elements. Finally, we end up with a conclusion. JEL Code/Keywords: JEL Classification code D4, D61, H2, K2, L51, L96 Keywords Telecommunications, regulatory policy, mechanisms frequency management, market RA Regulating Access: chair Mr.Kiedrowski discussant: Mr. Merdian RA 1.1 LOCAL LOOP UNBUNDLING A FAILED MODEL FOR LOCAL COMPETITION? THE GERMAN EXPERIENCE Authors: Bernhard Kallen, Ralph-Georg Woehrl, Deutsche Telekom AG, Germany Some EU officials state that local loop unbundling has failed to foster competition in order to increase consumers choice at affordable price levels. It is claimed that ULL had an neglectible effect on market outcome neither for voice services nor for DSL services. Therefore, the EU Commission calls for additional regulated wholesale services that should be offered by the incumbents. For the PSTN, a set of access services and interconnection obligations were established. Equally, broadband platforms of incumbent operators must be made accessible to competitors by so-called bitstream access. In sharp contrast to the latest developments on the EU level, on 20th February 2003, the FCC announced a subsequent relief / phasing-out of UNE-P obligations for local incumbents (ILECs) . E.g., ILEC’s obligation to offer line sharing will end three years after the decision. The FCC argued that any network access at cost-based prices unfolds two effects: In the short run, competition on retail markets may intensify. In the long run, however, cost-based prices on the wholesale level erode any incentive to invest in infrastructure. As a consequence, innovations on the network level as well as adequate replacement of depreciated network elements are negatively affected. Does the EU lag behind the US or are there specific reasons that justify different solutions for the same problem? To answer this question, a look on the German experience 5 years after full liberalization gives valuable insights: Different from the rest of Europe, ULL is a success story in Germany with more than 1 million unbundled lines in service. - for DSL as well as for POTS! We examine two recent examples of mandatory upstream services at cost-based prices in Germany, carrier selection at the local level and broadband (bitstream) access. In both cases, the wholesale obligation will predictably disturb the market outcome. Some business models will perish, while some new will arise. Presumably, however, only the current models include sufficient investment in infrastructure to ensure sustainable competition. FCC’s conclusions are therefore applicable symmetrically. We then ask about the optimal regulatory policy, regarding especially the evolution of a regulated market. To this aim, we examine the model of phasing out regulation in the long run. In particular: What will be the market outcome after a period of strict obligations for access and interconnection at cost-based prices? And, when this outcome is supposed to be unsatisfactory, which obligation is more harmful: The provision of certain wholesale services or the prescription of cost-based prices or a combination of both? RA 1.2 THE LOCAL ACCESS PROBLEM OF TELECOM MARGINAL CONSUMERS Authors: Paul F. Phumpiu and Tania Bergazo, Osiptel, Peru It is close to ten years since Peru privatized its telecommuncations industry. Significant improvements in the provision of telecom services and the introduction of new technologies in the industry has ocurred. These improvements have increased teledensity figures, improve the quality of service, lower the level of tariffs, increase the variety of services offered, open new markets, and increase the amount invested in telecom infraestructure, and, all of these changes are happening under an increasing level of competition. Universal access to local telecommunication services, however, is lagging behind (stagnant) and not meeting previously thought expectations. In this paper we provide an explanation as to why, in Peru, is the market expansion for local telephone services reaching a stagnant situation, even though only close to 7% of the population has residential access to local fixed telephony. Even, if we include access to public phones, there are close to 1500 rural towns/communities which do not have access to telecom services. The local access problem to telecom services is not only in rural towns, they also happen in more developed areas. Lima State, where the country capital is located and where close to one third of the total country population lives (about 25million people), has less than 15% of teledensity for fixed local telephony. Thus, an important percentage of households in Peru do not count with residential access to local telephony and in some areas they do not even count with an in-town access to local public phones. These individuals are the telecom marginal consumers, the ones that have been left out from the Peruvian telecommunications’ industry progress. We consider that, the actual level of tariffs combined with the low-income levels of a significant part of the population, only offers a minor explanation for the limits on the expansion of local telephone services. We do not consider that these variables determine a dead-end situation. We think that the existence of groups with low levels of income are not a barrier to the expansion of local telephone services. And, as to the tariff level, they are endogenously determined, and, if the organization of the industry changes, then, tariffs can also change. In this paper we argue that the present organization of industry is a policy result. Moreover, we argue that improving the local access to telecom services for marginal consumers can radically change if, there are changes in the organization of industry. And, industry organizational changes can happen if, there is a policy to develop partnerships among different industry agents (firms, users, and institutions). Partnerships can be achieved only under minor changes in the present normative framework, but under more significant changes in the way we think. This paper provides a conceptual framework to explain the observed organization of industry for local telecom services and propose a way to significantly decrease the number of marginal consumers through partnerships. RA 1.3 THE DILEMMA OF BITSTREAM ACCESS Author: Tom Kiedrowski, BT Group, UK Within the context of wholesale broadband access, we are told that non-discriminatory provision of bitstream access is essential to the development of competition particularly with regard to ‘high-speed’ Internet in the EU. Bitstream access is defined as “the situation where the incumbent installs a high-speed access link to the customer premises and then makes this access link available to third parties, to enable them to provide high-speed services to customers.” However, it is interesting to recall that over the past five years, European policy makers have also said that mandating local loop unbundling and interconnecting leased lines are essential to the development of competition in broadband access. Different types of bitstream access are already available in some EU Member States. Where they services they offered on very different terms. In other Member States bitstream access services are not available at all, notably Germany. I present a paper that considers the desirability and feasibility of mandating bitstream access within the European Union drawing on legal and regulatory developments both at the EU and national levels are discussed, before a variety options are outlined from economic and policy perspectives. The paper concludes with recommendations for a bitstream access policy that that promotes investment and innovation as well as competition between infrastructures. RA 1.4 CAPACITY CHARGE AND PEAK-LOAD PRICING Author: Joan Calzada, Universitat de Barcelona and PPRE, Spain Several European telecommunications regulatory agencies have recently introduced a fixed capacity charge for regulating the access to the incumbent’s network. This mechanism is specially relevant if we consider the principal driver of network cost is the peak-hour capacity cost and that firms generally use a peak-load pricing policy to efficiently manage their load curve. The main purpose of this paper is to give a set of necessary conditions for the determination of the optimal capacity charge under continuous and interdependent demand for telecommunications services. We show that the optimal capacity charge and the access-minute charge analysed by Armstarong, Doyle, and Vickers (1996) have a similar structure and imply the same payment for the entrant. However, in the case of the optimal capacity charge the marginal opportunity cost incurred by the incumbent reflects its loss of profit in all time periods. The analysis of the optimal capacity charge is extended to the case where there is a competitor with market power. In this case, the charge should be increased to avoid that the entrant fixes a longer peak period that the optimal. Moreover, we show that this correction induces an efficiant management of the load by increasing the entrant’s peak price. In a multiproduct setting, the optimal capacity charge not necessarily implies an efficient use of the network. I would like to express my gratitude for their valuable comments on this work to Antón Costas, Francese Trillas, Jorge Navas and specially Angel Hernando. Comments by the members of the Research Unit on Políticas Públicas y Regulación Económica are gratefully acknowledged. The only responsibility of the errors remains my own. JEL Code/Keywords: JEL Codes: L13, L51, H54, D43 Keywords: Access Pricing, Capacity Charge, Peak-Load Pricing, Network Regulation MSPII MOBILE SERVICES AND 3G POLICY ISSUES II: CHAIR MR.FREDEBEUL-KREIN DISCUSSANT: MR: MÖLLERYD MSPII 1.1 PROMOTING COMPETITION ON THE MARKET FOR MOBILE CALL TERMINATION: A REVIEW OF REGULATORY APPROACHES IN THE LIGHT OF UPCOMING 3G NETWORKS Author: Markus Fredebeul-Krein, DETECON International GmbH, Germany Market data shows that in most mobile markets revenues from incoming call minutes become an increasingly important source of revenue. As to these incoming calls, mobile termination charges represent roughly two thirds of the costs of the originating operator and thus have a direct effect on the retail price of calling a mobile phone. In most countries the calling party pays for calls to mobile phones (CPP-principle). As a consequence mobile network operators may have a low incentive to fix the charges for incoming calls to a competitive level. The question therefore arises, whether there are any factors which may reduce the effects of the CPP principle. If not some kind of regulatory intervention may become necessary. This paper therefore examines whether there is a need for the regulation of fixed-mobile network charges and, if yes, what is the appropriate regulatory tool to do so. Thereby the focus is on the analysis of regulatory approaches in the light of upcoming 3G networks. The paper is organised as follows: The first section analyses the intensity of competition in the mobile voice call termination market by examining whether there are any relevant factors (e.g. substitution possibilities) that constitute sufficient constraint on termination charges to mobile phones to keep those charges at a competitive level. Thereby it will also be considered how competitive constraints might develop in the future. It will be shown that neither existing forces nor possible future developments put sufficient competitive pressure on mobile call termination charges, which is why some kind of regulatory intervention may be necessary to prevent anti-competitive behaviour in this market segment. The second section will examine the appropriate form of regulatory intervention. Various types of regulatory options can be applied, all of them having advantages and disadvantages: 1) increasing competitive constraints on termination charges directly; 2) tying call termination charges to competitively constrained charges for other services; and 3) directly controlling termination charges. As to all of these options, various measures can be taken by a regulator to increase competitive pressures on call termination. The final section will consider the issue as to what extent a regulator has to take the development of 3G into account when regulating 2G voice call termination. Thereby it will be demonstrated that rigid regulatory rules on mobile call termination impose not only burdensome constraints on the performance of mobile operators subject to regulation. Also, they could deter innovation and investment by others into this rather new technology. The major challenge for regulators is therefore to adopt a regulatory approach that does not hamper the development of future markets. MSPII 1.2 MOBILE NUMBER PORTABILITY Authors: Justus Haucap: University of the Federal Armed Forces Hamburg, Germany Stefan Buehler: University of Zurich, Switzerland In many countries, telecommunications regulators are about to require cellular telecommunications operators to offer so-called mobile number portability (MNP). MNP implies that customers can keep their telephone number - including the prefixwhen switching from one provider of mobile telecommunications services to another. In the absence of MNP, customers have to give up their number and must adopt a new number when they switch operators. In the latter case, costumers have to bear the switching costs associated with informing people about their new number, printing new business cards, missing valuable calls from people that do not have the new number, etc. Based on these considerations, regulatory authorities typically impose mandatory MNP so as to reduce customers' switching costs, attempting to make mobile telecommunications more competitive (see, e.g., Reinke, 1998). The intuitive notion that number portability enhances competition due to reduced switching costs has formally been analyzed by Aoki and Small (1999), who examine whether there is a positive welfare effect if implementing MNP is costly. They find that, if the investment costs of implementing a MNP system are weighted against the benefits of more intense competition between mobile operators, the overall welfare effect is ambiguous. In related papers, Gans, King and Woodbridge (2001) and Haucap (2003) have focused on the question of how to allocate the property rights in telephone numbers and the costs of implementing number portability, respectively. An important aspect that has largely been ignored in this debate is the fact that MNP makes it more difficult for consumers to distinguish between different networks when placing a call. In the absence of MNP, consumers can usually distinguish between different mobile networks through the number prefix. When MNP is introduced, however, the number prefix does not automatically indicate the network assignment of a given number. As a result, if calling prices differ between different networks, consumers may have difficulties to find out the price of placing a particular call. The effects of consumer ignorance with respect to relevant prices have recently been explored by Gans and King (2000) and Wright (2002). They show that mobile operators may have incentives to increase their termination fees if consumers only take notice of average retail prices when making their calling decisions. Furthermore, they suggest that MNP may deteriorate the customers' price information, without formally working out the argument or analyzing the trade offs associated with the introduction of MNP however. The present paper aims to fill this gap by analyzing the following trade off associated with the introduction of MNP. On the one hand, MNP reduces switching costs, thereby making mobile markets more competitive. On the other hand, MNP deteriorates the customers' information about the relevant prices. The welfare effects of introducing mandatory MNP should therefore be expected to be ambiguous in general. We find that the introduction of mandatory MNP is less likely to generate welfare gains (i) the closer substitutes mobile networks are, and (ii) the larger the mass of users of the fixed network, respectively. JEL Code/Keywords: JEL Codes: K21, L13, L51, L96 Keywords: Mobile Number Portability, Regulation, Price Transparency MSPII 1.3 INTRODUCING COMPETITION AND ITS WELFARE IMPLICATIONS IN KOREAN MOBILE TELECOMMUNICATION SERVICES Authors: Donghee Lee, Duk Hee Lee, Information and Communication University, Korea This paper empirically examines how introducing competition in Korean mobile telecommunication services has affected the social welfare by estimating consumer surplus and producer surplus in economic concepts. The Korean mobile telecommunications market has rapidly grown since 1997 when competition was introduced in the market. Nowadays mobile telecommunications services in Korea seem to be a necessary good for doing business as well as personal communications. In particular, with a continuous decrease in service price, both consumers and service operators have realized tremendous welfare gains. However, it is not clear how much the social welfare has been achieved due to introducing competition in Koran mobile telecommunications services, especially in voice services. Regarding the estimation on the social welfare change, first, we estimate consumer surplus through estimating the price-elasticities of demand in mobile telecommunications services. Secondly, using service providers’ financial reports such as the balance sheets and the income statements we estimate the producer surplus considering opportunity costs for the capital investments. Finally, we compare the patterns and amounts of the social welfare between before and after introducing competition. This study will provide some policy implications in regulating the mobile and even fixed telecommunications industry at the aspect of social welfare. In addition, it may account for the rationale behind service operators’ pricing behaviors facing the rapid growth of demand in the social welfare perspectives. MSPII 1.4 SMS INTERACTIVE TV: THE CONVERGENCE OF TELEVISION AND MOBILE NETWORKS Authors: Petros Kavassalis, Michael Batikas, Atlantis Group, University of Crete, Greece Simoni Eustathiou, Sylvia Panagiotou , Dpt of Economics, University of Crete, Greece In the last months, European Television channels have started using SMS text messaging service as a tool enabling users to interact with television programmes and broadcasters to generate revenues from prenium-priced SMS services. Trade press’ papers report a nonnegligible success in the first steps of what is often called “SMS Interactive Television” with MTV and RTL’s SMS/Teletext chat rooms, and BBC “Joy-of-Text” interactive program, providing the best cases of success. With no doubt, the technological convergence of modes, announced by Ithiel de Sola Pool several years ago15, in the beginning of the electronic revolution, is the major force behind. But how this convergence is expected to happen and what is about SMS messaging that has enabled the development of new interactive television services. More generally, is this a realistic, maybe ad-hoc, development path for Interactive Television after many years of rather unsuccessful trials to make broadcasting networks interactive or converging with computers and the Internet? And how these developments will affect the industrial development and the evolution of the industry structure in the fast-growing mobile technologies and services industry? This paper attempts to explore the precise way of convergence of Television and Mobile Networks, surround the ongoing and future developments of SMS Interactive TV and craft an intellectual framework, based on the Economics of Technical Change, which can contribute to provide answers to all above questions. The paper spans over many technical, economic and organizational issues to explore the various aspects of a new service that expands quickly around the Televisions of the Globe and promises to become much richer in functionality with the advent of MMS. It structures as follows. In a first section, we explore the ground of the ongoing convergence between Television and Mobile Networks in the light of the past history of interactive television, and explain the technical challenge at issue. In Section 2, we flight over a number of successful cases of S]MS interactive TV (RTL-teletext chat, MTV awards voting, Channel 4’s Big Brother and SMS reminder-service, Channel 5 ‘Movie Bonanza, CCRTV daily micro-show “I have no word”, BBC World Service News by SIMS, Gossard ‘G4me’ direct response campaign). Section 3 summarizes the reported cases in the form of a taxonomy of strategies fueling SMS interactive television services (get viewers’ feedback, increase viewing share/improve viewers’ loyalty), provide interactive entertainment, mobile commerce, interactive advertising). Section 4 provides original empirical data on viewers’ participation and service effectiveness, from SMS interactive television trials conducted from the Greek Public Radiotelevision (ERT). Finally, in the last section, we review industry participants and strategic intentions/positions, analyze the 15 Ithiel de Sola Pool, Technologies of Freedom, The Belknap Press of Harvard Univ. Press, Cambridge (Mass.), 1983 value chain of the emerging activity, explain how key resources and competences for providing interactive television services are split across organizational boundaries, evaluate business opportunities, and discuss the effectiveness of SMS interactive television compared with previous television trials and marketplace experiences. JEL Code/Keywords: Keywords Mobile Networks, SIMS, Interactive Television, Case Studies, Emerging Technologies and Competition AI IMPACT OF ICT IN ASIA: CHAIR: MR. SUNG DISCUSSANT: MR MÖLLERYD, MS NANDI AI 1.1 DYNAMICS IN THE ICT MANUFACTURING MARKET IN THE GREATER CHINA REGION Authors: Dieter Elixmann, Cornelia Stappen, WIK GmbH, Germany Currently the Information and Communications Technology (ICT) market in the Greater China Region (GCR, encompassing PR China, Taiwan, and Hong Kong) is going through deep changes. Several reasons for this can be mentioned. Firstly, the PR China and Taiwan have entered the World Trade Organisation. Secondly, changes in the division of labour between the three regions can be observed. Thirdly, the PR China is the growth engine in Asia and a lot of foreign ICT enterprises already have or are planning to establish business activities there. Fourthly, technical progress in the ICT market is particularly dynamic. Against the backdrop of these developments the paper is aiming at: Highlighting the current market structure and development patterns of the ICT manufacturing markets in the GCR, Analysing the interrelationship of the ICT industry in the GCR, Identifying the driving forces of changes, Assessing challenges for foreign enterprises regarding market entry. The paper will be organised into seven chapters. After an introduction of the main issues and the objectives of the paper Chapter 2 focuses on an appropriate segmentation of the ICT market. The study encompasses the segments manufacturing of (1) telecommunications goods, of (2) data communications goods, and of (3) PC equipment as well as (4) the development of software and (5) the provision of IT services. Chapter 3 contains an analysis of the market structure and of the main development patterns within the ICT market segments in GCR. The focus is e.g. on market volumes, the positioning of foreign and domestic companies, respectively, in these segments and on the changing importance of R&D, production and distribution activities within the ICT firms active in the GCR. It will become obvious that the dynamics across the ICT market segments of the three regions as well as the business strategies of the players are very different. Chapter 4 will investigate new patterns of the division of labour in the GCR regarding the ICT industry. The PR China is catching up in many ways and Hong Kong and Taiwan are loosing their previous competitive advantages. All of the three regions are eager to establish new core competencies. Moreover, new links between the ICT industries in the PR China, Hong Kong and Taiwan are established. For example the growing investments of Taiwanese chip manufactures in production locations in the PR China leads to a closer interrelationship between the Taiwanese and Chinese industry. In chapter 5 we will discuss the impact of China’s accession to the WTO, and of New industrial policy measures of the governments of PR China, Taiwan, and Hong Kong on the development of the ICT market in the GCR. Especially because of China’s accession to the WTO fundamental political, social, and legal changes are expected. In the course of these changes also the basic conditions for foreign investors will become more transparent and will lead to a deeper integration of the PR China into the world market. In the GCR a lot of industrial policy programmes are existing to promote the domestic industry in general and to create favourable investment conditions for foreign investors. In addition, in particular in the PR China high budget programmes are aiming at supporting specific branches of the economy, for example the establishment of an efficient Chinese software industry. Taiwan’s industrial policy gives financial support especially for R&D projects for the IT-industry. The industrial policy of Hong Kong does not support so much manufacturing activities, rather, the focus is on the establishment of a service oriented business environment. In Chapter 6 we will discuss the challenges foreign ICT enterprises are facing by entering the markets in the GCR. Especially in the PR China we see a high potential for market entry because of the growth of the markets. In addition WTO accession will lead to a general improvement of business activities for foreign firms. But there are a lot of challenges as well. Due to a complex legal and regulatory environment foreign enterprises are facing high information costs. Intellectual property rights are a crucial issue. Data about market potential, the market environment, competitors and potential Chinese partners which is inevitable for setting up a real business case are not easily available. Often empirical data sources are inconsistent. Building up of a personal network is important. Market entry into China requires a long-term commitment and the openness to adapt to other socio-cultural modes of doing business than in Europe. The paper will be closed with the conclusions in Chapter 7. The paper is based on a project currently conducted by WIK-Consult on behalf of the German Ministry of Economics and Labour (BMWA). The results of the project are based on the one hand on desk research and on the other hand on a lot of personal interviews with representatives of manufacturers, universities, research institutes, and of ministries and other governmental entities in Germany as well as in PR China and Hong Kong. In addition relevant conferences both in Germany and in the GCR have been attended. JEL Code/Keywords: Keywords: Greater China Region,information and communications technology,industrial economics,market structure,market development,industrial policy,WTO AI 1.2 TELECOM MARKET TRANSFORMATION IN CHINA Author:Ping Gao, Copenhagen Business School, Denmark This paper first suggests a revision on the definition of telecommunications transformation strategies in literature, and then uses it to investigate China’s experiences of telecommunications reform by drawing on structuration theory. The authors conclude that a strategy of telecommunications market transformation must be formed based on the economic and political environment, telecommunications development situation, the characteristics of technology advance, and market requirement. Keywords: China, Strategy, Structuration theory, Telecommunications AI 1.3 ESTIMATING THE EFFECTS ON PRODUCTIVITY AND COSTS OF TELECOMMUNICATIONS MERGERS Authors: Nakil Sung, The University of Seoul, Korea The paper attempts to examine the effects of two US local telecommunications mergers on productivity and costs of their operating companies; (1) acquisition of Pacific Telesis (April/1997) and Southern New England Telecom Corp (October/1998) by SBC Communications and (2) acquisition of Nynex (Oct./1997) by Bell Atlantic Corp. The postmerger performance of merged local exchange carriers (LECs) is not only compared with their pre-merger performance over time, but also compared with that of non-merged LECs. The performance of LECs is measured by total factor productivity (TFP) and shifts in total cost function. The Empirical analysis is carried out with annual data for 38 reporting LECs over the period 1991-2000. The analysis provides several interesting findings. First, we observe no significant increase in TFP for merged LECs for the post-merger period and also, no systematic difference in TFP between merged and non-merged LECs. Second, the TFP regression analysis shows that mergers did not have statistically significant effects on the TFP. Third, the cost analysis indicates that mergers may even increase costs. We control for demand fluctuations, the state of technology and two policy factors (regulation and competition) in both productivity and cost analysis. Forth, there is no significant change in returns to scale (economies of scale) between merged LECs and others, and also, between pre- and post-merger period. Based on all these findings, we conclude that the mergers did not exhibit any positive effect on productivity and costs of their operating companies. Moreover, the mergers did not play a role of catalyst for cost cutting or restructuring. JEL Code/Keywords JEL classification L11; L96 Keywords: Merger; Total factor productivity; Cost function; Economies of scale <References> Ai, Chunrong, and Sappington, David E. M., “The Impact of State Incentive Regulation on the U.S. Telecommunications Industry,” Journal of Regulatory Economics, 22(2), 2002, 133-160. Caves, Douglas W., Christensen, Laurits R., and Diewert, W. Erwin, “Multilateral Comparisons of Output, Inputs, and Productivity Using Superlative Index Numbers,” Economic Journal, March 1982, 73-86. Gort, Michael and Nakil Sung, “Competition and Productivity Growth: The Case of the US Telephone Industry,” Economic Inquiry, 1999 Oct., 678-691. Sung, Nakil and Michael Gort, “Economies of Scale and Natural Monopoly in the U.S. Local Telephone Industry,” Review of Economics and Statistics, Nov./2000, 694-697. PAPERS NOT TO BE PRESENTED: REALIZING DIGITAL LIFE IN KOREA: CORE TECHNOLOGY AND PROMOTION POLICY16 Authors: Jungmann Lee*, Kiyong Om , Myung-Hwan Rim, Yeong-Wha Sawng, Electronics and Telecommunications Research Institute, Korea South Korea (hereinafter Korea) is leading the world in some forefront IT areas including high speed internet, mobile phones, PC penetration, DRAM, display equipments, internet appliances, set-top boxes, online network games and so on. Especially, with regard to broadband access to the Internet, Korea is by far the leading performer in the OECD area (OECD, 2001). In November 2002, Korea’s broadband penetration passed 20 subscribers per 100 inhabitants. The government, however, has been worried about the underutilization of the superb IT network infrastructure. As a possible solution to the problem, the promotion of “digital life” is being examined thoroughly from various points of view. The digital life aims to enrich our daily lives by enabling us to remain connected with communication networks anywhere anytime in order to do anything we want to do from work to entertainment. Considering a worldwide recession in the IT sector and the underutilization of the IT capacity almost everywhere, digital life could be an effective way to promote the IT demand in the market as well as to provide individuals with more convenient and enjoyable life. In this contribution, we will first provide the definition and reason for the introduction of digital life, and then explain the procedure for deriving core technologies that are essential to make digital life work, and finally suggest short-term and long-term policies to promote the realization of digital life in Korea. The expected impact of digital life on the economy and society will also be discussed in the last part. JEL Code/Keywords: Keywords Technology policy, digital life, digital service, core technology, validity analysis, and promotion strategy. T TELECOMMUNICATIONS: LICENSE AUCTIONS & ACCES PRICING: JOINT EARIE-ITS SESSION, CHAIR: MR. VON DE WIELLE T 1.2 203 LICENSE AUCTIONS WHEN WINNING BIDS ARE FINANCED THROUGH DEBT Author: Marco Haan, Linda Toolsema, University of Groningen, NL We study an auction where two licenses to operate on a new market are sold. Winners finance their bids on a competitive debt market. Due to limited liability, the amount of debt affects their behavior on the product market. In equilibrium, consumer prices are lower than with a beauty contest, where firms obtain their licenses for free. Winning bids are lower than in a model where firms have internal funds. Higher bids cannot be financed due to credit rationing. Expected net firm profits are strictly positive, although firms are a priori identical and have the same information. REGULATE OR DEREGULATE: INFLUENCING NETWORK INTERCONNECTION CHARGES Author: Bart von de Wielle, Belgium 16 This paper is a further development of “ Research on IT R&D and Innovation Systems” project sponsored by the Ministry of Information and Communication, Korea. * Corresponding Author, IT Technology Management Research Institute, ETRI, 161 Kajongdong, Yusonggu, Taejeon 305-600, KOREA PAPERS NOT TO BE PRESENTED: T 1.1 517 IS THE OPTIMAL AUCTION A BEAUTY CONTEST? A MODEL OF AUCTIONS, ASYMMETRIC INFORMATION AND REGULATION Author : Matthew Bennett, Universite Toulouse, France With the increasing popularity of auctions to sell scarce resources (such as telecoms spectrum, gas storage capacity, television rights etc), their impact on the relationship between regulation and competition is an important consideration. This paper analyses this via the introduction of an auction stage into an anti-trust model similar to Besanko and Spulber (1989). Three surprising results follow; firstly, the use of the auction does not increase quantities, as the use of this instrument to reveal cost types conflicts directly with the auction winning rule. Secondly, the optimal auction is identical to a beauty contest as equilibrium bids are independent of firms' types. Thirdly a mechanism, in which the regulator dictates both the optimal bid and the winner dependent on type, strictly increases welfare over the optimal auction. This result indicates that when governments maximise total welfare a hybrid mechanism is more efficient than an auction. Lastly we show that these results are robust even when governments derive significant levels of welfare via the bid revenues. RF THE NEW EU REGULATORY FRAMEWORK: CHAIR MR. RUHLE RF 1.1 MARKET DEFINITION AND MARKET ANALYSIS IN THE NEW FRAMEWORK FROM A REGULATORY PERSPECTIVE Author: Wolfgang Beran, RTR-GmbH, Austria This document only reflects the personal view of the speaker and cannot prejudice the interpretation or weight attributed to certain criteria by the Austrian regulatory authority both in the market definition and analysis procedure in any way. 1. Introduction New EU-Telecommunications Regime The new EU-telecommunications framework entered into force on 24 April 2002, obliging the EU-Member States to fully implement the package as adopted by the European Parliament and the Council on 7 March 2002, containing four Directives and one Decision17. The new EU regime, which had to be implemented until 25 July 2003, aims to move from the current ex ante-regulation regime (Open network provision – ONP) towards application of general EUCompetition Law under consideration of ex ante regulation aspects. A second aim of the new framework is to implement a technologically neutral legal framework for telecommunications, media and information technology in order to consider convergent communications and media sectors. This paper is structured as follows: 1. Market definition Overview of the market definition process to be carried out in the new framework 2. Market analysis A short interpretation of the relevant sections of the EC guidelines on market definition and SMP-designation 17 Framework Directive 2002/21/EC, Access Directive 2002/19/EC, Authorisation Directive 2002/20/EC, Universal Service Directive 2002/22/EC, Radiospectrum Decision 676/2002/EG 3. Ongoing need for ex ante regulation in the new framework A list of arguments why ex-ante regulation is still adequate for regulation the communications sector 4. Implementation in Austria A short overview of the competent regulatory authorities for market definition and market analysis RF 1.2 THE NEW EU REGULATORY FRAMEWORK FROM A REGULATOR'S PERSPECTIVE Author: Annegret Groebel, RegTP, Germany The presentation will give a short overview of the new EU Regulatory Framework from a regulator's perspective and with a focus on the co-operation requirements (ERG) as well as the implementation problems and the practical steps undertaken so far. A short comparison with the current regime will be made and the major changes highlightened. Also, the new consolidation procedure (Art.7-FD-procedure) will be explained and possible implications outlined. The presentation concludes with an overview of the status of transposition in Europe and the draft law of Germany. RF 1.3 TRENDS IN AMENDMENT OF GERMAN TELECOMMUNICATIONS ACTS Author: Arne Börnsen, A.T. Kearney, Germany The last year until February of this year the EU published directives for the harmonization of the national telecommunications Acts. A first “draft of a draft” was published and commentated in Germany between February 20, 2003 and March 12, 2003. The German Ministry on Economics and Employment announced the final draft for April 7, 2003. Around four weeks later the draft could be decided by the Cabinet, afterwards the Bundesrat, the Chamber of the German States, will give its comments. Probably the Bundesrat could decide about these on July 7, 2003, the first comment of the Parliament then would be in the beginning of September, the final decision at the end of 2003. The first unofficial draft of the amendment is unsatisfying. The bureaucratic processes provokes by such an act will take much more time than today, either the incumbent nor the competitors will get any advantages by faster procedures. In addition the draft did not give clear answers to the question only to regulate the fees of pre-products of the incumbent, but to do without ex-ante-regulation of the customer fees. The draft offers a lot of undefined words and sentences, this might be corrected when the second draft will be published in April 2003, but is not known when writing this paper. In addition some really important parts of the Act are not published until today, e.g. about the organization of the Regulatory Agency or about the competences in regulation of frequencies, if this still will be a competence of the Agency or if it will be part of “industrial politics” and responsibility of the Ministry. Therefore some key elements of the speech are unknown today and will only be named as bullet points: 1. New EU Regulation - A new EU regulatory recommendation has to be implemented until 23.07.2003 Basic Principles of EU-RegulationEnsure that customers have maximum advantage concerning variety, price and quality Ensure that there is no distortion or limitation in competition of electronic communication Foster efficient infrastructure investments and innovation 2. Past and current EU Regulation The telecommunications markets are moving from the former state owned monopoly market to a competitive market environment.Where the EU is the driving force to ensure that regulation according to the new recommendation is implemented in national bodies.The basic framework for regulation in the EU is becoming more and more harmonized. RF 1.4 EVALUATION OF NEW REGULATORY FRAMEWORK OF EUROPEAN UNION -FROM JAPANESE PERSPECTIVE Author: Hidenori Fuke, Kansai University, Japan 1. BACKGROUND EU adopted a new regulatory framework for Electronic Communications (hereafter called ‘2003 framework’) in March, 2002 to respond to the development since it opened to competition all the telecommunications markets including public voice telephony on January 1, 1998. All the member states are required to implement new framework by July 2003. While traditional telecommunications sector has been going through the liberalisation process, the Internet exploded and various media begin to converge. The 2003 framework is said to be an answer to the progress of competition and the convergence. This is the first attempt in the world that tries to apply a unified regulatory framework to telecommunications and broadcasting. The Japanese MPMHP (Ministry of Public Management, Home Affairs, Posts and Telecommunications) laid a bill before the Diet in March, 2003 amending the Telecommunications Business Law in order to respond to the changes since the liberalisation of the market in 1985. The Ministry says that this new law will accommodate the progress of competition and the diffusion of the Internet. The author founds three common key words between these two aggressive attempts. They are cross-media regulation, abolishment of individual licence and transition to ex post regulation. This paper tries to evaluate the 2003 framework from Japanese perspective by focusing discussions on these points. 2. CROSS-MEDIA REGULATION The 2003 framework introduces cross-media regulation to respond to the development of media convergence accelerated by the diffusion of the Internet. The new regulatory framework based on the division of info-communications industry into transmission networks (Electronic Communications Network), transmission services (Electronic Communications Service) and contents coincides with the layered structure of the industry. However, the most controversial problem, namely contents regulation is left behind as it is now. Telecommunications regulation used to be applied to the Internet and traditional sector specific regulation is applied to broadcasting in both EU and Japan. Many of the contents on the Internet are open to the public and different from traditional telecommunications contents. On the other hand, it is not always desirable to put them under broadcasting regulation. Thus it becomes necessary to treat contents in a uniform manner whether they are offered on the Internet or through broadcasting. The 2003 framework is not responding to this new development. 3. ABOLISHMENT OF INDIVIDUAL LICENCE Individual licence system is abolished and general authorisation system based on notification from undertakings to the regulatory authority is adopted. However, there are two concerns regarding the actual application of this system. Electronic Communications network and service often accompany the use of radio frequencies, numbers and rights of way. Without the liberalisation of the use of these accompanying resources, general authorisation might work as de-facto individual licensing. In the case of Japan, one of the reforms to be introduced by the bill laid by the Ministry is the abolishment of individual approval system for the entry into telecommunications business. However, not only there is no mention in the bill on the use of radio frequencies but also undertakings requesting rights of way are required to get certification of the Ministry. The criteria for the certification are almost same as former criteria for the approval. In the case of EU, it is not clear how each country is going to award these rights and the same kind of concern cannot be excluded.The other is related to broadcasting. In 2003 framework, it is allowed to put additional conditions on broadcasting contents operators and this might work as an entry regulation. In the case of Japan, the Law Concerning Broadcast on Telecommunications Services regulates so-called internet broadcasting and many worry that this law might regulate the distribution of contents on the Internet in the name of broadcasting. The same concern might hold true in the case of EU. 4. TRANSITION FROM EX ANTE REGULATION TO EX POST REGULATOION One of the most important changes introduced by 2003 framework is the transition from ex ante regulation to ex post regulation that is based on market definition. It is found from the EU document (EU [2003]) that the markets that are supposed to under ex ante regulation are too widely defined. They include both wholesale and retail markets. The author doubts whether there are strong grounds on this decision. The only reasoning for ex ante regulation in the Electronic Communications is the existence of essential facilities. As far as essential facilities exist, ex ante regulation regarding interconnection is justified. In other field, ex post regulation relying on competition law should be applied. 5. Conclusion Although the 2003 framework is epoch-making, it is not free from constrains regarding the three points discussed. It is necessary to depart from the regulation that was effective in the era of POTS and to reform the regulatory framework by taking into account the diffusion of the Internet. With the commoditisation of the services, it is necessary to give up the sector specific regulation and to rely on competition law. [Bibliography] 1. European Union(2002)Access Directive, Authorisation Directive, Framework Directive, and Universal Service Directive 2. European Union (2002), Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services 3. European Union(2003)Commission Recommendation of 11/02/2003 On Relevant Product and Service Markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communication networks and services (C(2003)497) 4. Garzaniti, Laurent(2000)Telecommunications Broadcasting and the Internet E.U. Competition Law and Regulation , London JEL Code/Keywords: JEL Codes L96 Keywords::: Broadcasting, Competition law, Contents regulation, Entry regulation, Ex post regulation, Media convergence, Telecommunications AR I: ANTITRUST AND REGULATION ISSUES I: CHAIR MR. HAYEE AR I 1.1 A CRITIQUE OF THE NEW UK RETAIL REGULATION – DIFFERENCES FROM THE PREVIOUS APPROACH AND LOOPHOLES Author: Momin Hayee, BT Analsysis & Forecasting, UK AR I 1.2 MODELING REGULATORY REGIMES FOR LAST-MILE BROADBAND CONNECTIONS IN A SINGLEPROVIDER MARKET: A MULTI-MODEL APPROACH Authors: Richard Curry, London Business School, UK Kiriakos Vlahos, Athens Laboratory of Business Administration, Greece We present a simulation model of the transition of consumers from voice-only to broadband telecommunications under various regulatory regimes designed to encourage adoption. Regulators strive to ensure wide and eventually universal consumer access to broadband technologies at reasonable prices. To achieve that they need to encourage investment, but at the same time they need to prevent incumbent telecommunication companies from trying to exploit their dominant position in the market. This often requires a fine balancing of regulatory policies. Determining the effect of these policies requires the study of the life cycle of three technologies, voice-only telephones, narrowband Internet, and broadband Internet. Voice-only is a mature industry, accessible by the vast majority of the population, while l narrowband Internet is in its growth stage of development and broadband is still in the introduction stage. To model the migration from voice-only and narrowband to broadband telecommunications, we have developed a model that considers the different economic agents of the industry including: consumers, telecommunications providers, and a regulatory agency. The model simulates the migration of consumers from traditional voice-only communications through advanced services available using narrowband Internet and finally to intensive levels of service that require or benefit from broadband connection. The model focuses on the local loop, which is the “bottleneck” for the adoption of broadband, and considers in detail the decision process of the incumbents. Given an expected consumer demand function, incumbents act as optimizing agents, making pricing decisions for narrowband and broadband services and investment decisions regarding network capacity, so that they maximize expected profits, subject to regulatory constraints. Price determines the rate of transition between technologies, constrained by the availability of newer technologies. The regulator constrains the actions of the incumbent by setting investment targets and price caps during each time-period in the model. The model is implemented in a new innovative multi-modeling platform that enables the integration of different modeling frameworks, in this case simulation and optimization. Using the broadband multi-model, we simulate market conditions based upon those in the United Kingdom starting from 2000. We consider a wide spectrum of regulatory policies starting from unregulated monopoly pricing for both advanced and intensive services. We then consider a mixed market structure having a competitive narrowband sector and a regulated broadband sector. Three static and two dynamic policies are examined with various price cap regimes. Finally, a static policy is examined with competitive conditions in both narrowband and broadband markets. The broadband adoption multi-model provides some important insights. The first confirms the assumption that, properly implemented price caps result in an increase in adoption without hindering investment. In our results, broadband adoption doubles under a mild price cap when compared to the monopoly pricing case. The second result is that increasing the market for services is very beneficial. For example, increasing the adoption of narrowband services by encouraging competition provides a 10-percentage point gain in broadband adoption even if there is only a small price decrease for broadband. Finally, policies with dynamic price caps do not appear to have a large effect on broadband adoption when compared to constant price caps with similar final prices, although it does appear to hurt the incumbent by decreasing revenues and profits. JEL Code/Keywords: JEL Codes L1, L5, L9, O3 Keywords: Telecommunications, Broadband, Regulation, Simulation, Multi-Model AR I 1.3 COMPETITION IN THE COMMUNICATIONS SECTOR: CAN UNPREDICTABILITY BE REGULATED? Author: P. H. Longstaff, Syracuse University, Harvard University, USA What does it mean to regulate a system that is unpredictable? How can any government regulation deal with systems that are constantly evolving? This suggests a new foundation for regulating and managing competition in complex systems like the communications sector. By admitting that some systems are unpredictable policy makers and managers can avoid the Blame Game: the scapegoating that takes place when things don’t turn out as predicted. This does not mean they are not accountable, it means they are accountable for things they can actually control. The paper begins with a brief and multidisciplinary examination of complex, unpredictable systems and then explores what it means to “regulate” a system you can’t predict. The critical difference between tightly and loosely coupled systems is then examined in order to help devise different regulation for each of them. The role of feedback in these systems is developed as a critical but often lacking element in their regulation. The paper gives some examples of how all these ideas work together and some thoughts on specific strategies and tactics that will be more effective at regulating or managing unpredictable processes like competition in the communications sector. What everyone wants is a simple set of instructions that can be applied to predictable problems and will result in predictable outcomes. Alas, this paper has no “Simple Rules For Predictable Regulation of Competition.” But the ideas developed here can make the regulation of competition more reliable, even if what we seek to regulate remains unpredictable. Specifically, policy makers can: 1. Treat the communications sector as a complex system that will often be unpredictable. 2. Make it clear that unpredictability does NOT mean ungovernable. Regulators and the firms they regulate are not unaccountable – they are just accountable for different things. 3. Assume that the Blame Game is an inefficient and wasteful correction mechanism. 4. Revise the regulatory methods to recognize that the interaction of competition and cooperation in the communication sector are part of a PROCESS that will continue to evolve after you intervene to regulate/manage it – this interaction must be managed as an ongoing process. 5. Analysis of actual or potential competition or cooperation should include knowing whether the firms (or the firm and its customers) are tightly or loosely coupled and whether tighter regulation will make them more or less unstable. 6. Acceptable parameters for competition and cooperation in the communications sector must be more carefully defined and a feedback mechanism set up to determine when the system has moved outside those parameters. 7. The parameters for competition and cooperation should take into account the fact that old technological boundaries between industries in the communications sector may no longer be appropriate for counting the number of firms who are competing for the same scarce resources. Regrouping them by their function in the communication process will help to reduce this problem. JEL Code/Keywords: JEL Codes K21 Key Words: Competition Policy AR I 1.4 INTERNET INTERCONNECTION:MARKET POWER IN THE BACKBONE INDUSTRY? Authors: Margit A. Vanberg*, ZEW (Centre for European Economic Research), Germany Developments in the market for Internet backbone capacity and particularly the merger of two of the four largest firms in this market, Worldcom and MCI, in 1998 spurred a large body of literature on the role of antitrust policy in Internet interconnection. Unlike most other telecommunications activities, Internet service provision evolved in a largely unregulated environment. The recent discussions surrounding Internet backbone activities suggest, however, that it is by far not certain that this market will remain unregulated. The concerns raised with respect to the market for top-level Internet connectivity focus on the strong network externalities in the Internet industry. End-users demand universal connectivity from their Internet Service Provider (ISP), that is, the ability to communicate with all other Internet users, irrespective of the network they are connected to. Since ISPs can achieve universal connectivity only through interconnection with at least one top-level backbone network (European Commission, 2000: 13), the competitiveness of the top-level Internet connectivity market is essential for the competitiveness of the entire industry. Proponents of regulation in Internet interconnection argue that the market for top-level Internet backbone connectivity is highly concentrated and that there are high barriers to entry into this market. They believe that this has put operators of top-level backbone networks in a position to dictate the conditions of interconnection. Some argue that Internet backbone operators are charging interconnection rates above the competitive level (Kesan and Shah, 2001: 148 and 155). Others argue, that top-level network providers have an interest in degrading the quality of interconnection to smaller competitors, because they can thereby induce end-users to switch home-networks, or at least to multi-home with the providers of top-level connectivity (Crémer et al., 2000). This literature seems to suggest that there is a role for sector-specific regulation in Internet interconnection. The purpose of this paper is to look into this claim from the perspective of the disaggregated approach to sector-specific regulation (Knieps, 2000). The disaggregated approach sees regulation justified only in instances where natural monopoly is not disciplined by potential competition. In this approach the contestable markets theory of Baumol et al. (1988) acts as the theoretical reference model of a competitive market. Starting point for the analysis is the theory of natural monopoly. Sharkey (1982: 73- 82) differentiates between two forms of natural monopoly. The first form, called “plant subadditivity”, is the form of natural monopoly that economists generally have in mind. It results from the technological characteristics of production. The second form of natural monopoly, “firm subadditivity”, results from organizational advantages in single-firm production. Both forms of subadditivity should be considered for a complete antitrust analysis of the market for Internet backbone connectivity. Because a thorough analysis of both facets would go beyond the scope of this paper, the present analysis focuses on the first aspect of natural monopoly. Related research by the author addresses the second aspect. Plant subadditivity results from large economies of scale and scope, due to factors such as fixed cost of production, common costs, and the use of specialized resources. The present paper analyses these aspects in the context of Internet technology by first giving a short account of the relevant aspects of Internet history and Internet technology, insofar as they help to understand the organization and cost structure of the Internet. Subsequently, the paper develops a model of the architecture of the Internet as a basis for a differentiated analysis of cost characteristics on the level of single network elements making up the Internet. The analysis of the cost characteristics is completed by an analysis of the entry conditions, particularly the question whether entry requires substantial investments in sunk costs. The preliminary conclusions suggest that Internet backbone markets show characteristics of natural oligopolies. This finding is supportive of Milgrom et al. (2002), whose bargaining model of peering arrangements predicts that in an oligopolistic market, Internet backbone operators have sufficient incentives to compete for customers (including smaller ISPs) in order to remain attractive for top-level peering agreements. This conclusion does not justify ex-ante regulatory interference into Internet interconnection. Rather, it is the task of general competition policy to closely attend the consolidation process in the telecommunications market with an eye to the potential consequences for the market structure in the Internet backbone market. JEL Code/Keywords: JEL Codes D4, K2, L51; L96 Keywords Internet, Networks, Interconnection, Regulation, Competition Policy Bibliography Items Baumol, W., J. Panzar and R. Willig (1988), Contestable Markets and the Theory of Industry Structure, New York. Knieps, G. (2000), Der disaggregierte Regulierungsansatz der Netzökonomie, in: Knieps, G. and G. Brunekreeft (Eds.), Zwischen Regulierung und Wettbewerb: Netzsektoren in Deutschland, Heidelberg. Cremer, J., P. and J. Tirole (2000), Connectivity in the Commercial Internet, The Journal of Industrial Economics 48/4, 433-472. Kesan, J. and R. Shah (2001), Fool Us Once Shame on You - Fool Us Twice Shame on Us: What We Can Learn from the Privatizations of the Internet Backbone Network and the Domain Name System, Law and Economics Working Paper Series No. 00-18, Illinois. Milgrom, P., B. Mitchell and P. Srinagesh (2000), Competitive Effects of Internet Peering Policies, in: Vogelsang, I. and B. Compaine (Hrsg.), The Internet Upheaval: Raising Questions,Sseeking Answers in Communications Policy, London, 175-195. Sharkey, W. (1982), The Theory of Natural Monopoly, Cambridge. Commission of the European Communities (2000), Commission Decision of 28 June 2000 on Case No COMP/M.1741 – MCI Worldcom/Sprint, Brussels. PAPERS NOT TO BE PRESENTED: “Next Generation Networks“ and Challenges for Future Regulatory Policy Author: Dieter Elixmann, WIK GmbH, Germany Up until today regulatory policy and measures relating to providers of telecommunications services are virtually based on architectural and topological characteristics of circuit switched networks. The provision of data transmission services resting on packet switched technologies, however, is more or less not affected by regulatory policy. The clear separation of circuit switched and packet switched networks and services provided via these networks becomes, however, more and more obsolete due to technological developments. It is fair to say that a shift of existing telecommunications networks towards “Next Generation Networks (NGNs)“ is already underway. There are two main objectives of the paper. We are aiming at highlighting these technical developments currently underway regarding telecommunications networks, illuminating challenges for telecommunications policy in the future in particular with respect to network access, interconnection and unbundling regimes. The paper will be essentially organised into five chapters. After an introduction outlining the objectives and main issues we will briefly address in chapter 2 the current characteristics of circuit switched telecommunications networks. Chapter 3 will deal with characteristics of NGNs. Although there is no clear-cut and generally accepted definition of a NGN we will provide an overview of essential features. An NGN is a platform (presumably IP based) capable to handle voice, data and video traffic simultaneously and in which the transport layer and the control layer are separated. Moreover, in contrast to the centralized architecture of the circuit switched PSTN/ISDN networks where the switch with all its hardware, call control and services software is located in the geographical market it serves, in the NGN architecture the functional elements are fully distributed within the network. In this chapter we will in addition highlight the idiosyncracies of softswitch based architectures. In this context the IETF backed SIP protocol and the ITU backed H.323 protocol play a prominent role. Chapter 4 will be focusing on an analysis of potential implications of NGNs for the basic economics of telecommunications service provision, the future business strategies of players in the market as well as for the market structure. It is highly likely that NGN architectures provide for a substantially altered mode of service provision in the telecommunication area. Firstly, competitors are able to use signaling- and control functions of the network for their own purposes enabling them to create and provide innovative services independently of a network operator. Secondly, network elements can be used separately so that new business strategies can be developed (e.g. non-facilities-based market players can provide management functions of a NGN), and thirdly, services can be created directly by end users. It can be taken for granted that implementation of a NGN will not be disruptive, rather, there will be a gradual migration of networks. Thus, for a foreseeable future we will witness a coexistence of circuit switched and packet switched networks. In chapter 5 we therefore want to present an overview of current directions of implementation of NGN elements by network operators. We can observe today e.g. that fixed-link voice telephony transmission at least in the backbone is more and more resting on packet switched technologies. Moreover, Voice over IP has overcome many of its quality of service problems due to developments within the IPv4 protocol (e.g. DiffServ, IntServ) and may experience an additional boost if IPv6 is widely deployed. Softswitch based architectures have been implemented on a considerable scale in the U.S., however up until now mainly as a substitute of CLASS 4 switches. Chapter 6 will address potential challenges for telecommunications policy generated by (the migration to) NGNs. Crucial issues that come to mind are e.g. : Which are candidates for essential facilities (e.g. softswitches, gateways, IP termination)? Are there incentives for vertical integration and in turn foreclosure or degradation of quality of service for competitors? What are the pros and cons regarding unbundling of network elements/-functions in a NGN environment (e.g. open access vs. network integrity and data security considerations)? How to safeguard fair interconnection rules in packet switched networks (i.e. regarding peering and transit agreements between ISPs)? How to safeguard interoperability of networks? The paper is based on research projects conducted by WIK on the economics of IP backbone services and “Next Generation Networks” as well as on a workshop titled “Network access and interconnection in IP based networks” organized by WIK and RegTP in October 2002. These projects have been based on the one hand on desk research of relevant literature and web sites of manufacturers and operators. On the other hand, a lot of personal interviews have been conducted with manufacturers and operators alike. The presentation will mainly be focused on chapter 3 and chapter 6 of the paper. Key Words: Next Generation Networks, Regulation, Circuit switched networks, Packet switched networks, Softswitch, Interconnection, Unbundling, Interoperability ICT II Impact of ICT II: chair Mrs. Firth ICT II 1.1 ONLINE MEDICAL APPLICATIONS MALAIS Author: Lucy Firth, University of Melbourne, Australia Interest in online medical applications as solutions for remote, regional and other under serviced communities and populations has increased steadily since 1906 when the idea of telecardiology was first discussed. Today, broadband offers the potential for the exchange of diagnostic quality images and other files in what could be seamless, straight-through processing. However, the rate of uptake of telemedicine has been disappointingly slow. Meanwhile, health budgets, waiting lists, and access and standard of service issues for our aging populations continue to grow. This raises three questions: What potential is there for broadband to improve medical services? Does telemedicine promise to resolve problems of access to medical professionals while addressing budget problems? What is retarding the uptake of telemedicine if it promises so much? This paper addresses these three questions by reviewing the literature on the adoption of a range of telemedicine application. The method for a current study of the uptake of online radiology image sharing is presented. The first question (What potential is there for broadband to improve medical services?) has a broad purview. The internet in general, and broadband in particular, has the potential to aid medical practice in three related but distinct ways, which are discussed in turn in the paper: Facilitating the education and training of professional staff – this has the potential to improve not only quality of service over the long run, but also staff morale and professional standing. Enabling on line medical applications – this has a more immediate impact. While it has attracted the most attention and media interest, it is the area most delayed. Recording and managing patient records – this will enable centralized records that may be more efficient, but may also raise issues of privacy. The second question (Does telemedicine promise to resolve problems of access to medical professionals while addressing budget problems?) forms the central part of this paper. The technical abilities of online medical applications now and likely in the near future are considered along with their distribution and likely impacts on budgets. The range of online medicine applications enable scenarios such as a patient seeking remote diagnosis in the absence of medical professionals, and a medical professional seeking specialist input to a treatment issue – either in real time or capture and send. In sum, it seems that online medical treatment is considered by most to be an adjunct to rather than a replacement for face-to-face consultation. In the absence of medical expertise, the equipment to capture the required data is typically too difficult for lay use. Efficiency gains from remote second opinions may be great, but has billing and interorganisational cooperation implications. The third question (What is retarding the uptake of telemedicine if it promises so much?) is perhaps the most interesting from a policy and political perspective. Issues of cost and infrastructure availability are dealt with as are organizational and interorganisational factors that prevent the sharing of files. This last question is the subject of current research by the author. While the paper outlines the method, the presentation of the paper will focus on findings. The paper concludes that there is a malaise in the rate of exploitation of broadband’s potential to improve medical services, access and knowledge largely for non-technical and noneconomic reasons. These reasons include professional jealousies, accounting practices, and concerns with privacy. The papers main theoretical contribution is in its outlining of the importance of opportunistic behaviour by certain professionals in internalizing the Internet’s network externalities JEL Code/Keywords: JEL Codes: L96, L86, O33 Keywords: broadband, medical applications, policy, interorganizational, telemedicine, budget ICT II 1.2 AN ECONOMIC EVALUATION OF THE JAPANESE TELEHEALTH SYSTEM BY CVM: COMPARISON OF FOUR REGIONS Authors: Masatsugu Tsuji, Wataru Suzuki, Osaka University, Japan Fumio Taoka, Kyoto University of Education, Japan The telehealth system is a type of telecare, which transmits health-related data of its users such as blood pressure, ECG, and blood oxygen to a remote medical institution via a telecommunications network. Eighty Japanese local governments are already implementing such systems, utilizing a total of more than 10,000 devices. This paper analyzes the economic benefits of the telehealth system in the following four regions in Japan: Kamaishi City, Iwate Prefecture; Nishiaizu Town and Katsurao Village, Fukushima Prefecture; and Sangawa Town, Kagawa Prefecture. The Contingent Valuation Method (CVM), which has been recently widely adopted in the fields of Environmental Economics and Health Economics to measure the benefits of services which are not traded in the market, is used. We conducted a survey of 348 users in Kamaishi City on their Willingness to pay (WTP) to use the service. According to their WTP, we estimate the demand function of the system, which is assumed to be a logistic curve. The average amount of WTP calculated is 4,519 yen (approximately US$37). We then compare the benefits with the costs of the system, which consists of equipment, salaries of doctors and nurses, and other operations. The ratio of benefits over costs (B/C ratio) is about 1.07, which implies that the system of Kamaishi City yields more benefits than costs. This is a rather surprising result when viewed in comparison with the systems of other regions. The paper also analyzes how the benefits expressed in terms of WTP are attributed in exact monetary terms to factors such as (a) less anxiety in day-to-day life, (b) stabilization of illness, (c) enhancement of health consciousness, and (d) decrease in medical expenditures. The parties bearing the costs of the system are identified, namely, the amounts paid by individual users and public fund such as tax and medical insurance. Thus, this paper suggests reimbursement to the telehealth system using medical insurance. JEL Code/Keywords: JEL Codes I11, H43, C93 Keywords Telehealth, CVM, WTP, B/C ratio, reimbursement ICT II 1.3 CHALLENGES OF SUSTAINABILITY AND RESPONSES IN ICT SECTOR Authors: Mária Vágási, Árpád Jankò, Budapest University of Technology, Hungary Enterprises — small, medium sized or big ones as well as national or global ones — continually seek for actual sources of competitiveness. In matter of competitive advantages management theories stress on the importance of focusing on customer need satisfaction. Recent marketing paradigms based on seeking for better customer satisfaction involve three main „winner” orientations: consideration of social expectations, delivering value to customers and building partnership with key customers. In situations of strategic decision making enterprises usually face the dilemma whether adoption of these orientations will actually contribute to achievement of profit goals or in what conditions may they be profitably employed. Nowadays more and more companies outsource their business functions and operations. Organizations are increasingly depending on business network in which they are embedded. The importances of networks are increasing while the coordination of networks became more difficult. We try to find answer is there coordinator function -within lengthy network in ICT industry- which is able to force partners to take into consideration the sustainability issues in its everyday operation. Experiences show that customer retention is cheaper than acquisition of more new customers. Loyal customers are ready to buy more products or services from the preferred company and often become their „advocates”. They appreciate individual and social value delivering, benefit sharing and are often ready to pay even premium prices. Companies strive to find a balanced cost/benefit relation in satisfying high expectations of key customers. Mutually profitable partnership that embodies the highest level of sustainable customer relationship may occur in value chains of network organizations. But direct actors/stakeholders of this relationship — suppliers, fabricants or service providers, intermediaries and customers — are both partners and concurrents. It is important to analyze how interest for sustainability emerges and will be diffused in the value chain from cradle to grave. The paper explains a more detailed theoretical background of the sustainability concept (triple bottom line) within Information and Communication Industry based on authors research performed in the framework of Technology Management Ph.D. education program. CM - COMPETITION IN MOBILE TELECOM INDUSTRY: JOINT EARIE-ITS SESSION CHAIR : MS.SEIM CM 1.1 069 ROAMING IN THE MOBILE INTERNET: WHEN COMPETITION OVER COVERAGE ASKS FOR REGULATION Author: Simona Fabrizi,Bruno Wertlen, University of Toulouse, France We examine competition in Mobile Internet services, when operators can cross-access each other's networks and pay in exchange a reciprocal roaming charge. Competition between operators over coverage gives rise to a continuum of equilibria which all guarantee the entire coverage of the available territory at least by one of the two operators. We show that not duplicating the coverage of the territory provides extra-rents to operators that come from the roaming revenues. The control over a minimum coverage requirement, or the level of the roaming charge itself could be valid tools for the regulatory agency to avoid such types of equilibria to occur. CM 1.2 320 PRODUCT MARKET COMPETITION AND LOBBYING COORDINATION IN THE U.S. MOBILE TELECOMMUNICATIONS Author: Astrid Jung, Tomaso Duso, Science Center Berlin, Germany This paper investigates coordination of firms in their lobbying activities and the interrelationship between lobbying cooperation and product market competition in the U.S. Cellular Services Industry. We base the estimations on a theoretical model where firms direct their financial contributions to politicians in order to lobby for a higher price-cap and for cost reducing measures. We derive a measure of coordination in lobbying which we then estimate and test. Furthermore, we identify the link between market coordination and lobbying expenditures and test whether firms perceive the policy choice as a public or a private good. CM 1.3 438 THE COMPETITIVENESS OF MOBILE TELECOMMUNICATIONS INDUSTRY ACROSS THE EUROPEAN UNION Author: Lukasz Grzybowski, CINE, University of Munich, Germany This paper investigates the competitiveness of mobile telecommunications industry across the European Union in years 1998-2001, based on the structural model estimation. The estimation results allow to conclude, that the competitiveness of mobile industry depends strongly on the progress in implementation of the market regulation. The differences in market competitiveness and industry growth across the EU countries result from unlike telecommunications policy regarding the licensing, market supervision, timing of market liberalization and the implementation of key competition enablers such as number portability. Moreover, the mobile industry is strongly influenced by the developments on the market of mainline telephony. CM 1.4 505 THE EFFECT OF ENTRY AND MARKET STRUCTURE ON CELLULAR PRICING TACTICS Author: Katja Seim, Brian Viard, Stanford GSB, USA We test the effect of entry on the product variety choices of incumbent cellular firms. We relate the change in the breadth of calling plans between 1996, when incumbents enjoyed a duopoly market, and 1998, when incumbents faced increased competition from PCS firms. The increase in competition differed across geographic markets due differences in both the initial number of allocated licenses and those actually built-out. We find that incumbents increased product variety more in markets with more entrants and that this effect is not explained by demographic characteristics of these markets or the geographic scope of the providers' services. AR I ANTITRUST AND REGULATION ISSUES I: CHAIR MR.CONFRARIA AR I 1.1 TELECOMMUNICATIONS POLICIES: DETERMINANTS AND IMPACT1 Authors: Jordi Gual, Francesco Trillas, Universitat Autonoma de Barcelona, Spain This paper presents new data, in the form of four indices, on liberalization policies and the independence of regulators for a cross section of countries. These indices are combined with a comprehensive set of performance, institutional and political data to analyze both the determinants and the impact of telecommunications policies. We find that liberalization policies are negatively associated with the degree to which countries have an interventionist tradition, but not with the partisan ideology of reforming countries per se. We also find that countries where the institutional endowment constrains less the behaviour of the executive bodies, and countries with a stronger incumbent, are more prone to create truly independent regulatory agencies. There is weak evidence that the creation of independent regulatory agencies has a positive effect on network penetration when we take into account the endogeneity of regulatory independence. JEL Code/Keywords JEL Classification: L96, L32, F21 Keywords: telecommunications, liberalization, institutions. . 1 We thank Sandra Jódar for excellent research assistance. Support from the Research Centre “Public Sector Private Sector” at IESE Business School is gratefully acknowledged. We also thank Lars-Hendrik Röller, Jordi Jaumandreu, Joan Ramon Borrell, Daniel Montolio and Astrid Jung for their detailed comments. The paper also benefitted from discussions at a CEPR Workshop in Madrid, at the I International Industrial Organization Conference in Boston, at the Universitat Autònoma de Barcelona, and at the Barcelona Workshop on Industrial and Public Economics (Institut d’Economia de BarcelonaUniversitat de Barcelona). AR I 1.2 STRATEGIC MEASURES WITH ANTI – COMPETITIVE EFFECTS Author: Flemming Dehn Jespersen, MCI, Regulatory Director Interconnection, Denmark CN II CONTENT AND NETWORKS II: CHAIR MR. PFANNHAUSER DISCUSSANT: MR. FETSCHERIN CN II 1.1 COMMUNICATIONS REGULATION IN THE AGE OF DIGITISATION AND CONVERGENCE Author: Harald Pfannhauser, USC, Austria Two schools of thought prevail in discussing the nature of media markets. One tends to be preoccupied with the prevention of harm, the promotion of public interest and sees the individual primarily as citizen and part of an inactive collective that needs guidance and protection from commercial media companies. The other qualifies the individual rather as a consumer, who is well aware of the choices he makes and actively looks for information and entertainment - which leads to the functioning of markets being the prime regulatory prerequisite. It is in my view impossible to reconcile these two conflicting views, but it is important to consider them when talking about regulation and its motives. I argue that with the introduction of the internet, a paradigm shift has taken place from the supposedly passive consumer of television to the active netizen of the cyberspace 18. This shift has also to be taken into account within the legal framework of these markets, which is why I stress the need for less sector regulation and a greater degree of competition policy. Lessig underlines this argument by referring to the regulation of cyberspace as a moral, ethical and political question: …politics is that process by which we collectively decide how we should live19. Under the increasing influence of digitisation and convergence, a gradual merger of regulatory units should be combined with a shift from sector regulation to general competition law. Not two conflicting set of rules, but one general competition law will prevail and give markets legislative checks and balances they have to acknowledge without imposing undue administrative and financial burdens. By merging telecommunications and media regulation in Austria and the UK, politicians acknowledge that the same set of rules and regulations can be applied to both markets. Given the fact that the media market was always regarded as somehow different and sensitive, this signifies a return to the normality of free market economics. That in turn means that the media market, with increasing competition, is losing his specific necessity for being treated and regulated differently than any other market. Regulatory convergence therefore points towards an end of its specific regulation rather than to its limits. Issues like plurality of media sources and diversity of content can be taken care of by general law and supervised by the respective governmental departments, as the first and foremost guardian of public interest can only be the law made by accountable and responsible politicians. This paper introduces arguments for sunset regulation in the convergent telecommunications and media sector and advocates a gradual handover from sector specific regulation to general competition law. It draws on the examples of KommAustria in Austria and OFCOM in the UK, both of which are or will be convergent telecom and media regulators. Furthermore the concept of sunset regulation is introduced, the Hotelling effect is adapted to support its case and the digital paradigm shift serves as the overarching principle of change for a combined telecom and media industry. JEL Code/Keywords: Keywords:digitisation – convergence – media regulation – competition law 18 19 See: http://www.ccp.ucla.edu/pages/internet-report.asp, p32, 76-78, accessed December 4th 2001 Lawrence Lessig, Code and other laws of cyberspace, Basic Books, New York, 2000, p59-60 CN II 1.2 THE ECONOMICS OF IDEAS AND EXPRESSIONS: ANALYSIS OF SCOPE AND UTILITY IN SOFTWARE INTELLECTUAL PROPERTY RIGHTS Author: Elad Harison, Maastricht Economic Research Institute on Innovation and Technology, NL The evolution of technical knowledge and its economic role as a production resource that provides substantial inputs for innovation and, at the same time, compounds major shares of output, strike economists and academic scholars in different industrial and technological fields. As technical changes proceed, so do technological landscapes in which various genres of knowledge are implemented and merged. Ideas and expressions are both significant resources for utilizing existing know-how in new products and technologies. Although the distinction between idea and expression is often vague and open to wide interpretations, it embraces fundamental and extensive implications than those included in recent academic studies. Economists, striving to establish a profound frame-of-reference to classify diverse classes of knowledge and different modes of its production and organization, agree that ideas and expressions stimulate development of new technologies and markets. Yet, both are separate schemes of know-how. Therefore, frameworks that pursue the analysis of knowledge and its dominant role in the economy as well as its derived implementations (e.g. the evaluation of innovation policies) may reflect only a limited outlook in their agenda if ideas and their expressions are taken as a single entity. While scholars struggle to find economic epistemology that represents adequately the formation and the “behaviour” of knowledge, policy makers have already taken advanced steps in attempt to resolve this issue by legal means. Legally, an “idea” is perceived as an invention, or as a novel contribution to a technical field and hence it is patentable, while on the other hand, an “expression” includes variety of literary and artistic works for which copyright protection is granted to the originals and to their derivatives. By implementing policies that distinguish between patentable and copy-protected products, a clear dichotomy between ideas and expressions was defined. Although this distinction seems sufficient for addressing the needs of technology-oriented sectors and cultural industries, this may not be the case when knowledge-based products are considered. The debate on IPR (intellectual property rights) protection for software technologies imposes a set of fundamental issues on the economic nature of software and the computational processing of digital inputs, which essentially had not been widely raised since the introduction of the computational machines. Therefore, an historical perspective on the development of computation, first as a single-task machinery, employed to calculate a single mathematical function or a limited sequence of steps and later the development of the Universal Machine, the digital computer, to perform multi-computational tasks, is used to illuminate the distinction between “instructions” (i.e. software) and “machine” (i.e. the digital computer) and to clarify whether physical machines built to perform certain computational tasks should be granted patents in terms of increasing innovation and social welfare, while the success of patents and copyrights granted to the digital equivalents, i.e. computer programs, to guarantee the same goals is put to a continuous debate. While both patents and copyrights are generally criticized as over-protective, providing monopoly over technologies and cultural goods for long periods, software adds unique and complex dimensions to the debate, since, different from any other technology, its products are protected by both patents and copyrights. Hence, when one examines each legal regime separately rather than evaluates their cumulative effects, the analysis would reflect only limited fragments of their impact on innovation and technical change. Of a particular interest is the evolution of IPR policies taken to classify ideas and expressions and, more generally, the common perceptions of technical know-how among legislators and courts. Those are illustrated by Court’s decision in Whelan v. Jaslow, a statutory keystone in defining software as intellectual property. The case has not only included recently developed intangibles within the definition of property and in the scope of its protection, but also revolutionized long-living perspectives on the distinction between expressions and ideas, which had already become solid for traditional technologies. Yet, the case was only a milestone within a stationary course of jurisdiction and IPR policies that formed the borders between idea and expression in knowledge-intensive products on a case-by-case basis rather than through a broad inquiry and versatile regulation. Consequently, the following legal doctrines significantly extended the scope of copyrights for computer programs by including components of operability and design intrinsic to the technology in their scope, leaving software algorithms in the domain of patentable subject matter. The article discusses the role of ideas and expressions in development of new products and technologies and their different impact on innovation and technical change. It compares their economic merits and dissimilarities in the general episode of physical goods, such as machinery, and in the more peculiar case of intangibles through analysing the protection of computer programs. The extension in the scope of IPR of software products and technologies has blurred the traditional dichotomy between idea and expression and re-shaped the borders between patents and copyrights and a consequent overlap between both regimes has followed. We highlight often-disregarded aspects and systematic inefficiencies that may rise from the emerging legislative guidelines regarding protection of ideas and expressions as intellectual assets and assess their economic impact on technological progress and innovation in computer technologies. JEL Code/Keywords: JEL Codes: L86, O31, O34 Keywords: technical knowledge; innovation; ideas and expressions; intellectual property rights; information technologies DS DEMAND STUDIES. CHAIR MR. KUBASIK DISCUSSANT: MR PEREZ AMARAL DS 1.1 Price Elasticity of Fixed to Mobile Calls Authors: Momin Hayeek,BT Analysis Forecasting, UK Introduction Since the introduction of pre-paid mobile phones in 1998 there has been a significant increase in the number of calls made both to and from mobile phones. Total call minutes from mobile phones (to Fixed [FtM] and to Mobile [MtM]) has grown by an average rate of 47 per cent over the last 5 years. Call minutes from fixed to mobile (FtM) phones grew by an annual average rate of 37 per cent over the same period. The growth in FtM minutes has tracked the growth in mobile subscribers’ base. The recent slight decline in FtM calls is due to MtM substitution as off-net MtM calls are increasingly included in mobile price plans Figure 1: FtM minutes , number of handsets, bundled minutes. 900 60,000 Minutes 800 Subscribers 600 40,000 500 30,000 400 300 20,000 subscribers ('000) minutes ('000 000) 50,000 Price 700 200 10,000 100 Jan-03 May-03 Sep-02 Jan-02 May-02 Sep-01 Jan-01 May-01 Sep-00 Jan-00 May-00 Sep-99 Jan-99 May-99 Sep-98 Jan-98 0 May-98 0 price per minute Recent situation The total market is still growing but the rate has slowed significantly indicating that a saturation level is gradually being reached. Pre-paid phones, which account for 71% of residential handsets, have been the main growth driver in the last few years. Post-paid contracts account for roughly a third of total subscribers and have been growing with a constant and relatively low rate, typical of a mature market. This has been confirmed by Oftel, which recently defined the mobile market as being in the mature stage. Significant changes in subscriber base are therefore not expected, however usage patterns are likely to fluctuate. Elasticity Estimation Estimating the price elasticity of FtM, while Figure 2: Mobile subscribers’ having such a close relationship between growth FtM minutes and handsets is difficult. The considered model is a set of equations with the variables: - Handsets - Price per FtM minute - Economy variable (real GDP for Business customers, Household Income for Residential; or other similar e.g. FTSE index for Business) Analysis was based on a pooled time-series cross sectional model. The model data used was monthly data on calls to the four mobile UK operators, in the period January 1998 to May 2003. The data was also split by Business/Residential customer base. An additional split for pre and post paid mobile subscribers level was rejected due to the lack of data from mobile operators. A proxy split for pre and post paid customers using empirical 60,000 Pre-paid Post-paid 40,000 30,000 20,000 10,000 Jan-03 Sep-02 Jan-02 May-02 Sep-01 Jan-01 May-01 Sep-00 May-00 Jan-00 Sep-99 May-99 Jan-99 Sep-98 Jan-98 0 May-98 subscribers ('000) 50,000 data splits of FtM minutes was also rejected because of significant changes in subscriber usage patterns. The generic equation used in the model: ln( Minutes x , y , z ) x , y , z x , y , z ln(Pr ice x , y , z ) x , y , z ln( Subscriber s y ) x , y , z ln( GDP) x , y , z where: x - represents Type of BT Fixed line customer [Business/Residential]. y - Mobile Operator [Vodafone, T-mobile, MMO2, Orange]. z – Time of Day [Daytime, Evening, Weekend] Thus, β x,y,z is the estimator for price elasticity for calls from x customers to y operator during z time of day. The model analysis resulted in set of 24 independent equations at the most detailed level. However, all operators are in a common market and therefore have some degree of interdependency. Thus one should expect some correlation amongst the error terms ε x,y,z and therefore use an appropriate estimation method such as Seemingly Unrelated Regression Equations (SURE) to account for this. The system of equations used was pooled on Customer type and Time of Day, since a customer, in general, is unaware of the price of calling a particular mobile network. The resulting model consists of 6 equations. An alternate method is to estimate elasticity by constructing a fully pooled model where the coefficients are unified across all operators. The problem with this approach is that it imposes severe restrictions on the coefficients and will produce a statistically poor result. An additional iteration was analysed with the inclusion of a lagged price variable, of up to two periods, to allow for the delay in customer awareness in price change. Results Applying both independent and simultaneous set model, where results were significant and with a high R Square, has given estimates of a price elasticity of between <-0.05> and <-0.40> depending on time of day and type of customer. Conclusion and direction for further studies The estimates obtained of overall elasticity in range <-0.05> to <-0.40> are generally in line with other analysis carried out in this area. This approach used aggregated information on the price of the FtM call, handsets and FtM minutes. Obviously customers even within business/residential split have different usage patterns i.e. some make very few FtM calls while making lots of FtF calls, some may make exclusively FtM calls. Consequently more accurate estimates of elasticity could be achieved if customers were separated into homogeneous sub-groups according behavioural characteristics and analysis carried out on these sub groups. Using billing information would lead to more behavioural link to FtM minutes. Customers in general tend to be not aware of all different FtM prices, but are highly aware of the amount on their monthly bills. This situation can lead to a delayed behavioural shock effect (“bill shock”) contrary to the situation when the price is known and customer knows in advance how much will the call cost. Further modelling analysis is expected to show high bill elasticity while the model considered above resulted in low price elasticity. DS 1.2 Estimating the Demand for National Long-distance Calls-Case Finland Author: Tom Björkroth, Åbo Akademi University, Finland Demand studies in telecommunications have focused on two primary areas. The first group of studies is concerned with modelling access demand and the second group of studies has focused on usage. Estimates of usage demand, and especially of the price elasticities, are useful for regulatory authorities in determining welfare implications in the context of tariff restructuring. Contributions on estimating the demand for usage are based on either panel or time-series data and some authors do report estimates using both types of data sets. There does not seem to be a systematic difference in estimated elasticities depending on how the data is structured. The elasticities seem rather to vary more according to the length of the haul than according to the time of day in which the call is being made. With few exceptions, Scandinavian contributions are rare. These results suggest that the price elasticity vary substantially with the area of origination, reaching absolute values from 0.12 to 0.74. This paper makes an attempt to estimate demand functions for domestic long-distance calls, in order to estimate price and income elasticities of this service. The study employs aggregate annual data between 1950 and 2001. The results are used to approximate changes in total surplus from adjustment in prices in from 1999 to 2000. In the estimation stage this study, in contrast to most of the earlier contributions, controls for the collinearity between income and the number of main connections. Corrections for the autocorrelation in the model were also required. The results support the stylised fact that price elasticity varies with the price. The price elasticity for the average price was –0.18, which is less than for many other time series studies, but in line with the findings in Pérez-Amaral et al. (1995) and Garín-Muñoz (1996). In contrast to earlier contributions regarding Finland, models with constant price elasticity did not appear relevant. The income elasticity in equals unity, which suggests that long-distance calls verge on being a luxury good. The welfare effects of the price increase in late 1990s seem to have been moderate, which partly results from the small size of this particular market. Most relevant bibliography: Das, P., and P. V. Srinivasan (1999) ‘Demand for Telephone Usage in India.’ Information Economics and Policy, 11, pp. 177-94. Draper, N. R., and H. Smith (1980) Applied Regression Analysis. John Wiley & Sons Garín-Muñoz, T. (1996) ‘Demand for National telephone Traffic in Spain from 1985-1989: An Econometric Study Using Provincial Panel Data.’Information Economics and Policy, 8, pp. 51-73. Pérez-Amaral, T., F. A. González, and B. Jiménez (1995) ‘Business Telephone Traffic Demand in Spain:19801991, an Econometric Approach.’ Information Economics and Policy, 7, pp. 115-34. Taylor, L. (1994) Telecommunications Demand in Theory and Practice. Kluwer JEL Code/Keywords: Keywords Telecommunications, demand, elasticities, welfare :. 3. Trends and Lessons learned in European Liberalization Appropriate regulation guidelines have to be very well prepared to facilitate the appropriate results in the market.Experience showed different levels of “strictness” of NRA´s with correlating effects on incumbents’ performance.The resulting increased competition led to a drop in telephone pricesOne example is the German Telecommunications Act of 1998 which led to lower cost for customers but on the other hand to a difficult situation for operators in the market.Before debating a new law it will be necessary to discuss the future telecommunication politics.Experiences from the German liberalized market 1998 – 2002Key elements of the draft of the amendment of the German Telecommunications Act Political objectives of the law Market analyze and limitation Regulation of product fees Advantage for infrastructure competition versus service-competition Regulation of new markets Frequency politics Influence to the economic and employment-development 5. First lessons learnt from the debate in German Bundesrat (House of the States) and Parliament The comments will be decided probably in July, 2003 6. Different positions of the incumbent and the competitors 7. Conclusion and political outlook CLOSING SESSION: INNOVATION, COMPONENTS AND COMPLEMENTS Author: Hal Varian, UC Berkeley, USA LIST OF PARTICIPANTS (registered until 08-15-03) Last Name First Name Institution Country Budapest University of Arpad Janko Technology Hungary Michigan State Bauer Johannes University USA Björkroth Tom Abo Akademi Finland Chalmers University of Bohlin Erik Technology Sweden Edward Elgar Broom Joanne Publishing UK University of Calzada Joan Barcelona Spain Cava Ferreruela Inmaculada Fujitsu Espania Spain London Business Curry Richard School UK Malta Communications Cuschieri Joseph Authority Malta Aston Business Daßler Thoralf School Uk Dognin Elisabeth France Telecom France Falch Morten CTI Denmark Institution Government Falcone Andrew of Canada Canada Universidad Feijóo Gonzales Claudio Politecnica de Madrid Spain Fetscherin Marc Universität Bern Switzerland Flacher David ENST France Detecon International Fredebeul-Krein Markus GmbH Germany Fuke Hidenori Kansai University Japan Competition Garthwaite Nicholas Commision UK Gatti Gómez Barroso Groebel Gual Marco José Luis Annegret Jordi Hagen Kare P. Harison Elad Haucap Hayashi Hazlett Justus Kenta Thomas Heng Stefan Henten Anders Federal Office for Communications (Swiss Gevernment) Switzerland UNED Spain RegTP Germany IESE Business School Spain Norwegian School of Economics Norway Merit Maastricht University NL University of the Federal Armed Forces Hamburg Germany Konan University Japan Manhattan Institute USA Deutsche Bank Research Germany Center for TeleInformation Denmark email arpy@sch.bme.hu, arpy@ax.hu bauerj@msu.edu tobjorkr@abo.fi erbo@mot.chalmers.se hnicholls@e-elgar.co.uk calzada@eco.ub.es epmesa@mail.fujitsu.es rcurry@london.edu jcuschieri@mca.org.mt dasslert@aston.ac.uk elisabeth.dognin@francetelecom.com falch@cti.dtu.dk falcone.andrew@ic.gc.ca claudio@gtic.ssr.upm.es fetscherin@iwi.unibe.ch markus.fredebeul-krein@detecon.com hfuke@gakushikai.jp nicholas.garthwaite@cicerostrategy.com marco.gatti@bakom.admin.ch jlgomez@cee.uned.es annegret.groebel@regtp.de gual@iese.edu kare.hagen@nhh.no e.harison@merit.unimaas.nl justus.haucap@unibw-hamburg.de khayasi@konan-u.ac.jp twhazlett@yahoo.com stefan.heng@db.com henten@cti.dtu.dk Hudson Heather Jamison Jones Mark A. Lee Jong-Hyun Park Just Kaliski Kavanaugh Natascha Oliver Andrea Kefala Kim Kosa Kruse Kubasik University of San Francisco USA Public Utility Reserach Center USA Vodafone Group UK Electronics and Telecommunications Reseacrh Institut ICE-Austrian Academy of Sciences Mobilkom Virginia Tech hudson@usfca.edu jamisonma@ufl.edu lee.jones3@vodafone.com Korea pjh63444@etri.re.kr Austria Austria USA njust@oeaw.ac.at a.heimberger@mobilkom.at kavan@vt.edu Athens University of Economics and Anna Business Greece Jae-Kyung Korea Telecom Korea Communications Zsuzsanna Authority of Hungary Hungary Universität der Jörn Bundeswehr Hamburg Germany Poznan University of Jerzy Technology Poland anna@aueb.gr kjkyung@kt.co.kr kosa@hif.hu joern.kruse@unibw-hamburg.de jkubasik@et.put.poznan.pl Regulierungsbehörde f Telekommunikation und Post Germany kuebler-bork@regtp.de ICE-Austrian Academy of Sciences Austria latzer@oeaw.ac.at Kübler-Bork Kuhlmann Annegret Federico Latzer Michael Lee Information and Commnuication Seunghwan University Korea lsh@icu.ac.kr Lee Dong Hee Information and Communication University Korea dkrehddl@icu.ac.kr Lindmark Loebbecke Longstaff Marsden Marsden Sven Claudia Patricia Richard Christopher Merdian Mikula Mölleryd Momin Nandi Nett Neumann Nyström Ostgard Ouli Perez-Amaral Chalmers University of Technology Sweden Univesity of Cologne Germany Syracuse University USA DotEcon Limited UK Metropole Institut Spain Lambda Net Communications Georg GmbH Germany Thomas RTR-GmbH Austria Bengt Evli Bank Sweden Hayee British Telecom UK Banani AT&T Shannon Labs. USA Lorenz WIK GmbH Germany K.H. WIK GmbH Germany Abo Akademi Anna-Greta University Finland Rune European Commision Maria UK Universidad Teodosio Complutense Spain svelin@mot.chalmers.se claudia.loebbecke@uni-koeln.de phlongst@syr.edu richard.marsden@dotecon.com ctmarsden@yahoo.co.uk georg.merdian@lambdanet.net reisestelle@rtr.at bengt.molleryd.evli.com momin.hayee@bt.com ban@homer.att.com l.nett@wik.org k-h.neumann@wik.org anna-greta.nystrom@abo.fi rune.ostgard@cec.eu.int maria.ouli@kcl.ac.uk teodosio@ccee.ucm.es Preissl Brigitte Ramos Villaverde Sergio Reynolds Rothmueller Ruhle Sasaki Schmitz Schnepfleitner Simon Stappen Staudinger Sung Szabo Tabori Tyrväinen Paul Petra DIW Universidad Politecnica de Madrid Charles River Associates Telekom Austria AG Germany bpreissl@diw.de Spain sramos@gtic.ssr.upm.es UK Austria preynolds@crai.co.uk petra.rothmueller@telekom.at Rechtsanwälte Piepenbrock und Ernst-Olav Schuster Germany InfoCom Research Tsutomu Inc. France Autrian Academy of Stefan Sciences Austria Rainer Swisscom AG Bern Switzerland Jean-Paul France Telecom France Cornelia WIK GmbH Germany Michael Univesity of Cologne Germany Nakil University of Seoul Korea Infrapont Consulting Erika Ltd Hungary Budapest University of Economics and Public Administration, INFRAPONT Tama's Consulting Hungary University of Pasi Jyväskylä Finland Vagliasindi Maria van Wegberg Vanberg Marc Margit Vesa Jarkko European Bank for Recostruction and Development University of Maastricht ZEW Mannheim Helsinki School of Economics tsaki@club-internet.fr stefan.schmitz@oeaw.ac.at rainer.schnepfleitner@swisscom.com jeanpaul.simon@francetelecom.com c.stappen@wik.org michael.staudinger@uni-koeln.de nisung@uos.ac.kr szaboe@infrapont.hu ttabori@infrapont.hu pasi.tyrvainen@jyu.fi UK vagliasm@ebrd.com / smithca@ebrd.com NL Germany m.vanwegberg@os.unimaas.nl vanberg@zew.de Finland jarkko.vesa@luukku.com France Austria pierre.vialle@int-evry.fr reisestelle@rtr.at UK jason@mansci.strath.ac.uk Vialle Weber Pierre Jan Whalley Jason Institut National des Telecommunications academic RTR-GmbH University of Strathclyde Yan Demetrios Hong Kong University of Science and Technology China University of Piraeus Greece Xu Yannelis eor@ra-ps.de xuyan@ust.hk yannelis@unipi.gr ABOUT THE ITS The International Telecommunications Society is a long-standing, independent, non-profit association of professionals (academics and practitioners in operating companies, consultancies, government agencies) with an interest in the growing field of telecommunication planning, policy formulation and economic decision analyses. The aim of this world-wide network of professionals is to systematically encourage distribution of information, discussions and research concerning telecommunications issues, legislative and policy decisions. The ITS consists of approximately 400 individual members, corporate members and a Board of Directors. A conference committee organizes conferences and meetings. ITS contacts Chair: Dr. Loretta Anania ITS Board of Directors European Commission - DG XIII Rue de la Loi B-1049 Brussels Tel: +32 2 296 3491, Fax: +32 2 295 6937 Email: Loretta.Anania@cec.eu.int Logistics support: Suzanne Chambliss Neil Phone & Fax: +(1) 207-372-6241 chambliss_neil@yahoo.com Vice-Chair: Dr Erik Bohlin ITS Board of Directors School of Technology Management & Economics Department of Innovation Engineering and Management Chalmers University of Technology S-41296 Gothenburg,SWEDEN Phone:+46 (31) 772 1205 Fax:+46 (31) 772 1917 Home Phone:+46 (31) 693 477 Mobile +46 703 693 478 e-mail: erik.bohlin@mot.chalmers.se Treasurer: Leland Schmidt ITS Board of Directors Alpine Drive Gilford NH 03249 USA Phone:+1 603-293-409433 Fax: +1 603-293-4095 e-mail: lschmidt@metrocast.net Secretary: Susan Simon, Esq. ITS Board of Directors Simon & Simon 787 Route 35 Box 273 Cross River, N.Y. 10518 Tel: +1 914 763 8831, Fax: +1 914 763 8693 Email: Ssimonesq@aol.com European´Regional Conference Coordinator: Dr. Jürgen Müller ITS Board of Directors Berlin School of Economics Badensche Str. 50-51 D-10825 Berlin Tel: +49 30 85789-145, Fax: +49 30 85789 199 Email: jmueller@fhw-berlin.de For information on ITS and ongoing European events, please check our website: http:// www.ITSEurope.org ITS BOARD COMMITTEES – MAY 2002 Strategic Planning: Glyn Williams (chair) Tom Spacek, Noemi Wachtel, Cristiano Antonelli , Frank Kiss, Lorenzo Pupillo Conference & Seminars Gerard Pogorel ( chair) Fernando Gallardo, Don Lamberton, Georgette Wang, Jae-Cheol Kim, Juergen Mueller, Publications Erik Bohlin (chair) Don Lamberton, Nicolas Curien, Glenn Woroch,, Alain de Fontenay, Karl-Heinz Neumann Membership & Nominations Stanford Levin (chair) Dan Furman, David Allen , Jim Alleman, Susan Simon, Fernando Borio, Gerard Pogorel, Finance Lee Schmidt ( Chair) Walter Richter, Frank Kiss, Bob Olley, Marketing & PR Bohdan Romaniuk (Chair) Noemi Wachtel, Stanford Levin, Juergen Mueller Note: The Chairman and Vice-Chair and Treasurer are de-facto members of each of these ITS committees, and must be informed of any committee activities by the committee chairs. Firm and Country BT-UK France Telecom Telus-Canada InfoCom Korea Telecom Korea SK Telecom Deutsche Telecom Germany Danube University-Krems Germany Membership (expiration date) November 18, 2003 May 9, 2003 September 15, 2003 10-31-03 June 7, 2003 Category September 26, 2002 December 9, 2002 Global 10-31-03 Global Global Global Global Global Society Members hip Institution al ITS MISSION STATEMENT What is ITS The International Telecommunications Society (ITS) is an association of professionals in the information sector with the aim of providing a forum where academic, private sector, and government communities can meet to share research results and problem solutions, identify pressing new problems and issues, and form new relationships and approaches to address those issues. ITS focuses on the evolving applications, services, technology, and infrastructure of the converging communications, computing, Internet, information content, and related industries. The goal of ITS is to further research and analysis of telecommunications issues emanating from the evolution toward next generation networks and towards a global information society while placing particular emphasis on the interrelationships among market, economic, technology, legal, regulatory, competitive, organizational, policy, and ethical aspects of those issues. ITS is an independent, non-aligned and not-for-profit organization with a worldwide network of about 400 members. How ITS Achieves its Goals ITS achieves its goals by providing forums where academic, industrial, and government researchers as well as industry practitioners, policy makers, representatives of international bodies, and consultants present and discuss research results, and may interact in spontaneous ways. The most important of such forums is a series of ITS biennial international conferences. In response to specific needs as they develop, ITS also organizes local and regional symposia, seminars, workshops, and courses. If requested and found appropriate, ITS may also support - in the form of participation, sponsoring, coordinating, or advising -- other organizations' conferences and events. ITS encourages and supports the participation of young researchers in its conferences. ITS disseminates research results and news to its members and to the general public via traditional and electronic means including Info, the membership journal of ITS, the ITS Newsletter, and the ITS Web site, www.its2000.org.ar. ITS Areas of Interest The list below provides examples of current topics of interest to ITS’ members. Areas of ITS interest include topics which have major impacts on the telecommunications industry. These topics are dynamic as new topics arise while others become less important reflecting the dynamic and fast pace of change in the industry. This list of examples is by no means inclusive, and by intent, the topics are not mutually exclusive reflecting different perspectives on similar issues as well as the complexity of many of these issues. Some of the forward-looking areas on the following list are also intended to reflect our strategic direction: (1) The challenges and opportunities for traditional telecom providers in developed and developing countries in transitioning from their critically important role in voice telephony and its associated infrastructure to an expanded role in evolving to next generation networks and to a global information society where capacity requirements for data will far outweigh those for voice. A few examples of the many key issues in this evolution include: - interoperability among heterogeneous network technologies and among applications quality of service the role of the Internet Protocol network infrastructure evolution scenarios alternative technological and economic arrangements among service providers pricing structure issues (2) Application areas which may provide major societal and economic benefits including health care, education, electronic commerce, intelligent transportation systems, entertainment, advanced interpersonal communications, etc. (3) Industry structure implications of the emergence of Applications Service Providers. (4) Evolving infrastructure, services, and applications in industries that are converging, integrating, or competing with traditional with the telecommunications industry such as the computing, Internet, entertainment, and information content industry. An example would be the prognosis for Internet Telephony in various market segments and its impact on traditional telecommunications firms. (5) Emerging entrants into telecommunications from industries such as electric, gas and water utilities or transportation companies. (6) Telecommunications sector transformation commercialization, and competition. including corporatization, privatization, deregulation, (7) Business, technology, and policy issues related to alternative access technologies (e.g., xDSL, cable, wireless cable, etc.), access appliances (PCs, personal access devices, multi-function wireless phones, Web TV, etc.), transport technologies, switching/routing equipment, etc. (8) In all of the above areas of interest, the research and analysis often includes one or more of the following: - strategic analysis - demand studies - competitive analysis - revenue, cost, and profitability impacts of change - economy of scale and agglomeration - analysis of alternative network architectures and technologies - organizational analysis - regulatory and policy analysis In order to adapt to the ever-changing environment in which it operates, ITS periodically reviews the areas of its interests and activities. BIENNLAL CONFERENCES 1998 ITS’01 – 14th International Conference in Korea, August 18-21, Seoul, sponsored by Korea Telecom, SK Telecom & KAPT ITS’00 - 13th International Conference in Buenos Aires, July2-4 sponsored by Telefonica and Telecom Argentina ITS'98 – 12th International Conference in Stockholm, June 21-24, 1998 hosted by Telia 1996 ITS'96 – 11th International Conference in Seville, Spain, June 16-19, 1996 hosted by Telefonica 1994 ITS'94 – 10th International Conference Beyond Competition in Sydney, Australia, July 3-6, 1994 hosted by Telstra Co. ITS'92 – 9th International Conference Telecommunications Bridge to the 21st Century in Sophia Antipolis, France, June 14-17,1992 hosted by France Telecom under the patronage of the France Telecom University ITS’90 – 8th International Conference: Telecommunications and the Challenge of Innovation and Global Competition in Venice, Italy, March 18-21, 1990. Hosted by SIP - Societa Italiana per l’Esercizio delle Telecommunicazioni under the patronage of the Commission of the European Communities and the University of Venice 2002 2000 1992 1990 1988 1986 ITS’88 – 7th International Conference: Beyond Traditional Telecommunications Boundaries: Engineering Possibilities and the Market Realities Cambridge (Boston), Mass., June 29-July 1, 1988, cohosted by the Mass. Institute of Technology (MIT) and Bell Communications Research ITS’86 – 6th International Conference in Tokyo, Japan in December 1986. Note: This was the first conference held under the new organizations name ITS. It is called the 6 th International Conference to continue the conference tradition of the for runner organization, mainly run by a group of national Telcos, on forcasting and planning. REGIONAL CONFERENCES & WORKSHOPS 2003 ITS Asia-Australiasian Regional Conference, Perth, Australia, 23-25 June 2003 13th ITS European Regional Conference, Madrid, Spain, September 8-10, 2002, hosted by University Carlos III and the Spanish Ministry of Science and Technology (in association with the 29th EARIE Conference) 2001 12th ITS European Regional Conference, Dublin, Ireland, September 2-3, Hosted by Trinity College at the Hamilton Conference Center in association with the 28th EARIE Conference 2000 ITS European Regional Conference,Lausanne, Switzerland,September 9-11, in collaboration with the 27th EARIE Meeting 1999 ITS European Regional Conference,Turin, Italy,September 2-4 in collaboration with the 26th EARIE Meeting 2002 1997 ITS European Regional Conference Leuven, Belgium, August 29-30, 1997, in collaboration with the 24th EARIE Meeting 1997 1997 1996 1996 1995 1995 1994 1993 1993 1992 1989 1989 1989 1989 1988 ITS’97 - North American Conference: Global Networking’97, Calgary, Canada, June 15-18, 1997 ITS European Regional Workshop on Mobile Telecommunications Services in Berlin, Germany, April 45,1997 ITS European Regional Workshop Vienna, Austria, September 6-7, 1996, in collaboration with the 23rd EARIE Meeting ITS European Regional Workshop on Forecasting, Costing and Pricing in Berlin, June 10-11, 1996 ITS European Regional Conference in Juan les Pins, near Nice, France, September 1-3, 1995, in collaboration with the 22rd EARIE Meeting ITS’95 – International Symposium: Strategic Alliance & Interconnection: Contributions of Game Theory to Telecommunications in Denver, USA, January 9-11, 1995 hosted by Telstra Corporation ITS European Regional Conference in Khania, Crete, September 2-3, 1994, in collaboration with the 21 st EARIE Meeting ITS European Regional Workshop (in collaboration with the 20th EARIE Meeting), Tel Aviv, Israel, September 7-8, 1993 Regional Conference The Race to European Eminence sponsored by Swedish Telecom, Gothenburg, Sweden, June 20-22, 1993 European Regional Conference (in collaboration with the 19th EARIE Meeting), Stuttgart, Germany, September 6-7, 1992 Budapest Regional Conference Europe, August 29-30, 1989. Co-hosted by ITS, EARIE and PKI Research Institute of the Hungarian P&T Regional Conference North America, Ottawa, Canada, June 18-21, 19989 held at Carleton University ITS European Regional Meeting in Leuven, Belgium, April 14-15, 1989. held at the University of Leuven ITS Asian Regional Forum, Merrijig (near Melbourn), Australia, March 3-8, 1989 European Regional Meeting, Geneva, Switzerland, October 25-26, 1987 MEMBERSHIPS IN THE INTERNATIONAL TELECOMMUNICATIONS SOCIETY There are three categories of memberships: Individual Membership, For-Profit Corporation Membership and Non-Profit or Governmental Membership. A. Individual Membership Two year membership $ 200 for 2 years (reduced student rate: $ 150) -Subscription to “Communications and Strategies” -Newsletter : Interconnect -Discount on registration at ITS Biennial Conferences -Membership Fee payable directly or at time of registration at an ITS Biennial Conference B. For-Profit Corporation Memberships (includes PTTs) Global Membership: $6,000 per year -One seat on ITS Board of Directors -Three individual memberships in ITS (including that for the Board Member) -Subscription to “Communications and Strategies” for three members -Newsletter : Interconnect -Free registration for these members at ITS Biennial and Regional Conferences International Membership: $3,000 per year -One seat on ITS Board of Directors for every two International members, as selected by the Board of Directors -One individual membership in ITS -Subscription to and “Communications and Strategies” for this member -Newsletter : Interconnect -Free registration for this member at ITS Biennial and Regional Conferences Society Membership: $1,500 per year -One individual membership in ITS - Subscription to and “Communications and Strategies” for this member -Newsletter : Interconnect -Discount on registration at ITS Biennial Conferences C. Non-Profit or Governmental Membership 1-100 Employees $500 per year -One individual membership in ITS -Discount on registration at ITS Biennial Conferences -Subscription to and “Communications and Strategies” -Newsletter : Interconnect 101 and over Employees $1,000 per year -Two individual memberships in ITS - Discount on registration at ITS Biennial Conferences - Subscription to and “Communications and Strategies” -Newsletter : Interconnect ITS INDIVIDUAL MEMBERSHIP APPLICATION FORM & INVOICE Date: Last Name: First Name: Address: City/State: Postal/ZipCode: Country: Phone: Fax: E-mail: Amount Due: US $ 100 .00 Return with payment to: Leland Schmidt, Treasurer of ITS 33 Alpine Drive Guilford NH 03249 USA lschmidt@metrocast.net Check should be payable to International Telecommunications Society in US $ drawn on a US bank (add equivalent of $15 if payment is in another currency) Call for Papers 15th European Regional Conference, September 5-7 2004, Berlin, Germany (in association with the 31th EARIE Conference, Sept. 2-5, 2004) The International Telecommunications Society (ITS) is a non-profit association of professionals (academics and practitioners in operating companies, consultancies, government agencies etc.) with an interest in the growing field of telecommunication planning, policy formulation and economic decision analyses. We warmly invite you to participate in the 15th ITS European Regional Conference and encourage research papers in following areas Telecommunications Regulation, Role of Telecommunications Infrastructure, Changes in the Structure of the Telecommunications Industry, Telecommunication Services Industrial Policy Issues, Electronic Commerce, Convergence among Telecommunications, Broadcasting and Computing and Telecommunication Services Papers (in English) should be based on current research. Submissions must be received no later than March 31, 2004 and should consist of a two-page abstract and a paper of no more than 25 pages. Even if you do not plan to submit a paper to the conference we hope that you will act as a discussant or just attend the conference The more detailed information can be found at the website: www.itseurope.org ITS European Regional Coordinator: Prof. Dr. Jürgen Müller c/o Berlin School of Economics (FHW), Badensche Str. 50-51, 10825 Berlin, Germany tel. +49-30-85789-145, fax +49-30-85789-199, e-mail: jmueller@fhw-berlin.de for enquieries: ekor@fhw-berlin.de