Home EuropeEurope 2005 The brave new world of mobile communications

The brave new world of mobile communications

by david.nunes
Dipl. Ing. Dr Boris NemsicIssue:Europe 2005
Article no.:9
Topic:The brave new world of mobile communications
Author:Dipl. Ing. Dr Boris Nemsic
Title:CEO and COO
Organisation:mobilkom austria and Wireless Telekom Austria
PDF size:360KB

About author

Ing. Dr Boris Nemsic is the CEO of mobilkom austria and the COO of Wireless Telekom Austria. Boris Nemsic began his career at mobilkom austria as the director of the Network Planning Department. Dr Nemsic subsequently assumed leadership of the team applying for the second GSM license in Croatia and, upon winning the tender, Dr Nemsic was made CEO of the newly created company VIPnet Croatia. After VIPnet’s launch, Dr Nemsic returned to mobilkom austria as CEO. When mobilkom austria became, once again, a wholly owned subsidiary of Telekom Austria, Dr Nemsic was named the COO of Wireless for Telekom Austria. Dr Boris Nemsic is the author of numerous scientific papers, which have appeared in both Austrian and international publications, as well as at several IEEE conferences. Dr Nemsic was a member of the GSM and UMTS preparatory groups and serves as a telecommunications expert for the European Commission.

Article abstract

Austria with 8 million inhabitants now has more than 7 million mobile service users. Mobile communications traffic already surpasses fixed network traffic in Austria. Competition, full-coverage networks and lower tariffs made this possible. The competition, though, has entered a new, dangerous, phase. Price dumping in the mobile sector has already begun to force employee downsizing and investment cutbacks. The sector is now forced to consider how a viable information and telecommunications technology sector can be reestablished on the existing foundation.

Full Article

Information and Communications Technology (ICT) businesses–and with them mobile communications providers–are engines of innovation for national economies. This year ICT will contribute roughly four per cent of the GDP, total revenues from all companies of approximately €636 billion are expected. Yet one cannot overlook the narrowing margins, as customers are drawn to discount offers. How can this brave new world of mobile communication continue to function in the future? How can the success of Europe’s telecommunications industry be secured for the long term? The triumph of mobile phones in Austria began twenty years ago. The first portable mobile radio device was introduced in a small region in the west of our country. Ten years later, this region was the centre of attention once again: the first GSM base station was established in Vorarlberg, in west Austria, laying the foundation for the great commercial success of mobile telephony. Today, more than 7 million Austrians make mobile calls or use mobile data services. Sweden also experienced a similar boom in mobile communications; Sweden, since March of last year, has more mobile phone customers than inhabitants. The number of GSM users worldwide continues to rise; in February 2004 the number of GSM users reached the 1 billion mark and that number is expected to increase to 1.4 billion by 2007. Two factors made this boom possible–full-coverage networks and lower tariffs. Not until the country’s mobile networks had been expanded to a population coverage approaching 100 per cent, was the success of the mobile phone secured. After all, every customer wants to be able to reach, or be reached, by any other customer at any time–even in very remote areas. The better the network quality became, the less frequently calls were disrupted, the more the mobile phone was able to establish itself. In terms of volume, mobile communications traffic has already surpassed fixed network traffic in Austria. Full coverage and affordable tariffs The second success factor in the mobile communications boom was the lowering of costs through reduced tariffs and subsidised handset costs. In 1984, the mobile phone cost roughly €3,000. At that price, full coverage for all Austrians would have been unthinkable. With liberalisation came additional mobile communications operators and the beginning of competition for customers, which often prompted lower prices rather than higher quality. Austria is one of the European countries where the mobile communications market is highly competitive. While the country has just over 8 million inhabitants, it is nonetheless home to six GSM or UMTS operators, one of them an MVNO–a Mobile Virtual Network Operator. In a Europe-wide OECD comparison in 2003, rates for mobile voice services in Austria were already among the lowest in Europe. The battle for mobile communications customers entered a new phase in the first quarter of last year. In addition to free mobile handsets and credit systems, one operator began to offer cash as an incentive for customers to switch providers. It began to look like–in the words of Austrian economist Joseph Schumpeter–”new growth as a process of creative destruction”. The effects of ‘price dumping’ in the mobile sector have already begun to make themselves felt, in the form of employee downsizing and cutbacks in investments. These domestic difficulties weigh all the heavier as they also have an effect upon global competition. Europe’s growth gap, compared to North America and Asia, continues to grow. Economic recovery in Europe in the last two years has been weaker than in the US or Asia. As a result, both in domestic and international terms, we are faced with the following question: where is the mobile communications market of the future headed? How can we get out of the discount trap? This new–and in some ways destructive–form of competition has brought us to a turning point. We must now consider the following question: in which direction should the Austrian and European mobile communications industry be developing? How can a viable information and telecommunications technology sector be reestablished on the existing foundation? Will it remain an innovative sector that continues to develop new technologies and exciting applications? To achieve this, though, we will need to arrange the necessary investments. Or do we instead offer our customers voice telephony and mobile data services at the best and lowest prices? Innovation versus price–the current discussion can be reduced to this simple issue. In October of 2004, this set of questions was presented to 200 of Austria’s top executives. We wanted to know which criteria for success they ascribed to five different industries in Austria. The ranking of success-factors for the ICT industry was quite interesting. Customer orientation ranked ahead of quality and flexibility, in the first three places. The fourth place went to innovation and fifth place went to speed. According to the top executives, then, low cost takes a subordinate role in our industry. Success factor customer orientation–the key to survival for the ICT industry Customer orientation ranks much lower among other industries, for example in retail or manufacturing, than for the ICT sector. Customer orientation only ranks fourth in the consumer goods sector. The mobile communications industry’s success is based upon the popularity of the customer-oriented measures it put into practice. No industry has, in such a short span of time, devoted so much attention to satisfying customers and transforming them into a very special asset. Let me present some historical evidence to back up this claim. The second mobile communications operator in Croatia entered the market in the summer of 1999. Six months after launch it assumed market leadership; in the fifth quarter after beginning operations it reached the break-even mark. How was this done? The operator focused upon two aspects of customer orientation that, for Croatia, were new, unusual and especially service-oriented. First, a 24-hour call centre was established–a sensation for Croatia in 1999. Second, they concentrated on prepaid service. Since the purchasing power in Croatia was relatively low at the time and potential customers needed to precisely control their expenses, this approach was just what the times called for. Within a very short time, the mobile penetration rate in Croatia had risen to western European levels; it is now at 59.6 per cent. Today, companies interpret customer orientation as a demand for the creation of a discount line–yet this interpretation by corporate leaders is inappropriate. Most customers want good, continually stable, service, a good price-quality ratio and a forward-looking provider. We should never underestimate the customer. Experience shows that customers are quite capable of making a cost-benefit analysis of every expense. When customers receive appropriate service, they are willing to pay for it as well. Understanding this fact should help us to find our way out of the discount trap. Economically healthy corporate conditions–a prerequisite for success An economically and financially healthy company is the best basis for future success. A healthy company–particularly in the mobile communications sector–can both invest in innovation, research and development activities, as well as provide for infrastructure acquisition and expansion. A healthy financial and economic situation is needed finally to begin addressing the goals of the Lisbon strategy. Its implementation, with the aim of making the European Union the ‘most competitive and dynamic knowledge-based economy in the world’ by 2010, is more urgently necessary than ever. This is not just a question of stimulating the demand for broadband–or even mobile broadband; it is also needed to stimulate a positive economic climate, by developing a more business-friendly environment. A high-ranking panel of experts headed by former Dutch Prime Minister Wim Kok, noted the need for a systematic review of the effects of regulations on competition and, in the end, on the consumer. Such an analysis would ensure that the regulations do not unnecessarily impede economic activity. Optimistic perspectives for the ICT industry In addition to external measures, we should also be implementing internal measures to stimulate the business climate. To do this, each industry would do best by beginning with itself. The information and technology sector is leading the way. Of all sectors in Austria’s industry landscape, ICT executives have the most optimistic view of the future. This was shown in a survey carried out by Millward Brown, who took a census of the mood among my colleagues in the fall of 2004. Seventy-four per cent of IT and telecom executives surveyed see good perspectives ahead for their industry in 2005. Thirty-eight per cent of the CEOs from the manufacturing industry see a positive future for their sector in 2005, but among service industry executives only 35 per cent have a positive outlook. In the financial, banking and insurance sector, only every third executive is optimistic, just 32 per cent see good opportunities for growth for their own industry. In the retail and consumer goods sector, that number is only 29 per cent. Enthusiasm and optimism are the basis for the rapid growth of the mobile communications industry. Finally, when we look at all these factors together–the opinion of executives that discount prices are passé, the positive attitude the ICT sector has toward itself and measures taken by the European Union to create a business-friendly environment–the future of the mobile communications industry looks much better. We must resolutely follow that path which ensures us long-term growth. In order to retake the lead in the race against North America and Asia we must concentrate on European strengths, which were demonstrated once before with the introduction of GSM, such as the courage to innovate, to research and develop with the consumer in mind. I do not want to act as a clairvoyant for the year 2005, but the best way to predict the future of our industry is to help shape it. Let’s stay tuned!

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