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Competition in the European Mobile Phone Industry

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Competition in the European Mobile Phone Industry
Competition in the European mobile phone industry: Introduction of UMTS in Spain

Unique characteristics of the phone operator compared to traditional manufacturing sectors

Many of the fundamental characteristics differ between manufacturing and services. These include the following:
· Ability to develop and protect proprietary technologies: Imitation is simpler for a phone operator; manufacturing process/system patents are more difficult to obtain and protect.
· Incremental nature of innovation versus discrete technology transition: Because of competitive pressures and the relatively low cost of modifying service provision (compared to changes to manufacturing processes), services offered by phone operators can continually evolve.
· Technology Development. A key distinction is the nature of research and development. Manufacturing firms conduct a larger share in house, and the output of that internal activity is more likely to be a proprietary technology. For phone operators, little research occurs in house, and the development activity that occurs is primarily related to enhancing, redesigning, or reconfiguring others' proprietary technologies. Whereas manufacturing firms license/purchase others' technologies in the form of intellectual capital or equipment to be used to produce proprietary technology, phone operators would purchase others' technology in the form of equipment to be modified and integrated into their operational system to deliver modifications to existing products. In addition, manufacturing firms strategically, through their research, introduce new technologically advanced products and processes to anticipate new consumer wants; whereas phone operators strategically, through information gathering, modify existing products to meet existing consumer needs.

Will the introduction of UMTS be successful? Which factors will affect the success or failure of UMTS?

UMTS is bound to be a huge success since it is the ultimate convergence of fixed and mobile, voice and data, content and delivery. Some of the many "usable-on-the-move" applications that can be implemented by UMTS are:
· Messaging services like multimedia messaging
· Content specific applications like news, music, and other entertainment services.
· Personalized services like ring tones, interactive games, virtual communities
· Mobile Banking, Mobile Commerce - buying digital content
· Business services requiring secure connectivity
· Access to the Internet and intranets
· Access to collaborative applications like managing list of contacts, meeting arrangers etc.
· Synchronization with PC (address book, agenda, e-mails, etc)

Key success factors for UMTS from various standpoints are listed below.

Technology:
· Network Performance – Capacity Planning & Management, Encryption and security
· Interoperability/roaming – Maintain constant service levels between different service providers.
· Backward Compatibility – towards older commercially deployed systems.
· Broad band Technology- Voice and Data (e.g. TV)

Business:
· Marketing Strategy – Need and Service oriented, transparent pricing structure, product bundling
· Usage scenarios – Services embedded into users daily life

End user:
· Attractive – Single point of entry to value added services focused on customer needs
· Availability – Anytime and Anywhere, Instant access
· Convenient and secure – Plug and Play, End-to-End security
· High quality – Always at the same level
· Pricing – Low access flat rate as well as flexible pricing structure (nights, weekends, working days, etc)

Did it make sense for phone operators to pay license fees in the billions (in markets where licenses where auctioned off)? Please be specific.

Paying huge licensing fees for UMTS does not make sense especially with the uncertainty over payback period, return and profitability. Phone operators will suffer from distorted competition that will arise through the unprecedented high sums that have had to be paid, thus causing market fragmentation. Having paid huge sums for the UMTS licenses, phone operators are under tremendous pressure to shore up the financial resources needed to develop the necessary physical infrastructure to power the new services.

Another latent risk could be an early substitution of UMTS by a new technology meaning a huge write off (depreciation) of the high sums paid for said licenses by the operators. This could have a negative impact on the profit and stock value.

A better approach from the Governments could have been to stretch out the payments over a period of time or to have a royalty-based system where operators could pay a percentage of their future annual revenues over the years.

Recommendations for competitive strategy for the introduction of UMTS for Telefónica and Xfera

Telefónica:

· Being the market leader in Spain with a significant and increasing gap relative to second operator Vodafone, Telefónica should take the first mover advantage (who hits first, hits twice) by launching its UMTS services at the earliest. Having installed the necessary 750 Node B before Vodafone gives Telefónica a significant advantage.
· Telefónica, as a former State owned company, still has a strong political network, influencing changes in the legislation (high entry barrier for other competitors, e.g. Jazztel).
· Telefónica can become the first operator in Latin America to launch 3G services, thus giving it the 100% market share and driving revenues.
· Rapid expansion in Europe by leveraging on existing market presence and strong cash flows from Latin America and Spain.
· Leverage on its existing superior media and content management capabilities to build convergence and interactive services.

Xfera:

· The best strategy for Xfera would be that of an opportunist. To compete in Spain's market for 3G clients without existing customers or infrastructure in the current generation of GSM technology does not leave many options open for Xfera.
· One of the options is to lease capacity to a Mobile Virtual Network Operator (MVNO), who would manage relationships with customers and content providers. This will provide opportunities for accelerated market penetration, tapping new inaccessible market segments, add additional revenues to cover for 3G investments costs, and might extend the brand of the network business.
· They could also start by launching virtual operations using rented GSM capacity from one of the other major networks till the completion of its own 3G network. This would help in generating revenues and capturing customers who could be migrated to 3G in due time.
· After the initial foray into 3G services, Xfera has to invest in developing in-house capabilities or partner with content providers to develop innovative products and services (applications) that will stimulate churn.
· Their basic strategy should be geared towards forming alliances with market leaders and technology providers to strengthen their position as newcomer in the Spanish market.
· Building a recognized brand name with the aim to sell it in the near future could also represent an option for them.

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