Introduction

In this chapter, we first define the concept of socially desirable m-commerce in European context. We provide a brief explanation to the present slower than desired m-commerce evolution by reflecting upon the characteristics of proprietary networks and consequent industry structure. Then we provide an outlook on relevant fundamantals of m-commerce regulation, and finally, discuss the regulation in the light of the future scenarios for mobile commerce.

Desirable M-Commerce in Information Society

How does the present regulation on m-commerce support the information society initiative (CEC, 2000a), especially with respect to proprietary mobile networks? We must remember that when the legislation program was drawn up, the situation of the market was much more positive and techno-optimistic than the situation at present. The initiative has a bold objective to:

"… bring everyone in Europe—every citizen, every school, every company—online as quickly as possible. Accessing and using the Internet, whether via a computer, a mobile phone, or a TV set-top box, must become commonplace." (CEC, 2000a, p. 5)

with the following means:

"At the European level several measures have been taken to promote the information society: advancing the liberalization of telecommunications, setting a clear legal framework for e-commerce (e.g., privacy, authentication, security), and supporting the content industries and R&D. These policies are still evolving, as are the structural reforms necessary to enable productivity growth from the uptake of digital technologies, and issues such as a favorable tax environment and intellectual property rights will remain on the agenda." (CEC, 2000a, pp. 4–5) ^[1]

Our interpretation of the socially desirable development of m-commerce is that the majority of people could access the services at an affordable price. The achievement of this goal depends on the one hand on the development of markets and on the other hand on the attainment of consumer trust (privacy, consumer protection, etc.). The ideal would be to provide an ample number of competing, interoperable mobile services throughout Europe at low cost, at least with the same level of protection of privacy and consumer rights as on the Internet.

Present Situation in M-Commerce

Let us briefly summarize the status quo of m-commerce on proprietary networks: the field of telecommunications was to be one of the drivers creating wealth for the European information society. It was the area where the Europeans were clearly ahead of the competition. The seamlessly roaming and robust 2G GSM networks and well-met mobile technology throughout the Europe were to serve as springboards for developing profitable mobile services for the Internal market (CEC, 2000a). The Commission took initiative by quickly modernizing a number of laws to smooth the introduction of a Europe-wide information super-network.

It seems that Europe has not been too successful in hitting the right market at the right time (CEC, 2002a) and there is evidence (Aarnio et al., 2002a) that shows the growth of the mobile services market is, if not stagnating, not growing too fast. The financial situation of the European telecom operators has weakened drastically, and it is reflected along the value chain—especially to hardware manufacturers and wireless application developers.

What has happened? In public discussion the UMTS licensing rounds are the biggest single factor to blame. The telecom operators invested billions of euros in the hope of gaining access to huge 3G customer prospects. By 2003, the same operators had written off tens of billions of euros worth of obsolete UMTS licenses. It seems that nothing was learned from the U.S. experience in auctioning 2G licenses.

There are some fundamental structural changes on the way as well: The traditional business of telecom operators, i.e., circuit-switched voice calls, are diminishing at a rate of 5% to 10% per annum. Fast Internet connections over the operators' copper wires (xDSL) are challenged by cable modems on modernized bidirectional CATV networks. The much-awaited growth from increasing mobile multimedia messaging, machine-to-machine communications, and vertical solutions for B2B commerce is still to come.

The field is still going through deregulation of national telecommunications. Despite the liberalization, we should not forget the constant eagerness of national governments to impose taxes such as telecom tax and VAT on telecommunications services. Also the German case of subsidizing Mobicom directly shows that the politicians have hard times to accept operators to go in bankruptcy, albeit this would be natural on the competitive market.

Thus, the market on the traditional PSTN ^[2] operations is diminishing, the growth of packet-switched services is less than expected, and there is uncertainty on the direction of the whole field. Altogether this has significantly slowed down—nearly halted—the investments on new network technology. This downturn is further reinforced by the consolidations of some market area (e.g., Telia-Sonera fusion in Sweden and Finland). The primary strategy of telecommunications operators has been to turn back to their origins, and to conservative pricing of their services. And their strategy shift matters, because the proprietary nature of mobile terrestrial cellular network technology sets them in a position to be capable of controlling the access to and provision of services.

Mobile Networks vs. the Internet

There are different types of networks for mobile access. Without going into the technical details, and keeping our confinement to regulatory issues from the m-commerce point of view, the key aspects are as follows.

If we compare the mobile networks with the Internet, there are major differences. The Internet is built on a set of proprietary networks, but by itself it is nonproprietary, whereas the operator-controlled 2G–3G mobile networks are limited to a certain geographic region. The Internet has no central administration or ownership, yet the resources are controlled in a cooperative manner in various taskforces, such as IETF, ICANN, etc., which should solve resource and capacity issues in a nondiscriminatory manner (Lessig, 2001).

On mobile networks, access and transfer capacity are scarce. Scarcity is not the main problem on the Internet, because adding capacity is pretty straightforward and low cost. Also in terms of positive network effects, the Internet's openness and capacity advantage make the difference: the more users, the better service can be expected via the accumulation of social capital, information, and accelerated feedback.

Although the Internet is considered as an infrastructure-like, free, common resource (Lessig, 2001), 'somebody' made the initial investments and gave the Internet technology its social shape. More and more studies are starting to emphasize the cooperative interplay between various parties instead of competition and survival of the fittest as the driver of the diffusion. For example, Rai, Ravichandran, and Samaddar (1998) found an unexplained surge of capacity growth in the beginning of the history of the Internet. They figured out that it was due to the initial endowment of the governments to the early development. Similarly, in a summary of a recent study on the development of 1G NMT and its successor 2G GSM for Europe, the explanation of the success of the latter was that:

"Nordic countries were unique in understanding the relationship between technology and society; that technology is socially shaped and it had to serve needs of society. This basic starting-point gave tremendous lead to Nordic countries." (Manninen, 2002)

For WLAN access, use, and roaming there is a growing Internet and LINUX kind of an open movement (about the phenomenon: see, e.g., Himanen, Torvalds & Castells, 2001) to provide free access for any purpose.

Interoperability can be guaranteed by roaming agreements or for free. The Internet is an example of the latter, roaming agreements between proprietary network operators. The key issue here is that on the Internet the services exploit 'free' infrastructure, whereas on the proprietary network you have to pay for every bit passing the pipe, or for every second you occupy the channel.

Pricing. Although the deregulation has increased the number of mobile networks, the markets are still remaining oligopolistic. It seems that at least some mobile operators in Europe have been able to charge more than 'socially desirable' fee; i.e., people consider the mobile services too expensive (e.g., Aarnio et al., 2002a) and mobile service providers have to pay unreasonably high share of the revenue to the operators (e.g., if compared to the NTT DoCoMo -model).

To conclude, from a user's point of view, the usage of the Internet is basically free, althouhg the user must pay for the access. A service provider can establish any service on the Internet without asking a permission from a network owner. On the mobile networks a user must pay both for the access and data traffic and furthermore for the roaming. A service provider cannot establish a service for mobile platform without cooperating with a network operator. One can argue in favour of these arrangements on mobile networks for the sake of quality of service, security and privacy.

It seems that on mobile networks there is room for regulation in both guaranteeing the socially desirable outcome and ensuring competitive provisioning of services. In the following we will analyse to what extent the new European legislation will address these topics.

^[1]The action plan consisted of 60 items to be performed according to CEC (2000b).

^[2]public switched telephone network