Regulation in Different Scenarios

The new SMP regulation framework is flexible, and the possible SMP ex-ante obligations (e.g., including nondiscrimination, cost-oriented pricing, access to specific network elements for other operators and service providers) ensure that structural market problems can in principle be dealt with if needed. According to the ex-ante principle, potential problems can be dealt with before they become problems.

The hard question is, however, the implementation of possible SMP obligations—the definition of product and geographic markets. How are the investments and financial risks taken into consideration? What kind of SMP measures would be best suitable for the present situation? What is best for the competition in the long run?

With the help of scenarios ^[11] drawn up by a set of experts in the MobiCom study (Aarnio, Enkenberg, Heikkil , & Hirvola, 2002b), we try to anticipate the possible measures to be taken by the regulators of meeting the social needs to encourage mobile commerce.

Depression Scenario: Business as Usual—Slow Growth in Search of Business Models

The growth is slow and the services limited to some specific user groups. The innovation and investments on mobile commerce have halted. Neither the public nor private sector is interested in a mobile channel as the primary means to serve their customers. There is a relatively small user base for value-added services. The bad experiences in privacy and IPR protection (complex, ineffective) on the Internet are creating a vicious circle of mistrust among potential users and content providers.

The outcome of this scenario from the m-commerce point of view is that mobile proprietary networks will not become the platform for information society, but will be limited to specific use situations primarily with prosperous users (businessmen, academics, etc.). Another usage will be on the entertainment, filling in the 'dead time'. In many cases there is a shortage of innovative and operative capacity—only bombproof investments are made.

If this scenario, combined with the associated stagnation of markets, is likely to happen, the regulator is facing a number of decisions in the particular timeframe in avoiding the scenario to come/remain true. It means introducing heavy measures right now.

However, it is unlikely that heavy SMP measures are used in the beginning to correct the situation towards more liberal (competitive) market direction. This is because the NRAs take into consideration the heavy risks, investments, and losses in the telecommunications sector and believe that in the long run competition will eventually come and sort out the problems. The benchmarking of mobile commerce will arrive late, as in the very beginning of the period, few NRAs made accurate market analyses to identify the acute problems. When a market situation becomes clearer, the regulators must make decisions on the appropriate and proportionate legislative measures, primarily on SMP undertakings. We estimate that enforcing the measures will take more time than expected and their effects even longer to realize.

Thinking of it another way, this may benefit the competing channels (e.g., VoIP-phone calls, WLAN access to the Internet, DVB, etc.), which may well take over the role of cellular networks as the primary building block of information society. This would also make the industry more Internet-focused, as the same services will work over the high-speed, nonproprietary air-link.

Internet Scenario: Deregulated, Liberalistic Markets

The present mobile network operators are left virtually with only a 'bit pipe'; the air-link is open for competition. Bankruptcies are common and there is a need for strict cost-cutting strategy. This jeopardizes the privacy and content copyright. This development will also hurt the image of proprietary networks as a solid, secure, and reliable channel for mobile services.

Sector-specific regulation in mobile communication markets has finally given way to application of general competition policy on the markets. This results in a situation where the present mobile network operators are horizontally isolated in providing the access and transfer of content. Regular market analysis keeps the competition in place and intervenes immediately to any distortions. The regulator opens the air-link for competition (like the last-mile), it introduces portable numbers, even insists on opening SIM for other service providers as well, when seen necessary.

There has been a regulation policy choice to make, whether or not to start pushing the price level aggressively down (to a fraction of the present level) on access and services to fasten the trials and attract a larger user base. This survival-of-the-fittest contest is holding back the competing technologies, and the NRAs are intervening only in terms of competition policy. This is well in line with the communications regulation framework.

Bankruptcies are actually a natural consequence on the competition, so a lot of emphasis is put on the creation of a secondary market for the licenses as a way to protect the investments.

Unfortunately, we see a wide discrepancy between such policies or regulative measures that aim at prosperity by means of fostering competition between networks in this scenario, and the near-term capability of the market players to change towards that objective. In the beginning of our timeframe, there is also an evident need to take heavy ex-ante measures (i.e., already in 2002–2003) to get real effects. This creates a high uncertainty concerning the technical and commercial evolution of the competing channels; it affects consequently the willingness to invest and create content for the mobile commerce market. Because of misjudgments on the competitive situation, this has not been the case. Even if aggressive measures were taken, their outcome comes too late within the few next years.

Consensus Scenario: Consensus for Controlled Growth

Actors in the field of m-commerce are working together in creating a growing market for all kinds of mobile services. The operators have probably been able to expand the oligopoly to other technical platforms, but this is not seen to be a major threat to competition, as it provides a predictable environment for both consumers and businesses at various levels of the value chain. Alliances and mergers among the operators are seen as a good way to improve the utilization rates of the platforms. It is also possible to protect both copyright and privacy issues, because the number of players is limited and they are in constant dialogue with the authorities.

Actors in the field of m-commerce are working together in creating a growing market for all kinds of mobile services. Despite the network operators' strong position, the markets are relatively efficient and competitive. Regulators are paying special attention to protection of investments in UMTS of the telecom operators to ensure operators' willingness to invest. The operators have probably been able to expand the oligopoly to other technical platforms, but this is not seen to be a major threat to competition, as it provides a predictable environment for both consumers and businesses at various levels of the value chain.

Operators are in a key role in advocating national innovativeness and competitiveness in mobile commerce. Alliances and mergers among the operators are seen as good ways to improve the effectiveness of the platforms. Although large-scale fusions are seen to compromise national interests and there is a fear of some players becoming too dominant, fusions are allowed. As a trade-off, operators are introducing transparent, affordable international roaming on the implied regulative measures. Heavy measures by the regulatory authorities are not needed because there is a strong consensus among the actors to actually develop the services and enlarge the customer base. Common good is a priority.

Although this scenario is somewhat welfare diminishing, as it is not striving for maximum innovativeness under competition, it was considered by our experts of MobiCom as a balanced and desirable way of developing out from the present-day situation. It is also possible to protect both copyright and privacy issues because the number of players is limited and they are in constant dialogue with the authorities.

^[11]The full set of scenarios are available in Aarnio et al. (2002b). Also the method, Godet' structural scenario methodology (Godet, 1994), and its use, data sets, etc., are explained in the report. The fundamental difference with Godet's methodology from our perspective is that it takes explicitly into account the strategies and conflicts of interests of stakeholders. It also puts a lot emphasis on the path analysis, i.e., on the events leading from the present to the future states.