Factors Impacting Diffusion Patterns of Mobile Technology and M-Commerce

Laid out in Table 3 are the primary factors responsible for the meteoric growth rate of mobile phones and m-commerce technologies, as well as the highly heterogeneous adoption patterns just discussed. While design issues surrounding portals and interfaces doubtless influence the short-term uptake of m-commerce services (e.g., the flop of WAP versus the success of i-mode), the emphasis in Table 3 is on basic economic factors favoring the rapid growth and diffusion of mobile technologies generally.

Table 3: Factors Influencing the Diffusion Patterns of Mobile Technologies

Factor	Elaboration and Explanation
Inherent diffusion-accelerating attributes	Mobile technologies have inherent diffusion-accelerating attributes: Potential to save time (relative advantage), ability to connect to existing telephone network (compatibility), operation method same as the "regular" phone (low complexity), status-conferral to potential buyers (observability), and possibility to borrow a friend's cellular phone or handheld device for trial (trialability)
Mobile technology effects	Many factors lower the barriers to adoption: Low fixed and operating costs of mobile networks, ability to operate in areas with no electricity, low social barriers to adoption, infrastructure resources less prone to theft and vandalism, geographical flexibility, and innovative pricing (such as prepaid services)
Rapidly deployable technology	Mobile networks can be deployed rapidly: Ongoing reductions in fixed and operating costs due to progressively cheaper and increasingly powerful components enable rapid deployment
Infrastructure effects	Large, established fixed-line networks create positive externalities: First- and second-generation mobile phones in advanced nations benefited from such network externalities Relative lack of fixed-line infrastructure favors cellular networks: Mobile networks are more attractive than fixed networks in developing countries that lack fixed-line infrastructures
Market size and industrial demand effects	Diversity and size of industries affects uptake of data services: The uptake is rapid when there are large, diverse industries likely to use mobile communications and commerce applications
Income and leapfrogging effects	Income levels influence mobile penetration rates and technology generations: High-income countries adopt early but end up having mixed generations of mobile phones, while low-income countries may adopt later with uniformly new generations of technology
Cultural factors	Culture influences adoption rates and styles: Cultural factors affect the preference for mobile phones over fixed phones; they also influence handset sizes and style preferences
Provider competition effects	Competition-driven innovations by providers often unlock latent demand: New marketing or pricing plans sometimes trigger substantial increases in use (e.g., one-rate plans in the United States)
Portal design factors	Availability of reliable and user-friendly interfaces: Uptake heavily influenced by the quality of portal design (e.g., WAP, i-mode)
Policy-related factors	Government policies influence the mobile sector: Public investment often funds backbone networks; telecom policy affects competition in and reorganization of the mobile telecom sector

In Table 3, insights from prior literature on the diffusion of mobile technology and m-commerce are incorporated. For example, the inherent diffusion-accelerating attributes are factors underlined by Rogers (1995, pp. 245–246), who sees mobile phones as having an "almost ideal set" of product characteristics:

• Rapidly falling cost and the potential to save time offer relative advantage.

• Ability to connect to existing telephone network increases compatibility.

• Use of the same method of operation as the "regular" phone results in low complexity.

• Status-conferral aspects of mobile phones boost their observability.

• Possibility to borrow a friend's cellular phone for trial increases the trialability of mobile devices.

These classic diffusion-accelerating factors help explain the exceptionally rapid rate of cellular phone adoption. Similarly, Dholakia and Kshetri (2002, 2003) argued that several "mobile technology effects" also act as spurs to mobile technology provision and adoption. These include the following:

• Low fixed and operating costs of mobile networks.

• Ability to have mobile service, even in areas with no electricity.

• Low social barriers to adoption.

• Compared to the expensive copper wiring that is lucrative for thieves, mobile infrastructure is less prone to theft and vandalism.

• Geographical flexibility, in terms of covering difficult terrain without the need to lay copper wire.

• Innovative pricing, such as prepaid service plans.

Rapid developments in mobile technology made the "mobile technology effects" more prominent and the perceived attributes of mobile phones closer to ideal. A study conducted by Yankee Group found that worldwide wireless prices fell by an average of 38% between late 1996 and early 1999 (The Economist, 1999). Reductions in fixed and operating costs were more dramatic in some countries. In China, for example, connection fees as well as handset prices halved from 1997 to 1999 (The Economist, 1999). These costs are declining further. As James Bond, the head of the World Bank's telecommunications division, pointed out:

(T)here is a limit to how much cheaper fixed lines can get because they involve heavy investment in labor and materials. Conversely, mobile phones share the propensity of all digital technologies to become both cheaper and more powerful over time. (The Economist, 1999)

Furthermore, mobile sets are becoming hybrids between computers and phones. Third-generation (3G) and fourth-generation (4G) cell phones are bundling the functionalities of a phone, a computer, the Internet, and a credit card. These mobile sets allow high-speed data transmission, and the costs are likely to be lower than that of a personal computer, making the adoption more attractive for broad groups of potential users. In the Asia-Pacific region, for instance, the launch of 3G services has the potential to fuel the growth of mobile phones:

In the fixed-line network, it is market liberalization among the emerging giants of the [Asia-Pacific] region which is promoting growth; in the mobile network it is the launch of 3G services which promises growth, while for the Internet it is the development of more local language content which will spur growth. (ITU, 2000)

The emergence of prepayment pricing structures, one of the "mobile technology effects" mentioned in Table 3, has been a major factor driving the diffusion of mobile telephones. In 2000, the number of prepaid subscribers of Millicom International increased by 70%, with a 79% increase in prepaid minutes (MIC, 2000). Similarly, in 1999, 70% of new users in Thailand and 100% in Malaysia were prepaid users (The Economist, 1999). In the Czech Republic, Eurotel Praha, a mobile service company, is overcoming the lack of a credit culture by providing prepaid services via their mobile phones for shopping online (ITC Executive Forum, 2001).

3G and Other Mobile Technologies

The influence of technological, political, and other environmental forces on recent m-business technologies differs significantly from the mechanisms that influenced the diffusion of earlier cellular phones. While small Nordic nations such as Sweden and Finland pioneered in mobile telephony, large (and affluent) European and Asian nations—Germany, the United Kingdom, Japan—will probably spearhead the innovation process for next-generation mobile technology and business applications. In a cross-sectional study of major economies from Asia, Europe, and Latin America, Lehrer, Dholakia, and Kshetri (2002) found that the penetration rate of fixed phones has a significant effect on the diffusion of first-generation (1G) and second-generation (2G) mobile phones but not on leading indicators of m-business technologies, especially investment in 3G infrastructures. Market size (measured by population), on the other hand, appears to correlate with strong investment in 3G infrastructures. The wide range of possible applications for 3G—advertising, business data, e-mail, information services, SMS, transactions, voice (Johansson, 2001)—appears to favor large countries with diversified industrial bases. At the same time, several factors inhibit the move to 3G and 4G technologies. These include customer behaviors anchored strongly in PC usage and easy availability of "free" or low-cost services, including voice and Internet access.

Income influences the penetration level of mobile technology as well as the optimum combination of different generations of mobile phones. High income allows potential adopters to afford higher prices while embracing an innovation (Dekimpe, Parker, & Sarvary, 2000). In an international context, it can be argued that an economy's standard of living and the level of economic development influence the adoption timing as well as diffusion speed (Antonelli, 1993; Gatignon & Robertson, 1985; Dekimpe, Parker & Sarvary, 2000; Gruber & Verboven, 2001). A certain minimum level of income is therefore a prerequisite for an effective penetration level of mobile technology. For example, 3G and 4G mobile phones are likely to be more attractive for high-income economies than for low-income economies. ^[4]

In addition to income, the cellular standards adopted by a country are also likely to influence its national m-commerce potential. Given the variety of mobile standards worldwide today ^{[5] [6]} (Table 4), multiple dominant designs can be expected to coexist and compete for an extended period of time in m-commerce applications. Yet, adoption of specific standards creates a trajectory of change and growth. South Korea, for instance, with its Code Division Multiple Access (CDMA) standard of 2G, will find it less costly to upgrade to the CDMA-based 3G standard than Spain (with its non-CDMA 2G standard), and will, therefore, be able to adopt 3G more rapidly. CDMA-based networks in the United States will benefit similarly.

Table 4: A Comparison of Different Standards of Mobile Phones in Use Today

Standard	Description	Where Used?	Remarks
First generation (1G)	Based on analog technology Became available during the late 1970s and early 1980s	Worldwide
Nordic Mobile Telephone (NMT)	First commercially available analog system Introduced in 1979	Sweden, Norway
Advanced Mobile Phone Service (AMPS)	Considered to be the "most successful" analog standard Introduced in 1982	Worldwide
Total Access Communications System (TACS)	Based on AMPS	Originally specified for the United Kingdom	Extended TACS (ETACS) is primarily used in Asia-Pacific countries
Second generation (2G)	Digital wireless standards that concentrated on improving voice quality, coverage, and capacity Designed to support voice	Worldwide
Global System for Mobile phone communications (GSM)	First commercially available digital standard Relies on circuit-switched data The basic development that supports data at low rates (<9.6 kbps) has been used for e-mail from laptops	Europe, Asia	The United States accounts for 3% of the worldwide GSM market The United States introduced GSM in 1995 GSM customers estimated to reach 1.4 billion by 2005
Time Division Multiple Access (TDMA)	Introduced in 1992 Also known as "North American" digital standard	North America, Latin America, Asia, Eastern Europe	Originally, it was known as IS-54; now IS-136 (TDMA IS-136)
Personal Digital Communications (PDC)	Primary digital standard in Japan	Japan
IS-95	Based on "narrowband" CDMA technology	South Korea, North America
Enhanced Second Generation (2.5G)	Builds upon the 2G standards by providing increased bit-rates and bringing limited data capability Data rates range: 57.6–171.2 kbps	Worldwide
High-Speed Circuit-Switched Data (HSCSD)	Provides access to four channels simultaneously, providing four times the bandwidth (57.6) of a standard circuit-switched data transmission rate (4.4 kbps)	North America and Europe	Marks the first step toward 3G services Predecessor of GPRS
D-AMPS IS-136B	Introduced in 1999 The first phase of D-AMPS provided up to 64 kbps The second phase provides up to 115 kbps in a mobile environment	North America, Latin America, Australia, and parts of Russia and Asia
General Packet Radio System (GPRS)	Supports data rates up to 171.2 kbps (about three times faster than today's fixed telecom networks and 10 times as fast as current circuit-switched data services on GSM)	Europe	Standard from the European Telecommunicatio ns Standards Institute (ETSI)
Third Generation (3G)1	Will provide wide-area coverage at 384 kbps and local area coverage up to 2 Mbps Will supplement standardized 2G and 2.5G services with wideband services Will use packet switching instead of circuit switching; hence, no need to establish a continuous connection that dedicates a circuit for each call	Worldwide	Each packet contains a destination address and a sequence number so it can be independently routed and reassembled into a complete message
CDMA2000	CDMA multicarrier Also known as IS-2000.	United States	Expected to be compatible with CDMA and GSM/TDMA
W-CDMA	Also known as Wideband CDMA Currently the leading 3G standard Subvariants: WCDMA-FDD used in Japan, WCDMA-TDD dominates in Europe Based on AMPS	Europe, Canada, Japan Originally specified for the United Kingdom	In Europe, WCDMA is known as UMTS (Universal Mobile Telephony System) Extended TACS (ETACS) is primarily used in Asia-Pacific countries
TDMA-SC	Also known as TDMA Single Carrier UWC-136 (Universal Wireless Communications) and EDGE (Enhanced Data Rates for GSM Evolution) fall in this standard Will provide higher speed without changes in channel structure, frequency, or bandwidth	North America	EDGE is a radio-based high-speed mobile data standard with aggregate transmission speeds of up to 384 kbps when all eight time slots are used
Fourth Generation (4G)	Planned to have higher transmission rates (at least 100 Mbits/sec) Technological alternatives to fixed-frequency transmission for achieving such rates include ultrawideband (UWB) transmission	Worldwide	Originally anticipated by 2010, but Japan's NTT DoCoMo announced plans to implement by 2006, possibly using UWB
Fifth Generation (5G)	Still in speculative phase Term used by some to refer to "infrastructureless" ultrawideband (UWB) networks that would use handsets instead of base stations to relay signals (so-called "ad hoc" network)	Worldwide	Applications of ad hoc UWB networks to date mainly military; FCC approval for limited UWB use granted Feb. 2002
Sources: http://intel.com/technology/itj/q22000/articles/art_6.htm, http://www.cfo.com; http://www.etsi.org/frameset/home.htm?/pressroom/Media_Kit/GSM.htm; http://www.mobileinfo.com/3G/3G_Wireless.htm; http://www.mobile3g.com/GetContracts.asp; http://www.cellular.co.za/technologies/3g/3g.htm; http://www.refreq.com/WAPTech/wap_glossary.htm; http://www.socketcom.com/pdf/TechBriefMobilePhone.pdf; Lehrer, Dholakia, & Kshetri (2002); and authors' research.

While in Table 4 an inexorable evolution toward higher generations of mobile technology is suggested, disruptive technologies have begun to emerge. For example, the already uncertain profitability of 2.5G and 3G networks is endangered by the proliferation of so-called Wi-Fi or 802.11 hotspots. These are low-cost LANs that allow multiple wireless users within the radius of a few hundred feet to share a single broadband connection. Although Wi-Fi does not provide the blanket geographical coverage of wireless networks, it offers the speed of a fixed-line broadband connection, something that current 3G networks have no prospect of achieving. The technical and commercial disappointments of 3G networks to date raise the possibility that some countries may largely pass on 3G and one day leapfrog to 4G. In addition, the exorbitant cost of 3G spectrum licenses in some countries (the United Kingdom, Germany) may indirectly favor the emergence of technological alternatives to 3G because of the financial burden they impose on the companies responsible for installing 3G infrastructures.

Adoption patterns of mobile technology also depend on sociocultural factors. In newly industrialized Asian economies, for instance, people are more comfortable with smaller electronic devices and mobile handsets (Wilson, 2001). In China, on the other hand, the really small wireless phones initially did not sell well, because they were "too inconspicuous" and did not offer adequate opportunity to show off (low "observability" attribute). Later, the public attitude toward these wireless devices changed in China as well. Among the world's English-speaking countries, commonalities of language and close cultural links appear destined to elevate the United Kingdom to a "lead market" for 3G applications (Lehrer, Dholakia, & Kshetri, 2002).

As with other technologies, policy-related factors play an important role in the diffusion of mobile technology and m-commerce applications. For instance, government investment in the telecom sector, government initiatives to encourage mobile phone purchases, and intense competition in and reorganization of the telecom sector are found to be the major causes of China's rapid mobile telecom network growth (Kshetri & Cheung, 2002). The experiences of countries such as South Korea and Sri Lanka confirm the general rule that competition among mobile operators leads to lower prices and rapid mobile network growth (UNDP, 2001).

^[4]Leapfrogging effects of developing countries adopting the latest mobile technologies are going to taper off, as the developing countries accumulate sizable segments of mobile users. With 3G, and especially with 4G, only the poorest and most backward developing nations are apt to engage in leapfrogging. In other developing nations, the "mixed generation" pattern of the affluent economies will begin to take hold.

^[5]A variety of standards can be found even in a continent. For example, at the end of the first quarter of 2001, Latin America had 32 million TDMA subscribers, 15.9 million users had CDMA handsets, and 4.9 million had GSM handsets (Petrazzini & Hilbert, 2001).

^[6]The standards mentioned here are from the recent IMT-2000 (International Mobile Telecommunications-2000) recommendation.