One press article after another has asserted that the European Union’s single standards regime for wireless services has given Europe an enormous “lead” over the United States. These stories, however, do not present a complete picture regarding the global leadership of the U.S. wireless industry-a leadership advanced through innovation, increased wireless usage and market-driven standards.
Innovation
U.S. wireless firms are undeniably responsible for some of the most significant technical innovations in this field, including extensive contributions to the development of third-generation standards for wireless communications. U.S.-developed technology is at the heart of three of the five technical standards for 3G endorsed in November by the International Telecommunication Union, a treaty organization of the United Nations that is coordinating the worldwide process to establish global 3G wireless standards through a project dubbed “IMT-2000.” These innovations are a direct result of the free competition that U.S. policy promotes.
Code Division Multiple Access technology, a product of the freely competitive U.S. marketplace, was the first-to-market second-generation wireless technology to introduce high-speed data capability, coming on line in mid-1999. Comparable speeds on Global System for Mobile communications networks, the only second-generation technology licensed in Europe, will not be introduced for at least several more months. In addition, Qualcomm Inc., the developer of CDMA, continues to be a technology leader, recently announcing a product that enables data rates from a moving vehicle more than 10 times faster than the parameters specified for 3G, years before 3G systems have even been built. U.S. and European industry groups are co-developing high-speed data applications that will serve as their stepping stones to 3G.
Moreover, U.S. firms are competing head-to-head with European firms for wireless contracts. Motorola Inc. is the world’s second-largest supplier of GSM handsets, and Motorola, Lucent Technologies Inc. and Nortel Networks all have significant sales of GSM systems. In addition, U.S. firms have developed the simplified browsers and servers that wireless carriers in the United States, Europe and elsewhere are embracing for the up-and-coming wireless Internet. Thus, even as Europe attempts to achieve its longstanding objective in terms of 3G technology hegemony, U.S. manufacturers are innovating across all standards, are competing for each and every contract and are by no means slouches or followers.
Growing usage
Finland, coincidentally home to mobile phone leader Nokia, is typically cited as the most “wireless” country in the world. However, Finland is actually a bit of an anomaly, with wireless penetration double that of most developed markets. The U.S. average penetration level of 30 percent is comparable to the European average. In fact, overall U.S. penetration exceeds penetration in three out of four of Europe’s largest cellular markets-the United Kingdom, France and Italy. And in most major U.S. cities, wireless penetration has reached 50 percent. The high cost and mediocre quality of European basic telephone service relative to the United States makes wireless service more attractive to European consumers than wireless service is to Americans. In the United States, most local phone service is provided on a flat-rate basis, with the result that Americans seldom consider the cost of a local phone call. In Europe, on the other hand, local phone service is metered, meaning that each local call and each minute costs the user incrementally. In Finland, for example, most local calls cost approximately 8 cents per minute during business hours. At the average U.S. rate of home usage of 1,200 local minutes per month, that would amount to $96 per month for local telephone service-well over three times the average American monthly residential local phone bill! So why not use your mobile phone?
Secondly, greater wireless usage should by no means be equated with greater technological prowess. Short messaging service and wireless e-mail, often touted as examples of European leadership, are neither highly sophisticated nor high-speed services. They do fill an unquestionable communications void, since Internet connectivity is so low in Europe that sending an e-mail to a mobile phone is often the only way to be sure that it reaches the intended recipient. The oft-cited example of paying for sodas from vending machines via wireless phones, incidentally independent of the Internet, is not a highly marketable application. Interestingly, the biggest users of these services are the technologically savvy users in the 16-26 age bracket.
Standards
It is true that European technology is predominant in today’s global wireless market-but let’s be clear about the fundamental reason behind this. It is because the Europeans imposed, by law, a single European standard for second-generation (digital) wireless systems, GSM, which replaced a hodgepodge of incompatible first-generation analog wireless telephony systems. Although the initial purpose was to ensure cross-border compatibility within Europe, this policy has long since served purely protectionist purposes. After developing GSM in the closed home market, the Europeans took GSM on a global road show. This was so effective that there are only a handful of countries around the world to this day where GSM and CDMA operators compete head-to-head. Clearly, European industrial policy strategists intent on perpetuating the EU’s standards success into the next wireless generation have one aim-promoting European industrial hegemony in European and global markets. Thus, it was the EU’s protectionist standards regime, not the comparative virtues of GSM technology or the needs of consumers, which propelled GSM to the top. The true test of technological superiority would be if all technologies were allowed to compete on a level playing field and operators were given the opportunity to select their preferred technology based on commercial considerations.
U.S. policy favors neither a single standard nor multiple standards. The United States favors market-driven, rather than government-imposed, standards, deferring to the market and open private standards-setting procedures to determine the appropriate mix and variety of standardization. This market-driven standards policy has supported U.S. leadership in virtually every sector of the high technology revolution sweeping the world. This policy drove the initial commercialization of CDMA technology, which the Europeans subsequently recognized as superior by adopting it as the basis for their next-generation wireless standard. This is what Secretary of Commerce Daley and other U.S. Cabinet officials have aggressively advocated with the European Commission over the last year and half.
Japan and competition
So how competitive will U.S. companies be as 3G technology is rolled out in global markets? Japan provides a good example, since years ago, the Japanese market was generally viewed as closed to foreign standards. The Japanese eventually learned that this exclusionary practice was highly risky, when they were notably unsuccessful in exporting Japanese wireless technology. U.S. wireless technologies have been allowed to compete freely in Japan throughout most of the 1990s. Challenges from competitors launching CDMA technology in mid-1998 prompted NTT DoCoMo, the world’s largest cellular operator, to accelerate the roll out of its “i-Mode” wireless Internet service. As a result, Japan actually has the most commercial experience to date with high-speed wireless data and wireless Internet-i-Mode has proven highly popular with consumers since being introduced early in 1999, with more than 3 million subscribers in just 9 months. Japan has already approved two standards for 3G services, and in 2001, NTT plans to launch the world’s first 3G network. Both Lucent and Motorola will supply equipment for NTT’
s network. Also of note is NTT’s announcement that
it will establish a research and development base in California to strengthen its Internet technology and to promote 3G services in the United States.
In conclusion, global leadership in wireless technology has been shared between the United States and Europe for the past two decades and will likely continue to be shared for years to come. Each country brings important contributions to the table. However, it is essential that all players have a seat at the table as we develop and begin to use the next-generation wireless technology. In this new era, being a leader in cellular technology will not necessarily assure leadership in delivering IP-based systems for next-generation networks. Such leadership will stem from survival in a highly competitive market environment. Perhaps the most positive outcome of the 3G debate, albeit via an arduous path, has been the ensuing dialogue and significant technical harmonization which makes it possible for all current operators to evolve their existing networks to the next generation. Hopefully, the global wireless industry will finally embrace the premise that free market principles grow the market for everyone’s benefit.
David L. Aaron is undersecretary of commerce for International Trade. He is the head of the International Trade Administration and is responsible for formulating and providing leadership for U.S. trade policy.
