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The Development Of Mobile Telephony Essay, Research Paper

Since the first cellular mobile telephone networks opened for business in the early 1980’s, growth in numbers of subscribers has consistently exceeded even the most optimistic forecasts. Even in the most advanced markets, this growth shows little sign of abating, and meanwhile, new markets are accelerating rapidly. So why is mobile telephony such a success story? And what are it’s scopes for the future? Cellular telephony was developed by AT&T (American Telephone and Telegraph), in it’s Bell laboratories. It operates by allocating a spectrum of radio channel frequencies to telecommunications systems. The radio channel frequencies are subdivided and assigned to a network of radio base stations each responsible for the coverage of a particular geographical area known as a cell (hence the name cellular telephony). Each cell has a radius of approximately 1.5 to 2.4km, and because cells operate on different frequencies, network operators are able to maximise their coverage by re-using these channels effectively. (Encarta 1996). Each cell is linked to a mobile communications telephone exchange, which in turn communicates with other cells, other networks or the national and international telephone systems. These mobile exchanges are more commonly referred to as either Mobile Telephone Exchanges or Electronic Telephone Exchanges. These exchanges are central to the operation of a mobile telephone network. Cellular base stations emit control channels which recognise the Electronic Serial Number (ESN), of a mobile phone’s whereabouts. Ultimately the call is delivered to it’s destination as the phone moves around the coverage area. Continuing call clarity is maintained by way of a process named “hand-off”. This involves the network automatically re-allocating the call to the channel with the strongest signal in the designated geographical area. The first mobile cellular network operators in the UK, (Cellnet and Vodaphone), began using analogue technology for their first networks because it was the only available and prevailing technology of that time. Analogue technology is based upon the transmission of sound by way of radio waves through an Analogue Mobile Phone System (AMPS), and conforms to the relevant Total Access Communication System (TACS), standards of operation in countries such as Italy, Spain, Austria and Eire. Unfortunately, analogue networks are limited, in that they suffer from severe capacity constraints. There are reception and interference problems, they are also less secure to prying ears and most importantly from a user point of view, coverage is restricted to the UK. Along with the expansion of customers there was also a concern about the availability of bandwidth as the radio frequency became overcrowded. Such inefficiencies obviously led to the demand for a new and improved alternative, so along came digital technology. The new digital networks use their allotted radio frequency’s more efficiently than analogue and sound is transmitted by computer code rather than by waves. This enables the network to carry a higher capacity of calls of a higher reception quality and enables the user access to a wider number of advanced features, such as Personal Digital Assistants, (PDA’s), mobile faxing and wireless e-mail. A new technology called signal compression has since been developed which dramatically cuts the amount of information that needs to be transmitted in order to get a message across. It was a combination of these new technologies that meant that mobile telephony could expand and two technological options then presented themselves. Time Division Multiple Access, (TDMA), technology has 3-7 times the capacity of analogue technology. It has been adopted by Europe since 1982 and the GSM (Global Systems for Mobiles) has also been developed. A number of American firms also developed CDMA, (Code Division Multiple Access Technology), technology. This technology has not caught on as much as TDMA, despite the fact it has 10-20 times the capacity of analogue technology. There have been commercial consequences concerning these new technologies. After all, which is to be the prevailing technology? The situation became complicated in the mid 1990’s. It is argued that by the year 2001 there will be over 300 million subscribers to GSM across the world. What happens though if the systems are not compatible? There are however, alternative technologies to that of cellular. The first was introduced in the late 1980’s and was called Telepoint. This is a classical example of a failed innovation in Telecommunications. The idea was that there would be a series of base stations across a region and users would have a handset which they could use to receive calls, provided they were within 200 metres of a base station. However, there were problems, such as: you could not make calls, only receive, handsets were very big and heavy and calls were very expensive. It was because of the advent of cellular and the fact that telephone boxes were much improved that Telepoint did not get off the ground. Three major Telepoint companies were Mercury, Callpoint, Zonephone and Phonepoint. In 1992, Rabbit (owned by Hutchison Telecom), tried to revamp the telepoint industry. They offered low prices, cheaper handsets and a paging service, but this still did not stand up to the better cellular service. The second alternative to cellular is PCS or PCN. This stands for Personal Communication Service/Network. It is not too different from digital cellular, except it uses many more transceivers and base stations (five times as many). An advantage of PCN is that the bandwidth is slightly larger, so more information can be passed and the handsets are more attractive to the customer. However a big problem with PCN is that it is very costly to construct a network. Despite the cost, PCN has taken off well, particularly in the USA. In 1993 the US government set aside a proportion of the airwaves for PCN. It defined 992 regions, within which it hoped companies would want to operate. The federal government then sold licences to PCN operators, which were by no means cheap. The government made a lot of money from these sales. In 1995 companies paid the federal government 18 billion dollars for these licences. It was then suggested in the Financial Times that it would take the same amount of money again to construct the network. However, this in no way put off the companies involved. The worlds mobile telephone networks are continuing to enjoy spectacular growth, even in relatively mature markets, annual growth greater than 60% is quite common. In the UK, for instance, the four mobile network operators, between them saw a market growth of around 75%, to more than six million subscribers in the twelve months to August 1996. And this was eleven years after the countries first cellular networks had opened. These operators were, Vodafone and Cellnet. Vodafone was launched as a subsidiary of Racal Electronics in 1984, and later emerged as a free standing company in 1991. Now quoted on the London Stock Exchange, Vodafone is the largest cellular mobile phone network operator in the United Kingdom and is even emerging as the dominant force in cellular communications in Europe. Vodafone operates two mobile phone networks; the original analogue system and the more recently developed GSM digital alternative. In the UK mobile market, vodafone is closely followed by Cellnet, the product of a joint venture between British Telecom and the Securicor Group. Cellnet, like Vodafone, also operates two mobile phone networks, installing it’s original analogue system in 1985 and more recently a GSM digital system. Despite initial problems in Cellnet’s failure to introduce an appropriate accounting system, Cellnet now places greater emphasis upon it’s network quality. The result is that the UK market is now evenly divided between both Cellnet and Vodafone. Today, despite aggressive competition from their digital rivals, Orange, and Mercury, One to One, the two analogue network operators have seen their subscriber base more than double, adding new subscribers three times as fast as their digital alternatives. (The Economist, 5th August 1995). In 1983, when the British government was considering applications from potential operators for cellular networks, most of the applicants assumed that each of the two licensed networks, (Cellnet and Vodafone), would have around 100,000 subscribers by 1990. In fact, they each had between 500,000 and 600,000 subscribers by that year. (Mobile Telephony-Market overveiw-1997). The high growth rates in mobile telephony are almost universal, with no sign of a ’saturation point’ being reached. The Nordic countries, (Sweden, Finland, Norway and Denmark), have consistently led the world in mobile phone penetration. In fact, by mid 1996, more than 25% of all Swedes had a mobile phone. Meanwhile, new mobile networks are being opened all the time, both in the most developed countries and in the developing world. In the most developed markets, new operators are competing aggressively to capture the consumer market for mobile telephones, positioning the mobile telephone as a genuine, and much more convenient alternative to owning a normal wired telephone. In developing countries, the mobile telephone market is often given a boost by the poor state of the fixed telephone network: business user’s who must have a telephone will choose a mobile phone, rather than waiting months or even years for a fixed line connection.

So what is driving the phenomenal growth in mobile telephony? There are four main factors, with complex inter-relationships. A wave of deregulation and reregulation has been sweeping through the world’s telecommunications network operators since the 1980’s. One event of major importance was the break up of AT&T in 1984, which saw the formation of seven Regional Bell Operating companies. Today, the 1996 Telecommunications Act defines a relatively free market, in which the traditional boundaries between wireline and wireless operators, and between local and long distance operators, no longer exist.Throughout Europe, the European Commission is driving the abolition of state telecoms monopolies. Governments are responding by privatising, or preparing to privatise their national telecoms monopolies, and allowing new competitors to set up rival services. However, traditional telecommunications services, such as the fixed telephone network, have proved difficult to deregulate. The existing networks owned by monopoly operators represent huge investments: and state telecoms firms successfully argue that they perform a social service by providing lines to subscribers in outlying area’s, at economic rates. Deregulation has been much faster, and had much greater effects in newer area’s of telecommunications. One of the best examples is mobile communications. In many countries mobile communications have provided an ideal test-bed for deregulation, to see what could be achieved by freeing the market from the constraints of a monopoly, and allowing operators to compete, as far as possible, on a level playing field. There is a striking correlation between the arrival of a competitive market in mobile telephony, and the take off in growth of subscribers. In countries where mobile telephony was provided by a monopoly, subscriber growth has been low, but as soon as competitors appear on the scene, the market began to grow very rapidly. One of the best examples of this is Japan. Here, mobile telephony was a monopoly throughout the 1980’s. Costs were high, and the attractions of the service were lessened by the fact that subscribers could only lease phones from the operators, they could not buy them. In consequence, both market penetration and growth were very low. In the early 1990’s, deregulation and competition began to take effect in Japan. Two new operators were licensed to provide digital cellular services in newly-allocated radio frequency bands, and finally, in April 1994, the terminal market was deregulated. Today with the new digital networks on line, the Japanese market is experiencing very rapid growth. Another example comes from Germany, where Deutsche Bundespost Telekom (DBT) was the monopoly operator of the countries analogue ‘C-Netz’. Partly because of capacity problems, C-Netz prices were kept very high, and subscriber numbers remained around 200,000 until 1992. In that year two networks operating the GSM digital standard, came into service. The ‘D1′ network was operated by DBT, but ‘D2′ was operated by a new company, Mannesmann Mobelfunk GmbH – the first direct competitor to DBT’s monopoly of telecommunications services. A further competitor E-Pus, which uses DCS 1800 digital technology, came on line in May 1995. The arrival of the digital networks released huge pent-up demand for mobile telephony in Germany. Prices fell, and the total subscriber base was approaching five million by mid 1996. Side-by-side with competition has grown sophisticated marketing of mobile telephone services. The first 5-7 per cent of cellular phone penetration is largely composed of business users, who are relatively insensitive to price considerations. After this threshold has been passed, more and more mobile phones are purchased by private users, then the mobile phone has to be marketed as an affordable, lifestyle accessory. For many mobile network operators, this means subsidising the initial purchase cost. In many markets, mobile phones are sold for a fraction of their ‘real’ cost, with the network operators and service providers making up the difference through call revenue – on air – time contracts that usually run for a minimum of twelve months.Other marketing initiatives include differential tariffing. High – volume business users pay a relatively high ‘rental line’ but with low call costs. Low volume ‘emergency only’ users pay a low line rental, but calls are charged at a higher rate. Geographical charging, with users being charged at a lower rate for calls made in their ‘home cell’, is a further marketing tool. Operators are now starting to differentiate themselves through Value Added Services (VAS), including voice mail, fax and e-mail. Through Short Message Services (SMS) and business group services, using Intelligent Network (IN) technology, operators will be able to create ever more individually tailored services packages, which the user will be able to use in networks other than his home network. The mobile phones themselves are an area where technological advances have helped expand the market. When the first cellular networks came into operation, car-phones were the only option. The size and power requirements made it unfeasible for users to carry their phones around with them. Even in the mid 1980s Ericsson was proudly advertising the ‘Hotline Combi’, a portable phone that weighed just 2.7 kilogrammes, and came with its own shoulder strap (Mobile Telephony – Market Overview 1997). Since then, the size and weight of mobile phones has been cut dramatically, and improvements in battery technology and power – saving features have increased battery life. Ericsson’s first hand – held portable phone was introduced in 1986, it weighed 665 grams, and provided 40 minutes of call time on a single battery charge. Three generations later today’s mobile phones weigh less than 200 grams, are less than a quarter of the size, and provide twice as much talk time. Costs too have fallen, the real price (as opposed to the often – subsidised purchase price) of a mobile phone in 1996 was less the one fifth of what it was in 1985.Technically there is no reason why mobile phones should not become the norm for everyone. The use of radio technologies combined with the advanced ’small cell’ technologies now being put into place, would provide sufficient capacity for everyone to use a mobile phone, instead of a fixed phone. As volumes have increased, and as standardised technologies such as GSM have produced scale economies, the cost of providing telephone services over a mobile network has come down. In many cases, it is now cheaper for network operators to connect new subscribers using radio rather than by running wires to their homes, and indeed ‘radio in the local loop’ techniques derived from cellular mobile technologies are proving increasingly popular with wired network operators around the world. But if everyone had a mobile phone what would happen to the fixed networks? Of course, fixed network telephone connections will continue to exist, and grow in number. There are still plenty of occasions when people make calls to an organisation or place, rather than to a person. And even if all private individuals have mobile phones, the likelihood is that their fixed-phone will evolve into something new, for example, the entry point to the ‘information superhighway’, offering a multitude of interactive broad band services such as video telephony, movies on demand, tele-shopping and teleworking. The mobile phones themselves will continue to reduce in size and be easier to use, with new functions and features being added and battery life being extended all the time. “Thirty years from now, the phone could look like a watch, a shirt button, or a broach…..The shirt button phone will be an immensely powerful voice-activated PC, based around an evolved microchip many times more powerful than the current Intel Pentium chips.” (The Times 17/11/97). The dramatic growth of mobile telephony has demonstrated how important convenience and freedom are to users. The Internet, with its ease of use and universal availability, offers the potential for equally dramatic growth in mobile data. Mobile computing is nothing new, but it has suffered in the passed from a variety of complicated factors that have delayed its widespread acceptance. Two important constraints, the lack of international standards and the lack of popular user application have been removed thanks to the Internet. By pooling their resources, mobile operators and Internet service providers will be able to create and deliver innovative, Value Added Services with broad user appeal e.g. through the combination of mobile messaging and Internet services. Business applications such as remote access to corporate networks are likely to be the main drivers for wireless Internet access. However, experience from the fixed network shows that private users will adopt such applications too. It is argued that in the future, networks and mobile phones will evolve in parallel, to provide services that are increasingly personalised to users’ needs. This will happen as a result of increasing intelligence within the networks, but also as a result of increasing competition in the market for services. Service provider companies will be the drivers of this new market, which will progress through their ingenuity in devising services, not just mobile telephony, but data-oriented and entertainment services too. Is this true? Only time will tell.

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