Competitive dynamics of technological standardization: The case of third generation cellular communications

Industry and Innovation, Apr 2001 by Glimstedt, Henrik

This paper is concerned with the processes through which technological standards are developed, and how these provide platforms for the expansion and development of new markets. The case we investigate is that of third generation mobile communications. This is of interest not just in itself but also because the process of standardization here is contributing to the creation of an explosive worldwide market, and because the process of standardization is so intimately connected to competitive struggles between the major players, both as individual firms and major regions of the world economy. It appears to be the case that at the beginning of the 21st century the market for mobile cellular communications is about to take off in a very big way, due at least in part to the fact that a package of global standards has been developed that allows for modular innovation within standardized interfaces, and for regional variations. It is no longer a "winner-take-all" standardization approach, which in itself reflects the competing but collaborating interests of the parties involved.

The research took as its starting point a review of arguments for the continued importance of international standardization in the face of widespread deregulation. It linked this approach to three sets of initial assumptions, namely (a) that there is occurring a sustained long-term trend towards open standards in information and communication technology (Solomon 1998; National Research Council 1999); (b) that standards have frequently been used as a preferred method of controlling information markets (Shapiro and Varian 1999); and (c) the idea that successful restructuring and innovation processes in electronics are spatially embedded (Saxenian 1994).

Following these lines of thought, it was also assumed at the outset of this research project that in third generation OG) mobile telecommunications the European system suppliers like Ericsson and Nokia would be trying to repeat their success in developing the dominant worldwide second generation standard, GSM. Such a development path would result in one dominant 3G standard. And there was, in the late 1990s, ample evidence of a holy war in the next generation cellular telecommunications. Herschel Shosteck Associates, a well-known firm analyzing the wireless market, reported in 1998 that: We [Europe] can't let Japan and US get ahead; they might do to us what we did to them with GSM. So the ETSI [European Telecommunication Standardization Institute] is charging ahead to introduce their third generation wireless proposals to assure the Europeans have a defensible position. (Herschel Shosteck, quoted in Emmett 1998) Furthermore, a European Commission Communication on the issue of standardization in the area of ITC technologies bluntly states, for example, that "standards form a vital part of European industrial competitiveness policy". The same report concludes that the European ITC industry will depend on taking a lead in the process of formulating the technical specifications for future dominant technologies (European Union 1996a: 2).

By contrast, the empirical investigation nevertheless reveals a much more complex reality where standards are treated in modular fashion, and regional compromises have been forced on the major players. The European camp found itself eventually united behind a technological compromise, in alliance with the Japanese, while the Americans favored more market-determined outcomes, led by the dominant system supplier, Qualcomm of San Diego. The standardization process started with regional efforts to sponsor a singular technology in order to achieve a competitive technological edge. However, well into the process some of the key actors began to change their conceptual framework, embracing concepts like a "family" of standards. A revealing case in point is provided by the changes in Ericsson's standardization strategy. Having sponsored the technology it developed for Japan and the NTT mobile operator DoCoMo, which was based on a standard known as W-CDMA, Ericsson moved towards sponsoring a "family of standards". Evidently, Ericsson found it expedient to promote technological interfaces which facilitated roaming by users between cellular systems using different technologies (Nilsson 1999). Thus compatibility has been maintained, up to a point, and the scope for market expansion has taken priority over any single company's interests.

Based on these insights, the paper develops a chronological account of the competitive dynamics that lie behind the emergence of first generation (1G), second generation (2G) and third generation (3G) cellular communications standards. It focuses mainly on the European experience, comparing and contrasting it with the American and Japanese experiences, and latterly the worldwide efforts to develop a global package of 3G standards.

3G CELLULAR TELECOM SERVICES, STANDARDS AND MARKET POSITION

3G thrives on the convergence of switched telephony and TCP/IP communications. From the early analogue systems established in the 1970s and early 1980s until today's 2G digital systems, mobile telephony represents an extension of the fixed telephone systems. As has been noted in connection with the debate on the Internet and various National Information Infrastructure initiatives, seamless integration of telecom systems is not the same thing as seamless integration of computer communications systems. Seamless interconnect in a telecom system simply means that a, say Swedish, caller is able to establish a connection to a subscriber in a foreign telecom system. The system switches, or connects the call, but the telecommunications system is really but a one-trick pony-it does nothing beyond connecting the two persons. This means that the communications between the two parties involved in the telephone call ultimately relies on the ability of the two persons to communicate in a common language.