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Mobile Section 2: Questions regarding the strategies of the mobile operators

Question 2: In which direction will the mobile operators move over the next five years?

The mobile operators are located in Layer II (the network layer) of our industry model (see Basic Layer Model). From this positioning, the following integration and specialisation strategies are possible.

Strategy 1) Remain specialised in Layer II but expand geographically

Vodafone provides an example of this strategy. It merged first with AirTouch in 1999, a US-based global mobile operator, and then acquired Mannesmann, a mobile operator in Germany with subsidiaries in other European countries.

In addition to the developed countries which are at various growth stages in mobile communications, there are vast opportunities in developing countries, especially in middle income countries, such as China and those in Eastern Europe, where mobile communications will continue to grow rapidly over the next five years.

However, from an economic and business point of view, what exactly are the benefits of greater size? Why did Vodafone acquire Mannesmann? What benefits will the acquisition give Vodafone? Can the acquisition be explained in terms of economies of scale and economies of scope? Or has it more to do with stock market valuation?

Strategy 2) Vertically integrate into Layers III to V (this strategy is discussed in Mobile Question 1)

Examples of initiatives in Layers III to V of the mobile industry include the following:

• NTT DoCoMo's mobile internet service
• WAP, EPOC, Windows CE (see Technical feature 3)
• Personal Digital Assistant (PDA) terminals, such as Psion's Personal Organizer which has mobile access capability to the internet
• Mobile internet banking, (electronic wallet) e.g. at the UK's Woolwich
• Music distribution to mobile devices, because of high penetration among young people
• Vodafone and Mannesmann announcing alliances with dot.com companies, e.g. Vodafone's alliance with the BBC and Reuters to deliver the latest news to PDAs.
• Locator/Navigation Terminal on sale in Japan from NTT DoCoMo, Seiko-Epson and DDI.
• Microsoft - GE alliance to connect home appliances (refrigerators, microwave ovens, etc) to the internet

Will the mobile operators follow Strategy 1 and remain specialised in the network layer (Layer II) or will they pursue Strategy 2 and attempt to vertically integrate into Layers III to V?

If the latter scenario is the case do the mobile operators have the competencies necessary to carve out their own niches or will they be forced to cede a significant part of the returns to partners of various kinds who will contribute vital competencies and complementary assets?

If you wish to express your views on questions such as these go to the Mobile Workshop. To compare your visions with those of others go to Vision Check - Mobile.