A TERM PAPER

ON

GSM APPLICATIONS IN SMALL AND MEDIUM SCALE INDUSTRIES

BY

ADEWUMI TOBILOBA BABATUNDE ACU/369 COMPUTER SCIENCE, AJAYI CROWTHER UNIVERSITY, OYO.

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TABLE OF CONTENTS 1. Introduction…………………………………………………………………….3 2. GSM………………………………………………………………………………..6 2.1. History………………………………………………………………………..6 2.2. Cellular Radio Network……………………………………………….7 2.3. GSM Carrier Frequencies…………………………………………….8 2.4. Voice Codec’s……………………………………………………………..9 2.5. Network Structure………………………………………………………9 2.6. Subscriber Identity Module (SIM)……………………………….9 2.7. Phone Locking (SIM Lock)………………………………………..…10 2.8. GSM Security Service………………………………………………….10 3. 3G…………………………………………………………………………...... 12 3.1 Overview……………………………………………………………….....12 3.2 History…………………………………………………………….………..12 3.3 Security…………………………………………………….……………….15 3.4 Applications……………………………………………………………….15 4. SMS………………………………………………………………………….…….17 4.1 History………………………………………………………….……………17 4.2 Early Development………………………………….…………………18 4.3 Support in other architectures……………………………………20 4.4 Early Implementations……………………..………………………..20 4.5 Technical Details………………………………..…………..…...... 21 4.5.1 GSM…………………………………………………..…………………….21 4.5.2 Message Size…………………………………………………………...22 4.5.3 SMS Gateway Providers……………………………………………23 4.6 Interconnectivity with other networks…………………………23 5. Impact of Telecommunications on Economic growth in developing countries…………………………………………………………….25 5.1 Mobiles in LAC at a glance………………………………………….26 5.2 International Experiences…………………………………………..28 5.3 Infrastructure……………………………………………………………...32

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5.3.1 Market Opportunities………………………………………………..34 5.3.2 Growth Strategies………………………………………………………34 5.3.3 Firms………………………………………………………………………….36 6. Conclusion and References……………………………………………….37

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1. Introduction Small and medium scale industries (hereafter Industries) are companies/enterprise that are often a small or medium sized industry often family run companies or by group of individuals. It is argued that the diffusion of GSM is changing the way companies compete, their business models, and their value-adding processes and services. New opportunities are arising, affecting the creation of new firms and affecting business processes and services which rely even more on information and knowledge. These evolving processes are due to GSMs capability to connect, to receive and to send amounts of information and to reduce space and time barriers in the business. Hence, firms seek to reduce transaction costs of information-intensive activities by resorting to modern ICTs, such as, to name a few, fixed and mobile telecommunications, Internet, Ecommerce, Electronic Data Interchange-EDI, Enterprise Resource Planning Systems-ERP and so forth. These opportunities may specially favour at differing levels and scale – small and medium-size industries (hereafter SMIs) that in many cases operate in a dense network of inter-firm relationships and, consequently, manage a great amount of information. It is already acknowledged that up until now there has been no cut and dry positive linkage between ICT in general and an increase in trend growth in most countries. In addition, as yet, there is also no clear cut way to explain penetration rate of GSM, across a diverse range of countries, beyond changes in regulatory regime as a triggering event. Traditional socio-economic markers such as GDP growth rate, GDP per capital as well as other socio-economic and geographic factors usually fall short of accounting for different penetration rates of mobile telecom, although some exhibit a strong correlation, e.g. income per capital. A significant amount of research and international studies have been confirming that the production, utilization and the productivity associated to GSMs have been, although not entirely, among the most important factors behind the improved economic performance of many industrialized countries in the 1990s, more particularly the United States. In the past decade, the pace of technological change led by GSM developments quickened and the structure

Page 4 of 39 of developed economies and of a few developing ones, migrated towards services; the previously quasi-automatic employment effects of economic growth were greatly damped and their transmission mechanisms became more complex. Globalization induced enhanced international competition and factor mobility further compounded the employment challenge for developing countries. On the one hand, growth in manufactured trade and in the national service economies has opened up new opportunities of growth for (formal) SMIs, the poor which reside in rural areas, are mostly illiterate, self-employed and unskilled rural labourers or subsistence farmers, often speaking a minority language. On the other, informal SMIs which constitute the majority of establishments in countries with significant poor population, have seen their income and their revenue growth prospects further impaired by these trends, suggesting that the lives of a significant part of their population have not yet been touched by the innovations and progress brought about by modern information and communication technologies (hereafter ICT). This is the case of many countries in Latin America and the Caribbean (hereafter LAC) where, in the past, institutional, socio-political and (macro) economic factors, although not homogenously for each country, have in part contributed to such backwardness. Nevertheless, there seems to be positive growth effects related to the roll-out of discrete ICT technologies such as telecommunications, both fixed and mobile, with the latter exhibiting some convergence between countries and smaller differences within countries. Yet, as the mixed results of previous studies on the impact of fixed telecommunications on the poor show, it may still be too early to establish the social impact of mobile telephony on poverty alleviation and, more particularly, to fostering entrepreneurship, promoting the social inclusion of marginalized informal firms and workers, and enhancing the sustainability of competitiveness of formal SMIs. Studies found that the impact of telecom penetration rates is enhanced at near universal services, that there is a critical mass effect for developed countries and that the network effects may favour larger economies, partly explaining the low overall impact of telecom diffusion for developing countries, still far away from universal services. Taking into account this brief scenario above, the main objective of this paper is then

Page 5 of 39 to review existing data on mobile use and adoption by SMIs available in the LAC region and elsewhere in the developing world, to summarize findings and to suggest research areas and strategies necessary for a better understanding on the importance of mobile telephony for increasing creation and competitiveness (and, consequently, social quality conditions) of LAC SMI, particularly those operating in the informal sector and at the bottom of the pyramid. Fixed, Mobile and Internet subscribers in all countries (per 100 people)

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CHAPTER 2 2. GSM GSM (Global System for Mobile Communications: originally from Groupe Spécial Mobile) is the most popular standard for mobile telephony systems in the world. The GSM Association, its promoting industry trade organization of mobile phone carriers and manufacturers, estimates that 80% of the global mobile market uses the standard. GSM is used by over 3 billion people across more than 212 countries and territories. Its ubiquity enables international roaming arrangements between mobile phone operators, providing subscribers the use of their phones in many parts of the world. GSM differs from its predecessor technologies in that both signaling and speech channels are digital, and thus GSM is considered a second generation (2G) mobile phone system. This also facilitates the wide-spread implementation of data communication applications into the system. The ubiquity of implementation of the GSM standard has been an advantage to both consumers, who may benefit from the ability to roam and switch carriers without replacing phones, and also to network operators, who can choose equipment from many GSM equipment vendors. GSM also pioneered low-cost implementation of the short message service (SMS), also called text messaging, which has since been supported on other mobile phone standards as well. The standard includes a worldwide emergency telephone number feature (112). Newer versions of the standard were backward-compatible with the original GSM system. For example, Release '97 of the standard added packet data capabilities by means of General Packet Radio Service (GPRS). Release '99 introduced higher speed data transmission using Enhanced Data Rates for GSM Evolution (EDGE).

2.1. HISTORY In 1982, the European Conference of Postal and Telecommunications Administrations (CEPT) created the Groupe Spécial Mobile (GSM) to develop a standard for a mobile telephone system that could be used across Europe. In 1987, a memorandum of

Page 7 of 39 understanding was signed by 13 countries to develop a common cellular telephone system across Europe. Finally the system created by SINTEF led by Torleiv Maseng was selected. In 1989, GSM responsibility was transferred to the European Telecommunications Standards Institute (ETSI) and phase I of the GSM specifications were published in 1990. The first GSM network was launched in 1991 by Radiolinja in Finland with joint technical infrastructure maintenance from Ericsson. By the end of 1993, over a million subscribers were using GSM phone networks being operated by 70 carriers across 48 countries. 2.2. CELLULAR RADIO NETWORK (cellular network) GSM is a cellular network, which means that mobile phones connect to it by searching for cells in the immediate vicinity. There are five different cell sizes in a GSM network—macro, micro, pico, femto and umbrella cells. The coverage area of each cell varies according to the implementation environment. Macro cells can be regarded as cells where the base station antenna is installed on a mast or a building above average roof top level. Micro cells are cells whose antenna height is under average roof top level; they are typically used in urban areas. Pico cells are small cells whose coverage diameter is a few dozen metres; they are mainly used indoors. Femto cells are cells designed for use in residential or small business environments and connect to the service provider’s network via a broadband internet connection. Umbrella cells are used to cover shadowed regions of smaller cells and fill in gaps in coverage between those cells. Cell horizontal radius varies depending on antenna height, antenna gain and propagation conditions from a couple of hundred meters to several tens of kilometres. The longest distance the GSM specification supports in practical use is 35 kilometres (22 mi). There are also several implementations of the concept of an extended cell, where the cell radius could be double or even more, depending on the antenna system, the type of terrain and the timing advance. Indoor coverage is also supported by GSM and may be achieved by using an indoor pico cell base station, or an indoor repeater with distributed indoor antennas fed through power splitters, to deliver the radio signals from an antenna outdoors to the

Page 8 of 39 separate indoor distributed antenna system. These are typically deployed when a lot of call capacity is needed indoors; for example, in shopping centres or airports. However, this is not a prerequisite, since indoor coverage is also provided by in-building penetration of the radio signals from any nearby cell. The modulation used in GSM is Gaussian minimum-shift keying (GMSK), a kind of continuous-phase frequency shift keying. In GMSK, the signal to be modulated onto the carrier is first smoothed with a Gaussian low-pass filter prior to being fed to a frequency modulator, which greatly reduces the interference to neighbouring channels (adjacent-channel interference).

2.3. GSM CARRIER FREQUENCIES (GSM frequency range) GSM networks operate in a number of different carrier frequency ranges (separated into GSM frequency ranges for 2G and UMTS frequency bands for 3G), with most 2G GSM networks operating in the 900 MHz or 1800 MHz bands. Where these bands were already allocated, the 850 MHz and 1900 MHz bands were used instead (for example in Canada and the United States). In rare cases the 400 and 450 MHz frequency bands are assigned in some countries because they were previously used for first-generation systems. Most 3G GSM EDGE networks in Europe operate in the 2100 MHz frequency band. Regardless of the frequency selected by an operator, it is divided into timeslots for individual phones to use. This allows eight full-rate or sixteen half-rate speech channels per radio frequency. These eight radio timeslots (or eight burst periods) are grouped into a TDMA frame. Half rate channels use alternate frames in the same timeslot. The channel data rate for all 8 channels is 270.833 Kbit/s, and the frame duration is 4.615 ms. The transmission power in the handset is limited to a maximum of 2 watts in GSM850/900 and 1 watt in GSM1800/1900.

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2.4. VOICE CODECS GSM has used a variety of voice codecs to squeeze 3.1 kHz audio into between 6.5 and 13 Kbit/s. Originally, two codecs, named after the types of data channel they were allocated, were used, called Half Rate (6.5 Kbit/s) and Full Rate (13 Kbit/s). These used a system based upon linear predictive coding (LPC). In addition to being efficient with bitrates, these codecs also made it easier to identify more important parts of the audio, allowing the air interface layer to prioritize and better protect these parts of the signal. GSM was further enhanced in 1997 with the Enhanced Full Rate (EFR) codec, a 12.2 Kbit/s codec that uses a full rate channel. Finally, with the development of UMTS, EFR was refactored into a variable-rate codec called AMR-Narrowband, which is high quality and robust against interference when used on full rate channels, and less robust but still relatively high quality when used in good radio conditions on half-rate channels.

2.5. NETWORK STRUCTURE The network is structured into a number of discrete sections: • The Base Station Subsystem (the base stations and their controllers). • The Network and Switching Subsystem (the part of the network most similar to a fixed network). This is sometimes also just called the core network. • The GPRS Core Network (the optional part which allows packet based Internet connections). • The Operations support system (OSS) for maintenance of the network

2.6. SUBSCRIBER IDENTITY MODULE (SIM) One of the key features of GSM is the Subscriber Identity Module, commonly known as a SIM card. The SIM is a detachable smart card containing the user's subscription information and phone book. This allows the user to retain his or her information after switching handsets. Alternatively, the user can also change operators while retaining

Page 10 of 39 the handset simply by changing the SIM. Some operators will block this by allowing the phone to use only a single SIM, or only a SIM issued by them; this practice is known as SIM locking and is illegal in some countries.

2.7. PHONE LOCKING (SIM lock) Sometimes mobile phone operators restrict handsets that they sell for use with their own network. This is called locking and is implemented by a software feature of the phone. Because the purchase price of the mobile phone to the consumer is typically subsidised with revenue from subscriptions, operators must recoup this investment before a subscriber terminates service. A subscriber may usually contact the provider to remove the lock for a fee, utilize private services to remove the lock, or make use of free or fee-based software and websites to unlock the handset themselves. In some territories (e.g., Bangladesh, Hong Kong, Pakistan, India) all phones are sold unlocked. In others (e.g., Belgium, Finland) it is unlawful for operators to offer any form of subsidy on a phone's price.

2.8. GSM SECURITY SERVICE GSM was designed with a moderate level of service security. The system was designed to authenticate the subscriber using a pre-shared key and challenge-response. Communications between the subscriber and the base station can be encrypted. The development of UMTS introduces an optional Universal Subscriber Identity Module (USIM), that uses a longer authentication key to give greater security, as well as mutually authenticating the network and the user - whereas GSM only authenticates the user to the network (and not vice versa). The security model therefore offers confidentiality and authentication, but limited authorization capabilities, and no non- repudiation. GSM uses several cryptographic algorithms for security. The A5/1 and A5/2 stream ciphers are used for ensuring over-the-air voice privacy. A5/1 was developed first and is a stronger algorithm used within Europe and the United States; A5/2 is weaker and used in other countries. Serious weaknesses have been found in both algorithms: it is

Page 11 of 39 possible to break A5/2 in real-time with a cipher text-only attack, and in February 2008, Pico Computing, Inc revealed its ability and plans to commercialize FPGAs that allow A5/1 to be broken with a rainbow table attack. The system supports multiple algorithms so operators may replace that cipher with a stronger one. On 28 December 2009 German computer engineer Karsten Nohl announced that he had cracked the A5/1 cipher. According to Nohl, he developed a number of rainbow tables (static values which reduce the time needed to carry out an attack) and have found new sources for known plaintext attacks. He also said that it is possible to build "a full GSM interceptor ... from open source components" but that they had not done so because of legal concerns. In 2010, threatpost.com reported that "A group of cryptographers has developed a new attack that has broken Kasumi, the encryption algorithm used to secure traffic on 3G GSM wireless networks. The technique enables them to recover a full key by using a tactic known as a related-key attack, but experts say it is not the end of the world for Kasumi. Kasumi is the name for the A5/3 algorithm, used to secure most 3G GSM EDGE traffic. Although security issues remain for GSM newer standards and algorithms may address this. New attacks are growing in the wild which take advantage of poor security implementations, architecture and development for smart phone applications. Some wiretapping and eavesdropping techniques hijack the audio input and output providing an opportunity for a 3rd party to listen in to the conversation. Although this threat is mitigated by the fact the attack has to come in the form of a Trojan, malware or a virus and might be detected by security software.

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CHAPTER 3 3G International Mobile Telecommunications-2000 (IMT-2000), better known as 3G or 3rd Generation, is a family of standards for mobile telecommunications fulfilling specifications by the International Telecommunication Union, which includes UMTS, and CDMA2000 as well as the non-mobile wireless standards DECT[citation needed] and WiMAX[citation needed]. While the GSM EDGE standard also fulfils the IMT- 2000 specification, EDGE phones are typically not branded 3G. Services include wide-area wireless voice telephone, video calls, and wireless data, all in a mobile environment. Compared to 2G and 2.5G services, 3G allows simultaneous use of speech and data services and higher data rates (at least 200 Kbit/s peak bit rate to fulfil to IMT-2000 specification). Today's 3G systems can offer practice of up to 14.0 Mbit/s on the downlink and 5.8 Mbit/s on the uplink.

3.1. Overview In 1999, ITU approved five radio interfaces for IMT-2000 as a part of the ITU-R M.1457 Recommendation; WiMAX were added in 2007. There are evolutionary standards that are backwards-compatible extensions to pre- existing 2G networks as well as revolutionary standards that require all-new networks and frequency allocations. The later group is the UMTS family, which consists of standards developed for IMT-2000, as well as the independently developed standards DECT and WiMAX, which were included because they fit the IMT-2000 definition.

3.2. HISTORY The first pre-commercial 3G network was launched by NTT DoCoMo in Japan branded FOMA, in May 2001 on a pre-release of W-CDMA technology. The first commercial launch of 3G was also by NTT DoCoMo in Japan on 1 October 2001, although it was initially somewhat limited in scope; broader availability was delayed

Page 13 of 39 by apparent concerns over reliability. The second network to go commercially live was by SK Telecom in South Korea on the 1xEV-DO technology in January 2002. By May 2002 the second South Korean 3G network was by KT on EV-DO and thus the Koreans were the first to see competition among 3G operators. The first European pre-commercial network was at the Isle of Man by Manx Telecom, the operator then owned by British Telecom, and the first commercial network in Europe was opened for business by Telenor in December 2001 with no commercial handsets and thus no paying customers. These were both on the W-CDMA technology. The first commercial United States 3G network was by Monet Mobile Networks, on CDMA2000 1x EV-DO technology, but this network provider later shut down operations. The second 3G network operator in the USA was Verizon Wireless in October 2003 also on CDMA2000 1x EV-DO. AT&T Mobility is also a true 3G network, having completed its upgrade of the 3G network to HSUPA. The first pre-commercial demonstration network in the southern hemisphere was built in Adelaide, South Australia by m.Net Corporation in February 2002 using UMTS on 2100 MHz. This was a demonstration network for the 2002 IT World Congress. The first commercial 3G network was launched by Hutchison Telecommunications branded as three in March 2003. In December 2007, 190 3G networks were operating in 40 countries and 154 HSDPA networks were operating in 71 countries, according to the Global Mobile Suppliers Association (GSA). In Asia, Europe, Canada and the USA, telecommunication companies use W-CDMA technology with the support of around 100 terminal designs to operate 3G mobile networks. In Europe, mass market commercial 3G services were introduced starting in March 2003 by 3 (Part of Hutchison Whampoa) in the UK and Italy. The European Union Council suggested that the 3G operators should cover 80% of the European national populations by the end of 2005. Roll-out of 3G networks was delayed in some countries by the enormous costs of additional spectrum licensing fees. In many countries, 3G networks do not use the same radio frequencies as 2G, so mobile operators must build entirely new networks

Page 14 of 39 and license entirely new frequencies; an exception is the United States where carriers operate 3G service in the same frequencies as other services. The license fees in some European countries were particularly high, bolstered by government auctions of a limited number of licenses and sealed bid auctions, and initial excitement over 3G's potential. Other delays were due to the expenses of upgrading equipment for the new systems. By June 2007 the 200 millionth 3G subscriber had been connected. Out of 3 billion mobile phone subscriptions worldwide this is only 6.7%. In the countries where 3G was launched first – Japan and South Korea – 3G penetration is over 70%. In Europe the leading country is Italy with a third of its subscribers migrated to 3G. Other leading countries by 3G migrations include UK, Austria, Australia and Singapore at the 20% migration level. A confusing statistic is counting CDMA2000 1x RTT customers as if they were 3G customers. If using this definition, then the total 3G subscriber base would be 475 million at June 2007 and 15.8% of all subscribers worldwide. In Canada, Rogers Wireless was the first to implement 3G technology, with HSDPA services in eastern Canada in late 2006. Their subsidiary Fido Solutions offers 3G as well. Because they were the only incumbent carrier (out of 3) with UMTS/HSDPA capability. Realizing they would miss out on roaming revenue from the 2010 Winter Olympics, Bell and Telus formed a joint venture and rolled out a shared HSDPA network using Nokia Siemens technology. Bell launched their 3G wireless line-up on 4 November 2009, and Telus followed suit a day later on 5 November 2009. Mobitel Iraq is the first mobile 3G operator in Iraq. It was launched commercially on February 2007. China announced in May 2008, that the telecoms sector was re-organized and three 3G networks would be allocated so that the largest mobile operator, China Mobile, would retain its GSM customer base. China Unicom would retain its GSM customer base but relinquish its CDMA2000 customer base, and launch 3G on the globally leading WCDMA (UMTS) standard. The CDMA2000 customers of China Unicom would go to China Telecom, which would then launch 3G on the CDMA2000 1x EV- DO standard. This meant that China would have all three main cellular technology 3G

Page 15 of 39 standards in commercial use. Finally in January 2009, Ministry of industry and Information Technology of China has awarded licenses of all three standards，TD- SCDMA to China Mobile, WCDMA to China Unicom and CDMA2000 to China Telecom. The launch of 3G occurred on 1 October 2009, to coincide with the 60th Anniversary of the Founding of the People's Republic of China. In November 2008, Turkey has auctioned four IMT 2000/UMTS standard 3G licenses with 45, 40, 35 and 25 MHz top frequencies. Turkcell has won the 45 MHz band with its €358 million offer followed by Vodafone and Avea leasing the 40 and 35 MHz frequencies respectively for 20 years. The 25 MHz top frequency license remains to be auctioned. The first African use of 3G technology was a 3G videocall made in Johannesburg on the Vodacom network in November 2004. The first commercial launch of 3G in Africa was by EMTEL in Mauritius on the W-CDMA standard. In North African Morocco in late March 2006, a 3G service was provided by the new company Wana. T-Mobile, a major Telecommunication services provider has recently rolled out a list of over 120 U.S. cities which will be provided with 3G Network coverage in the year 2009. In 2008, India entered into 3G Mobile arena with the launch of 3G enabled Mobile and Data services by Bharat Sanchar Nigam Ltd ([[BSNL]) in West Bengal ([Durgapur]). BSNL is the first Mobile operator in India to launch 3G services. After that ([MTNL]) launched [3G] in Mumbai & Delhi. Government owned Bharat Sanchar Nigam Ltd (BSNL) has already been provided with a 3G license and has been operating its services in 380 cities by the end of March 2010. Nationwide auction of 3G wireless spectrum in April 2010 has been announced, and 3G services by private service providers are expected by the September 2010.

3.1. DATA RATES ITU has not provided a clear definition of the data rate users can expect from 3G equipment or providers. Thus users sold 3G service may not be able to point to a standard and say that the rates it specifies are not being met. While stating in

Page 16 of 39 commentary that "it is expected that IMT-2000 will provide higher transmission rates: a minimum data rate of 2 Mbit/s for stationary or walking users, and 384 kbit/s in a moving vehicle, " the ITU does not actually clearly specify minimum or average rates or what modes of the interfaces qualify as 3G, so various rates are sold as 3G intended to meet customers’ expectations of broadband data.

3.3 SECURITY 3G networks offer greater security than their 2G predecessors. By allowing the UE (User Equipment) to authenticate the network it is attaching to, the user can be sure the network is the intended one and not an impersonator. 3G networks use the KASUMI block crypto instead of the older A5/1 stream cipher. However, a number of serious weaknesses in the KASUMI cipher have been identified. In addition to the 3G network infrastructure security, end-to-end security is offered when application frameworks such as IMS are accessed, although this is not strictly a 3G property.

3.4 APPLICATIONS The bandwidth and location information available to 3G devices gives rise to applications not previously available to mobile phone users. Some of the applications are: • Mobile TV – a provider redirects a TV channel directly to the subscriber's phone where it can be watched. • Video on demand – a provider sends a movie to the subscriber's phone. • Video conferencing – subscribers can see as well as talk to each other. • Tele-medicine – a medical provider monitors or provides advice to the potentially isolated subscriber. • Location-based services – a provider sends localized weather or traffic conditions to the phone, or the phone allows the subscriber to find nearby businesses or friends.

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CHAPTER 4 4.0. SMS

Short Message Service (SMS) is a communication service component of the GSM mobile communication system, using standardized communications protocols that allow the exchange of short text messages between mobile phone devices. SMS text messaging is the most widely used data application in the world, with 2.4 billion active users, or 74% of all mobile phone subscribers.[citation needed] The term SMS is used as a synonym for all types of short text messaging, as well as the user activity itself, in many parts of the world. SMS as used on modern handsets was originally defined as part of the Global System for Mobile Communications (GSM) series of standards in 1985 as a means of sending messages of up to 160 characters, to and from GSM mobile handsets. Since then, support for the service has expanded to include other mobile technologies such as ANSI CDMA networks and Digital AMPS, as well as satellite and landline networks.[citation needed] Most SMS messages are mobile-to-mobile text messages, though the standard supports other types of broadcast messaging as well.

4.1. HISTORY The idea of adding text messaging to the services of mobile users was latent in many communities of mobile communication services at the beginning of the 1980s. The first action plan of the CEPT Group GSM, approved in December 1982, requested "The services and facilities offered in the public switched telephone networks and public data networks... should be available in the mobile system". This target includes the exchange of text messages either directly between mobile stations, or transmitted via Message Handling Systems widely in use since the beginning of the 1980s. The SMS concept was developed in the Franco-German GSM cooperation in 1984 by Friedhelm Hillebrand and Bernard Ghillebaert. The innovation in SMS is Short. The GSM is optimized for telephony, since this was identified as its main application. The

Page 18 of 39 key idea for SMS was to use this telephony-optimized system, and to transport messages on the signaling paths needed to control the telephony traffic during time periods when no signaling traffic existed. In this way, unused resources in the system could be used to transport messages at minimal cost. However, it was necessary to limit the length of the messages to 128 bytes (later improved to 140 bytes, or 160 7-bit characters), so that the messages could fit into the existing signaling formats. This concept allowed SMS to be implemented in every mobile station, by updating its software. This concept was instrumental for the implementation of SMS in every mobile station ever produced and in every network from early days. Hence, a large base of SMS capable terminals and networks existed when the users began to utilize the SMS. A new network element required was a specialized Short Message Service Centre, and enhancements were required to the radio capacity and network transport infrastructure to accommodate growing SMS traffic.

4.2. EARLY DEVELOPMENT The technical development of SMS was a multinational collaboration supporting the framework of standards bodies, and through these organizations the technology was made freely available to the whole world. This is described and supported by evidence in the following sections. The first proposal which initiated the development of SMS was made by a contribution of Germany and France into the GSM group meeting in February 1985 in Oslo. This proposal was further elaborated in GSM subgroup WP1 Services (Chairman Martine Alvernhe, France Telecom) based on a contribution from Germany. There were also initial discussions in the subgroup WP3 network aspects chaired by Jan Audestad (Telenor). The result was approved by the main GSM group in a June '85 document which was distributed to industry. The input documents on SMS had been prepared by Friedhelm Hillebrand (Deutsche Telekom) with contributions from Bernard Ghillebaert (France Télécom). SMS was considered in the main GSM group as a possible service for the new digital cellular system. In GSM document "Services and Facilities to be provided in the GSM

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System", both mobile-originated and mobile-terminated short messages appear on the table of GSM teleservices. The discussions on the GSM services were concluded in the recommendation GSM 02.03 "TeleServices supported by a GSM PLMN". Here a rudimentary description of the three services was given: • Short message Mobile Terminated (SMS-MT)/ Point-to-Point: the ability of a network to transmit a Short Message to a mobile phone. The message can be sent by phone or by a software application. • Short message Mobile Originated (SMS-MO)/ Point-to-Point: the ability of a network to transmit a Short Message sent by a mobile phone. The message can be sent to a phone or to a software application. • Short message Cell Broadcast. The material elaborated in GSM and its WP1 subgroup was handed over in Spring 1987 to a new GSM body called IDEG (the Implementation of Data and Telematic Services Experts Group), which had its kickoff in May 1987 under the chairmanship of Friedhelm Hillebrand (German Telecom). The technical standard known today was largely created by IDEG (later WP4) as the two recommendations GSM 03.40 (the two point-to-point services merged together) and GSM 03.41 (cell broadcast). WP4 created a Drafting Group Message Handling (DGMH), which was responsible for the specification of SMS. It was chaired by Finn Trosby (Telenor). DGMH had about five to eight participants (Finn Trosby mentions as a contributor Alan Cox of Vodafone). The first action plan mentions for the first time the Technical Specification 03.40 “Technical realisation of the Short Message Service”. Responsible editor was Finn Trosby. The first draft of the technical specification was completed in November 1987. The work on the draft specification continued in the following few years, where Kevin Holley of Cellnet (now Telefonica O2 UK) played a leading role. Besides the completion of the main specification GSM 03.40, the detailed protocol specifications on the system interfaces also needed to be completed.

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4.3 SUPPORT IN OTHER ARCHITECTURES The Mobile Application Part (MAP) of the SS7 protocol included support for the transport of Short Messages through the Core Network from its inception. MAP Phase 2 expanded support for SMS by introducing a separate operation code for Mobile Terminated Short Message transport. Since Phase 2, there have been no changes to the Short Message operation packages in MAP, although other operation packages have been enhanced to support CAMEL SMS control. From 3GPP Releases 99 and 4 onwards, CAMEL Phase 3 introduced the ability for the Intelligent Network (IN) to control aspects of the Mobile Originated Short Message Service, while CAMEL Phase 4, as part of 3GPP Release 5 and onwards, provides the IN with the ability to control the Mobile Terminated service. CAMEL allows the gsmSCP to block the submission (MO) or delivery (MT) of Short Messages, route messages to destinations other than that specified by the user, and perform real-time billing for the use of the service. Prior to standardized CAMEL control of the Short Message Service, IN control relied on switch vendor specific extensions to the Intelligent Network Application Part (INAP) of SS7.

4.4 EARLY IMPLEMENTATIONS The first SMS message was sent over the Vodafone GSM network in the United Kingdom on 3 December 1992, from Neil Papworth of Sema Group (now Airwide Solutions) using a personal computer to Richard Jarvis of Vodafone using an Orbitel 901 handset. The text of the message was "Merry Christmas". The first SMS typed on a GSM phone was sent by Riku Pihkonen, an engineering student at Nokia, in 1993. The first commercial deployment of a Short Message Service Centre (SMSC) was by Aldiscon (now Acision) with TeliaSonera in Sweden in 1993, followed by Fleet Call (now Nextel) in the US, Telenor in Norway and BT Cellnet (now O2 UK) later in 1993. All first installations of SMS gateways were for network notifications sent to mobile phones, usually to inform of voice mail messages. The first commercially sold SMS service was offered to consumers, as a person-to-person text messaging service by Radiolinja (now part of Elisa) in 1993. It should be noted that most early GSM

Page 21 of 39 mobile phone handsets did not support the ability to send SMS text messages, and Nokia was the only handset manufacturer whose total GSM phone line in 1993 supported user-sending of SMS text messages. Initial growth was slow, with customers in 1995 sending on average only 0.4 messages per GSM customer per month. One factor in the slow take-up of SMS was that operators were slow to set up charging systems, especially for prepaid subscribers, and eliminate billing fraud which was possible by changing SMSC settings on individual handsets to use the SMSCs of other operators. Over time, this issue was eliminated by switch-billing instead of billing at the SMSC and by new features within SMSCs to allow blocking of foreign mobile users sending messages through it. By the end of 2000, the average number of messages reached 35 per user per month, and by Christmas Day 2006, over 205 million messages were sent in the UK alone. It is also alleged that the fact that roaming customers, in the early days, rarely received bills for their SMSs after holidays abroad had a boost on text messaging as an alternative to voice calls.

4.5 TECHNICAL DETAILS 4.5.1. GSM The Short Message Service - Point to Point (SMS-PP) is defined in GSM recommendation 03.40. GSM 03.41 defines the Short Message Service - Cell Broadcast (SMS-CB), which allows messages (advertising, public information, etc.) to be broadcast to all mobile users in a specified geographical area. Messages are sent to a Short Message Service Centre (SMSC) which provides a "store and forward" mechanism. It attempts to send messages to the SMSC's recipients. If a recipient is not reachable, the SMSC queues the message for later retry. Some SMSCs also provide a "forward and forget" option where transmission is tried only once. Both Mobile Terminated (MT, for messages sent to a mobile handset) and Mobile Originating (MO, for those sent from the mobile handset) operations are supported. Message delivery is "best effort", so there are no guarantees that a message will actually be

Page 22 of 39 delivered to its recipient, and delay but complete loss of a message is uncommon. Users may request delivery reports to confirm that messages reach the intended recipients, either via the SMS settings of most modern phones, or by prefixing each message with *0# or *N#.

4.5.2. MESSAGE SIZE Transmission of short messages between the SMSC and the handset is done whenever using the Mobile Application Part (MAP) of the SS7 protocol. Messages are sent with the MAP mo- and mt-ForwardSM operations, whose payload length is limited by the constraints of the signaling protocol to precisely 140 octets (140 octets = 140 * 8 bits = 1120 bits). Short messages can be encoded using a variety of alphabets: the default GSM 7-bit alphabet, the 8-bit data alphabet, and the 16-bit UTF-16 alphabet. Depending on which alphabet the subscriber has configured in the handset, this leads to the maximum individual Short Message sizes of 160 7-bit characters, 140 8-bit characters, or 70 16-bit characters (including spaces). GSM 7-bit alphabet support is mandatory for GSM handsets and network elements, but characters in languages such as Arabic, Chinese, Korean, Japanese or Cyrillic alphabet languages (e.g. Russian, Serbian, Bulgarian, etc) must be encoded using the 16-bit UTF-16 character encoding (see Unicode). Routing data and other metadata is additional to the payload size. Larger content (Concatenated SMS, multipart or segmented SMS, or "Long SMS") can be sent using multiple messages, in which case each message will start with a user data header (UDH) containing segmentation information. Since UDH is part of the payload, the number of available characters per segment is lower: 153 for 7-bit encoding, 133 for 8-bit encoding and 67 for 16-bit encoding. The receiving handset is then responsible for reassembling the message and presenting it to the user as one long message. While the standard theoretically permits up to 255 segments, 6 to 8 segment messages are the practical maximum, and long messages are often billed as equivalent to multiple SMS messages. See Concatenated SMS for more information. Some providers have offered length-oriented pricing schemes for SMSs, however, the phenomenon is disappearing.

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4.5.3. SMS GATEWAY PROVIDERS SMS gateway providers facilitate SMS traffic between businesses and mobile subscribers, including mission-critical messages, SMS for enterprises, content delivery, and entertainment services involving SMS, e.g. TV voting. Considering SMS messaging performance and cost, as well as the level of messaging services, SMS gateway providers can be classified as aggregators or SS7 providers. The aggregator model is based on multiple agreements with mobile carriers to exchange 2-way SMS traffic into and out of the operator’s SMSC, also known as local termination model. Aggregators lack direct access into the SS7 protocol, which is the protocol where the SMS messages are exchanged. SMS messages are delivered to the operator’s SMSC, but not the subscriber’s handset; the SMSC takes care of further handling of the message through the SS7 network. Another type of SMS gateway provider is based on SS7 connectivity to route SMS messages, also known as international termination model. The advantage of this model is the ability to route data directly through SS7, which gives the provider total control and visibility of the complete path during SMS routing. This means SMS messages can be sent directly to and from recipients without having to go through the SMSCs of other mobile operators. Therefore, it’s possible to avoid delays and message losses, offering full delivery guarantees of messages and optimized routing. This model is particularly efficient when used in mission-critical messaging and SMS used in corporate communications.

4.6 INTERCONNECTIVITY WITH OTHER NETWORKS Message Service Centres communicate with the Public Land Mobile Network (PLMN) or PSTN via Interworking and Gateway MSCs. Subscriber-originated messages are transported from a handset to a Service Centre, and may be destined for mobile users, subscribers on a fixed network, or Value-Added Service Providers (VASPs), also known as application-terminated. Subscriber- terminated messages are transported from the Service Centre to the destination

Page 24 of 39 handset, and may originate from mobile users, from fixed network subscribers, or from other sources such as VASPs. On some carriers non-subscribers can send messages to a subscriber's phone using an Email-to-SMS gateway. Additionally, many carriers, including AT&T, T-Mobile, Sprint, and Verizon Wireless, offer the ability to do this through their respective websites. For example, an AT&T subscriber whose phone number was 555-555-5555 would receive e-mails from [email protected] as text messages. Sending a message this way is free, but subject to the normal length limit. Text-enabled fixed-line handsets are required to receive messages in text format. However, messages can be delivered to non-enabled phones using text-to-speech conversion. Short messages can send binary content such as ringtones or logos, as well as Over- the-air programming (OTA) or configuration data. Such uses are a vendor-specific extension of the GSM specification and there are multiple competing standards, although Nokia's Smart Messaging is common. An alternative way for sending such binary content is EMS messaging, which is standardized and not dependent on vendors. SMS is used for M2M (Machine to Machine) communication. For instance, there is an LED display machine controlled by SMS, and some vehicle tracking companies use SMS for their data transport or telemetry needs. SMS usage for these purposes is slowly being superseded by GPRS services due to their lower overall cost [citation needed]. GPRS is offered by smaller telco players as a route of sending SMS text to reduce the cost of SMS texting internationally.

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5 IMPACT OF TELECOMMUNICATIONS ON ECONOMIC GROWTH IN DEVELOPING COUNTRIES

At the end of the 1970s, the celebrated anthropologist Clifford Geertz presented the following assertion in respect to developing countries: “information is poor, scarce, mal-distributed, inefficiently communicated and intensively valued”. At that time, residents of remote villages had enormous difficulties in discovering prices of commodities and farmers would not have access to alternative sources of fertilizers or to alternative buyers of their products without phone connections. In developed countries, such backwardness has been properly addressed long ago, with practically the whole industrialized world exhibiting penetration rates at universal access levels. In the developing world, though, it took more than three decades for this to happen, so that nowadays we see some convergence with developed country rates, mostly in urban areas. Yet, in most of poor rural communities – and even urban areas of low- income economies – there is not either a sufficient infrastructure or a positive price structure so that many developing countries still experience a sort of telecoms trap: the lack of networks and access in many communities increases costs, and consequently reduces opportunities because information is difficult to gather. In turn, the resulting low incomes reduce the ability to pay for infrastructure rollout. In particular, mobile phones are playing the same crucial role that fixed telephony played in the richer economies two to three decades ago. Mobile phones substitute for fixed lines in poor countries, but complement fixed lines in rich countries, implying that they could have a stronger, and perhaps different, growth impact in poor economies. Many countries with under-developed fixed lines networks have achieved rapid mobile telephony growth, nearing universal access in some sub-regions, with much less investment than fixed-line networks would have needed. Mobile phones are thus responsible for the recent growth in world telephony, which now outnumber fixed ones. In Nigeria, the number of mobile subscribers jumped from 370,000 in 2001 to 16.8 million in 2005, making its mobile market the second largest in Africa. In the Philippines, which has had more mobile than fixed telephone

Page 26 of 39 subscribers since 2000, mobile subscribers continue to multiply. By the end of 2005, the Philippines had about 40 million mobile subscribers – six times more than in 2000. Mobile phones have an especially dramatic impact in developing countries – substituting for scarce fixed connections, increasing mobility, reducing transaction costs, broadening trade networks, and facilitating searches for employment. The use flexibility provided by mobile telephony, with prepaid services and calling cards, made that even poor households have been able to benefit from increased telephone access. Increasingly, in developing countries, modern telecom systems are largely mobile systems and not fixed lines. The reason is the lower cost and faster rollout of mobile systems as compared to fixed lines. It has been estimated by recent studies that a mobile network may cost 50% less per connection than fixed lines and can be rolled out appreciably faster. The cost advantages of mobile phones as a development tool consist not only of the lower costs per subscriber but also of the smaller scale economies and greater modularity of mobile systems. As networks grow, their social value rises. This in turn suggests that the marginal social return – the value to society of an additional person connected or of an additional dollar invested in the network – exceeds the private return to the network provider, if that provider cannot price so as to extract these externality values.

5.1. MOBILES IN LAC AT A GLANCE

- The Latin American and Caribbean economy grew by 4.5% in 2005, and the region’s per capita GDP is estimated to have risen by about 3%. All Latin American countries recorded positive growth rates, ranging from 1.8% in Haiti to 9.3% in Venezuela. - Economic expansion is expected to continue unabated in 2006, and ease slightly in 2007. GDP growth for Latin America and the Caribbean is projected to be 4.6% in 2006, and 4.1% in 2007. - The drive towards consolidation, witnessed in 2004, continued in 2005-2006, with América Móvil buying mobile operations in Chile, Peru, and Paraguay; Telecom Italia

Page 27 of 39 divesting its investments in Chile, Peru, and Venezuela; and Verizon deciding to pull out of the region altogether. In April 2006, Verizon agreed to sell Verizon Dominicana (Dominican Republic), Telecomunicaciones de Puerto Rico, and CANTV (Venezuela) to América Móvil and Telmex. - Despite a low 17% average teledensity in the whole Latin American and Caribbean region, fixed-line growth continued to stagnate in 2005. Telecom infrastructure varies greatly from country to country and from urban to rural areas. - There is a marked trend towards the use of alternative systems in fixed-line telephony, especially Wireless Local Loop (WLL) and Voice over Internet Protocol (VoIP). - In 2005, Latin America was only second to Asia in rolling out WiMAX networks. By April 2006, WiMAX systems were operating in Argentina, Brazil, the Caribbean, Chile, Colombia, Costa Rica, the Dominican Republic, Guatemala, Mexico, Peru, Uruguay, and Venezuela. - In March 2005, Chile’s VTR was the first company in Latin America to launch Broadband Powerline (BPL) services commercially, for its residential clients. - 2005 was a big year for triple play in Latin America, with several countries seeing this strategy for the first time. By early 2006, triple play services had either been launched, or were planned, in the following markets: Argentina, Brazil, Chile, Colombia, El Salvador, Guatemala, Honduras, Mexico, Panama, Puerto Rico, Venezuela, and Uruguay. - In April 2005, Telefónica Móviles adopted the Movistar brandname for all of its operations (except for Brazil, where the Vivo brand was retained) in order to create a unified image internationally. The company manages companies in Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Peru, Puerto Rico, Uruguay, and Venezuela. - TDMA, traditionally the leading mobile technology in Latin America, was overtaken by GSM in March 2005 and by CDMA in late 2005. The number of TDMA subscribers in the region has been falling since 2004.

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- In 2005, TDMA subscribers decreased by 21%, CDMA subscribers increased by 41%, and GSM subscribers soared by 133%. - At end-2005, the number of GSM subscriber was more than double the number of CDMA subscribers. Every country in Latin America and the Caribbean (except Haiti) enjoys GSM based mobile services. In terms of GSM subscriber numbers, Latin America was one of the fastest growing regions in the world in 2005. - In early 2006, EDGE technology was being rolled out or was already in service in approximately 30 Latin American and Caribbean countries, including Argentina, Bermuda, Bolivia, Brazil, Chile, Colombia, Ecuador, Guatemala, Mexico, Paraguay, Peru, Trinidad & Tobago, and Uruguay. - In early 2006, Latin America had 39% of the world’s CDMA 2000 1xEV-DO networks. Countries with commercially operating cellular 1xEV-DO services included Bermuda, Brazil, Chile, Ecuador, Puerto Rico, Mexico, Guatemala, and Venezuela. In Argentina and Brazil, 450MHz CDMA 2000 1x and 1xEV-DO networks have been rolled out for WLL.

5.2. INTERNATIONAL EXPERIENCES It was only very recently that mobile technologies started to be taken more seriously into account in the policy and industry arenas in both developing and developed economies. The March 10th 2005 Edition of the Economist magazine portrayed a critical view of the “mainstream” digital divide argument, by resorting to the Vodafone study on the socio-economic impacts of mobile telephony in Africa. According to this article, it is mobile technology what really deserves special concerns of policy makers and industry alike so that to more effectively tackle the causes of digital exclusion and, consequently, to promote sustainable development: “ even if it were possible to wave a magic wand and cause computers to appear in every household on earth, it would not achieve very much: a computer is not useful if you have no food or electricity and cannot read”. The benefits of building rural computing centers, for example, seem so far unclear in terms of the expected socio-economic benefits to their target users. Rather than trying to close the divide for the sake of it,

Page 29 of 39 the more sensible goal is to determine how best to use technology to promote bottom- up development. And the answer to that question, apparently, turns out to be remarkably clear: by promoting the spread not of PCs and the internet, but of mobile phones. The Economist article concludes by stating that the effective promotion of sustainable development rooted in ICTs is quite clear if not concentrated on the spread of PCs and the Internet, but rather on mobile phones. The view expressed therein is corroborated by the research study sponsored by Vodafone, consisting on a pioneering analysis carried out by eminent (mostly European) academics, sociologists and economists to examine the socioeconomic benefits of mobile telephony in Africa. According to the referred Vodafone study, entitled “Socio-economic Impacts of Mobiles” – SIM Project –, there is sufficient evidence to suggest that the mobile phone is the technology with the greatest impact on development. The study points out that mobile phones raise long-term growth rates, that their impact is twice as big in developing nations as in developed ones, and that an extra ten phones per 100 people in a typical developing country increases GDP growth by 0.6 percentage points. And when it comes to mobile phones, there is no need for intervention or funding from international donors and organizations. Today, even the world's poorest people are already rushing to embrace mobile phones, because their economic benefits are so apparent. Mobile phones do not rely on a permanent electricity supply, do not require formal training and can be used by people who cannot read or write. New media and new technologies are most readily adopted within populations when they meet established needs or offer substantial added value – and ease of access – in comparison with existing media and technologies. In the surveyed populations of the Vodafone study, the Internet faces considerable barriers to use, including cost, skill requirements and lack of valued content as well as difficulty of access and lack of experience in use. Take-up is also likely to be slower with more complex technologies. The African experience is elucidating given the continents’ critical development challenges. More than half the world’s poorest countries are in Africa, and they face many of the world’s most intractable social and economic challenges. Yet in the past

Page 30 of 39 five years mobile communication has grown faster in sub-Saharan Africa than in most parts of the world. This dramatic growth has risen to meet a range of everyday needs stemming from Africa’s particular physical, social and economic landscape. Physically, distances are enormous, which makes transport and travel difficult. People in isolated communities often do not have access to basic services including electricity and communication. Economic challenges include lack of information, infrastructure, employment, trade and finance. The evidence presented seems to corroborate the belief in the importance of mobile telephony in the developing world, more particularly in India and Africa, where most of the research carried out so far has been concentrated. In the countries surveyed, phones were widely shared and rented out by the call, for example by the “telephone ladies” found in Bangladeshi villages. Farmers and fishermen use mobile phones to call several markets and work out where they can get the best price for their produce. Micro and small businesses use them to shop around for dealing prices with different suppliers. Mobile phones are used to make cashless payments in Zambia and several other African countries. Even though the number of phones per 100 people in poor countries is much lower than in the developed world, they can have a dramatic impact on reducing transaction costs, on broadening trade networks and on reducing the need to travel, which is of particular value for people looking for work. Little wonder that people in poor countries spend a larger proportion of their income on telecommunications than those in rich ones. On the other hand, results of a survey on the economic impact of mobiles on rural small business in South Africa, Tanzania and Egypt found that most of the interviewees reported increased sales and profits, saved time and acquired greater efficiency. Obviously, this latter research regarded formal and legally established businesses. Another recent study, carried out by the UK Department for International Development (DFID), to evaluate attitudes of rural people towards mobile telephony in Tanzania, Mozambique and India confirms this trend, also presenting other relevant findings. Interviewees in these countries declared that they do not generally use phones for business activities, although a small proportion does value them highly for

Page 31 of 39 this purpose. Phones are valued more for saving money than for earning it and very few people among those interviewed find them useful for gathering information. Important research areas and topics not yet explored by these studies, sponsored or not by mobile telephony operators, like the Vodafone study itself, include economic evaluations of the supply side, studies of mobile user attitudes and strategies of mobile service firms and public regulators in developing countries. Again, in Africa, in comparison with the sluggish growth and high monthly rentals of fixed telecommunications, mobile operators have attracted large numbers of customers with packages of handsets, calls and text messages that are considered to be affordable by a significant part of the population. This can be observed in most of the countries which liberalized their State-owned telecom sectors. Notwithstanding this, many complaints have been made about the poor quality of services, high prices for local calls and roaming, as well as about the inadequate levels of customer care services provided by African operators. On the regulatory side, a growing concern in the African continent is that regulators are not being capable of dealing with the market power of international heavy-weight operators who drive prices up and competition down. Such market inefficiencies arise from the low levels of competition and the high degree of concentration and can largely be addressed by increasing competition. Based on the above discussion, this section identifies research gaps to countries so to more effectively (and functionally) understand how mobile telephony can be translated as a lever to enhance entrepreneurship and SMI growth and to promote economic development in the region. As discussed above, the few studies available so far have targeted developing countries in Asia and Africa. Countries have seen in the recent past a substantial inflow of consulting reports and academic studies on the importance of ICTs to firms, people and institutions (public or private) in general. They show that, notwithstanding the ICT-based Information Society fuss in the region, not much has been turned into concrete policy and industry action, except for some small countries, individual regions and isolated experiences. While it is not easy to establish the ICT-specificity of policy instruments, particularly for MSMEs, mobile telephony seems to have a different role, given the faster network effects associated to its expansion, the positive externalities arising from its diffusion,

Page 32 of 39 the low costs of its implementation and the low educational investments related to its utilization. Not to mention the limited need of public funds to its diffusion in low- income communities. The possible areas of research intervention so far identified have been split into five prospective segments: infrastructure provision; market opportunities; growth strategies; and individual firms.

5.3 INFRASTRUCTURE After financial considerations, most research on the GSM theme in developing countries point out that network access and staff capacity remain key constraints in SMIs seeking to grow and at the same time to benefit from GSMs. Confidence in technology and the lack of a coherent strategy are also significant factors, with many SMEs owners admitting to difficulties in knowing how to effectively harness GSMs into their business. In terms of mobile technology, LAC received half of the world’s FDI investments in the last decade, particularly due to changes in the regulatory regimes and privatizations carried in the 1990s. As a consequence, most country presents a good telecoms infrastructure, as well as very widespread mobile telephony penetration rates for developing country standards, although it is not yet sufficiently known the overall impact of telecoms on LAC GDP growth. The methodology used by Waverman et. al. (2005) in African countries could be useful in this attempt. The telecom market is also very competitive in many countries, particularly in urban areas. The continent also has both CDMA (US standard) and GSM (European standard) mobile telephony systems so that in some countries, as in Brazil, different companies operate in both segments, competing for new customers with aggressive marketing campaigns. Nevertheless, although very widespread in the region, mobile telephony has not yet been translated into a strategic lever to increase the competitiveness of SMIs, particularly smaller ones operating in the booming informal economy which cannot – by their size and limited resources – rely on other ICTs such as PCs, Internet,

Page 33 of 39 decision-making and production management tools. A significant growth, though, has been evidenced in certain associated services, such as e-Banking or m-Banking. In Brazil, Banco do Brasil and Bradesco are offering their corporate customers with the possibility to pay their bills and to perform other banking transactions via mobile phones. As the latter experience is very recent, it would be of good value to concentrate some research efforts on understanding how such associated services are benefiting SMIs as well as potential barriers found to sustain its effective utilization. Additionally, and still on the supply side, there are not yet many firms providing mobile solutions geared towards SMIs. As the m-Banking Brazilian experience suggests, most mobile solutions so far have been developed (or sponsored) by large firms to their customers so that very few firms – apart those operating in the entertainment business (games) – have been specialized in providing tailored mobile applications to SMIs. It would be worth understanding whether such barriers lie on the supply side (reduced or very low financial returns) or on the demand side (mobile users not willing to pay for services they do not see potential benefits for). The security issue (cloning, encryption) is another argument that deserves special attention, given that it can be at the heart of important mobile transactions with potential economic value (m-Banking, for instance). Still, it could be of significant importance to understand how regulation could be improved so to launching the basis for the approximation of handset makers, mobile telecom operators and their users, particularly those in the low to middle-income range. Tax exempts, as already being applied to low income customers and firms for the acquisition of PCs, for instance, tend to be considered as initiatives targeted to tackling the digital divide in developing countries. How could regulation act in the price structure so that to interfere in the demand elasticity of small firms for mobiles, for instance? Are there similar experiences being carried out in Latin America or in other developing countries in this direction? Is regulation in Latin America and the Caribbean powerless to face telecom giants (most of them foreign multinationals) as the African regulatory system is? Is price really blocking the translation of mobiles into better business opportunities to SMIs?

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5.3.1. MARKET OPPORTUNITIES - Do marketing strategies like those geared at brand loyalty promotion work out when applied to providing micro and small firms with suitable information of their interest via SMS? Are people willing to pay for information such as weather forecasting, jobs, prices of raw materials etc? How can it be translated into new business opportunities to SMIs? - Can specific ICT applications such as those combining Radio Frequency Identification (RFID) with mobile telephony, designed to increase the productivity of technicians, inspectors and retailers be appropriately used to increase the efficiency of SMIs? Are there firms specializing in developing such applications in the region? - Can geo-referenced marketing applied to mobile technologies, as European pilot experiences have been showing, work out in Countries? How users could benefit of such technologies? - Particularly in the informal sector, as the experiences in Africa, India and Bangladesh has shown, can mobile technologies increase communication and reduce transaction costs throughout communities of informal entrepreneurs, their customers and suppliers? What communities and businesses are more elastic to mobile telephony utilization as a business ally? Can it promote business model upgrading?

5.3.2. GROWTH STRATEGIES The relationship between mobile telephony and sustainable development in the LAC region has not yet been exhaustively explored so that no consensus has yet been built around this theme. Main areas in this segment can be grouped in the following categories: - Employment: how can entrepreneurship experiences such as the ones evidenced by the “Bangladesh ladies” and the others reported in poor rural African communities be stimulated in LAC? Are low-income LAC countries this similar to the other developing countries already surveyed so to see the same convergence in terms of mobile telephony roll out? How can mobile telephony be translated into employment opportunities to their users?

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- Turnover (revenues): particularly in poor rural communities, transportation costs tend to be prohibitive to many informal entrepreneurs who need constant interaction with their customers and suppliers. Time and low quality of transports tend to increase risks and so to blocking entrepreneurial attitudes of rural people. Could mobile telephony contribute to reducing these transaction costs and hence increase their revenues and, consequently, their quality of life? - Flexibility and cooperation: academic evidences and studies carried out in the LAC region have been stressing the increase in the last decades of the agglomeration of firms – particularly MSMEs – in certain areas of production specialization (clusters and industrial districts). This organizational phenomenon is not new in industrialized countries, where SMEs within a value chain agglomerate to explore the synergies arising out of cooperation among firms and the consequent flexibility of production. In the same direction, a myriad of studies have been pointing out the benefits brought about by modern ICTs to facilitate the flow of information, to reduce transactions costs, to reduce time to market and to enhance decision making within clusters. Nevertheless, no previous study, including the ones carried out in Africa and the Middle East on the socio-economic impacts of mobile telephony, have stressed whether or not mobile technology could enhance the integration of micro and small firms within clusters and industrial districts. - Sustainability of firms: market opportunities arising out by modern ICTs, such as e- Commerce, ERP systems, VoIP, Supply Chain Management (SCM) tools have been of much more relevance to medium and large firms than to micro and small firms in LAC, given the investments in infrastructure, education and production scale required to the effective roll out of such technologies. A significant amount of small-to- medium and medium-to-large firms, by resorting to ICTs, have gained new markets and thus guaranteed conditions for promoting their business’ sustainability. Though, LAC micro and small firms have not yet caught up the benefits of modern ICTs, in particular due to the lack of incentives for them to take up ICTs. The questions that could be arisen so to understanding how mobile telephony could promote the sustainability of micro and small firms could be the following: could microcredit provide such firms with the lacking incentives to take up mobiles? Do

Page 36 of 39 entrepreneurs see any significant benefits into using mobile technology as a business ally? Are LAC entrepreneurs acquainted on the possible advantages of mobile technologies to their businesses?

5.3.3. FIRMS At firm level, some microeconomic concerns underlie the utilization and diffusion of mobile technologies so that more research is needed to understand, for instance, whether it is price and/or the availability of quality associated solutions (e.g. software) in mobile technology that constitute determinant conditioning elements to promote mobile roll out by SMIs. Other aspects deserving more attention by researchers and experts include, for instance: - Organizational efficiency: how could mobile phones increase the organizational efficiency of firms? The increased communication of employees in different units or even outside the firm, the possibility of sending/receiving e-mails and exchange documents via mobiles increase the organization efficiency of firms? Are there cases of best practices to be reproduced and shared? - Capacity building: could mobile telephony promote the same capacity building benefits to firms as other ICTs do? - Management: can mobile telephony support decision making, particularly by enhancing the access to quality and sensitive information micro and small entrepreneurs would not have otherwise access to? - Technological innovation: is there any relationship between technological innovation, or even organizational or process innovations, with the effective roll out of mobile solutions? - Competitiveness: can mobile telephones increase competitiveness of firms? Are there evidences sustaining that mobile technology reduces costs and promotes market integration, particularly to SMIs located in rural areas? If not, how could mobiles promote market efficiency and competitiveness of firms?

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CONCLUSION GSM APPLICATIONS IN SMIs IN SUMMARY

MOBILE TV A provider redirects a TV channel directly to the subscriber's phone where it can be watched there-by creating opportunities for the promotion of the company/product being advertised. VIDEO ON DEMAND A provider sends a movie to the subscriber's phone. This could also be a video used to advertise the company/product in question. VIDEO COFERENCING A subscriber can see as well as talk to each other. This provides room for visual communication among executives of the company especially when they are at different venues at that particular time.e.g emergency meeting of board members. TELE-MEDICINE A medical provider monitors or provides advice to the potentially isolated subscriber. LOCATION-BASED SERVICES A provider sends localized weather or traffic conditions to the phone, or the phone allows the subscriber to find nearby businesses or friends. VOICE CALLS There is vocal communication between two people at different ends via a telephone. This could be between a customer care agent and a customer to give complaints or make enquiries about something/product. It can also be a communication between the executives of the company about a particular issue or product. SHORT MESSAGE SERVICES The ability of a network to transmit a Short Message to a mobile phone. The message can be sent by phone or by a software application. Message can be sent from a staff to the other or from company to customer (software application) e.g. when you make a transaction with the bank through your bank account, you receive an alert on the transaction made on your mobile phone given the details about the transaction.

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We also receive information on promotions, information and complement from companies. GRAND PACKET RADIO SYSTEM This is a network feature that has to do with the web & satellite. The web can be used to make purchases, advertise product, and promote company. The satellite is used in mobile tracking like tracking a vehicle that was stolen or is declared missing.

REFERENCES 1. www.wikipedia.org 2. www.malaysia.gov.my 3. WORLD BANK. Financing Information and Communication Infrastructure Needs in the Developing World: Public and Private Roles. Draft for Discussion. Washington, DC: The World Bank, Global Information and Communication Technologies Department, February 2005. 4. VODAFONE. Africa: the impact of mobile phones. The Vodafone Policy Paper Series, Number 3, March 2005. 5. Antonio José Junqueira Botelho, Ph.D. Research Coordinator, NEP Gênesis, PUC-Rio & Partner, Innovastrat Consultoria 6. Alex da Silva Alves, Ph.D. candidate Associate Researcher, NEP Gênesis, PUC-Rio & Senior Consultant, Innovastrat Consultoria

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