1 Migration Strategies for Competitive Advantage of Mobile Network Operators by Hisakazu Tsuboya Submitted to Alfred P. Sloan School of Management on May 9, 2003 in Partial Fulfillment of the Requirements for the Degree of Masters of Science in the Management of Technology ABSTRACT Innovation in platform industries, including mobile telecommunications, has a great impact on societies and economies; hence a migration from an existing platform to the subsequent one should be progressed under careful forecasting, weighed scenarios and strategies that encompass a broad view. This thesis analyzes why mobile network operators are struggling to move from the second generation (2G) and its derivatives to the third generation (3G) technologies and proposes migration strategies, which allow them to sustain their competitive advantage. First, a migration model is proposed as a reinforcing loop model composed of two dynamics, “Platform Migration” caused by a shortage of network capacity, and “Service Innovation” triggered by a decline in ARPU (Average Revenue Per User). Platform migration is an implementation process for new platform technologies and can be categorized into Revolution-type and Evolution-type. After these two schemes have been evaluated through case studies, Collaboration-type migration, an enhanced Evolution-type, is proposed for future, technically diversified situations. Service Innovation is a process for creating new profitable services to give further revenue growth. Empirical analysis clarifies that mental breakthrough management is a common approach in the mobile industry and proposes that a mixture of corporate, partner and market initiatives be adopted for diversified customer preference. This thesis then proposes the following strategies for future successful migration: first, mobile network operators should drive the migration cycle powerfully, concentrating on successive service innovation dynamics for their revenue growth and the next platform migration. Second, they should choose migration schemes carefully according to their level of technology leadership, value chain leadership and investment capability. Finally, service platform should be considered for realization of innovative services with Partnership Dynamics. Thesis Supervisor: Michael A. Cusumano Title: MIT Sloan Management Review Professor of Management 2 Acknowledgement My thesis project in this MIT Management of Technology Program is just the corpus of my ten-year experiences in the business society. Professors and friends in MIT Sloan School gave me the broader perspectives and the opportunities to enhance my talents of from an engineer to a business leader for my next ten years. I would really appreciate this wonderful program and acknowledge the following individuals: Professor Michael A. Cusumano for his remarkable directions to my thesis project during his busy schedule Dr. Keiji Tachikawa, CEO and Chairman of NTT DoCoMo Inc., for his giving me a great opportunity to join MIT Sloan School Mr. Shiro Tsuda, Senior Executive Vice President of NTT DoCoMo Inc, for his showing me a great leadership of DoCoMo’s 3G launching and giving me opportunities and directions Mr. Kiyoshi Tokuhiro, Mr. Kei Irie and Mr. Kyoji Murakami, Executive Managers of NTT DoCoMo Inc. for their kind supports from 3G project to this MIT Sloan School Mr. Joo Hyung chul of SK Telecom, Mr. Hans Hauser of T-mobile and Mr. Kari Marttinen of TeliaSonera, for great suggestions and information for my thesis project. Mr. Kazuaki Yoshizawa, Dr. Atushi Murase, Dr. Hendrik Berndt, Mr. Yoshiyuki Yasuda, Mr. Makoto Kijima, Mr. Futoshi Kikuchi, Mr. Hozumi Tamura, Mr. Hiroshi Nakamura, Mr. Tomohiko Ozaki, and Mr. Ken Takahashi, Executive Managers of NTT DoCoMo Inc. for a number of suggestions and directions for my thesis project. Mr. David Weber, for his great coordination and work for MOTs. Finally my acknowledgement of great thanks to my loving wife, Kanako, and my daughter, Hinano, for supporting my life in Boston. Rest of my life goes with you. Boston, Massachusetts May 2003 3 Table of Contents ABSTRACT .............................................................................................................................................. 2 ACKNOWLEDGEMENT ....................................................................................................................... 3 TABLE OF CONTENTS.......................................................................................................................... 4 LIST OF FIGURES.................................................................................................................................. 8 LIST OF TABLES .................................................................................................................................. 11 1. INTRODUCTION AND MOTIVATION...................................................................................... 12 1.1. BITTER TRAILS TO THE THIRD GENERATION MOBILE TECHNOLOGIES...................................... 12 1.2. TRAFFIC BUSINESS IS MAINSTREAM ......................................................................................... 14 1.3. OBJECTIVE AND OVERVIEW OF THE THESIS............................................................................... 15 2. MIGRATION IN MOBILE TELECOMMUNICATIONS INDUSTRY.................................... 18 2.1. OVERVIEWS ............................................................................................................................... 18 2.2. MARKET TRENDS ...................................................................................................................... 18 2.2.1. Market Scale and Penetration .......................................................................................... 18 2.2.2. ARPU and MOU ............................................................................................................... 19 2.3. TECHNOLOGY TRENDS .............................................................................................................. 22 2.3.1. Mobile Telecom Platform.................................................................................................. 22 2.3.2. Platform Innovations for the Efficient Use of Radio Spectrum......................................... 23 2.3.3. Spectrum Allocation.......................................................................................................... 26 2.3.4. Platform Innovations for the Mobile Services .................................................................. 27 2.3.5. Third Generation Mobile Technologies (3G).................................................................... 28 2.3.6. Migration Paths from 2G to 3G........................................................................................ 30 2.4. MIGRATION PROCESS IN THE MOBILE INDUSTRY ...................................................................... 31 2.4.1. Migration Process as Discontinuity.................................................................................. 31 2.4.2. Two Dynamics in Migration Process ................................................................................ 32 2.4.3. Migration Model in the Mobile Industry........................................................................... 34 2.5. SUMMARY ................................................................................................................................. 36 3. PLATFORM MIGRATION DYNAMICS.................................................................................... 37 3.1. OVERVIEWS ............................................................................................................................... 37 3.2. TRIGGERS IN PLATFORM MIGRATION DYNAMICS...................................................................... 37 4 3.3. PLATFORM MIGRATION MODEL ................................................................................................ 39 3.3.1. Backward Compatibility ................................................................................................... 39 3.3.2. Revolution-type Platform Migration................................................................................. 40 3.3.3. Evolution-type Platform Migration................................................................................... 40 3.3.4. Platform Migration Model................................................................................................ 42 3.4. 4C FRAMEWORK FOR PLATFORM MIGRATION........................................................................... 43 3.4.1. 4C Factors for Platform Migration .................................................................................. 43 3.4.2. Capability ......................................................................................................................... 44 3.4.3. Coverage........................................................................................................................... 44 3.4.4. Cost................................................................................................................................... 44 3.4.5. Complementary Assets...................................................................................................... 45 3.5. CASE ANALYSIS OF REVOLUTION-TYPE MIGRATION................................................................. 46 3.5.1. Overviews ......................................................................................................................... 46 3.5.2. Case