OXFORD, United Kingdom-If an Olympic games in cellular communications were ever staged, there is little doubt who would head the medals table. Finland would take gold in almost every event. The Finns take great pride in being first.
Finland has been at the forefront of cellular communications since the launch of the world’s first commercial GSM network by Radiolinja in 1991. The country has long topped the league table of cellular penetration rates, with the current penetration exceeding 60 percent. At the GSM World Congress earlier this year, Finland’s Sonera won the GSM Association’s 1999 Customer Growth Award. Sonera was the network achieving the highest percentage increase in domestic market penetration during 1998, increasing from 20.3 percent to 32.5 percent of the population.
Sonera first won the Customer Growth Award in 1997. It is the first network to win the award twice.
3G licensing
Now Finland has clocked up another first. It is the first country in the world to grant licenses for 3G mobile networks.
Toward the end of 1998, the Finns seemed prepared to forego their prospects of winning this particular race. The Ministry of Communications was worried that the first country to issue UMTS licenses would be taken to court by Qualcomm, accused of violating the World Trade Organization (WTO) agreement. The solution was to appear technology-neutral-granting 3G, rather than UMTS, licenses to four telecommunications companies.
“The decision did not include a final position on the technology to be used,” noted the ministry statement, “since it will be determined by future international standardization decisions (IMT-2000).”
Fifteen companies had applied for a license by the deadline of 15 February; two subsequently withdrew. Some applied for national licenses, others for regional licenses. But the ministry decided against regional licenses, arguing there is only enough spectrum available for four parallel networks. Granting even one regional license would have reduced the number of national licenses to a maximum of three-an unacceptable situation, it said, based on competition grounds.
Four licenses, valid for 20 years, were granted on 18 March after a beauty contest. All three of Finland’s national 2G operators-Radiolinja, Sonera and Telia Mobile-received licenses. The fourth license went to Suomen Kolmegee, a grouping of 41 regional operators of the Finnet Group, which has now concluded a cooperation agreement with Sweden’s Tele2.
Applicants not granted a license were: Clari Net, Helsingin Puhelin, Keski-Suomen Puhelin, RSL Com Finland, Saunalahden Serveri, Sonera Systems, Tampereen Puhelin and Tele1 Europe Ab.
Mobile licenses in Finland are free. Mobile operators have to pay an administration to use the frequencies and numbers, but this is just charged on a cost-recovery basis. Sonera, with almost 2 million subscribers, currently pays only FM10 million per annum in administration fees.
“VAT (value-added tax) revenues from mobile calls are the main earner for the government,” explained Ukko Lappalainen, head of market and business development at Nokia Telecommunications.
This regulatory approach is in marked contrast to that prevailing in most other countries, where governments are anticipating significant revenues from the auction of 3G licenses. The U.K. government is expecting to raise up to US$3.23 billion from its forthcoming auctions.
“The business case for 3G can be destroyed by government greed,” commented Lappalainen.
Never a monopoly
The regulatory and competitive telecommunications scene in Finland has always been rather special. In 1930, there were more than 800 operators in the country. Today there are around 90 licensed operators falling into three main categories: the previously state-owned Telecom Finland, re-named Sonera Corp. following privatization; the Finnet Group, which consists of around 50 small regional operators together with the Helsinki Telephone Co.; and new entrants, including Telia and Tele2, the two largest network operators in neighboring Sweden.
Unlike other European PTTs, Sonera never had a national monopoly on local and long-distance calls. Finland was essentially carved up between the different players, creating a patchwork quilt of regional monopolies for trunk and local calls. The subsequent liberalization of the Finnish telecommunications market created a unique situation with two main operator groupings, Sonera and Finnet, having comparable market share, revenues and resources. Unlike any other country in the world, with the possible exception of Chile, Finland’s post-liberalization market was genuinely competitive.
“It is instructive to look at the current market share of incumbent operators in the European Union,” said Martin Andersson, manager of regulatory affairs at Sonera. “Sonera has 52 percent of the Finnish market. [British Telecom] in the U.K. has 75 percent, Telia in Sweden has 85 percent and all the others still have over 90-percent market share.”
Sonera has never enjoyed the benefits of a subscriber base in the cities of southern Finland; other operators owned the local loop. So it is natural that Sonera put particular effort into developing its cellular operations. That effort has paid off; Sonera dominates the Finnish cellular market, and mobile now accounts for half its revenues.
Mobile success
Churn in Sonera’s networks is low, around 13 percent compared with the European Union average of 21 percent. A major reason is the absence of handset subsidies, which are forbidden in Finland. “Another factor is that operators are focused on growing the market, rather than poaching subscribers from each other.” said Andersson.
With mobile traffic growing at a 47-percent compound average, there is little need to go poaching. Mobile call charges in Finland are low, with a peak rate of around 28 cents per minute, and decreasing at 7 percent to 8 percent per annum, but networks are seeing a healthy increase in outgoing minutes. As a result, the average revenue per user is stable at US$40, compared with US$30 for fixed users.
Data
But despite the increase in mobile call minutes and the inexorable rise of the mobile penetration rate, mobile traffic is still a small proportion of overall minutes. Even in Finland, four out of five calls are still made from a fixed phone. And the growth area in the fixed world is in data rather than voice.
“The data market is an absolute necessity for mobile,” said Petri Poyhonen, vice president of the GPRS Business Program at Nokia Telecommunications. “Mobile data performance in the past has not been impressive. Mobile data in the future could be a survival scenario.”
Poyhonen pointed to GPRS (General Packet Radio Service) as the enabler for mobile data, opening up two new key markets. “Combining GPRS with [Wireless Application Protocol]-enabled phones will create a personal messaging market. It will put the Internet into people’s pockets.” But the major applications will be targeted at business users through wireless corporate intranets.
“The always-connected nature of GPRS makes it a breakthrough technology,” said Poyhonen. “It will make your laptop look like your desktop.”
Nokia claims that its earlier prediction that voice would go wireless is being proved correct. “Our new vision is that e-mail will go wireless,” stated Poyhonen. “This will create major revenues for mobile operators.”
GPRS is, of course, a packet-based system. Packet-switched Internet Protocol (IP) based systems are increasingly being seen as the future for the fixed world. Together they make a powerful combination.
“The leaders in 3G will be those with IP resources,” said Aimo Eloholma, executive vice president of the Sonera Group at the launch of Sonera’s IP communicator network last December. An end-to-end IP-over-ATM network, the IP communicato
r system is another first for Finland. No other operator in Europe has the capability of merging Internet and advanced
telephony services over a single network.
“We are seeking to be a pioneer in IP communications,” said Eloholma. The goal is to enable wideband mobile for business users and digital video broadcasting for residential users. And the stated target is to launch services before the Sydney Olympic Games. In time for the medal ceremony, no doubt.
