Network effect, open access,and standards strategyToshiya Jitsuzumi, Dr.Kyushu University
Fruits of the Market     Maximizing             Maximizing     corporate              consumers’       profits            ...
Conditions for market dynamism• Perfect/Sufficient Information• Inclusiveness   • No externality   • No public goods• Perf...
Features of the telecom industry                                                        Network Effect http://www.bourncre...
Network Services     Quality of experience (QoE) depends on the variety     of services: The more the variety is, the bett...
Network effect (network externality)                            Indirect effectDirect effect
Impact on consumers’ demandPrice                     The more the variety is, the                           better the QoE...
Impacts of network effect 1 There is a tipping point in the start-up market.                                              ...
Teledencity    100                      USA                     アメ カ                        リ     90               Sweden ...
Impacts of network effect 2   The winner takes all                             Wider   in a matured market.               ...
WTA in the SNS market100%                                                                                                 ...
100%         0%              20%                      40%                             60%                                 ...
If we want …..     Faster                     More   penetration                competition                Open access    ...
Open access and interconnectionhttp://www.tutorialspoint.com/images/interconnect.jpg                                      ...
Standards strategyhttp://www.adaptelec.com/index.php?main_page=document_general_info&products_id=154
TBL in Japan: Duty to interconnect Article 32 (Interconnection with Telecommunications Circuit Facilities) Any telecommuni...
TBL in Japan: Designated Telecom FacilitiesArticle 33  • Interconnection with Category I Designated Telecommunications   F...
TBL in Japan: Designated Telecom FacilitiesArticle 35 (Order, Etc. Concerning Interconnections of Telecommunications Facil...
TBL in Japan: Technical standardsArticle 41 (Maintenance of Telecommunications Facilities)(1) Any telecommunications carri...
TBL in Japan: Technical standardsArticle 42  • Self-Confirmation of Compliance of Telecommunications Facilities   by Telec...
Accelerated penetration of mobile service                Mobile phone penetration                PHS penetration          ...
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Network effect

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Network effect

  1. 1. Network effect, open access,and standards strategyToshiya Jitsuzumi, Dr.Kyushu University
  2. 2. Fruits of the Market Maximizing Maximizing corporate consumers’ profits welfare Without governmental intervention
  3. 3. Conditions for market dynamism• Perfect/Sufficient Information• Inclusiveness • No externality • No public goods• Perfect Competition http://www.dot- communications.co.uk/assets/images/HeadersLogos /terms_and_conditions.jpg
  4. 4. Features of the telecom industry Network Effect http://www.bourncreative.com/wp- content/uploads/2012/09/capitalize-on-uniqueness.jpg Natural Monopoly
  5. 5. Network Services Quality of experience (QoE) depends on the variety of services: The more the variety is, the better the QoE becomes.http://www.imagine-net-tech.com/images/network.jpg
  6. 6. Network effect (network externality) Indirect effectDirect effect
  7. 7. Impact on consumers’ demandPrice The more the variety is, the better the QoE becomes. Assume that the price is constant Demand Demand Quantity
  8. 8. Impacts of network effect 1 There is a tipping point in the start-up market. Critical Mass http://4.bp.blogspot.com/-v1wfeRJ8JD4/UIrYhkWesdI/AAAAAAAABTY/LfO0mTDSaxs/s640/the+tipping+point.jpg
  9. 9. Teledencity 100 USA アメ カ リ 90 Sweden スウェ ーデン Early adopters スイス Switzerland 80人 フランス France口 ドイツ Germany 70 Late adopters1 日本0 Japan0 60人当 50たり 40電話 30機数 20 10 0 11 14 17 20 23 26 29 32 35 38 41 44 47 50 53 56 59 62 65 68 71 74 77 80 83 86 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 Source: Miyajima(1993, pp.151- 153)
  10. 10. Impacts of network effect 2 The winner takes all Wider in a matured market. service variety More Potential More friends for better attractive profitability network Larger Largerinstalled installed base base More customers More friends
  11. 11. WTA in the SNS market100% Facebook StumbleUpon 80% YouTube Twitter 60% Pinterest reddit 40% Digg MySpace LinkedIn 20% NowPublic VKontakte 0% iWiW Mar-11 Dec-11 Jun-09 Jun-10 Sep-11 Jun-12 Mar-13 Mar-09 Mar-10 Mar-12 Dec-09 Dec-10 Jun-11 Dec-12 Sep-09 Sep-10 Sep-12 Fark orkut
  12. 12. 100% 0% 20% 40% 60% 80%Mar-09Jun-09Sep-09Dec-09Mar-10Jun-10Sep-10Dec-10Mar-11Jun-11Sep-11Dec-11Mar-12Jun-12Sep-12Dec-12 WTA in the social news marketMar-13 Digg reddit
  13. 13. If we want ….. Faster More penetration competition Open access and/or Standards strategy
  14. 14. Open access and interconnectionhttp://www.tutorialspoint.com/images/interconnect.jpg http://commons.wikimedia.org/wiki/File:Internet_map_1024.jpg
  15. 15. Standards strategyhttp://www.adaptelec.com/index.php?main_page=document_general_info&products_id=154
  16. 16. TBL in Japan: Duty to interconnect Article 32 (Interconnection with Telecommunications Circuit Facilities) Any telecommunications carrier shall agree to the request for interconnection of its telecommunications circuit facilities being installed by said telecommunications carrier from other telecommunications carriers with telecommunications facilities of said other telecommunications carriers, except the cases listed in the following items: i. Where there is a risk of hindering the smooth provision of telecommunications services ii. Where there is a risk that said interconnection may unfairly impair the interest of said telecommunications carrier iii. Where there are due reasons specified in the applicable ministerial ordinance of the MIC in addition to the cases listed in the preceding two items
  17. 17. TBL in Japan: Designated Telecom FacilitiesArticle 33 • Interconnection with Category I Designated Telecommunications FacilitiesArticle 34 • Interconnection with Category II Designated Telecommunications Facilities
  18. 18. TBL in Japan: Designated Telecom FacilitiesArticle 35 (Order, Etc. Concerning Interconnections of Telecommunications Facilities)1. Where a telecommunications carrier, in spite of other telecommunications carriers proposal to enter into an agreement to interconnect telecommunications facilities of said telecommunications carrier with telecommunications facilities of said other telecommunications carrier, does not accept entering into a consultation or where said consultation fails to come to an agreement, the Minister shall, upon petition of said telecommunications carrier who proposed said agreement, order said other telecommunications carrier to start or reopen the consultation, except the cases where it is deemed that such interconnections fall under any item of Article 32 and an application for arbitration is filed under the provisions of Article 155 paragraph (1).2. Where, in addition to the cases stipulated in the preceding paragraph, in spite of ones proposal to enter into an agreement to interconnect telecommunications facilities between telecommunications carriers , the other party does not accept entering into a consultation or where said consultation fails to come to an agreement, the Minister may, upon request of one of said telecommunications carriers, order the other telecommunications carrier to start or reopen the consultation when it is deemed such interconnections especially necessary and appropriate to promote the public interest, except the cases where an application for arbitration under the provisions of Article 155 paragraph (1) is filed.3. Where a consultation between the parties concerned about the interconnections to telecommunications facilities of a telecommunications carrier fail to come to an agreement with respect to such details as the amount of money to be received and paid by them or other details including terms and conditions of interconnections, a telecommunications carrier who installs telecommunications facilities to be connected to said telecommunications facilities of the telecommunications carrier may apply for an award to the Minister. However, in the cases where the parties filed an application for arbitration in accordance with the provisions of Article 155 paragraph (1), this shall not apply.4. When consultations between the parties concerned, except the cases stipulated in the preceding paragraph, after an order has been issued in accordance with the provisions of paragraph (1) or paragraph (2), fail to come to an agreement with respect to such details as the amount of money to be received and to be paid by them or other details including terms and conditions of interconnections, the party (or parties) may apply for an award to the Minister.….
  19. 19. TBL in Japan: Technical standardsArticle 41 (Maintenance of Telecommunications Facilities)(1) Any telecommunications carrier installing telecommunications circuit facilities shall maintain its telecommunications facilities (except those specified in the applicable ministerial ordinance of the MIC as those having a minor influence on the users benefit in the cases of damage or failure, etc. thereof) for use of its telecommunications business in compliance with the technical conditions specified in the applicable ministerial ordinance of the MIC.(2) Any telecommunications carrier providing universal telecommunications services shall maintain its telecommunications facilities (except telecommunications facilities stipulated in the preceding paragraph) for use of its telecommunications business for providing said universal telecommunications services in compliance with the technical conditions specified in the applicable ministerial ordinance of the MIC.(3) The technical conditions of the preceding two paragraphs shall be so specified as to ensure the following matters: i) The provision of telecommunications service shall not be extremely hindered by damage or failure of telecommunications facilities. ii) Quality of telecommunications services shall maintain an appropriate level. iii) Secrecy of communications shall not be violated. iv) Telecommunications facilities of users or other telecommunications carriers connected shall not be damaged or impaired, nor shall functions thereof be impaired. v) The demarcation of responsibilities between the telecommunications facilities of a telecommunications carrier and those of others shall be clearly stipulated.
  20. 20. TBL in Japan: Technical standardsArticle 42 • Self-Confirmation of Compliance of Telecommunications Facilities by Telecommunications CarriersArticle 43 • Order to Comply with Technical Conditions
  21. 21. Accelerated penetration of mobile service Mobile phone penetration PHS penetration At the end of Fiscal Year Source: MIC(www.soumu.go.jp/joho_tsusin/eidsystem/ market01_01.html)

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