Strategic Technology Alliances in The Age of Convergence

STRATEGIC TECHNOLOGY ALLIANCES IN THE AGE OF CONVERGENCE IN MEDIA & TELECOM INDUSTRY
Presented by Moaaz Burki, 059643445
In Partial fulfilment of the Masters of Science Degree in Technology Exploitation & Management Presented to Mr. Lakis Kaounides
(Director of Technology & Innovation)
Queen Mary, University of London United Kingdom August 20th, 2007 Word Count: 25,681
Strategic Technology Alliances in the Age of Convergence August 20, 2007
Table of Contents
Chapter 1 1.1 1.2 Introduction ...................................................................................................... 12
History of Alliances .................................................................................................... 13 Defining allainces ...................................................................................................... 14 Grounding .......................................................................................................... 14 Core foundation ................................................................................................. 15 Outcome ............................................................................................................ 15
1.2.1 1.2.2 1.2.3 1.3 1.4 1.5
Comparison ............................................................................................................... 15 Alliances in Telecommunication Industry ................................................................. 16 Research Purpose ...................................................................................................... 18 Aim of the Research ........................................................................................... 19 Research Questions ........................................................................................... 19 Methodology...................................................................................................... 19 Structure ............................................................................................................ 20 Literature Review .............................................................................................. 22
1.5.1 1.5.2 1.5.3 1.5.4 Chapter 2 2.1 2.2
Introduction............................................................................................................... 22 Strategic Alliances ..................................................................................................... 23 Motives for Strategic Alliances .......................................................................... 26 Transfer of Knowledge and Alliances................................................................. 28 Types of Alliances............................................................................................... 29 Advantages of an Alliance .................................................................................. 33
2.2.1 2.2.2 2.2.3 2.2.4
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MSc. TEXMAN, Materials Dept. Queen Mary, University of London
2.2.5 2.2.6 2.2.7 2.3
Knowledge & Change Management .................................................................. 34 Alliance Challenges ............................................................................................ 36 Drawbacks of Alliances ...................................................................................... 39
Strategic Technology Alliances .................................................................................. 40 How a Firm Gains from an Alliance? .................................................................. 42 Affects of Strategic Technology Alliances .......................................................... 43 Concepts of Strategic Technology Alliance ........................................................ 43
2.3.1 2.3.2 2.3.3 2.4
Alliances in the Telecom Industry ............................................................................. 45 Equity Alliances in Telecoms .............................................................................. 46 Reasons for forming Alliances in the Telecom Industry .................................... 48
2.4.1 2.4.2 2.5
Convergence.............................................................................................................. 49 Convergence Definition ..................................................................................... 50 Levels of Convergence ....................................................................................... 51 Affects of Convergence ...................................................................................... 53 Convergence in the Industry .............................................................................. 56 Convergence In Telecom Industry .................................................................... 61
2.5.1 2.5.2 2.5.3 2.5.4 Chapter 3 3.1 3.2 3.3 3.4 3.5 3.6
Introduction............................................................................................................... 61 History of Convergence ............................................................................................. 61 Current Trend of Convergence.................................................................................. 64 Drivers of Convergence ............................................................................................. 65 Generations of Mobile Communication.................................................................... 69 Multiplay ................................................................................................................... 70 3
3.7 3.8
Is Convergence Required?......................................................................................... 70 Factors Affecting Convergence ................................................................................. 72 Customer Focus ................................................................................................. 72 Regulation of converged services ...................................................................... 75 Piracy .................................................................................................................. 75 Information security .......................................................................................... 77
3.8.1 3.8.2 3.8.3 3.8.4 3.9
Success of Quadruple Play ..................................................................................... 78 Reduced Overall Expenditure By Customer....................................................... 80 Reduced Overall Expenditure By Operator........................................................ 81
3.9.1 3.9.2
3.10 Role of Mobile Virtual Network Operators in Convergence ..................................... 81 3.11 Drivers of Convergence (Data Analysis) .................................................................... 82 3.12 The Executive Decision (Data Analysis) ..................................................................... 87 3.13 Controling Convergence ............................................................................................ 91 3.14 is Convergence Imminent?........................................................................................ 92 3.15 Role of Technology Alliances..................................................................................... 95 4 Technology Alliances & Convergence in Telecoms........................................................ 100 4.1 4.2 4.3 4.4 4.5 4.6 Introduction............................................................................................................. 100 Strategic Technology Alliances ................................................................................ 100 Global R&D Scenario ............................................................................................... 101 Technology Alliances in the Global Telecommunication Industry .......................... 105 Drivers of Technology Alliances .............................................................................. 106 Current Trend in Technology Alliances ................................................................... 106 4
Findings & Conclusions .................................................................................................. 110 5.1 5.2 5.3 5.4 Introduction............................................................................................................. 110 Findings ................................................................................................................... 110 Levels of Convergence............................................................................................. 114 Future of Mobile Virtual Network Operators in Convergence ............................... 116
Bibliography ........................................................................................................................... 119
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List of Figures
Figure 1 Spectrum of Corporate Control ................................................................................. 16 Figure 2 Sectoral Distribution of Strategic Alliances, 1990 1999.......................................... 41 Figure 3 Levels of Convergence ............................................................................................... 53 Figure 4 First Stage of Convergence (1990 2000) ................................................................. 63 Figure 5 Growth of NGN .......................................................................................................... 66 Figure 6 Availability of Wireless Hotspots Worldwide ............................................................ 67 Figure 7 Units of Mobile Phones Sold ...................................................................................... 68 Figure 8 Generations of Mobile Communication (1990 2007) ............................................. 69 Figure 9 Triple-play Customers in Europe................................................................................ 73 Figure 10 Customer Interest in Converged Services................................................................ 74 Figure 11 Estimated PC software piracy losses ....................................................................... 76 Figure 12 FBI Intellectual Property Indictments ...................................................................... 77 Figure 13 Percentage of consumers concerned over security of information ........................ 78 Figure 14 Triple-play subscriber (in millions) forecast ............................................................. 79 Figure 15 Triple-play Penetration of Households (2005) ........................................................ 79 Figure 16 Expenditure on Telecom & Media services per Household .................................... 80 Figure 17 Impact of Convergence within next Three Years (% of Executives) ........................ 83 Figure 18 Voice & Data Services in Western Europe ............................................................... 84 Figure 19 Installations of Industrial Ethernet .......................................................................... 85 Figure 20 Software Market Growing ....................................................................................... 86 Figure 21 Approaching Convergence ....................................................................................... 87 6
Figure 22 Respondents Demographics ................................................................................... 88 Figure 23 Implementation of Convergence in Organisations .................................................. 89 Figure 24 Implementation of Convergence (Next 5 Years) ..................................................... 90 Figure 25 Return on Investment .............................................................................................. 91 Figure 26 Embracing Convergence in the next 3 years ........................................................... 93 Figure 27 Impact of Convergence within next Three Years (% of Executives)......................... 93 Figure 28 Share of R&D Expenditure 1990 2004 ................................................................ 101 Figure 29 Top Three R&D Performers 1990 2003............................................................... 102 Figure 30 Worldwide R&D Expenditure 1990 2003 ............................................................ 103 Figure 31 International Technology Alliances 1980 2003................................................... 104 Figure 32 Telecom Equipment Consolidation 2005 2006 ................................................... 105 Figure 33 Symbian Ownership ............................................................................................... 108 Figure 34 Driving Technology Alliance & Convergence ......................................................... 109 Figure 35 Convergence Lifecycle............................................................................................ 110 Figure 36 Factors Threatening the Convergence Lifecycle .................................................... 112 Figure 37 Complete Convergence Life Cycle ......................................................................... 113 Figure 38 Industries at Various Levels of Convergence ......................................................... 115 Figure 39 Role of MVNOs in Convergence ............................................................................. 118
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List of Tables
Table 1 Motives for Alliances ................................................................................................... 34 Table 2 Reasons for Collaboration in Telecoms....................................................................... 49 Table 3 Levels of Convergence................................................................................................. 63 Table 4 Drivers of Technology Alliances in Telecoms ............................................................ 106
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Acknowledgement
I would like to thank Almighty Allah for giving me the strength and knowledge to initiate and complete this business research project. Furthermore, I would like to thank my parents who encouraged me every step of the way and enabled me to study in a world-class institution. Mr. Kaounides my supervisor, without his guidance this thesis would not have been possible. And finally to all my friends and loved ones who supported me throughout this time.
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Executive Summary
This business research project focuses on strategic technology alliances in the current global mobile telecom industry amidst the growing hype over convergence of media & telecom services. The author has chosen this topic of research based on his own interest and professional experience in the telecom industry. Technological advancements in the IT & telecom industry have seen new technologies arise. This type of research was essential as it provides an in-depth look into the current technology and market trends in the global telecom industry, with a special emphasis on technology alliances and convergence. Convergence of the technology, media and telecom industry is believed to be the next big thing and already companies in these industries are forming cross industry alliances to enter the convergence race. Strategic alliances in the telecom industry have proved successful in generating higher revenue and inventing new technologies. Currently these technology alliances are being formed among media companies and telecom operators in order to provide converged services. This thesis answers the following research questions based on thorough analysis of convergence and strategic technology alliances in the global telecom industry.

What are the factors leading to convergence in the telecommunication industry? What are the causes of strategic technology alliances, formed in telecoms today? What is the relationship between convergence and strategic technology alliances?
The factors leading to convergence are the growth in the number of next generation as well as corporate IP networks offering voice, data and multimedia services over the same network. Furthermore, end-user devices play a central role in the push towards convergence. Strategic technology alliances on the other hand are formed to create new technologies and/or perform R&D on emerging technologies. During the dotcom era there was an increase in the technology alliances as back then there was similar hype over convergence between mobile and the IT industry. However, with the crash of the stock market in March 2000 all convergence discussions ended. During this period the number of strategic 10
technology alliances also dropped. Showing a relationship between convergence and technology alliances. After the dotcom era convergence talks resumed, with the internet stronger than ever before and with valuable lessons learnt, it seems that this age of convergence will prove to be more practical than its predecessor. MVNOs tend to gain the most from convergence as they possess all the ingredients required for the successful implementation of converged voice, data and media services. On the other hand for entrants into this convergence race, they need to clearly strategise on what level of convergence to achieve. Businesses need to possess clear understanding of the levels of convergence as these levels are the basis for any business to survive in this era of convergence where a blend of services is accessible through a single device connected to a seamlessly connected network.
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CHAPTER 1
INTRODUCTION
This thesis was inspired by the authors interest in the IT & Telecoms industry, with a Bachelors degree in Computer Science and almost 3 years of field experience in the telecom industry of Pakistan, the author has combined his knowledge of the IT & Telecom industry with the literature thoroughly reviewed in order to provide the intended readers with an understanding of the relationship between technology alliances and convergence in the technology, media and telecom industry. The term convergence is dominant in almost the entire technology, media and telecom industry. Every step taken by an organisation in order to enhance its service offerings the driver is convergence. This thesis will provide an insight into the world of convergence and its link with strategic alliances. Factors affecting and the drivers of convergence and strategic alliances have been critically analysed and the findings have been extracted from the data published in electronic and printed sources accompanied with proper referencing. The role of strategic alliances has so far been crucial in the success of an organisation. Alliances have been more profitable and successful than mergers & acquisitions in much of the telecom industry. Technology alliances in the telecom industry have resulted in the generation of new technological breakthroughs, on the network as well as the device end, enabling the telecom operators to provide a host of services to the customer. After the review of this thesis the reader will have an understanding of the driving factors in the current media & telecom market. The thesis is revolving around the review of technology alliances in light of convergence, as according to the author the amount of money being invested in the technology, media and telecom industry is at massive scale. Certain questions (below) have been critically analysed in order to achieve a thorough understanding of the subject.

What if convergence of media & telecom services fails? What is the relationship between technology alliances & convergence? What are the factors affecting and supporting convergence? 12
The analysis of the above questions will provide the reader with an understanding on how the media & telecom industry is transforming itself in order to provide a mix of services on a single converged network, accessible through a single device. This thesis would further emphasise on the fact that it is in fact much easier and cost effective for the operator as well as the customer to embrace convergence of media & telecom services. In order to initiate with a discussion on the subject the author starts with explaining the historical background of strategic alliances in general, moving on to the performance of these alliances in the global telecom industry. 1.1 HISTORY OF ALLIANCES
Alliances hold a very important place in the business world. Although there has been a decrease in the number of new alliances created every year1, they are an essential part of some of the most important industries in worlds economy e.g. airlines, pharmaceuticals and telecommunication industries. According to the Boston Consulting Group; As more and more companies shift their attention to growth after a period of consolidation and restructuring, its likely that the upward swing in alliances will resume again. This trend has already begun in the Americas
(Boston Consulting Group, 2005)
Traditionally large multinational companies have preferred to enter new markets alone, in order to claim the market share this has been seen among the companies based in the United Stated (US).2 However, in order to enter a market or a new line of business, smaller companies based in Japan, Asia and other developing countries have been seen to create alliances.3 In the past large firms viewed alliances and partnering with other companies as a secondary approach compared to moving into the market alone. These were viewed as options that were to be taken to enter regulated economies, where government laws prohibited direct international investment. In short, alliances were viewed as a loop hole to tap into closed
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Boston Consulting Group, 2005, The Role of Alliances in Corporate Strategy, Boston Massachusetts Reuer, J. J. 2004, Strategic Alliances, Theory and Evidence, US Reuer, J. J. 2004, Strategic Alliances, Theory and Evidence, US
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economies where entry barriers were high, mostly in the developing world. Alliances formed with local partners proved to be beneficial as market access was made easier and due to the local partners influence it was easier to get government permissions of various kinds. 1.2 DEFINING ALLAINCES
In order to understand the concept of Strategic Alliances it is important to understand the process of collaboration. The National Network for Collaboration has published a framework that defines each and every aspect of collaboration, including the pitfalls and hurdles that the members of the collaboration might come across. Technically, collaboration is a process of participation through which people, groups and organizations work together to achieve desired results
(The National Network for Collaboration, 1996)
The National Network for Collaboration has defined the process of collaboration in three easy steps, which are as follows: 1. Grounding 2. Core Foundation 3. Outcome Below is a brief explanation of the three factors/steps of alliances/collaboration. These will be discussed in more detail in the Literature Review (Chapter 2).
1.2.1 GROUNDING
Grounding is the first part of any collaboration; this is used to shortlist or to value the diversity that every partner brings to the collaboration. Valuing the uniqueness and talents of an organization in the collaboration and honouring the diversity.
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1.2.2 CORE FOUNDATION
The reason why organisations are collaborating is set in the core foundation of the collaboration. Focus is on the common goal that the partners wish to achieve with the help of the alliance. Core foundation has been further divided into three steps4
a. b. c. Vision Mission Values & Principles ---------------A description of the proposed outcome The reason why the organisations have come together The processes and set of rules that the alliance/collaboration will follow
1.2.3 OUTCOME
Outcome is the desired goal or the solution of a problem, or invention of a new technology. Outcome is the main reason for creating an alliance/collaboration. 1.3 COMPARISON
Entering new markets or investing in new technologies involves a high rate of risk which can be reduced or shared by forming alliances, however, it is important to understand the full concept of alliances and more importantly when to and when not to form an alliance. The relationship life cycle between companies can run from a single transactional relationship to a complete acquisition.5 In a transactional relationship e.g. supplier and corporate customer, one company is able to direct or control to some degree the operations of another company, strictly based on the terms and conditions defined in the contract which is limited to a certain time period. The risk involved in this relationship is relative to the type of relationship. Whereas, in an acquisition, the acquiring company controls all the operations of the acquired company, giving it more power and ownership but at the same time it accepts all the risks of the acquired company. Now the question is where do alliances fall in? Alliances come in the middle of this whole scenario. Alliances are collaborations between two or more companies that invest in an activity, sharing the risk and returns but at the same time remaining separate legal and economic entities. Some might argue alliances are a form of Joint
The National Network for Collaboration, 1996, Collaboration Framework, Fargo, ND Boston Consulting Group, 2005, The Role of Alliances in Corporate Strategy, Boston Massachusetts
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Ventures, which might is true in some respect but the only difference is that an alliance does not create a new legal entity and the contractual length is long term. The figure below shows the different type of corporate control:
Source: BCG Analysis (2005) Figure 1 Spectrum of Corporate Control
As it is evident from the figure above relationships based on transactions are bound by terms and conditions in the contracts, risk involved in asymmetric and the duration of the relationship is short term. In case of Mergers & Acquisitions majority shares are controlled by one company, therefore higher risk is involved, duration is permanent and the legal status of old entities changes. Whereas, alliances lie in the middle, all risk is shared, duration is long term and the members forming an alliance remain separate legal and economic entities. 1.4 ALLIANCES IN TELECOMMUNICATION INDUSTRY
Deregulation paved the way for foreign companies to invest or launch their products/services in the host country. Telecommunication industry is one of the most technology oriented industries in the world. Being the most technology oriented they were also the most protected industry by governments as well, as in regulated economies the telecom service provider was a single state owned incumbent operator. The reason for this is the secrecy of the communication between the governments intelligence and defence agencies. However, in order for the country to grow economically the government owned operators were deregulated and licenses were issued for new operators to encourage competition in the countrys economy and to invite foreign direct investment. The US was 16
the first country to deregulate its telecom sector, which proved to be a boost for the economy and was quickly followed by other countries around the world.6 According to Pennings7 new and complimentary capabilities are required by the telecommunications industry to fulfil the demands of customer, therefore alliances, mergers & acquisitions were used extensively in the telecommunication industry.8 In telecoms, alliances have been used majorly in the wireless telecommunications industry, mainly due to the convergence between the internet and telecommunications. More and more customers requiring information on the go, checking emails and surfing the internet giving rise to mobile internet commonly known as GPRS or WAP, these applications are becoming increasingly popular among customers, therefore forcing telecom operators to come up with new and secure services to attract more and more customers to their service. All mobile operators cannot or do not have the expertise to offer these services on their own, therefore, in order to offer the best service to their customers they form alliances with companies that offer mobile internet applications and contents. In this regard we can look at the case of Japans mobile carrier NTT DoCoMo, as mentioned by the Boston Consulting Group in their report on The Role of Alliances in Corporate Strategy. Below is the summary of the case, the complete case will be discussed in detail in subsequent chapters The case of NTTDoCoMo shows the strength of a strategic alliance in a countrys economy. In order to launch its i-mode service, NTTDoCoMo formed strategic alliances with a wide range of content providers. Within a period of three years i-mode attracted 30 million customers and was declared Japans telecom industry standard. Though DoCoMo created alliances with a number of content providers in order to gain a significant hold in the mobile internet market, however, the point to note here is this that the alliances were with companies that complemented the services offered by the Japanese carrier. These alliances enabled DoCoMo to gain a significant foothold in the Japanese market and because of this success, the i-mode service was licensed to 13 operators globally by establishing alliances
Pennings, J. Kranenburg, H.V. & Hagedoorn, J. 2005, Past, Present and Future of the Telecommunications Industry Pennings, J. Kranenburg, H.V. & Hagedoorn, J. 2005, Past, Present and Future of the Telecommunications Industry
Chan-Olmsted, S. & Jamison, M. 2001, Rivalry through alliances: Competitive strategy in the global telecommunications market, European Management Journal pp.317-331.
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with operators in nine European countries.9 The case of NTTDoCoMo illustrates one key factor of strategy leading to the formation of a number of alliances, namely to gain significant market presence and growth. Because of fiercer competition between companies and due to the rapid technological change taking place, the traditional voice telecommunication revenues are decreasing drastically. To keep growth on the up mobile telecom companies have to rely heavily on their data services. Data services have become an integral part of the mobile phone industry, therefore mobile carriers are looking to form alliances with companies offering complementary services. According to Mariana Dodourova10, in the coming years telecom companys mobile data services will be at the forefront of generating revenues.11 She further argues that most of the internet services sold to consumers will be over mobile phones, thereby establishing the mobile phone as the number one medium of communication between businesses and consumers. 1.5 RESEARCH PURPOSE
This topic of research was inspired by the authors personal interest as well as educational and professional background in the IT & Telecom industry of Pakistan. The amount investments in the technology, media and telecom industry has skyrocketed. Billions of dollars worth of projects and joint venture programs are being announced, this activity is said to be driven by convergence. The hype of convergence is specifically driving the media and telecom industry to converge, triple play and quadruple play services have been launched around the world, mainly in European countries and the South East Asian economies. In order to uncover the myth surrounding convergence and how strategic technology alliances play an important role in the creation of this new domain/medium of customer contact. The author is driven by his own special interest in the Mobile Virtual Network Operator segment of mobile telecoms, this research thesis however, is in the nature of a desk research, but may be viewed as being conducted for a nominal client (e.g. Virgin Mobile).
Boston Consulting Group, 2005, The Role of Alliances in Corporate Strategy, Boston Massachusetts
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Dodourova. M. 2003, Industry dynamics and strategic positioning in the wireless telecommunications industry; the case of Vodafone Group plc, Management Decision Dodourova. M. 2003, Industry dynamics and strategic positioning in the wireless telecommunications industry; the case of Vodafone Group plc, Management Decision
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1.5.1 AIM OF THE RESEARCH
The goal of this research is to provide the reader with a detailed understanding of the convergence phenomenon and the factors driving and threatening it. Also to ascertain the role of technology alliances in achieving the convergence of media and telecom services. The intention of the author is to provide the reader with a clear understanding of the drivers leading to technological development and subsequent push towards converged services of voice, media and data. The purpose behind forming technology alliances in order to achieve convergence of services over a single medium.
1.5.2 RESEARCH QUESTIONS
1. What are the factors leading to convergence in the telecommunication industry? 2. What are the causes of strategic technology alliances, formed in telecoms today? 3. What is the relationship between convergence and strategic technology alliances?
1.5.3 METHODOLOGY
This thesis is in the nature of a desk research, but may be viewed as being conducted for a nominal client (e.g. Virgin Mobile) an MVNO in the global mobile telecoms market which wants to obtain detailed answers to the research questions mentioned above. The nominal client will then base future strategies towards strategic alliances and convergence in the industry. The data analysed by the author has been extracted from already published sources such as books, academic & technology journals, technology magazines, technology white papers etc. The author will rigorously analyse the data available and attempt to uncover the relationship between technology alliances and convergence. By employing analysis tools such as SWOT analysis of convergence and an intriguing look into the possible opportunities and threats to the existence of convergence, subsequent conclusions will be made in order to give the reader simplicity in understanding the concept behind convergence and technology alliances. The analysis will provide detailed answers to the research questions mentioned above. The findings and subsequent recommendations of future strategies and tactics to be employed by the nominal company towards technology alliances will be thoroughly argued and a strategic fit will be presented. Furthermore, the author would like emphasise that all sources of the reviewed printed/unprinted literature, 19
e journals, reports and technology articles & white papers have been mentioned in the footnotes as well as in the Bibliography section at the end. The author hereby declares that the information in this business research project has been properly referenced in the footnotes as well as the Bibliography section at the end thereby any other information in the thesis is of the author himself and has not been copied or plagiarised to the best of the authors knowledge. In the thesis much emphasis is on the data available from the current telecom industry, based on best practices, current technologies and targets for the future. This type of research was important as the context of this thesis is to present data in its raw form, as to give the readers a window into the current telecom industry. The recommendations have been based on concluded findings after a critical analysis of the situation in the global telecommunication industry. The author is of the view that his analysis, findings and recommendations will be very useful to the telecom & media industry and will be equally beneficial in the future strategies of the individual companies in the industry.
1.5.4 STRUCTURE
The structure of this thesis has been carefully thought up and has been illustrated in a way that is understandable to the reader in the most convenient manner. The introduction of the thesis provides an overview of the research topic and a brief background of technology alliances in the global telecom industry. Furthermore, in the first chapter the author lists down the research questions to be answered in this thesis. Chapter 2 provides the review of the literature available in the form of published material in various books, technology magazines, business magazines and journals etc. The literature reviews enables the author to have a thorough understanding of the concept of technology alliances and convergence. This review helps the author to carry out a rigorous analysis of the data gathered leading to meaningful conclusion and recommendations. The convergence of voice & data services with the inclusion of media companies in the telecom sector has been discussed in detail in Chapter 3. Furthermore, in this chapter the drivers of convergence have been mentioned as well as the three levels of convergence have been discussed in detail. Chapter 3 further includes an analysis of surveys carried out by various consulting companies in order to 20
assess the current demand for convergence. In the end of the chapter a brief look is taken at the role of strategic alliances in the current race to offer converged services. In Chapter 4 a thorough analysis of strategic technology alliances is carried out, with emphasis on the media & telecom industry. The author provides a rigorous analysis of the data available on technology alliances in telecoms and the relationship between the two. Chapter 5 provides the findings that are extracted from the data analysed on convergence and technology alliances in telecoms. The purpose of publishing the findings is to provide the nominal client (Virgin Mobile) with precise and to the point answers to the three research questions. Based on this research analysis the nominal client (Virgin Mobile) will be able to strategise towards technology alliances and convergence in the telecom industry. At the end of the thesis a complete list of the material reviewed, including all printed, electronic and published sources is provided in the Bibliography section.
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CHAPTER 2
2.1
LITERATURE REVIEW
INTRODUCTION
This chapter will cover the current literature on the subjects under discussion i.e. Convergence and the role of Strategic Technology Alliances. The scope of this chapter is to review the currently available literature on the subject of Strategic Alliances, definition, motives, technology & knowledge transfer, types and drawbacks of alliances. This chapter further incorporates the compilation of the current data available on convergence in the media and telecom industry. The drivers, factors and levels of convergence, as well as the potential opportunities for telecom companies entering the convergence race, along with the unpredictable nature of the threats associated with converged services. Over the years the subject of strategic alliances has become very popular within the business as well as academic environment. The business world is changing dramatically, with the increase in competition; businesses are willing to use new and latest tactics for increasing market presence and to attract customers. Therefore, alliances are considered to be a possible means towards business expansion. In the technology and pharmaceutical sector, Strategic Alliances are mainly formed when two or more companies wish to carry out research on an upcoming technology which might not be possible for one partner to perform, depending on the risk and resources involved or the set of expertise needed. Such alliances are made possible, by a proactive approach from all the partners in the alliance. Other factors that play a vital part in the decision to opt for or against strategic alliances are the micro & macro factors of the environment surrounding the aim of the alliance. The concept of strategic alliances has gained a lot of popularity in the telecommunications industry as well, the credit for which goes to the deregulation in the telecom sectors in most of the countries, eliminating monopoly and carving the way for healthy competition. The literature review begins with the definition of strategic alliances after that, the reasons behind forming an alliance are discussed, emphasizing on the strategic and economic motives that encourage companies to form alliances. After explaining the motives behind
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forming an alliance, the process of technology transfer and knowledge transfer is discussed, moving on to the types and drawbacks of forming a strategic alliance. 2.2 STRATEGIC ALLIANCES
In order to understand the full scope of Strategic Alliances, it is of the utmost importance that all the forms and types of strategic alliances be defined. Priscilla12 has defined strategic alliances as group of organizations non-profit, for-profit, and public working together voluntarily to solve a problem that is too difficult for a single organization to solve on its own. According to Lei and Slocum13 alliances are two or more firms co-aligning themselves to attain and learn from each other the technologies, products, skills and knowledge that are not otherwise available to their competitors. Furthermore, Harrigan14 emphasizes on the strategic aspect and stresses that strategic alliances, joint ventures, cooperative agreements etc are in fact partnerships among firms working together to achieve their strategic objectives. Another dimension to the strategic alliance scenario has been added by Stafford15 who approaches it in the context of marketing and argues that it is in fact the marketing of a product and stream of value chain activities which are completed with the assistance of a partner. Wheelen and Hungar16 argue that an alliance falls short of a merger or full partnership however, it enables companies to do business that goes past the usual company-to-company dealing. The father of management theory Peter Drucker17, argues that the change brought about in business practices and the corporate culture is due to the increase in collaboration and alliances between companies. The above definitions offer insights as to what strategic alliances are and what they include.
Priscilla W. Joanna S. & Courtney L. M. 2005, Strategic Alliances in Action: Toward a Theory of Evolution, Policy Studies Journal, p.419 442, 24p Brown, L. & Pattinson, H. 1995, Technology is having a direct impact on the formation and management of strategic alliances, Management Decision pp 41 51 Brown, L. & Pattinson, H. 1995, Technology is having a direct impact on the formation and management of strategic alliances, Management Decision pp 41 51 Brown, L. & Pattinson, H. 1995, Technology is having a direct impact on the formation and management of strategic alliances, Management Decision pp 41 51
16 15 14 13
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Elmuti, D. & Kathawala, Y. 2001, An Overview of Strategic Alliances, Management Decision pp 205-217 Elmuti, D. & Kathawala, Y. 2001, An Overview of Strategic Alliances, Management Decision pp 205-217
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During the review of the literature it has been noted that the unique advantages possessed by businesses play a vital role in the creation of business networks. These business networks formed are normally within the industry and hence result in generating higher revenue. Recently there has been a shift in the technology and telecom industry as a number of alliances have been formed with businesses supplying complementary services to the telecoms voice and data services. In such alliances the businesses achieve an edge over their rivals by combining their core and distinct competencies. Therefore, under the current intense competitive situation, such alliances turn out to be a win-win scenario for businesses. Lorange & Roos18 further argue that, in order to expand a firms application globally it needs to have a solid plan for the future and also that its long-term strategies are well defined. According to a survey conducted by Zajac19 on MNC leaders, strategic alliances have been regarded as the closest and most likely alternative to mergers and internationalisation strategies, by the respondents of the survey. Doug Bartholomew20 specialising in business, finance and high-tech industry and more than 30 years of experience in journalism states that, organisations tend to innovate faster i.e. at a faster rate than they are used to as a direct result of globalisation. This means that globalisation is in the driving seat of innovation and putting a lot of pressure on firms and placing them in a situation where they have to partner with another firm in ways that were not even thought of ten years ago. Bartholomew further explains that due to the current state of competition, it is not wise for companies to consider doing it alone, as it may not be the best option for them. Forming alliances has a lot of benefits as well, the case of General Motors (GM) and Daimler Chrysler is a classic example, by combining their expertise they were able to decrease the time taken to market hybrid vehicles. Along with this there are numerous other benefits of forming alliances e.g. reduction of risk, sharing development cost and dividing the workload.
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Todeva E. & Knoke D. 2005, Strategic alliances and models of collaboration Todeva E. & Knoke D. 2005, Strategic alliances and models of collaboration Bartholomew, D. 2005, Sleeping with the Enemy , Industry Week
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In the words of Bonfield21 Alliances can be the only way to gain foothold in a new market, or access to someone elses technology or products From the literature it has further been observed that where alliances cross boundaries i.e. when one partner firm forms an alliance with a firm in another country, the core requirement is the development of a culture of international agility, for the accommodation of new executives and employees. In order to boost distribution and customer service activities in the case of international mergers and acquisitions, supply chain activities and information exchange is of critical importance. According to Bonfield22 flexibility is required on the firms management staff for the smooth practice of these collaborative measures. These measures are a must as human resources are considered as the most valuable asset for the firm. However, care needs to be exercised as this agility is not confined to growth through mergers and acquisitions only and relationships with the suppliers and partners are also changing at the same time. In order to look at further aspects of forming alliances, another important factor of collaboration is discussed, that is the relationship between supplier and the corporate client. As observed by Bonfield23 in his study, a large number of growing companies in Europe like Kodak, IBM, Opel, Volkswagen, started to treat their suppliers as their partners and termed it as partnership sourcing. Therefore, it has become necessary for the companies to invest and develop their core skills and competence along with the network of alliances around them. According to McInerney24 A successful alliance enables the provision of more value added services at a lesser or comparable cost, which thereby enables controlling of or reducing the costs involved in the supply chain while adding efficiency and value in the services being provided.
21
Bonfeld, P, 1995, 100, Building International Agility, p.50 Bonfeld, P, 1995, 100, Building International Agility, p.50 Bonfeld, P, 1995, 100, Building International Agility, p.50 McInerney, M, 2003, Supply Chain Strategic Alliances Can Help Logistics Teams Provide Value. pp.38 40
22
23
24
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McInerney25 further argues Although culture and compatibility play a large role in effective strategic alliances and joint ventures, but it isnt necessary that the partners are necessarily identical or even similar in terms of their organizational goals and styles for a successful alliance. This means that partners of an alliance do not necessarily have to be identical in their operations or strategic objectives but more importantly what one partner can offer to the other and vice versa. The organisational goals of forming an alliance might be different for all the partners, but as long as the goals are reached by the formation of the alliance it is considered to be a successful. Bonfield26 further emphasises the fact that companies shouldnt only be good in managing change rather they should manage change consistently. Signifying the importance of change management, Bonfield explains how important it is for firms to manage change, which plays a vital role in the life of an alliance. Alliances fall short of reaching their goals and desired outcome if one or more partners are unable to manage the change brought about by it. Therefore, Bonfield has made clear the importance of managing change consistently and at a regular basis during the course of the alliance. Bonfield27 further stresses that businesses do have the vision of the future, as to what they would like to achieve and that what the current trends in the industry are. By being extremely vigilant about their industry trends every business should be able to increase their market share with certain technologies that they are able to defend and use them as a competitive advantage against competitors.
2.2.1 MOTIVES FOR STRATEGIC ALLIANCES
After an overview of Strategic alliances as a form of collaboration, it is necessary now to elaborate on the possible motives/reasons behind forming strategic alliances. These motives have been found to be many over the past years and the following review will present the most important of these factors.
25
McInerney, M, 2003, Supply Chain Strategic Alliances Can Help Logistics Teams Provide Value. pp.38 40 Bonfeld, P, 1995, 100, Building International Agility Bonfeld, P, 1995, 100, Building International Agility
26
27
26
According to Kang & Sakai28 Strategic Alliances are formed for various purposes such as market entry and expansion, joint product development (R&D), a production partnership or a combination of these. In their working paper Kang & Sakai have given evidence of the current trends in forming alliances and according to them, The number of joint manufacturing and production is higher than that of joint sales and marketing activities, while R&D alliances are still relatively few furthermore they have stressed on their findings that alliances in manufacturing, marketing and R&D have considerably reduced whereas the alliances in the service sectors have increased.29 In a study carried out by Hopkins30 motives for collaboration in the case of mergers and acquisitions were identified as strategic, market, economic, and personal. These motives are the most common in mergers and acquisitions, firms join forces either to reach their strategic objectives, to enter a new market or to gain economies of scale. In addition, to explain performance factors in more detail for collaboration, Singh & Mitchell31 argue that business sales are important both as a cause and as an outcome. Meaning, a company having higher sales might lead to collaboration if new resources are needed for sustainable growth. On the other hand in case of smaller and medium scale companies may need the resources and market presence of larger partners, consequently, larger firms have more attractive opportunities to collaborate. Secondly, collaboration can increase businesses operating efficiencies which can reinforce existing sales levels and lead to greater sales. Therefore, greater sales may be a reason for an alliance or the result after forming an alliance. Successful businesses also have an advantage that businesses with histories of alliance often attract more partners. However, sales of a company is not the only consideration as alliances might be necessary for growth and survival because strategists and organizational theorists dating back to
28
Kang, N. & K. Sakai 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECD Science, Technology and Industry Working Papers, 2000/5, OECD Publishing Kang, N. & Sakai K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECD Science, Technology and Industry Working Papers, 2000/5, OECD Publishing
29
Myeong-Cheol Park, Dong-Hoon Yang, Changi Nam & Young-Wook Ha; 2002; Mergers and Acquisitions in the Telecommunications Industry: Myths and Reality, ETRI Journal
31
30
Singh, K. & Mitchell, W. 2005, Growth Dynamics: The Bidirectional Relationship Between Interfirm Collaboration And Business Sales In Entrant And Incumbent Alliances, Strategic Management Journal pp.497 521
27
Coase32 have long recognized that no one business can create all critical resources needed to prosper and grow. Despite its importance it has been argued by Singh & Mitchell33, that alliances are an uncertain and imperfect learning process, both in the sense that collaborating businesses often face difficulties and because any given alliance is available to only a few businesses. Now turning the attention towards alliances in the perspective of knowledge/technology based organisations. According to Laycock34 knowledge sharing or technology sharing is highly dependent on effective ongoing alliances. Furthermore it is argued that organizations need to be more agile if they are going to survive, prosper, keep and serve their customers better35. Moreover in terms of learning, Stagich36 has emphasized that collaborative or shared learning is better than competitive learning and this diversity is critical to learning.
2.2.2 TRANSFER OF KNOWLEDGE AND ALLIANCES
When the discussion moves into the knowledge transfer effect, Heimen & Nickerson37 have proposed two frameworks that are frequently discussed these are the knowledge-based view (KBV) and transaction cost economics (TCE). Heimen & Nickerson have further explained these two frameworks. Researchers practicing the knowledge based view focus on reducing the problems that may arise due to transfer of knowledge, whereas, the economist practicing the transaction cost focuses mainly on diminishing the problems caused by contracting. Moreover they argue that Equity-based alliances become increasingly likely, compared to non-equity-based alliances, as our proxy for knowledge
32
Singh, K. & Mitchell, W. 2005, Growth Dynamics: The Bidirectional Relationship Between Interfirm Collaboration And Business Sales In Entrant And Incumbent Alliances, Strategic Management Journal pp.497 521 Singh, K. & Mitchell, W. 2005, Growth Dynamics: The Bidirectional Relationship Between Interfirm Collaboration And Business Sales In Entrant And Incumbent Alliances, Strategic Management Journal pp. 497 521
33
Laycock, M. 2005, Collaborating to compete: achieving effective knowledge sharing in organizations, The Learning Organization; ABI/INFORM Global, pp.253 Laycock, M. 2005, Collaborating to compete: achieving effective knowledge sharing in organizations, The Learning Organization; ABI/INFORM Global, pg. 253
36 35
34
Stagich T.M. 1999, A collaborative Model for Organizational Transformation, International Journal of Value-Based Management; 1999; 12, 3; ABI/INFORM Global pg. 259 Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience
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tacitness increases. Also that complexity exists in an alliance if, in order for successful execution of an alliances mission to be achieved, distinct knowledge sets must be combined, which result in new knowledge and the new knowledge has long-term performance implications for the alliance38. Moreover, according to the observations of Mohan39 it has been observed that while speaking in terms of knowledge integration, it is more effective when knowledge is transferred through cross-national alliance, and not when transferred through crossnational teams and cross-national communication. Furthermore, Heiman & Nickerson40 argue for managers involved in alliances, an awareness of the existence of knowledge attributes of transactions is the starting point for managing alliances strategically.
2.2.3 TYPES OF ALLIANCES
In order to distinguish between different types of alliances, this research will explain the different facets of alliances formed in the business world. According to Kang and Sakai41 Strategic alliances include a wide range of inter-firm relationships, which include joint ventures, minority equity investments, equity swaps, joint research and development, joint manufacturing, joint marketing, long-term sourcing agreements, shared distribution / services and standards-setting. Narula & Hagedoorn42 have stressed upon the fact that, mergers and acquisitions, overseas subsidiaries of multinational corporations and franchising agreements are not classified as strategic alliances, since they do not involve independent firms with separate goals or call for continuous contribution of partner firms such as transfer of technology or skills between partners. They have further stressed that
38
Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience Mohan, S. 2006, Journal of Product Innovation Management, P541-555, 15p
39
40
Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECDScience, Technology and Industry Working Papers, 2000/5, OECD Publishing
41
Narula, R. & Hagedoorn J. 1999, Innovating through Strategic Alliances: Moving Towards International Partnerships and Contractual Agreements
42
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alliances range from relatively noncommittal types of short-term project-based cooperation to more inclusive long-term equity-based co-operation.43 The two main forms of strategic alliances are: Equity Alliances (Non-Technology based Alliances) Non Equity Alliances (Technology based Alliances)
The review will now move into what is the difference between Equity and Non-Equity alliances are and the related literature on this subject.
EQUITY ALLIANCES (NON-TECHNOLOGY BASED ALLIANCES)
Equity alliances include the following: Joint Ventures Minority Equity Investments Equity Swaps
Equity alliances can be further divided into two general types, the first of which includes partial acquisitions, the second type involves equity arrangements amongst the partners. Pekr & Margulis44 have explained that, in a partial acquisition alliance one partner firm purchases a minority stake in another partner firm, whereas, in the case of an equity arrangement, each partner firm becomes an equity stake holder in the other partner firm. Faulkner45 offer insight into joint ventures and explains that it is the creation of a separate corporation, whose stock is shared by two or more partners, each expecting a proportional share of dividends as compensation. Kang & Sakai46 further explain that in this cooperative business activity, formed by two or more separate firms for strategic purposes,
Narula, R. & Hagedoorn J. 1999, Innovating through Strategic Alliances: Moving Towards International Partnerships and Contractual Agreements 44 Pekr, P. & Margulis, M. S. 2003 Equity Alliances Take Centre Stage. Business Strategy Review, Vol. 14 Issue 2, P50-62
45
43
Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECDScience, Technology and Industry Working Papers, 2000/5, OECD Publishing Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECDScience, Technology and Industry Working Papers, 2000/5, OECD Publishing
46
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creates a legally independent business entity and allocates ownership, operational responsibilities, and financial risks and rewards to each partner, while preserving each partners separate identity or autonomy. The independent business entity can either be newly formed or the combination of pre-existing units and/or divisions of the partners. Moreover, they47 say that joint ventures generally aim at making the new company a selfstanding entity with its own aims, employees and resources. Contractor & Lorange and Hagedoorn & Narula48 have given reference to research that shows that a large share of international alliances is equity oriented through joint ventures whereas domestic alliances are mainly of a contractual nature. The reason for this phenomenon has been further explained by Dunning49 as Traditionally the literature links this disproportional preference for equity arrangements to the need for companies to minimize the high appropriability hazards in long-distance agreements by means of control through partial ownership. According to Harrigan50 Equity agreements have been found to be much more complex forms, speaking in terms of their administration and control, hence, take a longer time to establish and dissolve. Globalization has not only reduced product life cycles in the case of information technology but has also lead to a continuing race to innovate and invent new technologies at a greater rate than ever before, but at the same time has brought some form of organization in legal and regulatory frameworks across countries. This continuing race for innovation has been mentioned in the work of Osborne & Baughn51 as this (race to innovate) has encouraged firms to engage in contractual, non-equity strategic technology partnership types which provide greater strategic flexibility, since firms are in a need to have quick responses to changes in technological leadership. Further in their study Osborne &
47
Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECDScience, Technology and Industry Working Papers, 2000/5, OECD Publishing
Hagedoorn, J. & Sedaitis, J. B. 1998, Partnership in Transition Economies: International Strategic Technology Alliances in Russia, Research Policy, pp.177 185 Hagedoorn, J. & Sedaitis, J. B. 1998, Partnership in Transition Economies: International Strategic Technology Alliances in Russia, Research Policy, pp.177 185 50 Brown, L. & Pattinson, H. 1995, Technology is having a direct impact on the formation and management of Strategic Alliances, Management Decision pp.41-51 51 Brown, L. & Pattinson, H. 1995, Technology is having a direct impact on the formation and management of Strategic Alliances, Management Decision pp.41-51
49
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Baughn52 have also stressed that in cases where firms seek to learn and transfer tacit knowledge back to the parent firm, such as market-specific knowledge when entering a new market, or are engaged in production as well as research, equity forms of agreement may be more appropriate.
NON-EQUITY ALLIANCES (TECHNOLOGY BASED ALLIANCES)
According to Faulkner53 Non-equity alliance include a host of inter-firm co-operative agreements such as R&D alliance, co-production contracts, technology sharing, supply arrangements, marketing agreements, exploration consortia, etc. Through time and practice companies have now begun to realize that in order to gain competitive advantage over rivals the secret is in forming successful alliances. Gulati & Singh54 have stated that Non-equity alliances also have few command structures and require remarkable trust and coordination to offset the lack of incentive systems, authority and standard operating systems. Faulkner55 further explains that A non-equity alliance is often a preliminary step to creating a joint venture and is therefore the most flexible and potentially the least committed form of alliance. Kang & Sakai56 who have studied and mentioned Faulkners work in their study, have also noted that since the alliance requires no major initial commitment, it has no limitations and is probably the most appropriate form of cooperation when the extent of the relationship is impossible to foresee at the outset, when the alliance is not bound by a specific business or set of assets, and when joint external commitment at a certain level is not specifically sought.
52 Brown, L. & Pattinson, H. 1995, Technology is having a direct impact on the formation and management of Strategic Alliances, Management Decision pp.41-51
53
54 Stanek, M. B. 2004 Measuring alliance value and risk: A model approach to prioritizing alliance projects, Management Decision, Conceptual Paper
55
56 Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECDScience, Technology and Industry Working Papers, 2000/5, OECD Publishing
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2.2.4 ADVANTAGES OF AN ALLIANCE
The discussion on alliances will not be complete if the advantages and disadvantages are not fully discussed. Over time a lot of researchers have conducted exhaustive analysis on alliances, reasons for an alliance, success and failure of alliances etc. Therefore, for a company to form an alliance with a potential partner it has to consider all the relevant advantages and disadvantages of the association in order to have a successful relationship. According to Singh & Mitchell57 alliance benefits include sharing costs, acquiring tacit knowledge, commercializing complex technology, expanding into new markets, entering new industries, complementing product lines, and increasing market power. Hansen & Nohria58 have emphasised on some more advantages of alliances which are categorised below:

Cost savings through the transfer of best practices Better decision making as a result of advice obtained from colleagues in other subsidiaries Increased revenue through the sharing of expertise and products among subsidiaries Innovation through the combination and cross-pollination of ideas and Enhanced capacity for collective action that involves dispersed units
According to Farok J. Contractor59 the following are the advantages and reasons why companies form alliances
Singh, K. & Mitchell, W. 2005, Growth Dynamics: The Bidirectional Relationship between Inter-firm Collaboration and Business Sales in Entrant and Incumbent Alliances, Strategic Management Journal PP 497521
58
57
Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p. 22 Reuer, J. J. 2004, Strategic Alliances: Theory & Evidence, US, Oxford university Press, PP 19 47
59
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Opportunity Risk reduction
Economies of scale Complementary technologies and patents Co-opting or blocking competition
Details Product / Portfolio diversification Dispersion and/or reduction of fixed cost Lower total capital investment Faster entry and payback Lower average cost from larger volume Lower cost by using comparative advantage of each partner Technological synergy Exchange of patents and territories Defensive joint ventures to reduce competition Offensive joint ventures to increase costs and/or lower market share for a third company Receiving permit to operate as a local entity because of local partner Satisfying local content requirements Benefit from local partners know how Access to materials Access to technology Access to labour Access to capital Regulatory permits Access to distribution channels Benefits from brand recognition Establishing links with major buyers Drawing on existing fixed marketing establishment
Overcoming government barriers on investment & trade International expansion Vertical integration
Source: Strategic Alliances: Theory & Evidence, (2004)
Table 1 Motives for Alliances
2.2.5 KNOWLEDGE & CHANGE MANAGEMENT
Knowledge transfer is an integral part of any alliance, therefore, in order for firms to have a successful alliance the knowledge acquired and the changes brought by the alliance need to be managed properly. Management of knowledge and change is perhaps the most important part of an alliance on which firms should pay extra attention for the smooth running of the alliance/collaboration. Heimen & Nickerson60 in their research argue inter firm alliances can raise a fundamental problem that is in order to create value, collaborators may have to adopt a variety of practices to facilitate knowledge transfer, deploying these practices increases the likelihood that economically valuable knowledge, which is firstly
60
Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and
Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience
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beyond the scope of the alliance, and secondly difficult to legally protect maybe seized as a result. The phenomenon of knowledge sharing may be viewed in the light of the following example taken from the work of Shuen61. The example is of an alliance between an American firm and a Japanese firm, in order for them to work together and for the process of knowledge transfer to run smoothly the teams from both firms were co-located allowing them to work closely and on a regular basis. Shuens observations were the following:
AMERICAN FIRM
The American partner concentrated mainly on obtaining the knowledge that was directly related to the deliverables, associated with the alliances goals and objectives.
JAPANESE FIRM
The Japanese partner on the other hand concentrated on acquiring process-related knowledge of the American firms new production technology.
FINDINGS
The knowledge being acquired by the American firm was within the agreed scope of the collaboration, whereas, the knowledge being acquired by the Japanese firm was not directly relevant to the stated goals of the alliance.
CONCLUSION
In the light of the above example, Shuen62 concluded description of the alliance suggests that firms employees were neither explicitly aware of the other firms knowledge acquisition intentions, nor were they aware of the extent of knowledge ultimately transferred. A similar example has been given by Contractor63 in terms of profit margins, according to him If the effect of a cooperative move between partners is to create a long-term customer
61
Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and
Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience
62
Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience
35
for a part or active ingredient, the strategic impact goes beyond the arrangement itself. The management of knowledge and change has been further stressed by Reuer64, according to him the worry of creating a future competitor is often overblown, but must be considered when entering into any cooperative venture or transferring technology or know how to another firm. Reuer further explain the phenomenon of knowledge management with reference to Porters book, Competitive Advantage: Creating and Sustaining Superior Performance, Reuer65 explains that when a an industrys scope is country based the threat of alliances is significantly less, only if the partner is a local firm and unable to make its on direct investments in other countries. Thus, according to Heiman and Nickerson66, there is a need that the value created by the alliance from transferring knowledge may be concealed in relation to the knowledge expropriated that may result in a loss in competitive advantage, if the dilemma is not well managed.
2.2.6 ALLIANCE CHALLENGES
After the in depth analysis of knowledge management in alliances, the discussion moves on to explaining the potential barriers to alliances. Possible barriers to alliances have been discussed in great detail in the work of Hansen & Nohria67, which are listed below and explained in detail.
63
Reuer, J. J. 2004, Strategic Alliances: Theory & Evidence, US, Oxford University Press, PP 19 47 Reuer, J. J. 2004, Strategic Alliances: Theory & Evidence, US, Oxford University Press, PP 19 47 Reuer, J. J. 2004, Strategic Alliances: Theory & Evidence, US, Oxford University Press, PP 19 47
64
65
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Heiman, B.A. & Nickerson, J.A. 2004, Empirical Evidence Regarding the Tension Between Knowledge Sharing and Knowledge Expropriation in Alliances, Managerial and Decision Economics, Published online in Wiley InterScience Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p.22
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UNWILLING TO SEEK INPUT AND LEARN FROM OTHERS
In order to understand the concept of this barrier we have to appreciate what Thomson & Perry68 have explained in their work, an alliance is always when someone brings something to the table. Hansen & Nohria69 have explained that employees in one unit may close themselves from helping those in other units and at other times it may be the norm in a unit that people are expected to fix their own problems. At other times some employees may simply believe that others have nothing to teach them due to the development, an in-group bias but this restricts the influx of new viewpoints while reinforcing their own commonly held beliefs. Meaning that within an alliance, employees may not cooperate with the employees of their partners, considering themselves to be superior in development and knowledge. Hence, posing as a barrier to the alliance formed. Thomson & Perry70 have given a form of solution for such a situation, according to them the parties must see different aspects of a problem to constructively explore their differences and search for solutions that go beyond their own limited vision of what is possible.
INABILITY TO SEEK AND FIND EXPERTISE
According to Hansen & Nohria71 when employees are willing to seek help in other business units or country subsidiaries, they may not be able to find it or to search efficiently so that the benefits outweigh the costs of searching and the effects are more pronounced in large and dispersed MNCs where the problem can become a significant barrier to alliance. It was
68
Thomson, A. M. & Perry, J. L. 2006, Collaboration Processes: Inside the Black Box, Public Administration Review,
Washington, p.20
69
Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p.22
Thomson, A. M. & Perry, J. L. 2006, Collaboration Processes: Inside the Black Box, Public Administration Review, Washington, p.20
71
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further observed by Hansen & Nohria72 somewhere in the company someone often knows the answer to a problem, but it is nearly impossible to connect the person who has the expertise with the person who needs it.
UNWILLING TO HELP
Hansen & Nohria73 have explained that this barrier arises when the helper is unwilling to help, meaning that when one partner is willing to be helped but the potential helper is reluctant to help. A solution to such a problem has been proposed by Hansen & Nohria74 which is executives need to create a counterbalancing force by developing incentives aimed at fostering cooperation and a shared identity among employees.
INABILITY TO WORK TOGETHER AND TRANSFER KNOWLEDGE
Such a problem arises when people are willing to work together and transfer knowledge, however they are unable to do so. According to Hansen & Nohria75 they are unable to transfer knowledge because of the stranger problem. Hansen & Nohria further argue that the nature of the knowledge in this case requires that people already have relationships in order to understand each other. In order to solve this problem Adobor76 has proposed frequent interaction may help here as it enables trust building as there is a greater chance that attachment between people will be made when they interact frequently. Furthermore, according to Stafford77 seven out of ten joint ventures fail to meet either partners management expectations
72
Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p.22 Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p.22 Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p.22 Hansen, M. T. & Nohria, N. 2004, How to Build Collaborative Advantage, MIT Sloan Management Review, p.22 Adobor, H. 2006, Inter-firm Collaboration: Configurations & Dynamics, Competitiveness Review, Indiana, p.122
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Brown, L. & Pattinson, H. 1995, Technology is having a direct Impact on the Formation and Management of Strategic Alliances, Management Decision PP41-51
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Lorange et al78 has summarised the obstacles and challenges faced by strategic alliances as follows:

Autonomy (of alliance members) Forward momentum Focus on external environment Politicking (internal agendas that may go against alliance development) Change and innovation (commitment) Learning (desire and commitment to learning about each other) People (having the best people committed to the alliance) Black box (fear of giving up something) Culture e.g. merger of Daimler & Chrysler Co-operation
2.2.7 DRAWBACKS OF ALLIANCES
After explaining barriers to alliances and their advantages we take a look at the drawbacks or issues that cause an alliance to be unsuccessful and in some cases failure of that alliance. Hansen & Nohria79 have done extensive research in the success and failures of alliances, according to them, prompted by alliance initiatives, employees may begin to participate in all kinds of meetings in which nothing of substance is accomplished. Such unproductive alliance will undermine overall company performance. Hansen & Nohria further explain that in-order to create a collaborative organization, management levers must be counterbalanced with performance management of each individual and business unit, including a clear specification of whos responsible for what.
Brown, L. & Pattinson, H. 1995, Technology is having a direct Impact on the Formation and Management of Strategic Alliances, Management Decision PP41-51
79
78
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Now that the review of the literature on Strategic Alliances (in general) is complete, it is imperative that the literature on Technology Alliances be reviewed. The following section will comprise the review of literature on Technology Alliances in general and specifically in the telecommunication industry. 2.3 STRATEGIC TECHNOLOGY ALLIANCES
Technology alliances involve the sharing and in some cases transfer of knowledge / technology between two or more partners, in an attempt to invent or produce a new product or achieve a common goal by sharing each others patented technologies and / or core and distinct competencies and gaining competitive advantage over their rivals. According to Arvantis & Vonortas80 strategic technology alliances have accelerated the pace of technological development, as a direct result of changing nature of international business. Langlois & Robertson81 along with strengthening Arvantis & Vonortas finding, have warned that, The speed of scientific and technological development in a particular industry also relates to the risk posed by sharing technical knowledge and influences the mode of partnership chosen. They further illustrate that, the administrative control over a new technology is lost if that technology is shared, as in the case of new industries the existing knowledge can be replaced very easily. On the other hand, Langolis & Robertson82 give evidence about collaborations where firms might benefit from technology alliances, those industries where learning affects multiple stages in established production chains will benefit from more integrated partnering.
Arvantis, R. & Vonortas, N. S. 2000, Technology Transfer and Learning through Strategic Technology Alliances International Experiences: Introduction to the Symposium, 25, 1, ABI/INFORM Global, p.9 Hagedoorn, J. & Sedaitis, J. B. 1998, Partnership in Transition Economies: International Strategic Technology Alliances in Russia, Research Policy, pp.177 185 Hagedoorn, J. & Sedaitis, J. B. 1998, Partnership in Transition Economies: International Strategic Technology Alliances in Russia, Research Policy, pp.177 185
82 81
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As previously stated (2.2 Motives for Strategic Alliances) that alliances in manufacturing, marketing and R&D towards the end of the 1990s considerably reduced whereas the alliances in the service sectors increased.83 As it evident from the chart below (Figure 2), the number of strategic alliances in the manufacturing or R&D sector has steadily decreased after 1995 and by 1999 the number of service sector alliances had considerably increased whereas that of manufacturing alliances had decreased significantly. Sectoral Distribution of Strategic Alliances (1990 1999)
Source: Thomson Financial Securities Data Figure 2 Sectoral Distribution of Strategic Alliances, 1990 1999
From figure 2, the drop in the number of technology alliances during the period 1990 1999 are significantly reducing. It is obvious from the figure above that in 1990 strategic technology alliances accounted for more than 60% of all the alliances in the industries. However, since then a steady decrease in the number of technology alliances can be seen. Since 1990 the share of technology alliances kept on decreasing, this era being the dotcom era (1990 2000). For most part of the 1990s technology alliances remain just below the 60% mark, with a major decrease from 1998 and then finally in 1999. Bring down the total share of technology alliances from a high of 60% to almost 30%.
83
Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECD Science, Technology and Industry Working Papers, 2000/5, OECD Publishing
41
According to Kang & Sakai84 Strategic alliances may be preferred by small firms with unique technological advantages, since collaborating with larger firms having financial resources enables them to enhance core competencies and at the same time remain independent. The concept of Kang & Sakai of alliances being preferred by small firms with unique technological advantages... has been further strengthened by Arvantis & Vonortas85, according to them a firm will be invited (in an alliance) if it has something to contribute to the alliance, in terms of markets, costs or specialised knowledge. In their research Arvantis & Vonortas have argued that large developed countries are majorly dominant in international strategic alliances, whereas less developed countries are not as dominant. They further explain that, though less developed countries have not been as successful as large developed countries in strategic alliance, a very small number of newly industrialising countries have become very active in these alliances. These newly industrialising countries are mainly located in the East & South Asia and Latin America.
2.3.1 HOW A FIRM GAINS FROM AN ALLIANCE?
Knowledge is an integral part of any form of alliance, the ability of a partner to learn from the other is of the core importance. As discussed above (2.6 Knowledge & Change Management) it is of critical importance that in any alliance knowledge and change should be managed properly. Arvantis & Villavicencio86 explain the process of learning by a firm is, by being able to adapt, assimilate and reconfigure information produced in and shared among the members of the alliance. They have further clarified the concept of learning in an alliance by explaining that learning in any alliance is subject to the construction of trust with the client and the providers (partners) as well as about making the whole business more efficient and more innovative.
84
Kang, N. & Sakai, K. 2000, International Strategic Alliances: Their Role in Industrial Globalisation, OECD Science, Technology and Industry Working Papers, 2000/5, OECD Publishing
Arvantis, R. & Vonortas, N. S. 2000, Technology Transfer and Learning through Strategic Technology Alliances International Experiences: Introduction to the Symposium, 25, 1, ABI/INFORM Global, p.9 Arvantis, R. & Vonortas, N. S. 2000, Technology Transfer and Learning through Strategic Technology Alliances International Experiences: Introduction to the Symposium, 25, 1, ABI/INFORM Global, p.9
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2.3.2 AFFECTS OF STRATEGIC TECHNOLOGY ALLIANCES
Arvantis & Vonortas87 have pointed out mainly two affects of forming strategic technology alliances, which are:

Increased Interdependence Frequently Formed and Dissolved
2.3.3 CONCEPTS OF STRATEGIC TECHNOLOGY ALLIANCE
Arvantis & Vonortas88 in their research have highlighted a number of concepts of strategic technology alliances, which are:
BALANCED LEARNING
One of the most important aspects of an alliance is balanced learning, which is important for the success of the collaboration. Balanced learning means that all partners in the collaboration learn equally, meaning that all partners acquire knowledge from each other hence the collaboration proving to be mutually beneficial for all the partners.
LEARNING
For a partner to acquire knowledge in collaborations is neither simple nor automatic. In order to use the knowledge gained through the alliance, the capabilities, experience and commitment of all the partners
TRUST
For a long lasting and successful alliance, trust amongst partners is the most important aspect. In order to achieve a trusting relationship with their partners, large companies use their reputation capital. However, smaller firms have to show their commitment to the alliance as an alternate to reputation capital as a form of trust.
Arvantis, R. & Vonortas, N. S. 2000, Technology Transfer and Learning through Strategic Technology Alliances International Experiences: Introduction to the Symposium, 25, 1, ABI/INFORM Global, p.9 Arvantis, R. & Vonortas, N. S. 2000, Technology Transfer and Learning through Strategic Technology Alliances International Experiences: Introduction to the Symposium, 25, 1, ABI/INFORM Global, p.9
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CODIFIED AND TACIT KNOWLEDGE
During the phase of collaboration for the transfer of technology, both forms of knowledge are involved, (tacit and codified). The transfer or exchange of implicit (tacit) knowledge is the most challenging task. However, alliances or collaboration remain the most effective for sharing implicit knowledge. The successful transfer of knowledge (codified & tacit) is the difference between the success and failure of the alliance or collaboration.
CULTURE AND COMMUNICATION
Both culture and communication are major role players in course of an alliance and are directly linked with extent of implicit information to be shared.
ALLIANCE STRATEGY
The long term strategic objectives of the partner firms, dictates the optimal alliance strategy. Meaning that according to the technology involved in the alliance the strategy os formed.
CAREFUL SELECTION
The success or failure of an alliance largely depends on the selection of its partners. Therefore, care needs to be implemented during the selection process.
ROOM FOR POLICY
The role of governments is vital in forming an alliance. They can attract foreign firms by giving various incentives and nominate domestic firms for alliances, by providing the reputation capital for them. As a result, the government helps the alliance formed between the domestic and international firm by forming a consumer base for the product of the alliance.
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2.4
ALLIANCES IN THE TELECOM INDUSTRY
Deregulation paved the way for development, expansion and foreign investment in the telecommunication industry. Pennings, Kranenburg & Hagedoorn89 have explicitly mentioned the deregulation of the US telecom industry in their work, as it is the most important aspect in the history of alliances in the telecom sector. The deregulation trend of the US was a phenomenon that quickly caught the attention of various other countries and the deregulation of telecom in various other countries took place. The deregulation opened the doors for foreign investment and enabled this industry to grow. Graack90 has recorded this important time in his work, according to him, due to the latest liberalization and privatization in the past decades, telecommunications industry has turned into a dynamic environment and is growing rapidly. Along with investments came the new technological developments in the 1990s, as this New Economy emerged. New opportunities were created for existing telecommunication companies and new telecom companies were being incorporated to reap the high revenues this industry had to offer. However, along with the high rewards came threats as well. Chan-Olmstead & Jamison91 have mentioned this threat in their work. According to them, telecommunication has effects on previously distinct industries such as information technology, entertainment, media and consumer electronics converging them into a new industry, called multimedia information industry. This raises the issue and concept of convergence and is discussed in detail in the following section (Chapter 3). According to Sussan & Jong-Geun92 Telecom companies around the world are engaged in promiscuous frenzy of alliance making, in order to generate revenue and grab a large chunk of the market. Sussan & Jong-Geun further explain in 1991 there were only, 22
89
Pennings, J. Kranenburg, H.V. & Hagedoorn, J. 2005, Past, Present and Future of the Telecommunications Industry
Graack, C. 1996, Telecom Operators in the European Union: Internationalization Strategies and Network Alliances, Telecommunications Policy, pp.341 355 Chan-Olmsted, S. & Jamison, M. A. 2001, Rivalry through Alliances: Competitive Strategy in the Global Telecommunications Market, European Management Journal pp.317 331 Sussan, A. p. & Jong-Geun, O. 1996, Transnational Strategic Alliances in the Telecommunications Industry, Computer ind. Engng, Vol 31, No. , pp.41 44
92 91
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equity alliances, in 1993 64 and today who knows how many? establishing the argument that telecom companies around the globe are looking for new and partners for either entering into markets or developing new and improved technologies through alliances.
2.4.1 EQUITY ALLIANCES IN TELECOMS
The review of literature has shown that there have been a number of equity alliances and joint ventures between telecom companies. Historically the most prominent and famous alliances in telecoms have been discussed in the work of Sussan & Jong-Geun93, which are as follows:

WorldPartners Concert Global One Unisource Cable & Wireless
WORLDPARTNERS
Launched in 1993, WorldPartners was a collaboration, between AT&T, KDD and Singapore Telecom. Korean, Australian and Canadian companies also joined the group later94. UniSource (an alliance of some European telecoms) joined WorldParnters in 1994, hence AT&Ts efforts in seeking a European ally paid off. However, in 1998 AT&T joined hands with British Telecom (BT) in a $10 Billion deal, which saw AT&Ts exit from the WorldPartners alliance.95
Sussan, A. P. & Jong-Geun, O. 1996, Transnational Strategic Alliances in the Telecommunications Industry, Computer ind. Engng, Vol 31, No. , pp.41 44 Sussan, A. P. & Jong-Geun, O. 1996, Transnational Strategic Alliances in the Telecommunications Industry, Computer ind. Engng, Vol 31, No. , pp.41 44
95 94
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AT&T BT Linkup Bye Bye WorldPartners & Unisource, 1998, Newsbytes News Network, Available at: http://findarticles.com/p/articles/mi_m0NEW/is_n148/ai_20957167
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CONCERT
Concert was a $1 Billion joint venture between BT and MCI. BT owned 75% of the shares and the rest 25% per owned by MCI. Both companies invested heavily in the joint venture with MCI targeting the North and South America and BT targeting rest of the world.96 In 1998, MCI announced that it will sell its stake of 24.9% in Concert to BT for $1 Billion. This news followed the close of the merger between MCI and WorldCom.97
GLOBAL ONE
An alliance between Sprint, Deutsche Telecom and France Telecom was launched in 1996. Sprint controlling 50% of the shares of the joint venture whereas, 25% each controlled by Deutsche and France Telecom.98 After the review of some of the most prominent and famous joint ventures in the telecom world based on equity or target new markets, it is important to view the reasons behind the collaboration of telecom companies to accelerate the R&D process. Technology is the backbone of the telecom industry; hence alliances / collaborations in telecoms are the way forward. As previously mentioned, in 1996 with the Telecommunications Act99 USAs telecom sector was deregulated, in the EU with its enormous legislative programme100 and all around the world through the World Trade Organisations (WTO) deregulation of the telecom sector
Sussan, A. P. & Jong-Geun, O. 1996, Transnational Strategic Alliances in the Telecommunications Industry, Computer ind. Engng, Vol 31, No. , pp.41 44
97
96
Acquisition: BT Agrees to Purchase MCI's Stake in Concert for US$1 Billion; MCI Retains Right to Distribute Concert
Services on Non-Exclusive Basis, 1998, EDGE, On & About AT&T, Available at: http://findarticles.com/p/articles/mi_m0UNZ/is_1998_August_17/ai_50241317 Sussan, A. P. & Jong-Geun, O. 1996, Transnational Strategic Alliances in the Telecommunications Industry, Computer ind. Engng, Vol 31, No. , pp.41 44
99 98
Curven, P. 1999, Survival of the Fittest: Formation and Developments of International Alliances in Telecommunication, Camford, Vol. 1, No. 2
Curven, P. 1999, Survival of the Fittest: Formation and Developments of International Alliances in Telecommunication, Camford, Vol. 1, No. 2
100
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has come into effect. According to Curven101 these developments have not only provided opportunities for aggressive alliances to make inroads into previously inaccessible markets, for example by investing in an alternative fixed-wire or wireless network to that of the incumbent, but also, in the short term, have necessitated a defensive strategy to prevent new competitors from `cherry-picking the most profitable customers of alliance members in their domestic markets.
2.4.2 REASONS FOR FORMING ALLIANCES IN THE TELECOM INDUSTRY
According to Sarkar, Cavusqil & Aulakh102, there are currently three variables reflecting the mode of international expansion, these are:

Competitive Structure of the Industry Network Characteristics Opportunities and Conditions surrounding entry into foreign markets
Dodourova103 has given the following reasons with description for forming alliances in the telecommunications industry.
Curven, P. 1999, Survival of the Fittest: Formation and Developments of International Alliances in Telecommunication, Camford, Vol. 1, No. 2 Sarkar, M. B. Cavusgil, S.T. & Aulakh, P.A. 1999, International expansion of telecommunication carriers: The influence of market structure, network characteristics, and entry imperfections, Journal of International Business Studies, 30 (2): 361 382 Dodourova. M. 2003, Industry dynamics and strategic positioning in the wireless telecommunications industry; the case of Vodafone Group plc, Management Decision
103 102
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Source: Dodourova. M. 2003, Industry dynamics and strategic positioning in the wireless telecommunications industry; the case of Vodafone Group plc Table 2 Reasons for Collaboration in Telecoms
This dissertation is focused on the strategic technology alliances formed in the telecom industry, amidst the growing demands for a more converged infrastructure. Therefore, special emphasis will be on the subject of technology alliances in relation with the phenomenon of convergence, mainly examining the distinct affiliation both share towards each other. Therefore, the last and most important element of the literature review is convergence. A growing phenomenon, which enables a customer to access voice, data and video services through a single device. 2.5 CONVERGENCE
Convergence is the term associated with the blend of services offered by telecom operators especially in the mobile telecoms market. It is perceived that the internet will soon dominate the telecom industry. In the light of reviewed literature, industry professionals
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started thinking about convergence during the dotcom era (1990 2000)104. In this section a thorough review of the literature presently available on convergence has been presented. Emphasis is on the neutrality of the data gathered and reviewed through electronic journals and industry articles published in technology magazines and from electronic sources. This material is used as industry basis hence giving a complete view of the industry in question and the current developments in the industry.
2.5.1 CONVERGENCE DEFINITION
According to the website http://whatis.techtarget.com105 convergence is a coming together of two or more distinct entities or phenomena. However, this phenomenon is largely found in the telecommunication and IT sector. In the context of telecommunication & IT, convergence means the combination of two or more different technologies in a single device.106 According to Ben Vewaayen107, Chief Executive of British Telecom (BT) Convergence really means freedom for consumers to use any service under any circumstances they choose to. In a research paper published by Boston Consulting Group108 (BCG), the delivery of current technological advancements (processing power, storage, bandwidth and compression) to the desktop and office is convergence. BCG109 has termed the current age of convergence as, Convergence 2.0, BCG has pointed out that the world has seen convergence before. With advent of the Internet in the early 90s convergence was a hot topic in the information industry (Telecom, Media and Internet).
Fowler, T. B. 2002, Convergence in the Information Technology and Telecommunications World: Separating Reality from hype,
105
104
Whatis Website, Available at: http://whatis.techtarget.com/definition/0,,sid9_gci211837,00.html Whatis Website, Available at: http://whatis.techtarget.com/definition/0,,sid9_gci211837,00.html
106
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Your Television is Ringing, 2006, The Economist print edition, Available at: http://www.economist.com/surveys/displayStory.cfm?story_id=7995312
Rose, J. Bock, W. DiGrande, S. Duranton, S. & Field, D. 2007, Convergence 2.0: Will You Thrive, Survive or Fade Away, Boston Consulting Group, Boston Massachusetts
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Telecom companies were in a constant battle with cable operators for the deliverance of information to the households. Internet based companies posed a threat to traditional brick and mortar business models with their innovation and ease of use. With services such as e mail and online chatting the internet soon became a huge success. However, online shopping took some time to settle in the good books of the customer, due to the high risk to personal and financial information sent over the internet. With the technological advancements in the information technology industry and specifically in securing the internet protocol foundation of the internet, customer trust gradually built-up and online commerce became a success. During the dotcom boom (1990 2000)110 there was similar hype towards the issue of convergence, as efforts were in motion to offer a blend of services using the one medium of communication accessible through a common device. However with the collapse of the dotcoms in the March 2000, all the convergence discussions ended for that period at least. By the time the IT industry recovered itself from the crash and with the lessons learnt, internet business was once again on the rise and the discussions on convergence resumed. According to Dr. Thomas Ganswindt111 convergence generally means the merging of technologies that were previously separate.
2.5.2 LEVELS OF CONVERGENCE
Dr. Ganswindt112 has further explained the levels of convergence, according to him following are the levels at which convergence is taking place:
Fowler, T. B. 2002, Convergence in the Information Technology and Telecommunications World: Separating Reality from hype
111
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Picot, A. 2006, The Future of Telecommunications Industries, Berlin, Springer Publications
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NETWORK LEVEL
In order to achieve convergence, it should start from the network level, where the task at hand is to combine all the dominant telecommunication and data networks, mainly fixed telephone networks, mobile networks and data networks. The most important task in this regard will be to merge fixed line networks, mobile networks and the internet. After this has been completed the next step will involve the integration of previously separate networks, those being the company LANs, mobile communications networks and fixed line networks into a single platform, the responsibility for this task will mainly lie on the equipment vendors shoulders.
DEVICE LEVEL
Once the merge of the underlying platform is complete, the second step would incorporate the integration and/or convergence at the device level. By this Dr. Ganswindt means that in order to use the converged network, converged devices are required. This trend is evident today even, he raises the example of the mobile phones currently in the market that have different functionalities, such as MP3 Players, Cameras etc. According to his vision of the converged future, devices will be fully integrated i.e. the core functionalities will be common in all devices.
APPLICATION LEVEL
The last level of convergence would be at the application level. In order to provide the user with customised data and voice services, certain applications will have to be combined in order to create a new product(s) that will work on the underlying converged network. The use of these applications will offer the user a uniform environment proving that one application works on multiple devices, however all these devices are running on a converged network infrastructure. The above levels of convergence can be more clearly expressed in the figure below,
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Levels of Convergence
Source: Author
Figure 3 Levels of Convergence
2.5.3 AFFECTS OF CONVERGENCE
Convergence will bring with it certain opportunities, of which the service providers, equipment vendors and network operators will make full use of. However, every opportunity has its associated threats, from which service providers, equipment vendors, network operators and users will have to be vary of. These opportunities and threats have been mentioned in a report published by the Boston Consulting Group113 (BCG), which are as explained under:
CONTENT
Following are the opportunities and threats that content faces in the converged world.
OPPORTUNITIES
New channels and business models for content o In a converged environment, service providers will employ new strategies and tactics in order to attract customers to their products
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o We might witness new and unique business models being developed in order to promote content and attract customers The explosion of user generated content o Once convergence becomes a reality and the first converged network is rolled out, users will be itching to upload their own content over the network o This can work in both ways, as an opportunity and as a threat An opportunity in this sense that it will bring people closer and they will feel part of a community connected through convergence, working as a value creation agent for convergence Similarly user content can also act as an agent for value destruction which is a threat to convergence. In this regard a consultancy company Deloitte interviewed top (Technology, Media and Telecom) industry executives on the affects of convergence, in their published report Convergence Conversations114, according to Joshua Auerbach (Vice President Strategic Planning, Time Warner Inc.) One good example of this (value destruction) is the impact of craiglist on the newspaper industry. By replacing classified advertising with a free service, craiglist has not really created new value. Rather its simply eroded value from existing businesses According to Joshua Auerbach115, the true opportunities of convergence lie in digitisation o Digitised TV programs lead to new offerings o Gives creative possibility o Addresses a larger market
114
Brightman, I. 2006, Convergence Conversations, Deloitte Touche Tohmatsu Brightman, I. 2006, Convergence Conversations, Deloitte Touche Tohmatsu
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THREATS
The only major threat to content in convergence is of piracy and copyright theft. This threat is such that, it will always be a threat to the convergence, it has been and still is a threat to the internet, hence will remain in the converged world. Joshua Auerbach116 (Vice President Strategic Planning, Time Warner Inc.) has stressed that No matter what technical platform the media have employed, there has always been a community of people who have sought to get around it one way or another.
ATTRACTING CUSTOMERS
According to the Boston Consulting Group117 (BCG) following are the opportunities in attracting customers, once convergence becomes a reality
OPPORTUNITIES
Advertising, marketing & communication strategies that take advantage of

innovative targeting, search, community and social-networking service
Enabling services such as digital-rights-management systems, that will be a new

competitive battlefield for differentiations and customer control
COMPETITION
The following are the threats that await companies entering the convergence race, as outlined by the Boston Consulting Group118 (BCG)
THREATS
One of the major threats to the businesses entering the convergence race is the competition that will develop in traditionally unrelated industries. Industries such
116
Brightman, I. 2006, Convergence Conversations, Deloitte Touche Tohmatsu
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Rose, J. Bock, W. DiGrande, S. Duranton, S. & Field, D. 2007, Convergence 2.0: Will You Thrive, Survive or Fade Away, Boston Consulting Group, Boston Massachusetts Rose, J. Bock, W. DiGrande, S. Duranton, S. & Field, D. 2007, Convergence 2.0: Will You Thrive, Survive or Fade Away, Boston Consulting Group, Boston Massachusetts
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as telecoms and media, which are unrelated to each other, as they offer different services and products, might find themselves competing against each other, due to convergence The internet will be the biggest threat to convergence, as it already offers a converged world to the user. However, one aspect of convergence where the internet has (till now) a significant advantage is the internet economics
2.5.4 CONVERGENCE IN THE INDUSTRY
Deloitte a consulting has compiled the interviews of top (Technology, Media and Telecom) industry executives on the affects of convergence, in their published report Convergence Conversations119. Deloitte has recorded the responses made by 36 top executives from Global 1000 companies, these included industry executives as well as academic professionals from Universities such as University of California, University of Minisota etc. This section will give a detailed view of how convergence is perceived in the industry that is heading towards a converged world, what are the risks they have prepared themselves for and what the opportunities are that they seek to gain due to convergence. These views will be critically analysed in the next chapter, however the reason the author has included these discussions here is to gain an insight into the strategies employed by firms currently preparing themselves for a converged world. Below the author has taken extracts from the Deloittes published report, Convergence Conversations in regard to Convergence and its perceived effects on the communication world, which are necessary for the literature review of convergence.
WHAT IS CONVERGENCE?
According to Joshua Auerbach, Vice President Strategic Planning at Time Warner Inc defines convergence in two ways one negative and one positive. Negative side of convergence relates to the disruption and value destruction that can come about as a result.
119
Brightman, I. 2006, Convergence Conversations, Deloitte Touche Tohmatsu
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The positive side of convergence leads to value creation. Convergence allows for completely new lines of business to emerge that simply werent possible before. Tetsuya Funabashi, Vice President, Executive Manager for Ubiquitous Services Department at NTT Communication Corporation has defined convergence as the use of ICT solutions to bring various types of devices and network resources together, to create products and services that can be easily used by anyone. Prof. Leonard Kleinrock (Univ. Of California), has defined convergence as, it is about people access, share, communicate and otherwise employ content and service. According to Mike Harris, Group Vice President at Gartner, convergence can mean many different things to different people depending on their back ground, so I think its really important always to define which flavour of convergence youre talking about.
CONVERGENCE OPPORTUNITIES & THREATS
Responses below are by the industry executives in their conversations with analysts from Deloitte, published in its report, Convergence Conversations. According to Tetsuya Funabashi, (NTT Communications Corporation), the most obvious opportunity is the area of IP-based communication, voice to messaging. In the other words, convergence can potentially enhance digital communication in all of its existing forms, and probably other we havent yet thought of. Dan Glickman (Motion Picture Association of America) has supported this remark and expressed, the extent to which the motion-picture industry can capitalize on that opportunity depends on the extent to which the industry focuses on its core competence creating content and doesnt allow itself to be overly distracted by technology. In the response from Mike Harris (Gartner), Where (does) the value lie in the evolving value chain? The challenge for operators is that their perception of where the value lies may not coincide with what the customer thinks. Colemens Joos (BenQ Mobile), It going to become your central window to your affinity group. 57
CUSTOMER REVIEW
Mike Harris (Gartner) says, The customers main focus is getting a service, which in the converged world means having seamless access to any content on any device via and infrastructure that has been converged by the operator. The customer really doesnt want to know what the underlying technology is. Prof. Leonard Kleinrock (Univ. of California), by implication, they (customers) are walking around with half dozen integrated digital docks, lithium ion batteries, calculators, radio transceivers and course chargers. And while I dont think all of these additional devices will simply disappear, I think is still some way to go before real convergence happens.
FUTURE OF CONVERGENCE
According to Prof. Leonard Kleinrock (Univ. of California), convergence can help answer questions such as: Where am I? Where are the objects that I need? ... Dr. Rich Miner (Google), We have an approach to business and customers that embrace convergence, but we dont necessarily put it on a pedestal the way others might. Prof. Andrew Oldyzko (Univ. of Minnesota), everyone can win, but only if they set their expectations at the right level.
CONCLUSION
In light of the above extensive review of the literature currently available on convergence and technology alliances in the media & telecom industry, it can be concluded that technology alliances seem to have worked for telecom companies in the past. It can further be said that the industries of media and telecommunications are converging quite evidently in light of the literature reviewed. Convergence has been briefly introduced within the IT & Telecom market, however, with the crash of the dotcoms those convergence discussions seized. After reviewing the literature the enabling factors and drivers of convergence and technology alliances have been extracted and a further analysed in Chapter 3 & 4 respectively. 58
Alliances in the global telecom industry have been extremely successful which resulted in the development of new technologies and the expansion of businesses across boundaries. Globalisation & the deregulation of government owned telecom operators was the number one driving factor that encouraged cross border alliances in order to seek newer markets and worldwide access in telecoms especially. Convergence however does not enjoy the same success, as in the dotcom era (1990 2000) convergence discussions and moves towards convergence were halted and discontinued midst the crash of the stock market. The failure of 3G was another factor in the halt towards convergence, due to high price of the service offered, which resulted in a customer backlash. In order to achieve convergence fully it is important to thoroughly understand the levels that constitute convergence. As according to the author the three levels of convergence can be seen as three business models in the converged world. However, it is important to mention that according to the reviewed literature it is not in the best interest or financial capacity of businesses to offer a blend of services on their own. The review of industry executives shows that most managers are leading their businesses towards convergence. There are a few that have devised a more modest and protected approach towards convergence, in order to safe guard their capital and at the same time keeping themselves up to speed with the latest technological advancements in the industry. The literature review has provided valuable data that will be subsequently analysed to extract answers to the previously mentioned research questions. This analysis will form the body of the thesis hence providing the valuable steps that would enable the nominal client (Virgin Mobile) to plot its next strategy towards technology alliances keeping in view the convergence of media & telecom industries. The single most imminent threat as well as opportunity for convergence is acceptance from the customer, which in itself has further subcategories of the threats. The failure of 3G was its high price, which resulted in billions of dollars reported in loss by telecom operators. Although costs of basic telephony services (voice & data) have reduced since the 3G days, however a question mark remains over what converged application or service will prove to be a success with the customer.
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In the current age of convergence, technology alliances have a central role to play as they enable the sharing of technology and knowledge between businesses, leading to a blend of services and products that can be developed. By combining their core and distinct competencies businesses can reach new levels in generating revenues.
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CHAPTER 3
3.1
CONVERGENCE IN TELECOM INDUSTRY
INTRODUCTION
The review of literature available on the term convergence was done in the previous section (Chapter 2). In this chapter a rigorous analysis of the extracted data from the reviewed literature will be carried out. Along with a detailed discussion on the factors enabling media and telecom industries to collaborate and establishing a relationship between convergence and technology alliances in telecoms. The term convergence is much talked about within the technology, media and telecom industry. There is constant activity visible in the telecom market regarding convergence and the race to achieve it before anyone else. Convergence in the telecom industry is to provide the customer with any information from anywhere on a single device. Presenting the customer with a one stop shop120 to request a variety of services which were previously available on dedicated mediums. Convergence is an attempt by the telecom and media industry to provide a single platform service to its customers which underneath is seamlessly connected to and integrates with technological platform of the partners. Giving power to the customer to request any information anywhere to be presented to him through a single device, which was previously possible by using a dedicated device to access the relevant information. In the thesis the trend of convergence will be thoroughly analysed and findings will be made accordingly. In order to get a complete picture of convergence, it is imperative to start with the initial phases of convergence, where it started from and what were the effects then. 3.2 HISTORY OF CONVERGENCE
Discussions over convergence initiated during the internet revolution, industry executives and academic researchers started thinking of a single medium providing a multitude of services. The 1990s witnessed a rise in the software market and its dominance over the
120
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hardware industry. Applications and services that were previously dependent on hardcoded dedicated electrical components shifted on towards the software side. By using computer programming software soon over took the hardware in terms of generating revenue. However, due to this incursion hardware manufacturers were able to drastically lower their costs keeping higher profit margins, resulting in higher revenue generation. During this period the computer industry was at its peak as software was proving to be an invention through which almost everything was becoming possible. With the success of the internet on one side and the revenue growth in hardware manufacturing on the other, software was the dominant factor in almost every industry. With businesses quickly transforming their strategies in order to incorporate the internet and using it as a source of reducing costs for organisations. This was the first stage of convergence in three steps, which is explained in the figure below. The first step towards convergence enabled a number of software applications to run on a single hardware device (application level convergence). Enabling computers to perform various tasks which were previously performed through dedicated machines, e.g. calculators, watches, word processing all were now software based. The second step further constitutes of two separate parts. The first was during the internet revolution, which enabled a vast array of software applications accessible through a single device (device level convergence) from various devices (second part) inter connected over a single network (network level convergence). Though the first and second steps towards convergence in the 1990s provided all the levels required to achieve full convergence, however, with the advent of mobile communication a new medium was created. With the IT industry in full bloom and the reputation of software in making everything possible, technological advancements enabled mobile telecom operators to offer voice and data services (SMS). Gradually mobile operators offered web services as well, with certain most commonly used web based services. This was the third step in the first stage of convergence. This step in itself was a product of convergence in the mobile telecom industry in terms of using software to operate hardware and enabling that hardware to connect or correspond with various devices over a single network (internet).
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The figure below shows graphically how these three steps merge together to form the first stage of convergence. The graphic below is to provide the reader with a simplified way of understanding the authors views towards the first stage of convergence.
First stage of Convergence (1990 2000)
Source: Author
Figure 4 First Stage of Convergence (1990 2000)
Convergence Step 1 Step 2 2.1 2.2 Step 3
Explanation Application level one application on various devices performing the same task Multiple devices one network Device level single device running various applications Network level multiple applications over a single network Multiple networks (mobile and internet) one device and vice versa mobile phones and computers connected to the internet and telecom networks
Source: Author
Table 3 Levels of Convergence
The internet attracted almost all industries to provide their services through this new medium. Media companies started offering music downloads on the internet which became 63
a huge success, similarly for mobile phones one of the most popular services was ringtone downloads. Convergence in the 1990 2000 era was considered imminent, however the dotcom crash in March 2000, resulted in billions of dollars reported in loss, putting an end to the convergence discussions. Since then valuable lessons have been learnt from the crash of 2000 and present investments in convergence have been thoroughly analysed and planned. The current trend towards convergence is similar to its predecessor, the point to be noted here is that during the recession period there was a slight indication of divergence in the IT & Telecom industry. However, the convergence of telecoms and the internet was hard to ignore as both come from the same technology background, communication. 3.3 CURRENT TREND OF CONVERGENCE
In the current industry convergence is a critical part of every discussion, meeting, strategy, or deal made by businesses in the technology, media and telecom industry. Last few years have witnessed a trend of mergers and alliances between telecom companies and media companies as well as with vendors of telecom equipment. US companies AT&T and Bell South were acquired by SBS for $16 Billion and $67 Billion respectively. Whereas, Verizon acquired MCI for $8.4 Billion and in the UK, NTL a cable operator acquired Virgin Mobile, a mobile virtual network operator. Vodafone sold its Japanese business to Softbank which is a local broadband operator.121 Apart from operators forming mergers and acquiring each other, there has been significant activity at the technology front, i.e. alliances are being formed between telecom equipment manufacturers and a host of companies from media and the online industry. The worlds largest network equipment manufacturer, Cisco acquired Scientific Atlanta that is famous for its development of TV set-top boxes. On the telecom side two giants in the telecom world, Nokia and Siemens agreed to form an alliance amongst their telecom equipment manufacturing divisions.122
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122
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In simple words, convergence is the synergy between internet technology and telecoms, in order to provide a more cost effective alternative to transferring voice & data over a single network. As a result opening doors for newer possibilities in the telecom world, one of the first forms of convergence were seen in the mobile phone with the addition of music players and cameras. Mobile operators started offering services that facilitate the use of the functions introduced by mobile phone manufacturers. The use of internet technology by the telecom world, has given rise to NGN (Next Generation Networks) which offer various internet services as well as providing voice communication. Internet companies like Microsoft, Google and Yahoo! have stepped into the telecom industry by offering internet free calls. This is a clear indication that the telecom industry is certainly active in the quest for a converged world. 3.4 DRIVERS OF CONVERGENCE
In order to understand the complete concept of convergence, the factors driving convergence need to be discussed in details. From review of literature the driving factors can be divided into two categories

Industry Drivers Consumer Drivers
INDUSTRY DRIVERS
The factors that are driving the industry towards convergence are of great importance, as an in depth study is crucial for reaching appropriate conclusion and subsequent recommendation. Following are the industry drivers

Growth of NGN (Next Generation Network)

Increase in Ethernet & Wireless Networks Convergence in Devices
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GROWTH OF NGN (NEXT GENERATION NETWORK)
Over the past 3 4 years there has been an increase in the deployment of next generation networks. A NGN is a network that offers multiple services over internet protocol (IP) using the same network. Services like broadband internet, VoIP phone calls, television etc. It is similar to a cable operator however, the core network design is different and that NGN offers its services over the internet. According to the graph below it is evident that UMTS a form of NGN for mobile devices, is quickly gaining ground. The following graph shows the percentage of the type of cell phones being used in Western Europe.
Growth of NGN
GSM-only
% of Mobile Users in Western Europe
GPRS
UMTS
100% 80% 60% 40% 20% 0% 2003 2004 2005 2006 2007 2008 2009
Source: Forrester Research, Inc. (2004) Figure 5 Growth of NGN
The above figure shows the growth of UMTS, a technology that enables converged services to be offered on a single mobile network. Based on NGN, the UMTS slowly picked up according to Forrester Research123, by 2004 UMTS was visible in a very small 1% of the Western Europe market. However, according to their forecast by 2009 the share of UMTS will have increased to 40% of the said market, whereas, the percentage of consumers using GPRS will fall from 69% in 2008 to 58% in 2009. Hence, it can be concluded that NGN is a crucial factor in the push towards convergence, as it enables different services to be offered on one infrastructure.
123
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INCREASE IN ETHERNET & WIRELESS NETWORKS
The last decade has seen a significant increase in the installation of Ethernet networks. With the scope of mobility, wireless networks have gained a lot of respect amongst the consumers. Therefore, in order to provide internet services on the go, operators install wireless hotspots in metropolitan areas. The graph below is proof of the above comment
Availability of Wireless Hotspots Worldwide (in Millions)
Source: IDC (2005) Figure 6 Availability of Wireless Hotspots Worldwide
The above chart shows the availability of wireless hotspots all over the world in 2005 and calculated forecasts for the future. According to the above graph it is visible that by 2009 the number of hotspots deployed will near 250 million around the world. This massive increase is due to customer demands for internet on the go, thus the push towards convergence.
CONVERGENCE IN DEVICES
One of the most important drivers of convergence, are end user devices. Mobile phones became a must have device with the integration of features such as camera, mp3 player etc. Operators raced to offer services that were available on these devices, mobile internet was one of the first web based service offered. Currently almost everyone carries a mobile 67
phone, which in itself is a product of convergence. When this product is coupled with converged media & telecom services the possibilities are endless. In the early years of mobile communication, phone sets were large bulky and heavy objects that enabled the user to be on the move and still remain in constant contact. However, initially mobile phones only performed simple call-in and call-out functions. Gradually with the dominance of software applications, the number functions a mobile phone could perform dramatically increased and at the same time the size and weight of handsets started to decrease. In the current mobile market, handsets come with built-in camera, music player, alarm clocks, calculators etc. All these applications have been made possible through the convergence of software with hardware components. According to Gartner124 units of mobile phones sold will cross 1 billion by the year 2009. In a press release issued in July 2005, Gartner predicts the future of mobile phones, based on past trends in the mobile phone market and forecasts of sales in 62 countries. Units of Mobile Phones Sold (in Millions)
779 674 520 415 295 108 176 413 427
847
914
980
1,042
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Gartner Dataquest (2005) Figure 7 Units of Mobile Phones Sold
In light of the above figure, in a period of 8 years (1997 2005) there was an increase of 86% in the number of mobile devices sold. The research by Gartner125 also showed the following:
124
Gartner Says Mobile Phone Sales Will Exceed One Billion in 2009, 2005, Press Release, Gartner, UK
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More than 100 million 3G phones will be sold by 2006 More than 200 million smartphones will be sold by 2008 GENERATIONS OF MOBILE COMMUNICATION
3.5
Predominantly there are four generations of mobile technologies, have matured throughout their life cycle. The most famous of these has been the 2G which consists of the GSM (Global System for Mobiles) technology, it was due to GSM that operators were able to couple data with voice (text messaging). The success of GSM was mainly because it gave the user an option to choose a variety of GSM handsets to use. Technological advancements on the network side have provided the industry with faster and more secure network standards and protocols, leading to the invention of new technologies. The third generation of mobile networks is one such example of a technology that supports broadband voice, data and media traffic over a single network. Below is a timeline of the generations of mobile communication along with the services offered with the corresponding technologies. Generations of Mobile Communication (1990 2007)
Source: TMC Net Website Figure 8 Generations of Mobile Communication (1990 2007)
125
Gartner Says Mobile Phone Sales Will Exceed One Billion in 2009, 2005, Press Release, Gartner, UK
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3.6
MULTIPLAY
According to Robert Lloyd126 (Cisco), IP in a converged world enables one network, many services, any access. Largely meaning that the customer may have a long list of choices to choose from, hence empowering the customer to choose the service required and what form it is to be provided on to a single device. The concept of multi-play is based on the above finding, and is referred to as the use of a multitude of services previously offered by different providers now available through a single source. Multi-play has been referred to as triple play or quadruple play as well. Companies such as NTL being a cable operator in the UK, offers broadband internet, fixed telephony service and cable TV is actively participating in the race towards convergence. As it acquired Virgin Mobile in early 2006, with the addition of which NTL launched its quadruple play service in the UK. Softbank acquired Vodafones business in the Japanese market. Softbank is the countrys local broadband service provider, with broadband internet, cable TV and fixed line telephony. Hence, another quadruple play service launched, by yet another company that is actively preparing itself for the convergence revolution. 3.7 IS CONVERGENCE REQUIRED?
Critics of convergence believe it is a step in the wrong direction for the technology, media and telecom industry. They argue that a similar trend started in the late 90s which resulted in a massive flow of billions and trillions of dollars into the industry and boom!!! The bubble burst with it, went the investments a multitude of companies and individuals. Below are the major factors which critics believe are damaging from all the industries opting for convergence. Mueller127 says that, historically the incursion of these two industries (media & telecom) into each others turf has been minimal and most unsuccessful. This means that if the data
126
127
Mueller, M. L. Digital Convergence and its Consequences, Unpublished Source
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on convergence is critically analysed it is evident that when a media firm decides to spread its wings into the telecom industry and vice versa, the result in most of the cases has been catastrophic for both the industries. Further evidence has been provided by Geirge Gilder128 with his comments in his paper, Life after Television: The coming transformation of Media and American Life, he rightly points out that the convergence phenomenon and the horizontal integration into the value chain, is a proof that this is, a convergence of corpses. From this it is quite evident that historically convergence has not been successful. Another point has been raised by Prof. Andre Odlyzko129 (Univ. of Minnesota) regarding the customers interest in the services offered through convergence. He points out that the technological advancements to gain competitive advantage in the convergence age are proving to be convenient and cost effective for a number of telecom service providers. However, these technological advancements are not solving any problems for the customer. Therefore, in order to have a successful transfusion of industries it is in the interest of service providers that customer demands are fulfilled. Guy Zibi130 (Pyramid Research), raises the same issue in the context of 3G technology and argues that in telecom industry it is the technology department, driving the marketing department. According to Zibi, during the 3G race, the operators were on the move to provide fresh and innovative services, regardless whether the customer really requires the service and also the technology was still in its infancy. In light of the material reviewed on convergence the author is of the view that current trends in the market and technology sector might be able to breathe new life into convergence. Therefore, it is imperative for the technology, media and telecom industry to critically analyse the associated factors leading to convergence.
128
Gilder, G. 1994, Life after Television: The coming transformation of Media and American Life, Revised Edition, New York, Norton, W. W.
129
130
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3.8
FACTORS AFFECTING CONVERGENCE
In order to take an in depth look into the factors affecting convergence (either positively or negatively), following information has been critically analysed and subsequent findings have associated with each factor have been mentioned.
3.8.1 CUSTOMER FOCUS
Arun Sarin, who heads the worlds largest mobile operator, Vodafone, has his doubts over the success of convergence as well. In a brief statement Arun Sarin sheds light on the decision made by Vodafone, not to enter the race for convergence, which could be a gamble. It might prove to be a hard one if convergence goes on to become the right way to choose for telecom companies. According to Arun Sarin131, we are not saying there are no customers who demand this were saying its a very small fraction of customers. Customer demand for convergence is modest and is evident from data analysed. The figure below shows the demand for triple play services in European countries. Convergence of media & telecom services might provide simplicity and power to the customer, but the evidence gathered so far, proves otherwise.
131
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Triple-play Customers in Europe

Italy 1%
Britain 10%
France 8%
Source: Forrester Survey Figure 9 Triple-play Customers in Europe
The above pie chart shows the percentage of customers in the three telecom dominated countries in Europe, that have signed up for triple-play services of broadband internet, television and fixed-line telephony. If such is the response from customers for a technology that was considered as the Jurassic years of convergence, then the new era of convergence might have a challenging time in making its way to the customer. This is critical for a company thinking of enlisting itself in the race for convergence. Customer acceptance should always be at the centre of any strategy formulated by the industry. Forrester a consulting company carried out another survey which asked the question if the customer would be interested in signing up for a triple-play service. The results of the survey are illustrated in the graph below. According to the graph only 7% of the respondents showed interest in actually using the service whereas, a staggering 44% respondents, showed no interest in such a converged service. However, the point to be noted in this survey is that 49% of the respondents were marginally interested if there was discount offered. Although 44% of the respondents were not at all satisfied with a converged service whereas, half were partially interested if there was discount in the deal. Therefore, it can be
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concluded that convergence has a 50 50 chance to be successful, if customer expectations are met and that these services are offered at discounted rates. Furthermore, it is stressed that the target market is not yet thoroughly educated in the features and benefits of convergence, therefore businesses might need to re think their strategies while offering converged services. At the same time keeping customer interest at heart.
Customer Interest in Converged Services

49% 44%
7%
Not Interested
Might be Interested
Interested
Source: Forrester Research Figure 10 Customer Interest in Converged Services
Dr. Terumi Chikama (Fujitsu Ltd) has further strengthened the argument by raising the point of customer habits. Customers are familiar with the concept of paid and unpaid service, they are aware that certain telecom services provided, are payable and some are free of cost. Customers are aware that they will be charged each time they make a phone, send a fax or a text message, however, they do not expect to be billed every time they send or receive an email or for using a search engine. As the core reason for convergence is to bring together networks and applications, towards which they might be extremely aggressive if they are asked to pay for a service which they are not used to. Therefore, companies face a daunting task of offering a multitude of service either at discounted rates or free of charge, putting a lot of pressure on the economic condition of the companies. All these risks are a direct threat to the billions of dollars worth of investments made in order to achieve convergence.
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3.8.2 REGULATION OF CONVERGED SERVICES
As, correctly pointed out by Mueller132 that the internet is not controlled by any regulatory conditions, like the telecom industry that is subject to distance premium and an array of charges payable to the regulatory authority. Hence, it can be extracted that convergence will pose a challenge for regulatory authorities in order to come up with certain regulatory conditions that will are applicable both the internet and telecom aspect of convergence. On one hand this is a window of opportunity that most telecom operators have made full use of in order to raise their revenues. On the other hand a chance for the telecom industry to influence its preferred legislation policies through regulatory processes. Once regulatory policies are firmly in place, which might be yet another risk for the telecom and media industry. If distances are regulated similar in the telecom industry, the concept of convergence will drop to local geographic scope, which will not survive for long.
3.8.3 PIRACY
Piracy has been the topic of many discussions and meetings in the internet industry and continues to be a problem that is proving to be harder and harder to solve. Piracy has its feet firmly placed in the media industry as well, with the release of pirated movies and songs over the internet or in DVDs and videos. The media industry loses billions of dollars at the hands of piracy alone. So far industry executives have shown concern over piracy but have remained somewhat silent on ways to exterminate or reduce piracy. Joshua Auerbach133 (Time Warner Inc.) says in the end all of us have to live with some background level of piracy, by this statement he accepts the fact that the industry is unable to curb the threat of piracy. According to the following pie chart it is evident the loss incurred by software companies in the developed and developing worlds during the booming years of the internet was significant.
132
Mueller, M. L. Digital Convergence and its Consequences, Unpublished Source Brightman, I. 2006, Convergence Conversations, Deloitte Touche Tohmatsu
133
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Estimated PC software piracy losses, world total 1996 = $11.3 Billion

Rest of the world 14%
Asia-Pacific 34%
Western Europe 23%
North America 24%

Source: Software Publishers Association134 Figure 11 Estimated PC software piracy losses
Latin America 5%
The above pie chart shows that heavy losses were recorded by companies in the Asia-Pacific as they were the development centre for software companies. Reason for that being that these countries offered cheap labour with exceptional intellectual power, therefore these countries were the best option for establishing development centres here. This gave rise to software export from the countries in Asia-Pacfic, namely India, Japan, China etc. However, imminent the threat of piracy is, there are law enforcement agencies that are constantly keeping a vigilant eye for cyber criminals and the protection of intellectual property of firms. Below are some statistics taken from the US Department of Justices Task Force on Intellectual Property.
134
Cairncross, F. 1997, The Death of Distance, Harvard Business School Press, USA
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FBI Intellectual Property Indictments

127 92 95
2003
2004
2005
Source: US State Department of Justice Figure 12 FBI Intellectual Property Indictments
As it is quite evident that efforts are being made to curb the threat of piracy in the. However, this problem is likely to persist to threaten the existence of converged networks, which will open a new battlefield for the war between piracy and the law.
3.8.4 INFORMATION SECURITY
The issue of piracy raises concerns over the security of information transmitted over the converged network. Though it is quite evidently a major threat to the service providers, it is an even bigger threat to the consumer. As the consumer lacks the technical know-how and capital to tackle this threat, therefore it is dependent on the service provider for the safety and security of his information. Information security, is another challenge for the industry, in order to prove to the customer that convergence is the most economically viable and secure way into the future. The telecom and media industries will have to collaborate with law enforcing agencies effectively to find new ways to neutralise the threat of piracy. Inadequate security preparations by the industry might prove to be life threatening for certain telecom and media companies. Convergence has a very slight chance of success if the customer is not completely convinced that convergence is secure and that his information released over the network will not be tampered with.
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Apart from the risks and threats associated with convergence, it is a new mode of communication with a larger geographic span. It can be used to address certain markets which were inaccessible in the past. The figure below shows the percentage of users concerned over information security when making payments through their mobiles. Percentage of Consumers concerned over Security of Information
87% 73% 60% 57%
83% 74%
US
Japan
Germany
France
Sweden
Australia
Source: BCG proprietary consumer database, (2000) Figure 13 Percentage of consumers concerned over security of information
It is evident from the chart that a vast majority of customers are unsure about the level of security offered by mobile operators. Especially in Japan which embraced 3G and are currently implementing 4G as the standard mobile communication technology, 83% consumers are worried about the safety provided to their information. Protecting information in a converged world will be a challenge for operators, as hackers and other online law breakers will have another more powerful medium to conduct their devious acts. 3.9 SUCCESS OF QUADRUPLE PLAY
Quadruple-play services offered by service providers are proving to be a success, but have failed to attract a larger chunk of the market. As previously observed the market interest feedback for triple-play services, 44% say they are not interested in bundled deals. Based on customer vision, Pyramid Research developed a forecast for the triple-play service 78
providers. Showing a steady increase in the markets of Western Europe and North America, whereas, demand in the Asia-Pacific demand for triple remains somewhat static.
Source: Pyramid Research Figure 14 Triple-play subscriber (in millions) forecast
More specifically Pyramid research presents the penetration of triple-play services into the household. According to the figures gathered in 2005 Spanish and French markets were leading the tables with 24% and 22% of the market accepting converged services. In contrast, the UK and the US were at the bottom of the table with only 13% and 10% of the market infiltrated.
Triple-play Penetration of Households (2005)
24% 22% 18% 15% 13% 10% 12%
France
USA
Italy
UK
Spain
Netherlands
Belgium
Source: Pyramid Research Figure 15 Triple-play Penetration of Households (2005)
From the above figure it is quite evident that triple-play services are paving their way into the households steadily, however, what is also evident from this is, the rate of acceptance of 79
these services is proving to be rather slow. Triple-play services have been in the industry for quite some time now. Cable operators have been providing these services for almost a decade, and from the data researched by Pyramid consulting, these services have been able to attract less than 25% of the markets. Quite evidently the question arises, how long would it take convergence to make its mark on the industry? Especially considering the fact that, its predecessor technologies have been somewhat unsuccessful in attracting customers while offering similar services.
3.9.1 REDUCED OVERALL EXPENDITURE BY CUSTOMER
AT&Ts CEO, Ed Whitacre135 defends his companys decision to enter the convergence race, he says that bundle offerings make life much easier and simpler for customer. AT&T believes that according to its experience in the communication industry customers require a bundled service that addresses their every need and furthermore it is confident that at the best price offered this will be an offer hard to refuse. According to figures gathered by Parks Associates, an American household on average spends $176 per month on services such as TV, telephone and internet. AT&Ts aim is to offer quadruple-play services for as low as $100 per month.
Expenditure on Telecom & Media service per Household

$176
$100
Before Convergence
AT&T's Traget, After Convergence
Source: Parks Associates Figure 16 Expenditure on Telecom & Media services per Household
135
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Companies like AT&T & other operators will have to squeeze a lot of discounts out of their suppliers, in order to offer discounted services to customers. In the US, Verizon which is the countrys second largest telecom operator, faced an 8% decrease in its market share with increasing competition from cable operators. The decrease was majorly reported in the number of fixed-line telephone connections operated by Verizon.136
3.9.2 REDUCED OVERALL EXPENDITURE BY OPERATOR
Operators might be more tempted to offer quadruple play services, in light of the reduction in costs incurred. As convergence, with its many benefits also offers reduced costs of advertising, marketing and customer acquisition, as all the services are offered under a single name. 3.10 ROLE OF MOBILE VIRTUAL NETWORK OPERATORS IN CONVERGENCE
Once convergence of media & telecom services initiates, the scope of competition between businesses will be dominated by the quality of the content provided and will also incorporate brand loyalty. France Telecom which owns Orange Mobile, renamed its Wanadoo broadband business to align it with Orange, which is a much powerful brand in the mobile market. In this regard MVNOs occupy a strategic position in the telecom industry. As traditionally MVNOs are based on the basis of a well known brand in some other industry, that in order to capitalise on its already existing market presence launches a mobile service. The mobile service offered by MVNOs is complemented by its adjacent businesses based on customer feedback. In a converged world, operators offering unique and in demand services stand to gain more, regardless of the investment made by operators on the infrastructure. Therefore, the author is of the view that MVNOs tend to gain more from convergence than telecom (fixed mobile) operators, in terms of investment as well as in terms of converged services offered. An MVNO such as DisneyMobile provides Disneys content and on its own mobile service, targeting a smaller segment of the overall mobile market. NTL which is a cable operator in the UK, acquired Virgin Mobile (an MVNO) in early 2006 to gain a foothold in the mobile
136
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telecom market, mixing it with its already vast array of broadband and TV services. This acquisition would not only help NTL to secure a place among the quadruple play service providers, NTL will make full use of the competitive advantages and distinct competencies enjoyed by Virgin Mobile. In order to give mobile operators strong competition, however, mobile operators still remain a major necessity for MVNOs in order to launch their services. The latest acquisition of an MVNO was of Talkmore by Telenor. Talkmore has 60,000 subscribers and targets the low priced segment of the Norwegian mobile market. It uses either Telenors or NetComs network to provide its services.137 3.11 DRIVERS OF CONVERGENCE (DATA ANALYSIS)
The data analysis of convergence will cover how the industry is preparing itself with regards to convergence. Although from data previously analysed, consumer demand for converged services (media & telecom) appears to be low. However, convergence may have the ability to reshape the technology, media and telecom industry. The focus in this data analysis will be to extract the factors that may lead to the success of convergence. The data for the analysis has been collected and reviewed from industry journals and current statistics available. Below is a data analysis of the drivers of convergence, based upon the analysis of these findings the author will derive appropriate conclusions.
137
Press Release, Telenor Corporate Website, Available at http://press.telenor.com/PR/200707/1138142_5.html
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Multiple types of Telecom Convergence

Voice & Data Fixed & Mobile Telecoms & Media Telco & IT Device 51% 46% 66% 77% 88%
Source: Economist Intelligence Unit & IBM Figure 17 Impact of Convergence within next Three Years (% of Executives)
The above figure shows the results of a survey carried out by the Economist Intelligence Unit & IBM, to view the response from industry executives on the most revenue generating service in convergence. This figure has been analysed previously, however the reason for mentioning the graph again is to emphasise on the types of convergence in telecoms. Currently industry executives believe voice & data will be the most used service, however the underlying fact is that the competition between businesses will now be on the level of convergence each offers. The industry is stepping into a new field of competition, where the future is unknown. Businesses have a long list of business models & services to choose from and in order to gain a foothold in the chosen sector, it is imperative that a high level of quality be maintained in the service(s) offered.
VOICE & DATA
In order to view how the industry is transforming, a large part is played by the data services. The internet is primarily to blame for the convergence phenomenon, in Western Europe over the past few years the sale of mobile data services have increased 6 fold.138 The figure below shows comparison between voice sales and data sales by mobile operators. It is evident from the figure that voice sales remain somewhat constant whereas,
138
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there is a sharp increase in the sales of mobile data services. At the same time it should be noted that voice services remain the higher of the two, which further strengthens the argument that voice will remain the dominant service even with convergence.
Voice & Data Services in Western Europe

Voice Sales 200
In Billions of US$
Data Sales
150 100 50 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Siemens Com Mobile Networks, August 2004 Figure 18 Voice & Data Services in Western Europe
The above graph furthers the argument that voice & data services will be the leaders in revenue generation during convergence. The figure forecasts the combined revenue generated by voice and data services to reach more than $180 Billion by the year 2010.
VOICE OVER INTERNET PROTOCOL (VOIP)
Furthermore, the installations of Industrial Ethernet have increased as well, Dr. Thomas Ganswindt139 (Siemens) argues that the primary driver of convergence is broadband. It is because of broadband that it has been possible for operators to provide multiple services. The figure below shows that a rise in the number of installations of Industrial Ethernet.
139
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Installations of Industrial Ethernet

Number of Installations (in millions)
7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2002 2003 2004 2005 2006 2007
Source: Siemens Com Mobile Networks, August 2004 Figure 19 Installations of Industrial Ethernet
From the figure it can be noted that, Ethernet installations in 2002 were less than 1 million and in 2007 have reached close to 6 million. This dramatic rise in the need for connectivity is evidence that businesses are getting more and more dependent upon technology. This dependency leads to the need for reducing costs therefore, businesses turn to their most valuable medium for cost reduction. Using the connectivity for multiple services, e.g. VoIP has proved to be a major factor in reducing costs for businesses. By using VoIP, the cost of telephone calls can be sidestepped partially.
SOFTWARE APPLICATIONS
Increase in software development is another driver of convergence, as mentioned by Dr. Ganswindt140 (Siemens), in his presentation. The data in the following figure has been extracted from Dr. Ganswindts presentation Telecommunication Industries in Transition.
140
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Software Market Growing

Software Hardware
316 Billion 270 Billion

60%
125 Billion
80% 20% 2000
62%
38% 2010
40%
2015
Source: Marcar Management Consulting, (2003) Figure 20 Software Market Growing
The software market is consistently increasing its foothold in the industry. In the ancient days of the computer, much was dependent upon the hardware components measuring multiple feet in size. Technological advancements dramatically reduced the size and cost of manufacturing hardware whereas, the internet (1990s) breathed new life into software development. From the figure above it can be noticed that according to the forecast, by the year 2015 revenue generated by software would increase 20% whereas, revenue generated by hardware components will decrease by the same percentage. According to researchers at IDC141 world-wide spending on packaged software alone was $185 billion in 2003 and is expected to reach some $260 billion by 2008. Therefore, it can be concluded that software is expected to play a pivotal role in convergence. However, care must be adhered to during the delicate process of implementation and special attention paid to valuable customer feedback. It can further be stressed that software application services will be crucial for developing a sustainable business model which is the foundation of a business. In a study carried out by Dr. Fowler142 it is anticipated that within 3 years most of the businesses will have converged networks deployed. As it can be viewed in the graph below,
141
Fowler, T. B. Convergence in the Information Technology and Telecommunications World: Separating Reality from hype, Available from: http://www.noblis.org:8765/QueryResults_query.htm?qt=Dr.+Thomas+B.+Fowler&sc=0&si=0&x=18&y=12
142
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it is evident that within the next year majority of the businesses will opt for converged services. Whereas, in 3 years only 13% of the businesses will deploy converged networks and service, these will be the critics of convergence and late adapters to the technology. Such late movers stand to lose a lot of market ground
Approaching Convergence
3+ Years 13% In the next 2 - 3 Years 19%
In Process 26%
Within the next 1 Year 42%
Source: The strategic and financial justifications for Convergence, Cisco Whitepaper Figure 21 Approaching Convergence
3.12
THE EXECUTIVE DECISION (DATA ANALYSIS)
In order to complete the analysis on convergence, an in depth look should be taken into the understanding of convergence amongst business executives. According to a study published by the Economist Intelligence Unit and Nortel Networks, executives from technology industry as well as from retail were surveyed. The scope of the survey was to measure the level of understanding executives have on the subject of convergence. Below is a graphical representation of the number of respondents, their job title and job description.
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Job Title of Respondents
Job Description of Respondents
Source: Deploy or Delay? Converged Networks in the enterprise, 2004, The Economist Figure 22 Respondents Demographics
Now that respondents demographics have been mentioned, it can be derived that the information gathered is based on their experience and knowledge of telecommunication convergence, which is essential for the sustainability of businesses.
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Below are the results of some of the relevant questions asked in the survey:
HOW WIDELY HAS IP CONVERGENCE BEEN IMPLEMENTED IN YOUR ORGANISATION?
As it is evident from the figure below, only 2% of the respondents organisations have implemented convergence of mainly voice & data, completely. Whereas, majority of the respondents claim that convergence has been implemented partially in the organisation. The point to stress upon here, is that 19% of the executives say that there are no plans of implementing convergence in their business. The reasons for not implementing convergence can be many, including the fear of losing the investment as occurred in the dotcom era.
Implementation of Convergence in Organisations

Most of the organisation 13% Entire organisation 2%
No plans to implement 19%
Some depts and remote sites 40%
At planning stage only 26%
Source: Economist Intelligence Unit Figure 23 Implementation of Convergence in Organisations
In contradiction to the above figure, the plans for the next 5 years revealed that most of the organisations planned implement convergence.
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Implementation of Convergence in Organisations (Next 5 Years)

Some depts and/or remote sites 19% Entire organisation 29% At planning stage only 6% No plans to implement 8%
Most of the organisation 38%
Source: Economist Intelligence Unit Figure 24 Implementation of Convergence (Next 5 Years)
As evident from the figure above, the percentage of organisations not planning to implement convergence has dropped to 8% and the percentage of entirely converged organisations has increased from 2% to 29%. This is evidence that convergence is such a core part of business that organisations will witness a dramatic decrease in their costs.
HOW QUICKLY WOULD YOUR COMPANY NEED TO SEE RETURN ON INVESTMENT AFTER IMPLEMENTING CONVERGED IP?
In response to the above questions, majority of the respondents said 2 years. It can be concluded that organisations accept that, it will take convergence some time before the real cash starts flowing in. This time period of 2 years also signifies that organisations are playing it safe in case convergence fails, the loss is bearable. However, organisations that wish to see return on investment within 1 year, are second highest with a response from 29% respondents. This will be a challenge for technology, media and telecom industries, as this is quite a significant chunk of the market.
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Return on Investment
Source: Economist Intelligence Unit Figure 25 Return on Investment
From the figure above it is evident that majority of the organisations plan to give convergence some time before they start seeing results. However, companies that give convergence more than 3 years to perform are risking a lot, hence these will benefit if convergence turns out to be a late success. 3.13 CONTROLING CONVERGENCE
Approaching convergence in an attempt to maximize revenue will only be advantageous until the pace of convergence is under control. This means that companies will need to pay extra attention on the levels of convergence, moving the technology step by step, keeping customer demands and customer understanding at the core of the approach. Too much convergence too fast could result in a catastrophic backlash from users, forcing the industry on its knees and resulting in divergence instead. For service providers the hardest part to control convergence is at the device end, says Tetsuya Funabashi143 (NTT Communication Corp), he further stresses that service providers are in a race against time to provide such services that are able to execute on any device. Currently the mobile market is run by the handset manufacturers, as they drive the service providers to introduce services that are supported by these user devices. With launch of Apples new iPhone, which it claims to be 5 years ahead of any other mobile phone144, this claim stirred a panic amongst service providers who raced to acquire rights
143
Brightman, I. 2006, Convergence Conversations, Deloitte Touche Tohmatsu Independent Website, Available at: http://news.independent.co.uk/sci_tech/article2734677.ece
144
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of offering the iPhone with their service. At the same time mobile operators started developing new services that would be accessible by the iPhone. However, majority of the services being offered by Apple itself, mobile operators will have an uphill task in order to neutralise and control this threat. Apple is one of the first handset manufacturers, that would provide media services specifically for its own mobile phone. Opening another front for mobile operators that lack content development competency as well as for those who form strategic alliances in order to provide content. From these developments in the current market, it can be clearly seen that the hardest part for a mobile operator is controlling the level of converged services offered at the device end by handset manufacturers. This can only be controlled by mutual understanding between all mobile operators, content providers and device manufacturers, in a geographical region. Furthermore, this understanding should be bounded by contractual or regulatory terms and conditions making it difficult for any member to deviate from the agreed plan of action. This is necessary for the sustainability of convergence. 3.14 IS CONVERGENCE IMMINENT?
The communication world is nearing an era where the internet and normal telephony will collide and a new breed of communication will arise, which will enable the user to access any service from anywhere in the world. This is true and currently unfolding before our very eyes. The supporters of convergence argue that there is more to convergence than just providing a bundle of services accessible through a single device; they further add that convergence will open the door to newer better and creative services. The Economist Intelligence Unit and IBM145 carried out a survey of telecom executives, in which they asked the question if it is essential to embrace convergence in the next 3 years as a source of long-term revenue growth and which services and markets they thought were likely to prove most important?, the results of the survey are shown below in graphical form.
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Embracing Convergence in the next 3 years

80%
20%
Agree
Disagree
Source: Economist Intelligence Unit & IBM Figure 26 Embracing Convergence in the next 3 years
From the above graph it is evident that majority of the telecom operators believe that convergence is the right choice for the future, however, 20% of the respondents believe otherwise. Although, the above result shows that convergence is imminent and that telecom operators are working tirelessly to make this a reality and it is showing. However, the vital part of this discussion remains as to what service(s) hold the key to growth in revenue. Below is the response from all the respondents of the survey (Economist Intelligence Unit & IBM) to the second part of the question.
Source: Economist Intelligence Unit & IBM Figure 27 Impact of Convergence within next Three Years (% of Executives)
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According to the above figure majority of the industry executives have declared voice and data services to be the most revenue generating service in a converged world. This chart shows what the industry executives think, however, the real test of convergence will be when valuable customer feedback is analysed and steps taken to meet customer demands. The survey carried out by Economist Intelligence Unit and IBM provides the basis for the analysis of convergence. It shows that voice and data services lead the table by being the oldest and mostly used. These services have matured over time and have therefore proven to be the backbone of telecom operators, in a converged world, voice and data services are destined to be the major factors in generating revenue. Closely following the race is the convergence of fixed and mobile telephony, which the according to the author will be the most used service in the future, once convergence is in full swing. Fixed mobile telephony enables the user to use the same handset as a mobile phone when on the move and as a landline or residential phone when at home. Other forms of convergence such as media and the role of IT are still in their early years and hence need to be researched and should reach a level of maturity before they act as major factors of revenue generation.
KEY FINDING FROM DATA ANALYSIS
From the data analysis of the factors driving convergence the author has found the following:
Convergence of media & telecom services has a 50 50 chance to be successful, provided the services are offered at affordable rates to the customers
In the future competition between businesses would be on the service level dominated by the brand recognition.
o
MVNOs tend to benefit from convergence Competition driven by level of convergence offered The future of convergence in media & telecom is uncertain
Voice & Data services tend to be a success Fixed mobile convergence is gradually picking up 94
Convergence of media & telecom services will lead to new and creative service offerings
In light of the above findings the future of convergence in media & telecom industry is still inconceivable as a lot depends on the consumer side. Therefore, the level of convergence to be offered has to be regulated and controlled by either a regulating body or the industry itself. Convergence of the technology, media & telecom industry has already made its way into households with the launch of triple and quadruple play services currently being offered by operators. Furthermore, with respect to the operator or service provider the organisation first has to decide at what level it will be offering converged services i.e. network, device or application levels. These three levels of convergence can be considered as basis of the strategy towards convergence of media & telecom services. However, it is extremely difficult for businesses to offer these services on their own, as the future is uncertain. Therefore cross industry strategic alliances are formed in order to reduce the level of risk and the amount of investment involved in achieving convergence of media & telecom services. 3.15 ROLE OF TECHNOLOGY ALLIANCES
One of the drawbacks associated with convergence is that, not all companies can offer converged services on their own. This is when strategic alliances are formed, in order to offer the best services telecom operators form technology based strategic alliances. Due to such type of collaborations, operators and media companies are able to prepare themselves for the convergence era. There are several examples in the telecom industry where such alliances have been formed in order to achieve convergence. Two such cases have been discussed in brief detail, in order to give the reader an understanding of the importance of strategic technology alliances in the age of convergence.
NTTDOCOMO
NTTDoCoMo a Japanese mobile operator has a significant (60%) share of the mobile internet market. The reason for its success was i-mode mobile internet service, the product of a number of alliances DoCoMo had formed with content providers. Within 3 years
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(1999 2001)146 of launching i-mode, DoCoMo had captured 45% of the market with a subscriber base of 30 million. The success achieved by the Japanese operator was a result of the successful implementation of strategy, as the service being offered was the first of its kind and user response was unknown. Below the author has provided in brief the factors that played a vital role in the success of i-mode. I. Vision a. Alliances formed with content providers b. Quality content was developed c. i-mode immediately attractive to user II. First mover advantage a. Able to set the standards high b. No other such service available c. Larger part of the market acquired III. Global expansion a. Alliances formed to expand business worldwide b. i-mode service licensed to 13 operators globally c. Partnerships formed with operators in 9 European countries IV. Adjacent businesses a. Able to cope with the recent drop in sales b. Offering new services based on i-mode c. Increasing i-modes new possibilities
146
Boston Consulting Group, 2005, The Role of Alliances in Corporate Strategy, Boston Massachusetts
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From the above factors it can be extracted that it is impossible for a mobile operator to achieve such level of success. The full credit of i-modes triumph in the Japanese mobile internet market goes to the alliances formed with content providers. In the absence of these collaborations it would have been extremely difficult for any of the participants to go it alone. Recently, DoCoMo formed an alliance with Sumitomo Mitsui Card, (the second largest credit card company in Japan) the aim is to provide a wide of financial services to the users of i-mode. This is the perfect example where technology alliances have been effectively used to play a vital role in the current age of convergence.
AOL TIME WARNER INC
During the dotcom era there were similar talks about convergence as today, however, the dotcoms suffered a catastrophic downfall. On January 10th, 2000147 two giants America Online and Time Warner Inc decided to merge in order to create the worlds first Internet age Media and Communications Company. The merger was worth $30 billion combined. The aim of the merger was to offer Time Warners huge variety of its renowned media packages by leveraging AOLs existing internet franchises and infrastructure. According to the official Time Warner148 press release, the aim of the merger was to become the premier global company delivering branded information, entertainment and communications services across rapidly converging media platforms. The merger of these two mega players was considered to be a win win move, however within 3 years of the merger the revenue generated by the internet division (AOL) decreased, profitability was at its lowest ever. That was the time of the dotcom crash and the value of AOL decreased drastically. This resulted in a goodwill write down, forcing AOL Time Warner to declare a loss of $99 billion in 2002. The case of AOL Time Warner is the perfect example of a merger not turning out to be as planned. The reason for failure of the merger may be many, however, once properly planned and tactfully operated alliances / mergers are bound to succeed.
America Online and Time Warner Will Merge to Create World's First Internet-Age Media and Communications Company, 2000, Press Release, Time Warner Website America Online and Time Warner Will Merge to Create World's First Internet-Age Media and Communications Company, 2000, Press Release, Time Warner Website
148 147
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CONCLUSION
In light of the above analysis and key findings the author concludes that there is a definite shift in the level of services offered by telecom operators. Telecom operators and media companies are collaborating with each other to provide a mixture of services to the customer through a single device. From the analysis of data currently available on convergence it has been found that convergence has a 50 50 chance to succeed and also that customers currently do not seem to understand the implications of convergence and its benefits. Whereas, according to the analysis, convergence empowers the customer to access any information from anywhere through a single device on a converged network. However, there is wide speculation on the success of convergence, whether it is a step in the right direction or not? Current data analysed has shown the percentage of triple play (fixed-line telephone, TV, broadband) customers in Europe is not that impressive, however the factors affecting convergence prove otherwise. Quadruple play (fixed & mobile telephony, TV, broadband) service has picked up in Europe and is proving to be a much more economical option for both the customer and the operators. It is further stressed that, in order to make convergence successful operators will have to have a firm control on this increasing phenomenon. The challenge is to administer or control the level of convergence offered in user devices, as the hardware is only as good if the relevant service is provided. Data analysis shows an increase in the level of convergence in recent years, the main driver being broadband and devices. Top executives are swaying on the convergence side; M&A activities are increasing in order to achieve convergence. The use of mobile phones is predicted to increase and the sales of handsets are expected to cross 1 billion by 2009. All this analysis is proof of convergence turning out to be a reality and claiming its rightful place in within the technology, media and telecom industry. Strategic alliances in the past have proved to be favourable for businesses as they reduce the level of risk involved in launching a new service or manufacturing a product. Specifically in the technology, media and telecom industry strategic technology alliances have been vital for claiming large portions of the market. Reference has been provided to the case of i 98
mode a mobile internet service offered by NTTDoCoMo a Japanese mobile operator and the strategic technology alliances that it formed with content providers. In the context of convergence, businesses need to integrate horizontally into the value chain, mobile operators will tend to collaborate with content providers and media companies for its services. Convergence will prove to be a new source of revenue for technology, media and telecom industry, with technology alliances in the background, operators are looking at vast array of services to provide. The author believes the MVNO business model in this regard is the most successful. As the MVNO forms an alliance with content providers in order to offer a wide variety of services through its marketing expertise. Technology alliances when strategically planned and tactfully executed can prove to a major part of the convergence era.
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4
4.1
TECHNOLOGY ALLIANCES & CONVERGENCE IN TELECOMS

INTRODUCTION
As mentioned previously NTTDoCoMo used a network of technology based alliances in order to claim a larger chunk in Japans mobile internet market. Due to the speed of development and rapid rollout of the imode service, DoCoMo gained significant first mover advantage and its internet service was an instant success. These strategic technology alliances proved to be a vital move for the Japanese operator, hence it is further forming technology alliances with businesses in various industries, e.g. financial industry to offer high end online banking and m-commerce services using its already established i-mode platform. In this section the author will analyse the data available on technology alliances in the telecom industry with special emphasis to the relationship between media & telecom companies. The authors findings are based on the literature reviewed in Chapter 2 and the subsequent analysis. 4.2 STRATEGIC TECHNOLOGY ALLIANCES
Academics and Industry executives generally view technology alliances as collaboration in which two or more companies combine their technical know how and investment in order to achieve a common goal or to invent new technology. A more detailed review of definitions is given in Chapter 2. In general technology alliances can be viewed as a smart move for a business when stepping into uncharted domains. As alliances have proven to be much more appropriate than mergers or acquisitions by reducing the risk involved in case of total failure of the alliance. Industry executives rate alliances as a very high possibility in the development of strategies to target newer customer base. The technology industry and in specific the telecommunication industry have generated record breaking revenue all on the bases of technology alliances, however, some alliances have failed as well and destroyed whole businesses. Especially in an attempt to enter the convergence race various mobile and fixed line operators collaborated with media and 100
content provider companies. One such example has been discussed above as well, the case of AOL Time Warner, is a clear reminder of what can go wrong when the strategy is not properly implemented and future event unforeseen. 4.3 GLOBAL R&D SCENARIO
The figure below shows the percentage of government funds as share of R&D expenditure of various regions and countries in the world. From the graph it is evident that USA is the leader in investing in R&D with a little more than 30% of its Government funds. However, USA is also the leader in privately funded R&D in terms of investment.
Share of R&D Expenditure: 19902004
Source: OECD, Main Science and Technology Indicators (2006) Figure 28 Share of R&D Expenditure 1990 2004
According to the 2006 Science and Engineering Indicators149 report, the global R&D expenses for OECD and non-member economies increased from $377 billion in 1990 to $810 billion in 2003.
149
Science and Engineering Indicators, 2006, National Science Board, Vol. 1
101
Furthermore, research and development has attracted foreign investment as well resulting in an increase in R&D expenditure. Therefore, cross border R&D based alliances are formed. The US has attracted a lot of foreign investment to carryout research in different industries. In the Science and Engineering Indicators150 report for 2006 it is mentioned that the period of 1990 to 2003 saw an increase of 6% (8% to 14%) in the R&D expenditure by internationally based multi-nationals. China on the other hand rapidly advanced its R&D expertise and is currently in the top three R&D performers.
Top Three R&D Performers: 1990 2003
Source: OECD, Main Science and Technology Indicators (2006)
Figure 29 Top Three R&D Performers 1990 2003
As evident from the above figure before the 1990s China did not have any R&D being carried out. However, during the dotcom boom (mid-90s) and especially after 1998 China experienced an influx of foreign investment mainly due to the low labour and material costs. It is needless to say that most of the R&D being carried out in China today is by foreign firms in collaboration with the Chinese firms. These collaborations are based on technological advancements and technology sharing & transfer.
150
Science and Engineering Indicators, 2006, National Science Board, Vol. 1
102
Worldwide R&D Expenditure: 1990 2003
Source: OECD, Main Science and Technology Indicators (2006) Figure 30 Worldwide R&D Expenditure 1990 2003
It is quite evident from the above figure that for the US alone R&D expenditure was around $150 billion, which increased significantly after 1994 which was the start of the dotcom era. The United Sates expenditure on R&D in 2003 was close to $300 billion, a direct result of government and privately funded R&D. A major factor that played a vital role in the increase of R&D was the intervention of foreign investments in the country, in the form of technology alliances.
ROLE OF TECHNOLOGY ALLIANCES
As previously mentioned technology alliances play a vital role in the advancement of R&D in a country. The United States has blossomed as a leader in technological advancement and the reason behind this is foreign investment in the country in the form of technology alliances in particular. The figure below shows the technology alliances all over the world and also alliances with US firms. In the figure below the black line referring to the total number of international technology alliances globally, special emphasis is made on the period 1999 2002 as this was the time of the dotcom crash.
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International Technology Alliances: 1980 2003
Source: OECD, Main Science and Technology Indicators (2006) Figure 31 International Technology Alliances 1980 2003
It can be extracted that 1999 saw a sharp increase in technology alliances. However, in 2001 when the stock market crashed with dotcom companies suffering the most losses, there was a slight drop in the number of technology based alliances formed the next year. Surprisingly the number of technology alliances rose sharply after 2002 as almost 100 international technology alliances were formed in that year. Within the scope of technology collaborations, alliances formed with US firms, occupies majority of the total number of international technology alliances. Another point to note is that alliances with US firms follow a similar pattern as of the total number of technology alliances formed in the period 1980 2003. Conclusively in light of the above graph, technology alliances suffered a drop after 2001. However, they are once again on a rise today, as after 2002 there has been a sharp increase in the number of technology alliances formed. The dotcom era was the first stage of convergence and most of the alliances formed then were to develop and offer converged services. A similar trend can be seen now as convergence is once again on the up and the technology, media and telecom industry are pursuing it more vigorously than ever before.
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4.4
TECHNOLOGY ALLIANCES IN THE GLOBAL TELECOMMUNICATION INDUSTRY
Technology alliances in the IT and Telecom industry have proved to be successful in most cases. However, there have been cases in which companies suffered heavy losses due to the failure of such alliances driven by technology. Technology advancements trigger alliances to be formed, similar is the case for convergence which has turned out to be a global phenomenon and businesses from all over the world are getting ready and preparing for the convergence era. The figure below shows a time line of consolidation between telecom equipment manufacturers (2005 2006)151.
Telecom Equipment Consolidation: 2005 2006
Source: TMC Net website, Available at: http://www.tmcnet.com/usubmit/2006/09/07/telecom-equipment-consolidation.htm Figure 32 Telecom Equipment Consolidation 2005 2006
From the timeline above it is evident that there is a lot of activity in the telecom industry and manufacturers of telecom equipment are rapidly joining forces in order to prepare themselves for convergence. Historically telecom operators used to form alliances with foreign companies in order to enter international markets, where government regulations posed as a barrier to foreign investments. Deregulation in the telecom industry changed all this and opened the door for foreign investments, operators and manufacturers in telecoms generated huge revenue and in turn helped governments to stabilise their economic growth. Technological advancements drove industries of telecom and IT to converge into a single mega-industry, the reason for so much activity in the alliance / merger and acquisitions market today.
151
TMC Net website, Available at: http://www.tmcnet.com/usubmit/2006/09/07/telecom-equipment-consolidation.htm
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4.5
DRIVERS OF TECHNOLOGY ALLIANCES
In order to grasp an understanding of how technology alliances in telecom industry work a critical review of the drivers of technology alliances is carried out. According to Farok J. Contractor152 following are the drivers that lead telecom companies to form technology alliances.
Drivers of Technology Alliances Risk reduction Details Product / Portfolio diversification Dispersion and/or reduction of fixed cost Lower total capital investment Faster entry and payback Lower average cost from larger volume Lower cost by using comparative advantage of each partner Technological synergy Exchange of patents and territories Defensive joint ventures to reduce competition Offensive joint ventures to increase costs and/or lower market share for a third company Receiving permit to operate as a local entity because of local partner Satisfying local content requirements Benefit from local partners know how Access to materials Access to technology Access to labour Access to capital Regulatory permits Access to distribution channels Benefits from brand recognition Establishing links with major buyers Drawing on existing fixed marketing establishment
Economies of scale Complementary technologies and patents Co-opting or blocking competition
Overcoming government barriers on investment & trade International expansion Vertical integration
Source: Strategic Alliances: Theory & Evidence, (2004)
Table 4 Drivers of Technology Alliances in Telecoms
4.6
CURRENT TREND IN TECHNOLOGY ALLIANCES
The data analysed shows that the current trend in the media & telecom industry is towards offering converged voice & data services through mobile telephony. Operators (telecom & broadband) are forming alliances with media companies in order to provide a one stop shop to the customer for all his voice, data and entertainment demands. In order to view the link between technology alliances and convergence, it is important to note that it is not in the financial and/or technological capacity of a single service provider to offer converged services. Historically, technology alliances have played a major role in the growth of
152
Reuer, J. J. 2004, Strategic Alliances: Theory & Evidence, US, Oxford University Press, PP19 47
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telecommunication services, with the internet revolution telecommunication companies along with businesses from other industries seek to use the internet in order to reduce costs and achieve global connectivity. Technological advancements in securing the internet and strengthening its IP base have proved to be crucial for the success of both the IT & telecom industries. The growth in telecoms has attracted the attention of a number of industries, e.g. media & entertainment, transport and retail etc. Such companies tend to couple their products/services with a mobile operators service package and provide the customer with a blend of offerings. An example can be of MVNOs, possessing a well known brand which is dominant in some other (previously) unrelated industry. The convergence race is now bringing the previously separate industries closer together and providing a mixture of services to the customer through a single device. In todays age of convergence one of the biggest technology alliance was formed between Nokia and Siemens, a 50 50 partnership between the two giants. Nokia, the leader in mobile handset manufacturing collaborated with one of the largest telecom equipment vendor, Siemens and formed Nokia Siemens Networks in 2006153. This joint venture by Nokia and Siemens is a step towards convergence. The aim of this joint venture, according to Simon Beresford-Wylie154 is to combine Nokias mobile WiMax solutions with fixed WiMax products of Siemens resulting in the creation of a new technology HSDPA (HighSpeed Downlink Packet Access)155. HDPA is a combination of 3G and WiMax technologies, this blend of technologies has been nicknamed 3.5G156. A number of mobile operators have promised the provision of HSDPA on their networks to be offered in the near future. Dell has begun to market laptops with HSDPA connectivity.157 Technology alliances between mobile phone manufacturers and telecom equipment vendors have been successful in the past. After the launch of mobile telephony, in 1998
153
Nokia Siemens merge phone biz, 2006, The Register, Available at: http://www.theregister.com/2006/06/19/nokia_siemens_merge
154
Nokia and Siemens have for the first time presented their 50:50 joint venture, Nokia Siemens Networks, 2007, ZDNet
Website, Available at: http://news.zdnet.co.uk/communications/0,1000000085,39285889,00.htm

155
Silicon Website, 2006, Available at: http://www.silicon.com/silicon/networks/mobile/0,39024665,39164308-9,00.htm Silicon Website, 2006, Available at: http://www.silicon.com/silicon/networks/mobile/0,39024665,39164308-9,00.htm Silicon Website, 2006, Available at: http://www.silicon.com/silicon/networks/mobile/0,39024665,39164308-9,00.htm
156
157
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some mobile phone manufacturers joined hands in order to develop operating system software for mobile computing named Symbian. Symbian was originally formed by Ericsson, Motorola, Nokia and Psion.158 This joint venture was the first to move into the emerging market of mobile phone OS (operating system). Though a first-mover, Symbian has experienced stiff competition from Microsoft which entered late in this market but was able to secure a firm foothold due to its success in the computer software industry. Mobile phone software is the gateway to convergence of IT and telecom industries, with the entry of Microsoft in the telecom market this convergence has already started.
Symbian Ownership
Source: Symbian Corporate Website Figure 33 Symbian Ownership
In the race to converge, large IT and telecom companies are collaborating with industries outside their own, mostly within the media industry. Microsoft has joined forces with NBC to launch a joint venture that gives Microsoft exclusive access to NBCs news content. Nokia purchased Loudeye for the effective and efficient delivery of music contents on its handsets. From the authors analysis of data available on technology alliances in telecoms, following are the key findings extracted.
Strategic alliances lead to advancement in technology
158
Case Study: Symbian Ltd., Perforce Software Website, Available at: http://www.perforce.com/perforce/success/symbian.html
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Relationship between convergence and technology alliances visible Media & telecom industry working towards convergence
The above discussion shows a trend between convergence and technology alliances being formed in the industry. Literature shows that almost all of the alliances formed between media, IT and telecom companies are due to convergence. However, technological advancements continue to develop new and improved methods of communication, hence becoming the major driver of convergence. These technology advancements are once again closely linked with collaboration between companies driven by technology. Therefore, it can be concluded that, technological development is the motivational factor in the formation of strategic technology alliances. Stressing the point that the relationship between convergence, technology alliances and technological advancements is multidirectional. It will be wrong to say that there is only one driver of convergence, as convergence can lead to technology alliance which leads to technology advancement or the other way around. The relationship between these three factors is interrelated as every factor is the driver for the next. This conclusion will be more appropriately conveyed by the following figure.
Driving Technology Alliances & Convergence
Source: Author Figure 34 Driving Technology Alliance & Convergence
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5
5.1
FINDINGS & CONCLUSIONS

INTRODUCTION
In this section the author attempts to provide the conclusion of the analysis performed above. These conclusions are based on reviewed literature available in printed sources such as books, articles, technology papers and e-journals. The conclusions drawn are considered (by the author) to be clear and concise that will lead to subsequent recommendations for technology, media and telecom industry. 5.2 FINDINGS
From the above analysis of the current market trends in the technology, media and telecom industry the author is able to conclude that there is a very vital role played by technology alliances in the current age of convergence. However, it is important to emphasise here that it cannot be conclusively said that technology alliances drive convergence, as there is a third major factor as well, which is technological development. These three factors are interlinked and form the lifecycle of convergence.
Convergence Life Cycle
Source: Author Figure 35 Convergence Lifecycle
110
Technological advancements encourage strategic alliances to be formed leading to the invention of new technologies i.e. convergence. This lifecycle is fed by its inter-related push and pull motion, enabling convergence and ensuring its sustainability. Certain factors surround convergence that need to be addressed cautiously in order to ensure sustainability, as these factors may result in threatening the very existence of converged service and may force the technology, media & telecom industry to diverge. These factors are the following:
Regulation
o
Needs to be delicately addressed No regulatory conditions set Chance for telecom industry to influence its preferred regulatory processes
Piracy
o
Vigorous approach to combat piracy Piracy still winning
Information Security
o
Provide state of the art information security Gain customer trust Combat information theft by collaborating with law enforcement agencies
The above factors (according to the author) are of great importance, as these are the imminent threats convergence faces. In the light of these threats the convergence lifecycle can be more appropriately shown as under:
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Factors Threatening the Convergence Life Cycle
Source: Author Figure 36 Factors Threatening the Convergence Lifecycle
In the above figure the author shows (in red) the factors that threaten the very existence of convergence (media & telecom). However the growth in NGN and corporate voice & data networks has lead to convergence of these services accessible through a single device. Device level convergence is one factor that has played a vital role in the convergence race. The current trends analysed are in favour of convergence, top industry executives are leading their organisations into convergence by forming cross industry alliances. Whereas in the corporate world organisations are deploying their own converged networks for connectivity with their affiliated offices around the world. The reason for such networks to be deployed is to reduce costs and develop an easy to use network that offers the transmission of both voice and data traffic. Commercially, in order to provide converged services (voice, data and multimedia) operators form alliances with content providers to offer high quality content through an interconnected network on to a single device. These alliances are formed at all levels of
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convergence, e.g. at the network level, companies form technology alliances in order to provide a single medium for the transport of a multitude of services. Information demand has increased substantially; the need for knowledge to be mobile is an option hard to overlook. Convergence is a step in the direction by taking customer interest at heart and by analysing valuable customer feedback, the best services can be offered. Customer in any industry plays the central role as everything revolves around the user of the service/product. In the case of convergence, evidence shows that not many individuals are bothered about it, as they do not seem to be attracted to something that benefits them. Convergence can change all that and provide power to the users, enabling them to access any information from anywhere in the world, using a single device. The possibilities are endless, many new services will be offered that cannot of be thought of today. Convergence can turn-out to be the next big thing provided customer focus is not lost and that technological progress is consistent with market demands. The illustration below depicts the thoughts of the author. This figure below can be viewed as the complete convergence life cycle.
Complete Convergence Life Cycle
Source: Author Figure 37 Complete Convergence Life Cycle
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The figure above incorporates the factors that threaten the three levels of convergence,

Network level convergence (Regulations) Device level convergence (Information security) Application level convergence (information security and piracy)
It is therefore stressed that these factors be dealt with adequately in order to ensure a bright future for convergence. 5.3 LEVELS OF CONVERGENCE
As previously discussed there are three levels of convergence,

Network level Device level Application level
After carrying out a rigorous analysis of these levels of convergence, the author concludes, 1. Businesses should carefully plan and decide to which extent would they like to converge 2. Each level of convergence in itself can be a separate business model for new entrants into the telecom market 3. The convergence at the network level may be considered as the driving force behind the levels of convergence From the above key findings it can be concluded that telecom operators or other businesses interested in joining the convergence race, need to carefully strategies and plan their entry. Businesses need to clearly define their intentions and expectations of convergence, which would in turn help in the decision making process of choosing the level at which to converge.
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Industries at Various Convergence Levels
Source: Author Figure 38 Industries at Various Levels of Convergence
For new entrants to the telecom industry these levels of convergence can assist in creation of new business models for the entrant. New and creative services can be offered through convergence. It is quite possible that convergence will lead to the creation of such services which cannot be thought of today. Furthermore, the author provides the following views on the levels of convergence#
NETWORK LEVEL
This level of convergence will be chosen by (fixed & mobile) telecom and broadband service operators. In order to seamlessly connect various devices together through a common network, will require continuing technological advancements on the network level. At this level IT & Telecom equipment manufacturing companies as well as operators will need to combine their forces and address the demand for convergence.
DEVICE LEVEL
Businesses that possess expertise in the manufacturing of end-user devices would choose to converge at this level. In recent years there has been a surge in the in-flux of end-user 115
devices in the mobile telecom market. Small compact phones with capability to browse the internet, send/receive e-mail etc as well as making phone calls. At the device level in order to achieve convergence, the device should have the capability to connect to any network and request any service. Businesses in the manufacturing of end-user devices should join forces with network equipment manufacturers in order to develop such devices that offer and support convergent networks and services.
APPLICATION LEVEL
Based on the analysis of data reviewed in literature the author is of the view that the software industry is at the fore-front of convergence, as the first level of contact with the customer is software. Software companies need to collaborate closely with device manufacturers as well as network operators, in order to provide the user with an array of services. However, the threat of piracy and information security will increase significantly which needs to be dealt with by the software industry. 5.4 FUTURE OF MOBILE VIRTUAL NETWORK OPERATORS IN CONVERGENCE
Based on the rigorous and thorough analysis carried out and meaningful conclusions reached, the author suggests that the most successful convergence-ready business model in mobile telecoms is that of MVNOs. MVNOs cover almost all the aspects of a converged mobile operator, furthermore, an MVNO is usually a well-known brand in some other industry than telecom. The author is of the view that MVNOs that are based on a strong market brand like Disney, Nike, ESPN etc that have the ability and expertise to produce content. In light of strategic alliances, MVNOs form joint venture agreements with mobile operators e.g. Tesco and O2 collaborated in a joint venture agreement to form TESCOMobile in 2003159. Such MVNOs pose a threat to other operators as they (other operators) lack the ability to produce content on their own. Furthermore, MVNO save costs on the maintenance of infrastructure, resulting in generation of high returns with comparatively lesser capital.
159
TESCOMobiles Official Website, Available at: http://www.tesco.com/mobilenetwork/aboutus/
116
Evidence of the MVNO business model being a success is visible in the results of a recent consumer survey of 7,000 panellists, posted on TESCOMobiles website160. The purpose of the survey was to find out, which mobile operator provides the best overall service in the UK? The top three mobile service providers were MVNOs (TESCOMobile, Virgin Mobile and Fresh)161. O2 which provides infrastructure and bandwidth to TESCOMobile came in sixth place, further proving that infrastructure although is a vital part of the service yet it does not limit the quality and variety of services offered. Therefore, concluding that in the convergence race MVNOs are very well placed as they possess all the ingredients required to offer a mix of services. In terms of interaction with the customer, once again MVNOs have an edge as they already connect to the customer in a converged manner, through a vast array of products and services. The technology, media and telecom industry has to accept the fact that MVNOs play a central role in the success of convergence. The ability MVNOs possess that can be used in favour of convergence can be viewed in more detail below.
160
TESCOMobiles Official Website, Available at: http://www.tesco.com/mobilenetwork/aboutus/ TESCOMobiles Official Website, Available at: http://www.tesco.com/mobilenetwork/aboutus/
161
117
Role of MVNOs in Convergence
Source: Author Figure 39 Role of MVNOs in Convergence
In a converged world MVNOs will play a vital role, as they can offer services truly converged in nature. With a powerful brand already possessed, MVNOs do not have to look far for the customer segment they target. As they already have a large customer following, who are satisfied with level of service provided by its various adjacent businesses. Therefore, MVNOs with the ability to develop good quality content stand to gain more from the convergence of voice, data & multimedia services.
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BIBLIOGRAPHY
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STRATEGIC TECHNOLOGY ALLIANCES IN THE AGE OF CONVERGENCE IN MEDIA & TELECOM INDUSTRY

Presented by Moaaz Burki, 059643445

Strategic Technology Alliances in the Age of Convergence August 20, 2007

1.2.1 1.2.2 1.2.3 1.3 1.4 1.5

1.5.1 1.5.2 1.5.3 1.5.4 Chapter 2 2.1 2.2

2.2.1 2.2.2 2.2.3 2.2.4

Strategic Technology Alliances in the Age of Convergence August 20, 2007

2.2.5 2.2.6 2.2.7 2.3

2.3.1 2.3.2 2.3.3 2.4

2.4.1 2.4.2 2.5

MSc. TEXMAN, Materials Dept. Queen Mary, University of London

Strategic Technology Alliances in the Age of Convergence August 20, 2007

3.8.1 3.8.2 3.8.3 3.8.4 3.9

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Bibliography ........................................................................................................................... 119

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

MSc. TEXMAN, Materials Dept. Queen Mary, University of London

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

1.2.2 CORE FOUNDATION

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Source: BCG Analysis (2005) Figure 1 Spectrum of Corporate Control

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

1.5.1 AIM OF THE RESEARCH

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

2.2.4 ADVANTAGES OF AN ALLIANCE

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Opportunity Risk reduction

Economies of scale Complementary technologies and patents Co-opting or blocking competition

Source: Strategic Alliances: Theory & Evidence, (2004)

Table 1 Motives for Alliances

2.2.5 KNOWLEDGE & CHANGE MANAGEMENT

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

UNWILLING TO SEEK INPUT AND LEARN FROM OTHERS

Strategic Technology Alliances in the Age of Convergence August 20, 2007

Strategic Technology Alliances in the Age of Convergence August 20, 2007

2.2.7 DRAWBACKS OF ALLIANCES

Strategic Technology Alliances in the Age of Convergence August 20, 2007