Consumers of New Wireless Technology Better Served by
Market Competition
than Government-mandated Standard, Economic White Paper
Concludes
WASHINGTON, D.C., November 24, 1998 -- Consumers of third generation (3G) wireless technology will be
better served by marketplace competition than by a single, government-mandated standard, according to a
new economic white paper released today by the North American GSM Alliance.
Written by Joseph Farrell, Professor of Economics at the University of California, Berkeley and former chief
economist of the Federal Communications Commission, the White Paper concludes that "allowing multiple
third generation standards to compete can create greater product variety and ... stronger incentives for
innovation."
"This comprehensive economic analysis reaffirms our belief in the free market as the best way for American
consumers to obtain the least costly, most technologically advanced wireless communication equipment,"
said Don Warkentin, Chairman of the North American GSM Alliance. "Multiple standards provide
companies flexibility to respond to varying consumer demands and will allow the manufacturing of all types
of wireless equipment to continue here in the United States."
Competition Fuels Response to Consumer Needs
Farrell finds that marketplace competition provides consumers with a greater variety of products from which
to choose. Competition in second generation wireless standards, for example, led to Nextel's Direct
Connect feature, allowing consumers instant access to conference calls from their wireless phones.
Similarly, the ability of GSM customers to make calls from almost any location using the "smart card" is the
result of marketplace competition. The evolution of CDMA speech coding technology is yet another example
of the benefits of market-driven innovations.
Nationwide roaming, a purported benefit of a single standard, is already happening regardless of a
mandated standard, according to Farrell, because wireless service providers recognize consumer demand
for it. AT&T, Sprint PCS and Nextel have the ability to offer seamless, near-national roaming now and
several other firms and alliances are not far behind. Likewise, manufacturers' economies of scale will adjust
to reflect the choices made by wireless equipment buyers. A government mandate is not necessary to bring
about what the marketplace is already causing to happen, Farrell concludes.
Mandated Standards Stall Technology Advances
A single, government-mandated standard, Farrell concludes, would hamper the industry's ability to respond
quickly to new challenges and opportunities and remove incentives to improve upon existing technology.
Multiple standards, on the other hand, avoid "locking in on an obsolete technology." They provide
companies with the incentive to meet varying consumer needs and adapt to new ones, and to constantly
search for technological innovations in the race to outdo their competitors.
Manufacturing Jobs Created Independent of Standard Origins
Characterizing wireless manufacturing jobs as "internationally mobile," Farrell also calls into question job
creation claims made by proponents of a single standard. "Manufacturing jobs and manufacturing
leadership depend on manufacturing advantages, and do not simply rest in the country of origin of a
standard," he states.
Experience with the U.S.-developed NTSC-based color television standard as well as second generation
wireless technology shows that manufacturing decisions are made independent of standards development.
Both the TDMA/IS-136 and CDMA second generation wireless standards originated in the United States,
yet major manufacturers utilizing these standards include Ericsson, Nokia, Sony, Samsung, and Siemens.
Likewise, while the second generation GSM standard is considered a European standard (although based
on a number of U.S.-held patents), Ericsson, Nokia, Mitsubishi, Sony and Hyundai - as well as
American-based manufacturers Lucent and Motorola - make GSM and CDMA equipment in the United
States and other countries, employing a significant number of American workers.
Farrell foresees nothing to prevent U.S. manufacturers from producing equipment compatible with any third
generation standard adopted by a group such as the European Telecommunications Standards Institute.
Endorsement of a U.S.-developed standard would not ensure manufacturing jobs are created domestically.
North American-based Motorola, Lucent, Qualcomm and Nortel all manufacture second generation wireless
equipment abroad.
"Requests to base standards policy on alleged employment advantages of nationally sponsored standards
are unconvincing even on their own terms: 'foreign; manufacturers can and do manufacture to 'U.S.
standards,' and foreign and U.S. firms alike manufacture both in the U.S. and abroad," Farrell concludes.
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