A Proposal for a Standard With Innovation Management System

Takashi Hirao and Yusuke Hoshino
As a result, Japanese handset makers have fell into the Galapagos syndrome, where they became
lost
in the global market despite continuing to dominate in the domestic market with their advanced
technologies.
3. Differences in the business ecosystems of the mobile phone industry
3.1 Different entry barriers
NTT DoCoMo is a spin-off of Nippon Telegraph and Telephone Corporation (NTT), which was
privatized in 1985. NTT DoCoMo took over NTT’s mobile phone technologies in 1992 when it started
up. As a result, NTT DoCoMo retained advanced technologies for mobile phones, and it was able to
launch its Personal Digital Cellular (PDC) mobile phones, classified as second generation (2G). It has
maintained about 50% of the domestic market since the mid-1990s. Another important inheritance
came from NTT: its business connections with Japanese mobile phone makers, who have accumulated
various technologies for mobile phones. Therefore, the commercial practice-based network formed
under NTT DoCoMo’s leadership functioned as a high entry barrier to outsiders that had not done
business with NTT DoCoMo (Anchordoguy, 2005). In fact, NTT DoCoMo’s influence extended far and
wide.
In its commercial practices, NTT DoCoMo decided every transaction with
its partner firms, such
as the purchase and sales of mobile phones. For example, handsets made at the request of NTT
DoCoMo, subject to NTT DoCoMo’s Specification Approval, were all purchased by NTT DoCoMo and
were all allotted to distributors, with their prices controlled by NTT DoCoMo.
The GSM group’s network formed in a significantly different manner. Mobile phones in GSM markets
have been selected and sold from a list of approved types, led by the GSM Association (GSMA), since
1995. Type approval assures that mobile handsets purchased by consumers are already suitable for
most of the mobile terminals in GSM markets. Type-approved mobile phones make possible the global
roaming
that is required in the GSM telecommunication network. Mobile phone makers must meet
certain demands for mobile telecommunication quality for particular countries. In other words, if they
pass GSM type approval tests, mobile makers can enter GSM markets. Thus, entry into GSM markets
is rule based.
GSM handset makers had to settle matters of intellectual property rights (IPR) to actually enter GSM
markets. GSM IPR problems have been settled via cross-license contracts between essential IPR
holders, such as Nokia, Ericsson and Motorola, because GSMA does not have a patent pool. If they do
not have IPRs that make possible cross-license contracts with other essential IPR holders, mobile
handset makers must pay licensing fees. For example, licensing fees for cross-license holders were
about
10% of the
selling price of mobile handsets in 1992, while those for non-cross license holders
were about 30–40%. At first, these licensing fees were barriers to entry. However, as GSM mobile
phones diffused, the licensing frees for non-cross license holders dropped to about 10% in 1997, and to
3–5% by 2007.
Therefore, because membership in NTT DoCoMo’s ecosystem was fixed by business customs created
with NTT DoCoMo as the central entity, terms of
entry were unclear to outsiders. In contrast, because
membership in the GSM ecosystem was fixed by rules, its terms of entry were clear to outsiders. Hence,
different barriers to entry influence the openness of the business ecosystem (Iansiti and Levien, 2004).
3.2 Different technological trajectories
The
literature points out that the role of platform leader or keystone player affects the sound growth of a
business ecosystem (Gawer and Cusumano, 2002; Iansiti and Levine, 2004). By exploring the role
played by platform leaders in the GSM and NTT DoCoMo ecosystems, we aimed to examine the
mechanisms that brought about their different technological trajectories.
As figure 3 shows, the platform leader in the NTT DoCoMo ecosystem is NTT DoCoMo. It provides a
mobile Internet service, called i-mode, with an open interface to official and unofficial content providers
(complementors). NTT DoCoMo, as a network operator, carried out service strategies to maximize its
mobile communication cash flow by constructing complementary relationships between handsets and
additional services. Therefore, NTT DoCoMo strengthened specified handset makers’ participation in
R&D in order to develop service-specific technology bundling handsets, network services, and
additional services. As Tatsumoto (2011) argues, the complementary relationship between actors in the
business ecosystem brings about network economics
among them. However, this open mobile Internet
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