2012 NYJC Prelim H1 CSQ 1 (Mark Scheme)

1 Question 1 The Mobile Network Industry Table 1: Real GDP Growth Rate and Mobile Phone Penetration Rate for Singapore Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Real GDP growth rate (%) 9.0 -1.2 4.2 4.6 9.2 7.4 8.8 8.9 11.7 -1.0 14.8 4.9 Mobile Phone Penetration Rate (%) 74.8 69.2 77.8 84.5 92.7 99.8 105.4 122.5 131.0 137.4 143.6 149.6 Figure 1 17.2 0 8.1 12.1

2 Extract 1: ‘Cut-throat’ competition among telcos likely to hurt margins INTENSE competition within the local telecommunication industry is driving the service providers to adopt strategies to increase their share of the market. While competition is healthy for the industry, the ongoing price war among the telcos may hurt profit margins. An analyst points out that competition now is a different game. The price war is confined to the growing prepaid* segment. The prepaid market segment has a high churn rate or low brand loyalty. To increase the stickiness or loyalty of subscribers, mobile service providers will have to offer very competitive tariffs for same network calls. The mobile operators are increasingly tying subscribers to long-term contracts and subsidies for handsets, especially for the popular range of smartphones. * prepaid: A prepaid mobile phone is a mobile phone for which credit is purchased in advance of service use. Users are able to top up their credit at any time using a variety of payment mechanisms. Source: The Star July 7, 2012 Extract 2: The Hidden Dangers of Electromagnetic Radiation The cellular phone industry was born in the early 1980s, when communications technology that had been developed for the Department of Defense was put into commerce by companies focusing on profits. This group, with big ideas but limited resources, pressured government regulatory agencies—particularly the Food and Drug Administration (FDA)—to allow cell phones to be sold without pre-market testing. According to a scientist named Dr. George Carlo, “Mobile cellular phones are low-powered radio frequency transmitters which produce microwave radiation. Cell phone users are being exposed every day to the dangers of electromagnetic radiation (EMR). Those phones and the signals from the tower-based antennas are slowly prompting a host of health problems.” Studies have linked the radiation from the handsets and from the tower-based antennas carrying the signals to development of brain tumors, genetic damage, and other exposure- related conditions like sleep disorders and headaches. The debate over the cancer risks from this radiation has been going on for years. Yet the lack of any conclusive evidence has allowed the industry to claim phones and the tower- based antennas are safe and led to skeptics being dismissed as scaremongers. A well- funded cell phone industry media machine continues to mislead the unwary public about the dangers of a product used by billions of people although they are fully aware of the dangers. Unfortunately, many of us have little control over the location of cell phone towers and other broadcasting antennas that emit powerful radio frequency waves. There is an urgent need to increase public awareness of this issue and to get the governments do a better job of regulating the placement of cell phone towers and antennas. Governments in Austria, Switzerland, and many Eastern European countries have already created protective standards for human exposure to radio frequency radiation. In Scotland, towers are not allowed to be located near hospitals, schools, and homes. Source: Adapted from Life Extension Magazine, 2007 & http://www.dailymail.co.uk, October 2010

3 Extract 3: Telecom Gear Makers Feel the Pinch in India Telecom gear giants that make wireless network equipment such as Anglo-French company Alcatel-Lucent, Sweden’s L.M.Ericsson Telephone Co., Finnish-German joint venture Nokia Siemens Networks and China’s Huawei Technologies Co., had banked on strong demand from wireless operators in India for equipment to offer high-speed data services via third- generation mobile phone technology. But these companies now face a major challenge in India as the telecommunications industry, struggles to regain its momentum. The Indian market is one of the largest in the world, but India’s telecom operators are facing regulatory uncertainty as well as brutal tariff war. India’s Supreme Court revoked the telecom licences of several companies earlier this year, citing corruption in their allotment of the 2008 sale of spectrum for second-generation mobile phone services. The pace of addition of new users has weakened considerably. Newer technologies, like 3G mobile phone services, also have struggled to take off in India. And the low penetration of high-end mobile handsets which can send and receive data at high speeds is preventing the development of a 3G ecosystem. To add to the woes of foreign gear makers, the Indian government is proposing restrictions on the import of electronics and telecommunications equipment, arguing that it wants to stimulate domestic manufacturing and local job creation Source: Adapted from various internet articles, July 8, 2012

4 (a) (i) Explain how it is possible for Singapore’s mobile phone penetration rate from 2006 to 2011 to exceed 100%. [2] (ii) Consider whether the information in Table 1 suggests that higher rate of economic growth results in higher mobile phone penetration in Singapore. [3] (b) (i) With reference to Figure 1, compare the changes in mobile cellular telephone subscriptions and fixed telephone line subscriptions between 2000 and 2010. [1] (ii) Explain two possible reasons besides income for the observations identified above. [4] (c) Using price elasticity of demand, explain why the ‘price war is confined to the growing prepaid segment’ in the local telecommunication industry rather than the postpaid market segment. [4] (d) Explain one source of market failure present in the cellphone industry and evaluate a possible measure that the Singapore government can adopt to reduce this market failure. [8] (e) “The Indian government is proposing restrictions on the import of electronics and telecommunications equipment, arguing that it wants to stimulate domestic manufacturing and local job creation.” To what extent do you support this view? [8] TOTAL [30 marks]

5 (a) (i) Explain how it is possible for Singapore’s mobile phone penetration rate from 2006 to 2011 to exceed 100%. [2] With rising economic growth in Singapore, consumers’ incomes are rising and hence, their purchasing power also rises. As mobile phones are considered as normal goods, demand for it will rise. This may results in consumers owning more than one phone which leads to Singapore’s mobile phone penetration rate to exceed 100%. (2m) OR There may be different subscriptions plans offered by different telecommunications operators. Thus, consumers may purchase more than one phone to enjoy the different services offered which leads to Singapore’s mobile phone penetration rate to exceed 100%.(2m) (ii) Consider whether the information in Table 1 suggests that higher rate of economic growth results in higher mobile phone penetration in Singapore. [3] There are some years where there is a direct relationship between rate of economic growth and mobile phone penetration, e.g. between 2000-2004 and 2005-2008. However, this relationship was not observed for 2004 -2005 and 2008-2009. *Students who give both thesis and anti-thesis with evidences will be awarded full 3 marks. However, if students are only able to give a one-sided answer with evidences, only a maximum of 2 marks will be awarded. (b) (i) With reference to Figure 1, compare the changes in mobile cellular telephone subscriptions and fixed telephone line subscrip