Modeling and Evaluating TelecommunicationIndustry’s “Internet-and-Digitized” Development

Xuenan Ju＊, Xiaowen Li, Wenjun Jing Baowen Sun

1 China Centre for Internet Economy Research, Central University of Finance and Economics, Beijing, China.

2 Joint Lab of China Mobile and the Ministry of Education, Beijing, China

I. INTRODUCTION

Information technology (IT) has become a key driving force of economic growth and industrial innovation in the twenty- fi rst Century(Schweer, 2017). Hence, industry’s internet and digitization development has gradually grown into the mainstream of academic researches that attract constant attention home and abroad, and the pace of such development has been accelerated consequently (Nakamura & White, 2013; Mossberger et al., 2007).Compared with the mechanical era, the application of information and the popularization of the internet have wide and profound impacts on China’s social and economic development.In 2015, Premier Li Keqiang announced “The Internet Plus Initiative” at the parliamentary sessions in March, aiming to achieve an innovative, coordinated, green, open and shared development of economy and society in this digital age.

The Internet and digitization have made a great contribution to the development of China’s telecommunication industry. By the end of 2016, the number of internet users in China is 731 million and the internet penetration rate is 53.2%. As the China’s capital, Beijing is not only the political and cultural center of this country, but also has been rising as the frontier of “internet-and-digitized” development in China and the world. According to the latest data released by Beijing Statistical Bureau, the newly added-value of Beijing’s new economy in the first half of 2017 is 414.78 billionrmb,with the growth rate of 9.7%, higher than the national average GDP growth rate. The economy boosted by “internet-and-digitization”development contributed to Beijing’s GDP by 33.4%, accounting one third of the city’s overall economic volume. Thus, the development of “internet-and-digitization” has become a critical power to Beijing’s economic growth.

Similar impacts are also shown in telecommunication industry (Nuechterlein & Weiser,2013; Chen & Wu, 2016). Taking the lead in scientific and technological innovation, the substantial development in “internet-and-digitization” has accelerated the development of new business formats and new business models in telecommunication industry, shaping telecommunication industry’s future development with new kinetic energy (Sneps-Sneppe et al, 2017).

However, the researches regarding the development of “internet-and-digitization”in telecommunication industry is not with limitations. First, the definition of internet and digitization is not clear. Second, there is no established standard to quantify the degree of telecommunication firms’ “internet-and-digitized” development; Third, the antecedents of “internet-and-digitization” of telecommunication firms requires further investigation.Therefore, this paper aims to tackle the following questions:

1. What is the definition and key dimensions of internet and digitization development in the context of telecommunication industry?

2. How to model and quantify the degree of internet and digitization development of a

This paper investigates telecommunication industry’s“internet-and-digitization” development situation. The authors build a comprehensive model to depict the level of “internet-and-digitization”development in five key dimensions.telecommunication fi rm?

3. What factors drive the development of telecommunication firms’ internet and digitization progress?

Our research contributes to both the empirical investigation of the internet and digitization development and a better understanding of the various impacts of the telecommunication industry. The remainder of the paper proceeds as follows. The next section outlines the conceptual and theoretical background of the current work and presents the research framework and hypotheses. The remainder of this paper is organized as follows: based on the literature review, the authors introduce the conceptual development and explain the research methodology and presents the specific measures used to test the theoretical model.Subsequently, a section on the data analysis and the results precedes, and further discussion and the conclusion are provided in the final section.

II. LITERATURE REVIEW: DEFINITION AND IDENTIFICATION OF AN“INTERNET-AND-DIGITIZED” FIRM AND INDUSTRY

By adopting the network platform and information technology, internet-and-digitization of an industry can optimize and upgrade industrial structure, hence, provide new impetus for the growth of the national economy (Deursen& Dijk, 2015). Thus, internet and digitization is a dynamic progress that cultivates and integrates new industrial modes through the interactions between internet/digitization and various industries (Goggin, 2015; Tu et al., 2016).Telecommunication industry, similar to other modern industries, is formed by enterprises and organized by the relationship among those firms (Guo et al., 2016). Therefore, we propose that the identi fi cation of an internet and digitized industry should start with the identification of the degree of internet-and-digital development of the firms within the industry.In the following step, the degree of internet and digitized development of an industry is defined as the degree and proportion of internet-and-digitized firms within it.

Specifically, the definition and identification of an “internet-and-digitized” firm should include five dimensions:

Market size.Firstly, the definition of an“internet-and-digitized” fi rm should achieve a certain number of orders and sales through internet platform and via informational technology (Büchi et al., 2016). As a matter of fact,the volume of internet-and-digitization orders can be a true reflection, and further promote the prosperity of industrial development.

Informational investment.An “internet-and-digitized” firm values informational development and commit to continuous investment to informational and digital technology(Vazquez & Winkler, 2017). Therefore, investment in information not only can promote firms’ innovation capability, but also enhance the continuous attention to internet-and-digitized development from the firm side (Stefano et al., 2014). We suggest that the investment on information and digital technology is of great importance to telecommunication industry. Thanks to the continuous updates and drastic change caused by internet-and-digital technology, it is both necessary and valuable for telecommunication firms to actively invest in informational sector. Both from the equity and human resources perspective, information investment is a key dimension to distinguish an “internet-and-digitized” telecommunication fi rm from a traditional one.

Fig. 1 Key dimensions of “internet-and-digitized”development.

Technological innovation.An “internet-and-digitized” firm not only lead the innovation on IT field, but also promote the innovation on R&D, production, as well as management. Therefore, technological innovation is an important aspect of the identification of an internet and digitized firm (Chayko,2014). In recent years, with the popularization and penetration of internet and digital technology, the competition becomes intense in telecommunication industry. Consequently,telecommunication firms need to update their technological skills and provide the market with more innovative products/services in this digital age (Cooper, 2014). Therefore, we propose that technological innovation is an especially important part to define an “internet-and-digitized” telecommunication fi rm.

Internet application.The application of internet technology and platform is a key dimension when we define and evaluate the level of “internet-and-digitized” development.This dimension is especially import for telecommunication industry since the nature of telecommunication products/services (Mumtaz et al., 2017). The level of internet application includes two dimensions: length and depth. As for the length dimension, the internet application reflects a firm’s accumulated time/experience of using internet platform and digital technology to enhance its business.

Internet penetration.The degree of internet penetration reflects the depth of a firm’s internet and digital development. An “internet-and-digitized” firm shows a high penetration rate on multiple business sections such as R&D, production, distribution, as well as marketing (Stier, 2017). The internet penetration of a telecommunication firm is reflected in communication (email, instant messaging,etc.), information acquisition, online banking and other financial services, customer services, employee training, and promoting. The level of internet penetration is critical measure to define the “internet-and digitized” level of a telecommunication firm.

III. METHODOLOGY: MODELING THE “INTERNET-AND-DIGITIZED”DEVELOPMENT LEVEL OF TELECOMMUNICATION INDUSTRY

More speci fi cally, we model the telecommunication industry’s “internet-and-digitized” level by constructing a hierarchical model which includes two levels. The first level of our“internet-and-digitized” model is constructed by five key defining aspects discussed above.Thus, the first-level dimensions are “market size”, “informational investment”, “technological innovation”, “internet application”, and“internet penetration”. In the following step,we need detailed information to better describe and quantify those five key dimensions on the firm level. Hence, the second level of our“internet-and-digitized” model provide more detailed factors that constitute the key features of an “internet-and-digitized” telecommunication firm. Table 1 systematically summarizes our “internet-and-digitized” model and its key levels.

In our “internet-and-digitization” model,each of the fi ve key dimensions are measured by 10 second-level indicators. As table 1 shows, market size of “internet-and-digitized”development is measured by online transaction volume (sales/purchases conducted via internet platform/technology) and its proportion of a telecommunication firm’s total revenue;informational investment is measured by three second-level indicators: numbers of computers per employee, the percentage of IT employees out of total employees, and the expenditure on IT sector out of a firm’s revenue; technological innovation is measured by the percentage of customized products/services via internet platform/technology; internet application is measured by whether a fi rm promote itself via internet platform/technology and whether a firm owns an internet platform; internet penetration is measured by the variety of business actives/emerging business models which are conducted via internet platform or based on internet technology.

According to the classification granularity,there are three types of modeling methods to identify the “Internet-and-Digitized” level of telecommunication industry: binary identification, ternary identification and multi-level classification. Binary identification refers to whether the firm can be identified as an internet and digitized firm (yes/no); ternary identification refers to identify the degree of a firm’s internet and digitized level as junior, intermediate and advanced. Finally, the multi-level classification, which based on the different scores of internet and digitization development, can be divided into 6 levels.According to the score of each firm, firms will be identified as the corresponding level of “Internet-and-digitized” business. Detailed information regarding the identi fi cation of “Internet-and-Digitized” model is summarized inTable 2.

Table I. Modeling the “internet-and-digitized” level of telecommunication industry.

Table II. Identifying the “internet-and-digitized” level of telecommunication industry.

Basing on the discussion regarding the definition and model structure, we first calculate each firm’s score on five “internet-and-digitized” dimensions. On each dimension, firms ranked within the first 33% out of all samples score one point. Firms ranked lower than 33%get no point on this dimension. Consequently,firms ranked the first 33% of each dimension get 5 points in total and is identified as the most advanced “internet-and-digitized” level of the telecommunication industry. On the other extreme situation, firms get 0 points on all five dimensions will score 0 in total and is identified as a non- “internet-and-digitized”firm. All the telecommunication firms get scores from 0 to 5 and is identified as different levels of “internet-and-digitized” telecommunication firm respectively according to our model.

IV. DATA AND SAMPLE

In this paper, the authors choose Beijing telecommunication firms as research subjects.Besides from her huge economic volume and important role as political and cultural center,Beijing is also considered as the frontier of internet and digitized development in China and globally. According to China E-Commerce Development Index (2014-2016),Beijing ranks top tier of “internet-and-digitization” development of Chinese provinces,along with Guangzhou, Jiangsu, and Zhejiang.As of E-commerce transaction volume and growth rate, Beijing ranks No.4 in China,which means that Beijing both enjoys scale advantage and growth potential for “internet and digitization” development. It is worth to mention that Beijing’s internet penetration rate ranks No.1 out of Chinese provinces, with a top rank of internet infrastructure environment for supporting the further development of “internet-and-digitized” city.

As a matter of fact, telecommunication industry is also influenced by regional economic, social and internet development. Hence,Beijing is an ideal and representative sample to our study. Through the evaluation and analysis of “internet-and-digitized” development of Beijing’s Telecommunication industry, we can infer the general level of Telecommunication industry’s internet development in Chinese meta cities. In addition, analyzing“internet-and-digitized” situation of Beijing’s telecommunication industry can also provide further implication and future predictions for Chinese second-and-third tier cities. Therefore, we choose Beijing telecommunication firms as research objectives. As we discussed above, Beijing is considered a typical and crucial “internet-and-digitized” city because of its rapidly increasing growth and enormous volume of internet penetration. By the end of our survey, excluding the questionnaires with missing values and misclassified types, we chose 209 qualified samples with which to conduct the data analysis.

Thus, our data investigates 209 telecommunication firms that locate in Beijing, including these firms “internet-and-digitized” performance on each of the five key dimensions we discussed abovementioned. In specific, the data includes “market size”, “informational investment”, “technological innovation”, “internet application”, and “internet penetration”.The investigation was conducted in 2016 statistical year.

Firm size.We classify telecommunication firms’ size according to “the classification approach of firm size from the statistics perspective”1http://www.stats.gov.cn/tjsj/tjbz/201109/t20110909_8669.html, which comprehensively consider firms’sales volume and employee number to classify their sizes. There are 20 large telecommunication firms in our 209 samples, accounted for 9.6% of our dataset; 68 medium-sized telecommunication firms in 209 samples, accounted for 32.5% of our dataset; 101 smallsized telecommunication firms in 209 samples,accounted for 48.3% of our dataset; 20 micro telecommunication firms in our 209 samples,accounted for 9.6% of our dataset.

Firm age.There are 62 firms operate less than 10 years, accounts for 29.7% of our sample; the majority of our sample firms (119) are established between 10-20 years, accounted for 56.9% of our 209 samples; 28 firms have been joining the telecommunication industry more than 20 years, accounted for 13.4% of our sample. Hence, the telecommunication industry is relatively mature and stable compared to other industries. The firm age of our sample is distributed around the medium age of a typical firm and the propensity of young firms is relatively lower than average. The distribution of fi rm age also suggests that telecommunication is an industry with high entry barriers and the players within this industry make long-term strategic plans, including “internet-and-digitized” development.

Firm location.Within Beijing, telecommunication firms’ distribution is not balanced.The most concentrated district is Chaoyang district, accounted for 23.8% of Beijing’s telecommunication firms. Similarly, Haidian district also shows considerable attraction for telecommunication industry, with 21.8% of telecommunication firms settled down here.Consequently, telecommunication firms also distributed in Xicheng district (8.4%), Dongcheng district (7%), Fengtai district (6.9%),Daxing district (6.3%), Changping district(4.6%), Shunyi district (4.6%), Tongzhou district (3.8%), Fangshan district (3.1%), etc.

Table 3 summarizes the detailed description of our data sample, including minimum values(min), maximum values (max), average values(avg), and standard deviation (sd) of these telecommunication firms’ key information.

We used SEM and LAVAAN packages in R to conduct the ensuing data analysis. As the conceptual model shows, the measurement of telecommunication industry’s “internet-and-digitized” development comprise five dimensions, including market size, informational investment, technological innovation,internet application, and internet innovation.Meanwhile, these conceptual dimensions can be measured by 10 second-level indicators respectively. Specifically, our empirical model contains 5 constructs, 14 observable indicators and 209 observations. The model fit measures are as follows: χ2is 1891.53 (p＜ 0.00). Key fit indices suggest a good model fit (RMSEA= 0.06, CFI= 0.93, SRMR= 0.06, TLI= 0.901).The results of our empirical analysis are discussed in next section.

V. RESULTS

Based on our data from Beijing’s telecommunication industry, we empirically measured Beijing’s telecommunication industries’ score on each of the five key dimensions. In addition, we also compare telecommunication industry’s level to Beijing’s average development of “internet-and-digitization” on those five key dimensions. In the following step, we calculate a comprehensive score of each telecommunication fi rm and ranked them according to the final score.

5.1 Market size

According to the definition of market size, we aim to measure the degree of internet-and-digital transactions and their proportion in firms’total transaction. Since the transaction volume varies hugely due to the products/services telecommunication firms are engaged in, we propose that instead of measuring the transaction volume, we measure whether a telecommunication firm conduct its business through internet-and-digital technology and platform. Our empirical results from Beijing’s telecommunication industry show that there are 80.4% of telecommunication firms are still not engaged in internet-and-digital transactions, and 20.1%of them conduct business through digital technology and internet platform (Figure 2).

We also compared telecommunication industry’s market size of internet-and-digital transactions to that of Beijing’s average level.

Table III. Means, standard deviations of data sample.

Empirical results show that 35.9% of Beijing’s firms are engaged with internet-and-digital transactions, while 64.1% of them conduct their businesses through off-line manner. The proportion of internet transaction in Beijing’s average level is higher than telecommunication industry alone. Therefore, we suggest that Beijing’s telecommunication industry can realize a substantial growth if they more actively conduct their business through informational technology and internet platforms.

5.2 Informational investment

Fig. 2. Market size of Internet-and-digital transactions.

Fig. 3. Informational investment of telecommunication industry.

We measured informational investment by three second-level indicators: numbers of computers per employee, percentage of IT employee out of all employee, and the expenditure on information and technology sector (in cost).After normalization of each indicator, we set 75% quantile to distinguish the different level of informational investment. Results show that 25.4% of telecommunication industry can be identified as high informational investment,while 74.6% of them are at the lower end of this dimension. The proportion of informational investment of telecommunication industry is similar to Beijing’s average investment on information technology. Therefore, we suggest that telecommunication industry’s “internet-and-digitization” development is on the average level on this informational investment dimension.

5.3 Technological innovation

We used the percentage of customized products/services via internet platform/technology to describe the development level of technological innovation. Result shows that the majority (59.8%) of Beijing’s telecommunication firms has not conducted customized products/services via internet yet. In addition, the proportion of technological innovation declines according to its intensity. Hence, as the percentage of customized products/services rises,the intensity of technological innovation declines. Thus, Beijing’s telecommunication industry has great potential on this dimension to boost “internet-and-digitization” development in the foreseeable future.

Empirical results also suggest that technological innovation of Beijing’s telecommunication industry is distributed as step-shaped.Besides the majority of non-internet technological innovation firms, 3 firms’ have their customized products/services proportion over 40% out of the total volume. The rest of the firms are distributed as follows: there are 21 firms’ technological innovation is under 10%intensity, 45 firms under 20% intensity, 14 firms 30%-40% intensity. We suggest that this step-shape distribution shows both the feature of “internet-and-digitized” development as well as telecommunication industry’s unique characteristics.

5.4 Internet application

On the fourth dimension, the authors measured the level of internet application by two second-level indicators: the proportion of fi rms to promote its product/services via internet platform/technology and the proportion of firms to build/adopt their own internet platform.Empirical results show that firms with internet application level that less than 10% account for 27.8% of Beijing’s telecommunication industry. Firms with internet application level between 10% to 20% accounts for 34.4% of Beijing’s telecommunication industry. On the higher end of the spectrum, there are 33% of Beijing’s telecommunication firms are with an internet application level between 20% to 50%. The leading application firms of “internet-and-digitization” development account for 4.8% of Beijing’s telecommunication industry.

We also organized the empirical results of internet application according to firms’ size.As Figure 5 shows, the level of internet application is negatively related to firm’s size in Beijing’s telecommunication industry. Thus,small-and-medium sized telecommunication firms have higher internet application level compared to large fi rms in this industry. This result complies with the consensus in existing literature, that the small-and-medium size fi rms are more susceptible to internet-and-digital development. In turn, internet-and-digital development enhance those firms’ performance more signi fi cantly.

5.5 Internet penetration

We used two secondary indicators to quantify firm’s internet penetration level: the variety of business activities conducted through internet platform/technology and the variety of emerging business activities that recently get involved in (e.g., big data, cloud computing,mobile internet etc.). Empirical results show that Beijing’s telecommunication firms vary hugely on this dimension from 0 to 91%, with the average penetration level around 33% and the variance of 23.5%.

Fig. 4. Technological innovation of telecommunication industry.

Fig. 5. Internet application of telecommunication industry.

Fig. 6. Internet penetration of telecommunication industry.

The distribution of internet penetration level according to firms’ size shows similar trend compared to internet application. Thus, as fi rm’s size grows, the internet penetration de-clines accordingly. However, the distribution of internet penetration shows larger variance compared to internet application. We suggest that the heterogeneity on this dimension is more significant than that of the internet application front. Telecommunication firms,especially the large firms should pay more attention on internet penetration as well as internet application since these two dimensions are critical to their comprehensive performance on“internet-and-digitization” development.

5.6 Comprehensive score

Fig. 7. Comprehensive investigation of telecommunication industry’s “internet-and-digitization” development.

Table IV. Results of the “Internet-and-Digitized” level of telecommunication industry

According to Figure 7, the comprehensive investigation shows that there are 12 telecommunication firms can be identified as“developed” in our “internet-and-digitization”development model, accounting 5.7% of Beijing’s telecommunication industry. There are 25 telecommunication firms reach the standard of leading development of “internet-and-digitization” level, accounting 12%of Beijing’s telecommunication industry.Telecommunication firms with mature development on “internet-and-digitization” development is numbered 34, accounting for 16.3%of Beijing’s telecommunication industry. The majority of telecommunication firms are concentrated on the growing section. In specific,47 telecommunication firms are located in developing phase of “internet-and-digitization”development, accounting for 22.5% of Beijing’s telecommunication industry. Telecommunication firms with seeding development on “internet-and-digitization” development is numbered 59, accounting for 28.2% of Beijing’s telecommunication industry. Finally,firms scored 0 on all dimensions of “internet-and-digitization” model are number 32,accounting for 15.3% of the total sample.

If we analyze the results according to ternary criteria, there are 5.7% of telecommunication firms reach the advanced level of “internet-and-digitization” development. There are 28.2% of telecommunication firms are now at the intermediate stage of “internet-and-digitization” development. The majority of telecommunication industry are junior development in “internet-and-digitization” model. Finally,15.3% firms scored 0 on all of the five dimensions of “internet-and-digitization” model.

According to the binary criteria, 34% of Beijing’s telecommunication industry can be identified as “internet-and-digitized” in our model and 66% of Beijing’s telecommunication industry is not reach the standard for an“internet-and-digitized” firm.

VI. CONCLUSION AND DISCUSSION

This paper contributes to the existing literature in at least three ways. First, combining the“internet-and-digitization” theory and telecommunication industry as well as adopting the information technology perspective, we comprehensively investigated the composition of telecommunication industry’s “internet-and-digitized” development and measurements for each of the five key dimensions.Second, we theoretically build and empirically test the “internet-and-digitization” development model through the lens of e Beijing’s telecommunication industry. We believe this approach has remarkable value: it confirms the significance of the internet development in this digital era and the necessity of examining its development level in telecommunication industry. Third, our results enrich telecommunication studies because each of the five key dimensions of “internet-and-digitization” development appears to show different degrees.Specifically, focusing on the circumstance of Beijing’s telecommunication industry, we propose that internet market size, informational investment, technological innovation, internet application, and internet penetration play a crucial role in improving “internet-and-digitization” development in a comprehensive manner.

On the managerial front, our paper offers several actionable managerial implications.In specific, the findings of this article also offer managers guidelines for empowering“internet-and-digitization” development for telecommunication industries. First, managers can use the finding about the insignificant development of market size that empowered by internet technology and platform, which reminds telecommunication industry managers to cultivate online market in a more active manner. Thus, passively wait for the digitization penetration on telecommunication industry is not recommended. Instead,telecommunication firms must design specific strategies according to actual internet situations to better fit this digital age. Second, the step-style distribution of technological innovation also requires telecommunication industry’s attention. Consistent with the intensity and complexity of digital transactions, telecommunication firms must constantly enhance their internet-and-digital innovative power in order to enhance their competitive advantages as well as to survive and expand. Especially for small-and-medium telecommunication firms whose competitive position is limited by late emergence into the market and weak branding development, growing technological innovative competence on internet-and-digital front is critical for them to fit into highly competitive markets accurately and efficiently.Third, the negative relationship between firm size and internet development (application and penetration) suggests that bigger firms should pay more attention to “internet-and-digitization” development. On the business level,internet-related activity should be integrated into a telecommunication firm’s operational system formally and effectively rather than as a marginal or complementary business unit.On the management level, the top management team in the telecommunication industry should consider the “internet-and-digitization”development when making strategic choices as well as during long-term planning.

Our work is not without limitations. First,we only considered the production facets of “internet-and-digitization” development.Other essential managerial variables should be included in future research. Second, the development of “internet-and-digitization” of are depicted by five key dimensions, but more measuring indicators such as R&D investment regarding digital technology, ecommerce mode, etc., should be considered as well. Finally, we used cross-sectional data in the current study; however, longitudinal data would be beneficial in investigating this mechanism from a dynamic point of view.

ACKNOWLEDGEMENTS

We want to acknowledge a supportive funding by The National Social Science Fund of China(No. 16BGL163).

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