Just as the early bird catches the worm, in business it seems the pioneers of new concepts and markets are the ones who cash in on the first mover advantage. Now, new research by Cass Business School - focused on the highly competitive European mobile phone industry - has shown just how strong that earlybird grip can be in some industries. And for governments and regulators wanting to make sure that the worms are evenly distributed, the research gives some clear pointers to the steps they can take to ensure that the first bird to land does not gobble them all up. The study* by Dr Gianvito Lanzolla, Reader in Strategy, comes as the mobile phone industry in Europe faces a period of upheaval. A decade of high but relatively steady growth followed the auction of wireless spectrum to 3G mobile services in the dying days of the dotcom boom; now another seismic change is in the air. The popularity of smartphones that can access the web, send emails and download applications is causing network congestion. The mobile phone industry is looking to roll out the next generation of technology - long-term evolution (LTE) or 4G - to offer even faster download speeds and better network coverage.

Cash-strapped governments across the world, meanwhile, are looking to bolster their exchequers by selling more wireless spectrum. In Europe, the switch from analogue to digital television has freed up a large block that is perfect for super-fast mobile broadband services in rural areas and, in May, the German Federal Network Agency carried out the first auction, netting more than €4 billion (£3.34 billion). This new period of technological change, coupled with the next wave of spectrum auctions, offers a real opportunity for regulators to ensure competition remains strong in Europe. But it also, according to Dr Lanzolla, presents an opportunity for the former state-owned monopolies, who are the principal operators in much of Europe, to cement their positions. The theory of first-mover advan-tage is disputed by some academics. There is, after all, limited empirical evidence. But after studying 65 mobile phone companies across 19 European markets between 1998 and 2007, Dr Lanzolla and his co-authors, Jaime Gomez, of the Faculty of Economics and Business at the University of Zaragoza, and Juan Pablo Maicas, of the Department of Management and Marketing, also at Zaragoza, concluded that it does exist in the mobile wireless industry. "This research shows that first movers in most of the countries considered have been consistently more successful than later entrants," says Lanzolla. "But just being first, you do not get anything. Being first brings the possibility that you will be able to pre-empt scarce resources, if there are any; to set switching costs, if any, and to build technology leadership, if there is any to be had. If you cannot leverage these mechanisms, it matters much less whether you come first, second or third into the market."

Pre-empting scarce resources
Being able to pre-empt scarce resources covers everything from being able to outbid new entrants for wireless spectrum, because the first mover already has a customer base to service, to owning existing network infrastructure, such as local phone lines in the case of fixed-line telecoms. Experience is vital so it is no surprise that first movers in the European mobile phone market are almost all tied to former fixed-line incumbents. The only exception is the UK, where a disastrous international expansion plan forced BT to demerge its wireless business to persuade shareholders to back a £6 billion fund-raising. But the resulting business, O2, still exhibits many of the characteristics of the first mover, most obviously in its success two years ago in signing an exclusive deal with Apple to sell iPhones in Britain. "That is typical resource pre-emption," says Dr Lanzolla. "They were the first ones to take it and it was a bet but they got it right. That was an example of a first mover grabbing a resource in order to prevent their competitors from getting it."

Controlling the cost of switching
Some in the mobile phone industry fought hard to stop it becoming easier for consumers to change networks and take their phone numbers with them. But the time it takes to switch has shortened in Britain from five days to two, though consumers still have to demand that their existing network hand over a special code before they can "port" their number. The more time elapses, the stronger the first mover advantage appears to become in the mobile wireless industry. "The first mover becomes more entrenched over time in the mobile phone industry," Dr Lanzolla says. "We may not be able to read too much into the individual (country) data but we can see a growing trend: profitability increases over time."

Building technological leadership
So how can regulators and governments ensure that competition remains healthy? One possible route is to hope that the first mover tries to expand. The research shows that international diversification has a negative impact on the performance of a company. But a more direct route is to introduce some element of technological change. What Dr Lanzolla terms "technological discontinuity" has a disproportionately negative impact on first movers. "Technological discontinuity hinders the profitability of first movers, to the extent that it creates some room for differentiation for second and third-placed players," he says. "But new entrants have to create a reason (for customers) to switch." The faster the change, the lower the likelihood that the first mover will be able to adapt and retain its dominance. But other players need to be innovative. In the UK and Italy, for instance, the abrupt change from GSM to 3G networks allowed 3 to enter both markets, but the regulator had to set aside a specific part of the mobile phone spectrum it was auctioning, for new entrants. Regulators and governments considering the sale of new spectrum that can be used for LTE could try a similar approach. But if there are no plans for new entrants to come into the market, then they will need to look at attacking the mechanisms that first movers use to cement their position. "Since the first mover's advan-tage rests on resource pre-emption, switching cost and technological leadership, the regulator has to act on one or more of those three," says Dr Lanzolla. "For example, making switching easier is clearly key. In all countries where switching is not easy to do, first movers are super-protected." The bottom line, however, is that the arrival of LTE is likely to lead to innovative services and tariffs and that, more than anything, is likely to shake up the market. "The only thing a regulator can really do as LTE arrives is favour innovation across the board. Regulators should try and make the transition as fast as possible and make sure that it is as easy as possible to switch supplier. But if the first mover is better, then they are just better." In other words, sometimes the early bird deserves the worm.

*Order of Market Entry, Market and Technological Evolution and Firm Competitive Performance.

Richard Wray is Communications Editor of The Guardian.