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									              Business Models for Mobile Commerce Services:
                     Requirements, Design, and Future

                                      Upkar Varshney
                         Department of Computer Information Systems
                                  Georgia State University
                                     Atlanta, GA 30302
                                 E- mail: uvarshney@gsu.edu

                                             Abstract
  M-commerce is generating a considerable interest due to its potential in revolutionizing
businesses, empowering consumers, and creating new and untapped consumer markets. This has
led to the design and development of many new services, including location-based services,
mobile financial services, and mobile content services. Even with some early success, m-
commerce faces a lack of suitable business models and varying quality and reliability of wireless
infrastructure. With near- future improvements in the wireless infrastructure, the role of bus iness
model will become even more important. This article presents business model requirements,
existing business models, and ways to design effective business models for emerging m-
commerce services.

Key words: mobile commerce, business model, wireless carriers, location service providers and
content service providers
Mobile commerce is an emerging area involving hand- held mobile devices, suitable applications,
wireless networks, secure and “atomic” transactions and mobile middleware. Mobile commerce
includes innovative applications, becoming possible due to hand-held devices and wireless
networks, such as location-based services, mobile financial services, and mobile interactive
games (“Framework, Applications, and Networking Support for M-commerce”, U. Varshney,
and R. Vetter, ACM/Kluwer Journal on Mobile Networks and Applications, vol. 7, no. 3, 2002).
Due to unique characteristics such as location and context awareness, personalization, and
transaction orientation, m-commerce has the potential to transform business processes in terms
of efficiencies and quality of services, and in creating new consumer markets involving highly
targeted services. A service and network-oriented vision for m-commerce is shown in Figure 1.




                                                                           User service and
                                  Location
                                                                          preference database
                                  database

        Transaction                                             Satellite-based               3rd party
        server                                                     systems                    services


                                       End-to-end secure communications

                                                                                                    User
                   User
                               Ultra-high-bit
                               rate W-LAN                                  W-LAN


                                                Cellular/PCS/GSM                               Multicast
                                                                                               server
                                                   Physical layer
                               User                enhancements                 User
                  highly energy-efficient transmission         Intelligent location and
                                                                context-aware devices
   W-LAN: Wireless Local Area Network       PCS: Personal Communications Services (2nd generation wireless networks)
                         GSM : Global System for M obile (European standard for 2 nd generation)

                                   Figure 1. The Vision for Mobile Commerce



  As shown in Figure 1, m-commerce services require location management, real-time delivery
or quality of service, transactions support, security, and wireless network reliability. Three
existing wireless networks, including cellular networks (cellular, PCS, GSM, and 3G), wireless
                                                        2
LANs, and satellites-based networks, can support one or more m-commerce services with some
enhancements (Table 1). Bluetooth, a personal area network (PAN), and fixed wireless networks
will play a limited role due to range limitations and mobility restrictions, respectively. Mobile
auctions requiring real-time responses will be well supported by cellular networks using
connections, while interactive games will require transactional enhancements. Mobile financial
services and other services can be supported by cellular, wireless LANs, and satellite-based
networks with enhancements.


                            Table 1. Mobile Commerce Services and Wireless Networks
        Services                     Public-switched                 Wireless LANs             S atellite-based networks
                                   cellular networks
    Mobile Auctions               With added support for                     No                Indoor coverage may be a
                                       transactions                                                    problem
    Interactive Games             With added support for                     No                           No
                                       transactions
Mobile Financial Services         With added support for           With added security         Indoor coverage may be a
                                       transactions                                                    problem
  Mobile and Locational                    Yes                   With added support for        Indoor coverage may be a
      Advertising                                                 location management                  problem
  Mobile Entertainment                     Yes                 With added quality of service             Yes
        Services                                                         support
   Proactive S ervice                      Yes                             Yes                           No
      Management
   Mobile Inventory                        Yes                    With added support for       Indoor coverage may be a
      Management                                                  location management                  problem




   M-commerce is being influenced by several emerging trends including the number of hand-
held wireless devices exceeding 2 billion in 2006, the number of third generation (3G) wireless
users in Europe being projected to reach 300 million by 2008, and the global number of mobile
video subscriber estimated to 65 million by 2009. In Japan, wireless carrier DoCoMo has started
mobile payments by scanning cell phones and hand-held devices. With these developments and
an increased deployment and use of diverse wireless networks, the global market for m-
commerce       is     estimated      to    be     $88      billion      by        2009     (GSM    World       website:
http://www.gsmworld.com/services/mcommerce.shtml). In many European countries, mobile
tickets, mobile parking, mobile advertising, and mobile shopping are generating billions of
dollars in revenues.
   Individuals are beginning to use simple versions of m-commerce applications such as mobile
games, mobile payments, location-sensitive information, and mobile entertainment contents. The
                                                           3
enterprise use of m-commerce is primarily for location and tracking services, mobile financial
services, mobile shopping and advertisements, mobile contents, and, mobile office. Major
wireless companies in US are beginning to work with content and service providers to attract and
retain mobile customers.
  The work in m-commerce has been primarily in designing applications and technological
support (“Framework, Applications, and Networking Support for M-commerce”, U. Varshney,
and R. Vetter, ACM/Kluwer Journal on Mobile Networks and Applications, vol. 7, no. 3, 2002),
location management ("Location Management for Mobile Commerce Applications in Wireless
Internet”, U. Varshney, ACM Transactions on Internet Technologies, vol. 3, no. 3, August 2003),
mobile transactions ( “Mobile User Recovery in the Context of Internet Transactions”, D.
VanderMeer, A. Datta, K. Dutta, K. Ramamritham, and S. B. Navathe, IEEE Transactions on
Mobile Computing, vol. 2, no. 2, April-June 2003). Although there has been some preliminary
work in deriving business models for one or more specific services (“Emerging Business Models
for Mobile Brokerage Services”, C. Looney, L. Jessup, and J. Valacich, Communications of the
ACM, June 2004, vol. 47, no. 6 and “Business Models for Mobile Communities”, P. Schubert
and J. Hampe, In Proc. Hawaii Int. Conf. on Systems Sciences (HICSS -38), Jan. 2005), the major
challenge in driving m-commerce further is still the lack of suitable business models. The term
“business model” has lead to multiple interpretations ( “Internet Business Models and Strategies:
Text and Cases”, A. Afuah and C. Tucci, 2nd edition, McGraw Hill, 2003). In this paper, business
model consists of m-commerce services and technologies, core expertise and strategies of
multiple players, and, revenue generation and sharing.


              REQUIREMENTS FOR M-COMMERCE BUSINESS MODELS
  The business models for m-commerce must include differences in generation and sharing of
service revenues due to a larger role of 3 rd party service providers and content providers, ways of
charging in wireless networks, diversity of emerging m-commerce services, heterogeneous
wireless networks, transaction-orientation, and regulatory diversity.
  The following requirements must be supported in the design of business models. With users’
immediate, undivided, and constant attention to mobile devices, an opportunity to create
personalized services exists for attracting and retaining customers. The device characteristics,
customer mobility and locational constraints will affect how m-commerce contents and services

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are designed, developed, shared, and delivered. The evolving nature of m-commerce services,
including transaction-orientation, short-duration, and location and time-dependency, will impact
the design of business models.
   Given the presence of multiple players and their interests, several complex organizational
and strategic challenges arise. In the existing regulatory framework, wireless carriers control the
access to network infrastructure. To create an overall value for customers in terms of instant
access, emergency use, enhanced anytime access to new services, and increased productivity,
wireless channels must be managed for bandwidth and usability. However, wireless carriers’ lack
of experience in developing service contents combined with the cost of building m-commerce
infrastructure for others will require a collaboration among multiple players with each utilizing
its own financial, technical and developmental capabilities.
   With the diversity of m-commerce services, a major requirement is the design of suitable
revenue model including the pricing for services. A broader view of pricing involves flat pricing,
connection-time pricing, traffic-based pricing, group-based pricing, transaction-based pricing,
and combination-based pricing. The customers can be offered different charges based on
transactions, context, time, and locations (such as paying a higher charge for a location-based
service outside his/her service area). The customers conducting mobile financial transactions will
be willing to pay more than those searching for restaurants nearby.
   M-commerce services will span multiple wireless carriers with diverse access protocols and
performance. Although a few carriers with similar protocols have interconnected their networks
for nationwide roaming, the inter-working of heterogeneous wireless networks remains a
challenge. The rapid changes in wireless technologies such as 3G and the emerging 4G, free
access using wireless LANs, and disruptive technologies will significantly influence the revenue
generation and sharing in the business model. Also, the cultural differences, influencing the
fascination with state-of-the-art gadgets, multi- functional and feature-rich mobile devices, and,
diverse peer and social pressures will affect the design of business models.


              EXISTING BUSINESS MODELS FOR WIRELESS CARRIERS
Most of the existing business models used by wireless carriers fit in the categories of “WSP-
centric”, where WSPs control both network access and contents, or “WSP- managed”, where
WSPs control access but not contents.

                                                5
WSP-centric Business Model
   The business model used by Japanese wireless carrier DoCoMo involves dominating the
entire supply-chain by creating and enforcing an exclusive set of service providers. Using the
iMode service, about 48 million customers access thousands of service providers, approved by
DoCoMo. Approximately 40% of the iMode use relates to the entertainment including music,
games, cartoons, and betting, and, the rest involves dictionary, guides, travel and business
information, stocks, and sports. The customers pay a variety of service charges based on the
download size and the type of service, and service providers also pay a fraction of their revenues
to DoCoMo (Figure 2). In essence, DoCoMo has been able to utilize a high customer retention
rate combined with an economy of scale.



                  Integrated billing
                  (access and contents)




                 Users                                    Exclusive set of contents
                                   DoCoMo’s Networks
                                                          and service providers


                 User payments                       Payments for contents
                 (access and contents)               (user payments - 9% share
                                                     of DoCoMo)
                         Figure 2. The Business Model used by DoCoMo in J apan




WSP-managed model
This is the model used by Vodafone (www.vodafone.com), one of the largest global wireless
carriers with 150 million customers in Europe, North America and Far East. Unlike DoCoMo, it
does not control an exclusive set of 3 rd party providers that can be accessed by its wireless
customers. For Vodafone, contents and news services are included in the subscription charge for
2G-3G services and news type services can also be charged as SMS (Short Messaging Services)
messages. Vodafone now offers flat rates for data services, and, event-based or per-minute
charges for concerts, games, and live TV. Similar models are also used by other carriers,
including Sonera in Scandinavian countries.
                                                6
Limitations of the Existing Business Models
   Although the existing business models have been useful for simple wireless services, these
will experience considerable difficulty for the emerging m-commerce services due to:
1. A lack of effective revenue model for emerging and sophisticated m-commerce services
2. the unsuitability of DoCoMo-type models in countries with a strong wireline presence for
   Internet access, a lesser dependence on public transportation, and a much higher sensitivity
   for monopoly concerns
3. The problems of WSP-centric model is becoming more visible as DoCoMo’s services in
   collaboration with local wireless carriers in many countries outside Japan are experiencing
   difficulty
4. The use of several prices in WSP-centric models will become more complex for customers
   with an increased number of m-commerce services
5. WSP-managed models will force wireless carriers into becoming a bandwidth provider and
   thus such models become less attractive for mobile commerce
6. The WSP-centric or WSP-managed models will be difficult to use in US due to the
   heterogeneity of wireless networks and a diversity of carrier’s interests.

            DESIGN OF EFFECTIVE M-COMMERCE BUSINESS MODELS
   The effective business models for m-commerce services can be designed by using:
      Suitability for wireless carriers, content and service providers, and wireless LAN access
       providers without one player controlling the network access or service contents.
      Diversity of pricing to allow (a) a full range of services, (b) multiple players and their
       diverse strategic interests, and (c) collaboration among players for offering services.
      Modifiability to accommodate the competition among wireless carriers, changing
       services and contents, a range of economic and cultural factors, and user demography.
      Adaptability to technical enhancements and maturity of emerging wireless technologies.


Collaboration among Multiple Playe rs
   We propose that a business model focus on creating a collaboration among multiple players,
where each player is utilizing on its core competencies, and, no single player is controlling the
access and/or contents (Figure 3). In this scenario, wireless carriers offer network access, mobile
devices, and billing, while service providers focus on content acquisition, content adaptation to
mobile devices, and necessary software support. The generation of revenues will include
transaction-based pricing for mobile financial services and subscription c harges for news and
locational services. The sharing of revenues involves the determination of cost components and a
proportionate division among multiple players.



                                                 7
                                          Satellites
                      W-LANs                                     Fixed Wireless

                                    Location-tracking
                                    Service Provider                               User
                                                                 User
                                          User                   preferences      profile
                                          location
                         Integrated locational
                                service                                                  Advertisement
                                                          Wireless
             Customers                                Service Provider                    Aggregator

                                                                                  Payment per user,
                                  Payment per user,                               advertisements, or value
                                  per event, or fixed rate

                                                     Location-sensitive                                      Advertisers
                                                     Information Provider
                Revenue flow
               Information flow



                                              Local vendors/attractions/providers

                       Figure 3. An Effecti ve Business Model for Wireless Carriers



Specific Components of an Effective Business Model
   An effective business model will have multiple components depending on the specific
players involved. We present the business model for wireless carriers here (Table 2) by the ten
suggested components (“Internet Business Models and Strategies: Text and Cases”, A. Afuah
and C. Tucci, 2nd edition, McGraw Hill, 2003). The business model can easily be extended for
other players such as wireless LAN access providers and content providers.
   Currently, wireless carriers offer voice and wireless services in certain locations. The carriers
will experience a competition, especially for non-real time services, from wireless LANs using
unlicensed spectrum. Thus profit site will change with multi- network devices, able to access
cellular and wireless LANs, and by an increased availability of satellite-based networks. The
carriers enhance value by improving the infrastructure reliability and quality, and, by offering
suitable functionalities for m-commerce services. The scope is broadened by offering
sophisticated m-commerce services. The pricing reflects a large fixed cost associated with
acquisition of expensive spectrum, equipment and installation, and maintenance. Lower variable
costs are resulted due to a small increase in network processing and storage for billing, profile,
and location management. The model supports several pricing schemes, such as flat-rate for
some news and content services, transactions-based for financial, auction and group-oriented
                                                             8
services, and location-based pricing for locational-content services, to support a diversity of
emerging m-commerce services. The connected activities include agreements with advertisers,
content providers, location service providers, and macro-payment providers. This leads to an
implementation where some activities are in- house, some are out-sourced and some are achieved
through agreements. The capabilities component includes a flexible use of spectrum and
improved coverage and contents. The sustainability is achieved by the proposed competitive
advantages and bundled services for customers with medium or long-term usage agreements.
Finally, the cost structure includes the upgrade of networks from current second generation (2G)
wireless networks to third generation (3G) or in some cases to fourth generation networks (4G).


                        Table 2. An Effecti ve B usiness Model for Wireless Carriers
   Required                Current status                           Model for mobile commerce
  Component
  Profit Site       Controls access to contents and           Regulatory environ ment may change its profit site in the
                               services                                              value chain
                        Maintains user profile                  Co mpetition fro m W-LA Ns will reduce non-voice
                                                                                  service revenues
     Value            Provides access to wireless               Highly reliable access, location tracking ability and
                  infrastructure for co mmunicat ions                       improved quality of service
                               and contents
     Scope         Provides voice and data services            Several h ighly sophisticated services (location-based,
                     (video-based in some places)                live-events, entertainment, auctions) will be added
    Pricing        Subscription and usage-sensitive            Different pricing for d ifferent services (some flat rate,
                                  pricing                       some transactions-based, and some location-based)
Revenue Source       Wireless customers and some                                 Wireless customers
                   fraction fro m vendors/businesses            Advertisers: based on number of users and ad traffic
                      who sell to customers via its                 Content providers: fixed + usage or per-event
                              infrastructure                   Location/transaction service providers: usage (or value
                                                                                         based)
  Connected         Coverage for as many users in as          Agreements with advertisers, content providers, location
  Acti vi ties            much area as possible                    service providers, and macro -payment providers
                    Roaming agreements with other
                             wireless carriers
Implementati on   Network designers and engineers to             Some services in-house, outsourced, and through
                            build in frastructure                          agreements with other players
  Capabilities    Additional spectrum, better design             Increased and flexib le use of spectrum, improved
                         and upgrade of wireless                coverage and bandwidth, mo re suitable contents for
                        infrastructure, billing and           mobile users and hand-held devices, increased revenue
                           accounting services                 generation and revenue sharing with mult iple p layers
 Sustainability       Owns expensive networking                 Co mpetitive advantage as other carriers may still be
                   infrastructure and large number of                      trying to do all by themselves
                               users/devices                      Collaboration may result in a higher adoption of
                                                              emerging and sophisticated mobile co mmerce services
Cost Structure    High fixed cost due to infrastructure        Upgrade of wireless infrastructure for location-based
                            and installation                                          services
                                                              Additional cost for mob ile co mmerce services and some
                                                                       revenue sharing with other providers
                                                          9
Business Strategies for M-commerce
   Given the continuation of the deeply entrenched differences in wireless standards in the US
for the near future, some mergers and alliances with compatible wireless service providers and
collaboration with content and service providers will be part of a wireless carrier’s business
strategy. The carriers will maintain competitive advantage vis-à-vis by offering user-centric,
personalized, sophisticated and usable m-commerce services. The customer retention can be
improved by easy-to-understand pricing, better quality of service with incentives for frequent
users, and highly innovative and targeted services. The carrier’s strategy must be both adaptive
and forward looking to changes in wireless technology, individual preferences, societal values,
and governmental regulations.
  The strategies for other mobile commerce players such as wireless LAN access providers
(WLAPs) will be different from wireless carriers. For the beginners, unlike wireless carriers,
WLAPs enjoy an excellent inter-operability due to compatibility of LAN protocols, albeit at a
lower bit rate in some cases. Alliances with other WLAPs can be profitable in creating a
nationwide service by interconnecting smaller networks of wireless LANs. The appeal of a single
type of wireless network providing nationwide service could become a significant competitive
advantage. Agreements with wireless carriers, content and enter tainment service providers are
part of the business strategy for WLAPs to avoid becoming network bandwidth providers.
Certainly, more investment in infrastructure, interference management and m-commerce services
should be a high priority of WLAPs to create a strong presence in emerging services. The
WLAPs should co-operate with wireless carriers in some locations, especially when dual-
network devices become more common, and should work on creating service agreements with
businesses/locations of significant user density.
   The strategies for content and location service providers must address the challenges of (a)
how to create a favorable collaboration with wireless carriers and WLAPs, (b) how to acquire,
aggregate, update and deliver user-centric contents, and, (c) how to price mobile contents for
continued customers’ interest. The cost to acquire, aggregate, and update the contents could be
reduced by forming alliances with content providers and focusing on user-centric contents
suitable for smaller devices. The revenue generation will be affected by (a) pricing of contents,

                                                    10
(b) revenues from location-sensitive advertisements, and, (c) sharing of revenues with other
providers. To maximize advertising revenue without loosing customers, content and location
service providers must focus on improving the quality and usefulness of advertisements, and
additional sources of revenues by offering recommendation services for places/businesses.


Revenue Models for Mobile Commerce
      Revenue model is the way a company makes money through a variety of revenue flows
(http://en.wikipedia.org/wiki/Business_model). For m-commerce, this would imply identifying
all sources of revenues from customers and other m-commerce players. We now summarise a
few revenue models by wireless carriers in Japan, Europe, Scandinavian countries, and Korea.
      The revenue model of DoCoMo is unique as it utilizes both pricing and revenue collection
from participating vendors (http://www.nttdocomo.com/corebiz/imode/why/strategy.html and
http://www.nttdocomo.com/services/imode/business/index.html) and can be described as:
a. Content control as both the access to content and content itself is approved by DoCoMo
b. A low monthly fees of $2.72 ($1.36 for packet transmission and $1.36 fee for iMode service)
c. Variable usage charges based on the amount of data (a packet of 128 bytes costs about $.003)
d. Charges for other services are e- mail: $.009, downloading of still image: $.063, checking of
   share prices: $.236, transferring funds: $.544
e. Information charges for iMode: flat monthly fee of $.906 to $2.72 for each subscribed
   content provider site
f. 9% from all sites for providing integrated billing service to customers. The rest of the money
   goes to content aggregators, who then divide to content owners and developers.

     The revenue model used by Vodafone, a major European carrier, involves flat rates for data
services (.59 Euro for 100 KB for some MobileData and BusinessData tariffs) and event-based
or per- minute charges for concerts, games, and live TV. Some sample rates are: anytime 100
minutes-£22.00, text message-12p, video message-60p, and 1 KB data-0.235p.
     Another revenue model is from Sonera, a major wireless carrier in Scandinavia, that involves
a fixed monthly rate for some free messages (SMS) combined with a usage rate for additional
messages (http://www.sonera.fi/artikkeli/0,3842,l-en_h-11366_a-257959,00.html). A sample
plan involves $2-$9 fixed rate fee and a $.10 for per minute call or a SMS message. Many data-
centric services are charged with a basic fixed rate and then $1.70/MB for additional data. Also,
a low bit rate data is subscribed as $.18/minute at 9.6Kbps, while MMS messages costs $.50.


                                                11
  The revenue model used by SK Telecom, the largest wireless carrier in South Korea, is
primarily subscription-based for voice, data, and text messaging services. As an example, about
1 million current subscribers can download and play songs for a fixed monthly subscription rate
of about $6 (http://www.moconews.net/?p=2444). Unlike the per- item model used by DoCoMo,
this model is quite appealing to power users in Korea.
  From the above four revenue models, it can be observed that (a) while DoCoMo covers the
most different types of services, it creates complexity of remembering several different pricing
for users, (b) models such as Vodafone, Sonera, and SK Telecom do not support pricing for the
sophisticated m-commerce services by treating most services as pure data, (c) models used by
SK Telecom treat all services with subscription-based charges.
  For the emerging and sophisticated mobile commerce services, where both service types and
usage models are likely to be quite diverse, the revenue model should include a combination of
simplified pricing such as subscription rate, usage-based, and fixed rate (Table 3). Also, as m-
commerce services require different levels of wireless networking resources, contents, and
involvement of players, the pricing will reflect both fixed and variable costs to all players. The
usage-based charges will be suitable for services that require networking resources and real-time
delivery. The transactions-based pricing suits mobile financial services and mobile auctions due
to the transaction-orientation, diversity of transactions, and financial value of a transaction. The
flat unlimited rate for high-end users and business users with extensive usage of m-commerce
services also simplifies billing for m-commerce service providers.


                      Table 3. Pricing Schemes for Mobile Commerce Services & Players
  Mobile Commerce Service &                Suggested Pricing Scheme                   Comments
             Contents
  Mobile Entertainment Services         Pricing based on usage/quality of Live events can also include a fixed
                                                     service                            charge
          Mobile Auctions                   Transaction-based pricing
         Interactive Games                     Usage-based pricing        Two different rates can exist based
                                                                           on secure and un-secure versions
 Mobile Financial/Payment Services          Transaction-based pricing
 Mobile Location-based Services                Subscription-based          Can be subsidized using revenues
 (advertising, recommendati on                                                     fro m advertisers
  systems, routing, inventory)
  Mobile informational services                Subscription-based            Can be added as free to more
                                                                          sophisticated m-co mmerce service




                                                     12
   The sharing of revenues among multiple players can be accomplished by deriving the cost
components for individual players for each service and a proportionate division of revenues
among multiple players. Also, any player, not collaborating in the business model, can receive a
combination of certain fixed price and a variable price based on the number of customers.


Future
  M-commerce business model must be suitable for several players including wireless carriers,
wireless LANs access providers, and location and content service providers. It must provide
support for flexible revenue generation and sharing models to suit a diverse set of players and
their strategic interests, and must evolve with maturing wireless and mobile technologies. The
increased revenues due to both a higher number of customers and the support for sophisticated
services will lead to a higher profitability for multiple players. This “win-win” situation results
as an individual player is not allowed to control network access and/or service contents. Easier-
to-understand-and-remember pricing schemes along with suggested business strategies will
significantly improve the profitability of m-commerce service providers.

Upkar Varshney is on the faculty of Computer Information Systems at Georgia State
University. Widely known for his work in m-commerce, he has authored more than a hundred
journal and conference papers. Several of his papers are among the most cited references in
mobile commerce including the most downloaded transaction papers from ACM digital library
(2004) and ACM/Kluwer Mobile Networks and Applications (2005). His papers have been cited
in more than one thousand papers and have significantly influenced more than 50% of all
published literature in m-commerce worldwide. He is or has been an editor for Decision Support
Systems, IEEE Computer, ACM/Kluwer Mobile Networks and Applications (MONET), IJNM,
IJMC, CAIS, and IJWMC.




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