JIN-142 -- Yahoo ADSL -- Let the Torture Begin!

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news
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Issue No. 142
Wednesday, August 1, 2001
Tokyo

CONTENTS

+++ Viewpoint: Yahoo ADSL -- Let the Torture Begin!
+++ Noteworthy news
- Koizumi wins, stocks fall
- DoCoMo to launch i-vending service
- Reforms to reduce "age-ism" watered down
- Four Seasons Resort to Go "Wi-Fi"

+++ VIEWPOINT

Yahoo ADSL -- Let the Torture Begin!

Yesterday's announcement by Yahoo Japan that it will postpone the
launch of its commercial ADSL Net service by one month to September 1
is just the latest twist in what will undoubtedly be a torturous story
-- torturous, that is, for Yahoo and its parent, Softbank.

Yahoo is blaming the delay on a longer-than-expected testing period,
which is intended to make certain that the present limited trial
service can scale from a few thousand to hundreds of thousands of
users. Yahoo also says it's having problems establishing ADSL
connection circuits at local telephone company exchanges. That local
telephone company is, of course, none other than NTT, the 900lb
gorilla of Japan's telecoms industry and the chief inquisitor that we
think will rake Yahoo over the coals.

We'd like to be more optimistic for Yahoo, but recent history teaches
otherwise. Make no doubt about it: NTT controls the final mile into
consumer's homes, and is perfectly positioned to hinder, obstruct, and
generally muscle out any upstart ADSL provider whose market share
starts to get too big. That is precisely what happened to Tokyo
Metallic and eAccess, a couple of gutsy would-be competitors that only
won access to local telco switches in 1999 by shaming then-MPT
bureaucrats (partly by pointing out that NTT's reluctance to allow
xDSL services would cause Japan to fall behind both the US and --
Gasp! -- Korea) into leaning on NTT.

NTT did open the switches, but the giant also decided to start
offering ADSL services of its own. With a large, aggressive sales
force, the ability to underprice (and hinder) any competitor, and
ownership of massive public mindshare, NTT's share of Japan's
burgeoning ADSL subscriber base (291,333 as of June 30) went from zero
in December 2000 to over 63 percent today. Tokyo Metallic gave up and
allowed itself to be bought out by Softbank (a purchase that Softbank
will use to leverage its new Yahoo ADSL service), while eAccess --
with about the same number of subscribers as Tokyo Metallic -- can't
be faring much better.

As a result, we're real pessimistic about Yahoo's chances.
Furthermore, Yahoo plans to use US-spec ADSL modems, and industry
watchers have rightly pointed out that this is a major technology risk
since the modems' compatibility is yet to be proven with existing
Japanese equipment (and is, we guess, one reason for the delay
announced yesterday).

While use of (presumably) cheaper US equipment may allow Yahoo to
offer ADSL at low prices (JPY2,280 per month versus prevailing rates
of about JPY5,500), we think Japanese customers will be highly
sensitive to quality of service (QoS), not price. Yahoo also said
today that it has cut its initial subscriber targets to 50,000
from 200,000 -- indicating further uncertainty with the system's QoS.

As recently as May, the government had to issue a formal order to NTT
East and West to improve the anti-competitive marketing practices
exercised over xDSL service providers; Yahoo can, we think, expect
some of the same mistreatment. Combined with concerns over quality, we
think Yahoo Japan, and by extension Softbank, is setting itself up for
a big, expensive failure.

We can hear NTT licking its chops already.

--Daniel Scuka

See J@pan Inc's story on broadband upstarts:
"Mission Impossible for Broadband Providers?"
http://www.japaninc.com/mag/comp/2001/06/jun01_mission.html

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+++ NOTEWORTHY NEWS

** Koizumi wins, stocks fall

Extract: Japan's Nikkei share average hit a fresh 16-year closing low
on Monday as an election victory by Prime Minister Junichiro
Koizumi's ruling bloc failed to ease concerns over the ailing
economy. The benchmark Nikkei average finished down 218.81 points or
1.85 percent at 11,579.27, its lowest since January 7, 1985. Losses
were broad-based, with losers outnumbering gainers 1,056 to 306. The
TOPIX index of all shares listed on Tokyo's main board lost 15.72
points or 1.33 percent to 1,168.51. Last week's shockingly weak
earnings from high-tech bellwether Sony Corp also added to the
sceptical mood. Sony shares extended Friday's 11.46 percent drop and
tumbled 6.87 percent to 5,830 yen.

Commentary: When thinking of the Koizumi phenomenon, the phrase "cult
of personality" comes to mind. Surrounding this personality, however,
are the same old LDP pols that most voters are rejecting by voting
for Koizumi in the first place. Koizumi, for all his charm, is a red
herring. True political change, desperately needed, is a long ways
off, and investors puncuated this by puncturing the Koizumi bubble.

Source: "Nikkei ends at 16-year low as Koizumi win leaves doubts,"
Reuters, http://sg.biz.yahoo.com/010730/3/19vnb.html

** DoCoMo to launch i-vending service

Extract: Users of NTT DoCoMo's i-mode service will be able to
purchase canned drinks using their telephones shortly as the company,
together with Coca-Cola (Japan) and Itochu, launches trials of a new
system that allows users to pay for goods with their cell phone
handsets. Under the new I-vending service, users of I-mode will be
able to load credit into electronic wallets in their telephones using
the vending machines. This credit will then be available for
purchasing drinks from the machines.

Commentary: This is one of the dumber ideas we've heard recently, a
classic case of the "can-won't-do" phenomenon we mentioned when
covering interactive TV efforts in Japan (see page 56 of Feb 2001, or
http://www.japaninc.com/mag/comp/2001/02/feb01_investor_tv.html).
Just because a customer CAN buy a coke with a cellphone doesn't mean
he WILL. It's neat, it's fun, and it's totally useless. Dropping
coins into a vending machine is not a problem that needs to be
solved, and customers have had their whole lives to get used to
vending machines the way they are.

Source: "DoCoMo to Launch Wireless Money Trials," IDG, July 30,
http://www.thestandard.com/article/0,1902,28339,00.html

** Reforms to reduce "age-ism" watered down

Extract: The government has moved to water down a new law that
encourages employers to relax age limits for middle-aged and older
job-seekers by unveiling a set of guidelines on enforcing the law.
Under the move, there are 10 cases in which employers could impose
age limits on job-seekers. The 10 cases include allowing a company to
impose age limits if it feels it needs to hire new graduates with the
eventual aim of them assuming executive positions in the company.

Commentary: "Age-ism" is one of the many absurdities of the modern
Japanese workplace. Why should a company deny employment to a bright,
talented female applicant simply because she's 32 instead of 22, and,
more to the point, why should the legal infrastructure encourage such
behaviour instead of discourage it? Yet another example of reform
that's not really reform while Japan continues to stagnate.

Source: "Employers to be allowed to fix age limits for job-seekers,"
Japan Times, July 28,
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nn20010728b2.htm

** Four Seasons Resort to Go "Wi-Fi"

Extract: The Four Seasons Resort hopes to spoil business travelers
with its newest luxury: wireless Internet access. The Toronto-based
hotel chain completed installation earlier this month of WiFi
Internet access based on the 802.11b specification in all conference
rooms, lobbies and open areas of 56 luxury resorts worldwide. That
means any guest with a wireless-capable notebook can download e-mail
or surf the Web at high speed while sipping a pina colada at a beach
cabana without getting tangled in gangly cables. Many conference
organizers only pick WiFi-enabled venues for their lucrative annual
meetings and industry get-togethers. Because of that, wireless
enthusiasts say, few major hotel chains and convention centers will
lack WiFi several years from now.

Commentary: It's starting to happen. We called this one quite a while
ago, and now we're beginning to see it. 802.11b-based high-speed
wireless Net access is becoming a draw, a feature, a bonus, a way to
get shoppers inside the door. Look for "WiFi" to become the new
buzzword of the day. And look for the WiFi phenom to be bigger in
wirelessly wounded North America than in Japan, where you can already
install a 64-Kbps PHS P-in-Comp@ct modem card that works pretty much
anywhere. Still, P-in-Comp@ct gets expensive, and WiFi will in many
locations be a free add-on feature that gets you in the door so that
you'll spend money on other things. WiFi has the look of a winner.

Source: "Hotel chain offers wireless Net access," News.com, July 30,
http://news.cnet.com/news/0-1004-200-6719061.html?tag=owv

+++ EVENTS (ADVERTISEMENT)

** MCF Mobile Developers Conference 2001 (mobidec 2001) to be held in
Tokyo

mobidec 2001 provides you with everything you need to know about the
latest in mobile application and content technology. The three
Japanese carriers -- NTT Docomo, KDDI and J-Phone -- will be coming
together for the first time ever at this conference, and are sure to
showcase their new Java-based mobile applications. These and other
major industry leaders will bring you up-to-date information on
innovative technologies. The conference will be held August 29-30 at
the Hotel Nikko in Odaiba, Tokyo, and will feature 14 technical
sessions (fee required), 9 open sessions (free admission), plus an
exhibition.

For further information please visit
http://www.shoeisha.com/event/mobidec/

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STAFF
Written by Steve Mollman (steve@japaninc.net)
Assistance with news compilation:
Richard Ochero (richard@japaninc.com)

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