WW-04 -- Rewarding Innovation

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J@pan Inc Magazine Presents:
W I R E L E S S W A T C H
Commentary on the week's wireless news from Japan
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Issue No. 4
Friday, April 13, 2001
Tokyo

INDEX
+++ Viewpoint: Rewarding Innovation
+++ Noteworthy News
- i-mode: Subscribers, users and the area between
- Broadband faces reality check
- Japanese venture ports i-Appli Java apps to PDAs
- Fujitsu, Japan Radio form W-CDMA unit
- Sharp, Mitsubishi to launch wireless 'Intellitag' JV
- Japanese telecom shares surge
+++ Worth a read
+++ Sign of the times
+++ P.S.

----

+++ VIEWPOINT

Rewarding Innovation

We met with DoCoMo's Takeshi Natsuno, the leading i-mode
architect, this week, and came away impressed with his entirely
self-consistent vision of how the world's No. 1 mobile Internet
service should evolve (or maybe he's just really good at
working the press). We've spoken to each of the three i-mode
gurus (Natsuno, executive director of the Gateway Business
Department; Kei-ichi Enoki, Gateway managing director; and Mari
Matsunaga, who helped plan the service's February 1999 launch)
at various times, and it's remarkable to what degree they are
all on message -- particularly in the case of Matsunaga, who
since leaving DoCoMo to become a sort of consultant no longer
has to subscribe to i-mode marketing fluff. One of the common
threads expounded by all three is that i-mode was always
intended to be easy for the customer to use, and -- say what
you will -- so it is (more or less). At least users don't have
to wrestle with configuring an email client, worry about
Windows crashing, or wonder if the security on e-com Web sites
is adequate (er, i-mode doesn't have any). We'll admit, by the
way, that not everyone agrees i-mode is easy to use. (A Dow
Jones newswire report on March 23 cited a recent survey that
found half of Japan's mobile users were dissatisfied with the
experience; the report is now offline, so we can't hash out the
details.)

Both Matsunaga and Natsuno have written books which have become
mini-best-sellers; Natsuno's is reported to be the more
cerebral of the two, and, as he is still intimately involved
with i-mode's development, can be read for at least some clues
on where i-mode may go (it's only available in Japanese so
far). It's also remarkable that Natsuno, an outsider parachuted
in from failed, free ISP Hypernet, and Matsunaga, also an
outsider, were able to get a bunch of NTT DoCoMo
"we're-a-telco-and-customers-come-last" mindset engineers to
accept the proposition that if i-mode wasn't easy to use, and
cheap, and that if there wasn't sufficient content to compel
people to use it, then the service would go nowhere. One
wireless VC said a couple of weeks ago that, while the wireless
Web has certainly done well in Japan due to factors specific to
this country (latent demand, low home PC penetration, expensive
dialup access fees, etc.), it's only by chance that the
revolution started here. If Natsuno, Matsunaga, and Enoki
hadn't come together to light the fuse, wireless would have
happened elsewhere.

The triumvirate of i-mode founders contrasts sharply with the
situation at Japan's other wireless webs. J-Phone, KDDI/Au, and
the others seem not to be animated by any particularly strong
personality, or set of personalities. One senior guy from
J-Phone said last week, "We work on a consensus basis,"
referring to how content, services, and new applications are
integrated on the J-Sky service. Of course, that too demands
some measure of respect, since he's talking about successfully
building consensus between the internal factions at the network
operator itself (which include an entirely unlikely mix of
Japanese engineers and Net folks, and Brits dropped in from
shareholders BT and Vodafone), plus the handset makers, the
handset retailers, and the content and service providers. In
any event, it appears that there is no master architect at the
i-mode competitors, leading us to wonder if there's no need for
any, since i-mode has already shown the way and mapped out the
concept? (Check the news below on KDDI's new 53-year-old
president; shares jumped almost 10 percent on the news.)

Natsuno, meanwhile, certainly bears watching as i-mode expands
to Europe and the US. Our prediction? AT&T Wireless' start of
i-mode next year will be a huge success, leading NTT DoCoMo to
increase its stake in the American carrier from the current 16
to 30 percent-plus and win the right to name board members and
perhaps even the CEO -- and who else but the English-speaking,
US MBA-holding Natsuno? Now that would be a nice, package-plus-
options payback for the onetime-Tokyo Gas employee which would,
sadly, be more than what Matsunaga received. The marketing- and
media-savvy, ex-Recruit editor-in-chief probably couldn't see
much of a future in (male-dominated, engineering-focused,
technology-centric) DoCoMo, and left, we speculate, at least in
part due to the miserly gratuity she received in i-mode's first
year (less than a J@pan Inc editor's weekly take-home pay).
Japanese companies are less than spectacular when it comes to
rewarding innovation, and, sadly, DoCoMo isn't an exception.

----

+++ Noteworthy News
(Long URLs may break across two lines.)

--> i-mode: Subscribers, users and the area between
http://www.emarketer.com/analysis/easia/
20010406_asia.html
Source: eMarketer, April 6

EXTRACT: Most Japanese users signing up for i-mode for the
first time will be signed up for the i-mode service in addition
to whichever calling plan they select. This may skew the number
of actual users claimed by DoCoMo, in so far as many may have
subscribed to the service, but fewer actually use it. (Great
chart showing reasons why Japanese subscribe to i-mode.) Mail
appears to be the killer app, after voice.

COMMENTARY: The number of users vs. the number of subscribers
is not a new problem (see Wireless Watch 002); but this report
certainly helps put the question into perspective. Believe what
you will about the actual number of wireless Web surfers; the
fact remains that mail is the killer app on the wireless Net
(J-Phone says it now carries more data "calls" than voice,
mostly due to mail) -- and there's nothing wrong with that. For
those planning new mobile Internet services, keep in mind that
almost any service that can be ported to a mobile platform can
be rendered as a messaging system. The owners of ImaHima, the
locally famous, Web page-based social networking and
matchmaking system, report that their system is being
reconfigured into a version that can work on SMS (short mail
service), specifically for export to Europe where SMS is so
popular. Those who shrug their shoulders and conclude that the
wireless Web is trivial because mail is big and browsing isn't
(or may not be) will seriously miss the boat.

--> Broadband faces reality check
http://www.yomiuri.co.jp/newse/20010412wo11.htm
Source: The Daily Yomiuri, April 12

EXTRACT: Great summary of difficulties faced by broadband
cable, xDSL, and fiber optic providers in Japan, starting with
the speed of penetration and affordability. To attain the
government's target of 30 million homes having fat pipe
connections to the Net by 2005, the penetration speed of
broadband services must be the same as that of color TV (!!).
From 1995 to 1999, monthly average expenditure on telephones
increased from JPY5,662 to 8,198, due to the added cost of
using cellphones. Concludes by speculating on which business
model will succeed.

COMMENTARY: Not obviously related to wireless, but there is a
connection**. Home wireless networks, mostly using the
802.11(b) standard, are becoming popular in the US as the price
falls. This month's PC World magazine reviews a number of
residential wireless gateways, and concludes that "Once you've
tasted the wireless lifestyle, you'll never want to go back."
We think that's an accurate assessment. Installing a home
gateway router that allows multiple PCs and peripherals to
network (for file swapping and, of course, games) and share Net
access is just too cool (and useful) not to become widely
popular. How does this relate to Japan? There are already
legions of home ISDN users (thanks to NTT's atavistic
commitment to this obsolete standard) for whom configuring a
wireless gateway router will be no sweat, and, as we mentioned
last week, rabbit-warren Japanese homes are especially amenable
to wireless networking. Having the fat pipe connection makes it
all worthwhile, and as broadband's penetration grows here, we
think home or local area wireless will take off more so than
elsewhere. Here, everyone's already used to surfing untethered.
(In 1999, eMarketer predicted that by 2002, 71 percent of US
homes would *still* be surfing via 56Kbps dialup modem...)
(** The Japanese saying for "hidden connections" is, I believe,
"Kaze ga fukeba, okeya ga mokaru.")

--> Japanese venture ports i-Appli Java apps to PDAs
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=
onair/asabt/cover/127958
Source: Nikkei AsiaBizTech, April 11

EXTRACT: Software venture eValley has developed a beta version
of an emulator that allows i-Appli Java apps intended to run on
DoCoMo Java-capable keitais to run on PCs.

COMMENTARY: It was only a matter of time. But, like some
developers here, we wonder why run low-spec, low-res i-Appli
Java applications ("i-Applis") on a PC, which is capable of
much more? Unless it's because regular people (i.e. non-i-Appli
phone owners) are hearing about the new Java games and want to
try them out without upgrading their phone. We're guessing that
eValley's move is targeted more at developers than any sort of
practical, commercial gaming use. (Maybe marketing?) If eValley
carries through with its plan to port the emulator environment
to Casio's Cassiopeia PocketPCs, *that* will be cool. Another
small software house here, Zentek, has already had an
i-Appli-capable i-mode emulator (the i-Jade, available at
www.zentek.com/i-jade/) available for free download for a
number of weeks. Of course, any emulator will need to have the
DoCoMo-specific class files onboard (DoCoMo's Java is different
from everyone else's Java...). There's also a fully functioning
Personal Java implementation for all PocketPC platforms
available on the Sun site (developer.java.sun.com/developer/
earlyAccess/personaljava/), and we guess it's also only a
matter of time before some savvy Java head combines i-Jade's
class libraries with the Sun Personal Java emulator to allow
i-Applis to run on any PocketPC.

<----------------------ANNOUNCEMENT-------------------------
We now offer Wireless Watch, Gadget Watch, and JIN -- three
free, weekly email newsletters. Keep up with the latest
Japan-specific news on technology innovation -- filtered for
relevancy, annotated for context, and hot off the presses. To
subscribe, access: http://www.japaninc.com/subscribe_news.html
----------------------------------------------------------->

--> Fujitsu, Japan Radio form W-CDMA unit
http://biz.yahoo.com/rf/010411/t75133.html
Source: Reuters on Yahoo, April 11

EXTRACT: The new unit -- FJ Mobile Core Technologies, 70
percent owned by Fujitsu -- will enter Japan's promising W-CDMA
market to catch up with rivals NEC and Matsushita Electric
Industrial, and should start operations by May. The firm is
targeting JPY1.7 billion in sales for the current business year
to March 2002.

COMMENTARY: The new firm's prime customer will be NTT DoCoMo,
one of the world's first major operators to start construction
of a 3G W-CDMA network. Note that the specific flavor of W-CDMA
to be fielded by DoCoMo is different from that to be
implemented by European operators, so, pending DoCoMo
convincing any other operator to adopt its system, DoCoMo
phones won't be usable anywhere else. If you live in Japan and
you travel to Europe a lot, wait until next year and buy a
J-Phone W-CDMA keitai (J-Phone is due to launch its 3G network
in June 2002). That operator will adopt the European standard
flavor of W-CDMA (a fact not unconnected, we think, to British
Telecoms' and Vodafone's 20 and 26 percent respective stakes in
J-Phone) and, once roaming agreements are in place, there
should be little trouble using your phone in both regions.

--> Sharp, Mitsubishi to launch wireless 'Intellitag' JV
http://sg.biz.yahoo.com/010411/15/mlxq.html
Source: Yahoo, April 11

EXTRACT: The two will set up a JV to develop and market a
wireless version of the Intellitag bar-code identification
system, which is based on technology developed by (US) Intermec
Technologies.

COMMENTARY: The Intellitag system uses a small tag in which is
embedded an antenna and microchip that can store data. The data
is input or read by a radio-frequency device held up to 1.5
meters away. In the not-so-distant future, we'll all have tags!
OK -- maybe not adult humans, but dogs, pets, Fedex packages,
small children, cars, and most corporate inventory can be
tracked by having a wireless-enabled tag like this one, or even
a full-power wireless receiver-transmitter like a PHS phone,
attached somewhere. Keep in mind that one of the limitations to
the proliferation of wireless devices that can automatically
access IP networks (like the Internet) is the lack of IP
(Internet protocol) addresses (those 12-digit numbers that look
like "210.229.233.110"). The current address space, defined as
the IPv4 space, is almost used up, and there won't be more
addresses available until the adoption of IPv6 standards,
expected to provide a vastly expanded address pool, so that
each of your personal wireless devices -- phone, PDA, watch,
personal GPS unit, and car, for example -- can have a unique
address, and added features like faster transport for
time-sensitive data (like streaming video packets).
(For a quick primer on Japan's not insignificant activity in
the IPv6 area, access: http://japaninc.net/mag/comp/2000/10/
oct00_filter_new.html.)

--> Japanese telecom shares surge
http://www.teledotcom.com/article/TEL20010411S0007
Source: Reuters on Teledotcom, April 11

EXTRACT: KDDI shares jumped on news that 53-year-old vice
president Tadashi Onodera would take over as president in June;
the rest of the industry benefitted as well (NTT DoCoMo was up
3.91 percent).

COMMENTARY: It'll be interesting to compare the ages of the
DoCoMo and J-Phone presidents. Does this signal an attempt to
infuse some new blood into a monolithic telco still suffering,
some claim, from ex-monopoly mentality? Could be; KDDI is the
only major Japanese operator (actually, group of operators)
lacking a significant foreign partner. If you're heading to the
altar, it's a good idea to spruce the bride up as much as
possible, and a younger, possibly more outward-looking
president certainly can't hurt.

+++ WORTH A READ

--> Bluetooth wireless products reach market in Japan
A comprehensive review of which Bluetooth-enabled products are
available now in Japan. List includes notebook PCs, LAN access
points, and print servers, as well as Bluetooth adapters for
cellphones, printers, and PCs.
(NikkeiBP)
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=
onair/asabt/fw/127706

+++ SIGN OF THE TIMES

--> Japan wireless subscribers grow
Last week, the Telecommunications Carriers Association released
data on the number of wireless users in Japan as of March 31.
There are 60,943,400 mobile phone users (cellular and PHS), of
which some 34,567,400 use one of the wireless Web services
(i-mode, J-Sky, EZWeb, etc.). These stats are reliable and up
to date.
http://www.tca.or.jp/index-e.html

--> Received a phone call this morning from a globally branded
content owner who had seen J@pan Inc and wanted to know more
about launching content and services on Japan's wireless Web.
We told them what we tell everyone: wireless is booming,
entertainment and games are hugely popular, and the key to
creating a successful mobile Web site is to come up with a
service that can be used while someone is, literally, walking
down the street. We also warned not to underestimate the time
and effort required to build a decent site -- which can run to
three or four months and cost upwards of six figures for a
high-end site requiring significant backend integration. But we
closed by saying, "Don't hesitate!" The future is here, now,
and setting up on Japan's wireless Web is great training for
Europe and the US in the future. As compensation for our 30
minutes, we extracted a firm promise from the GBCO to subscribe
to J@pan Inc magazine... ;-)

+++ P.S.

--> Spring proves a deadly cocktail for Japanese revelers
The arrival of spring is cause for celebration in most
countries, more so in Japan with its tradition of relaxing with
some sake and good eats under a Sakura tree. But the revelry
sometimes ends in tragedy as company groups get out of control,
and forced consumption of alcohol ("ikki") is a real problem.
According to the Tokyo Metropolitan Fire Department, 131 hanami
(cherry blossom viewing) party-goers were rushed to the
hospital between March 24 and April 8, all suffering from acute
alcohol poisoning. Beer, sake, shochu (grain spirit), and
mizuwari (whiskey mixed with water), not to mention a little
stupidity, were the main culprits. A hotline has been set up,
and one caller reported that, "In our workplace, to turn down
such an order [to guzzle] could affect our future career."
Another participant who admitted to forcing a younger colleague
to drink excessively is quoted as saying, "I wanted to liven
things up."

===============================================================
STAFF
Written by Daniel Scuka (daniel@japaninc.net)

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