WW-08 -- Why the Wireless Web Works, Whether in Tokyo, Toronto, or Trieste

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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. 8
Friday, May 18, 2001
Tokyo

INDEX
+++ Viewpoint: Why the Wireless Web Works, Whether in Tokyo, Toronto, or Trieste
+++ Noteworthy News
- Look Out, DoCoMo -- Someone's Gaining on You
- DoCoMo, Call Home
- J-Phone Keeps J-Sky Network Closed, Fears Revenue Decrease
- Cybird to Partner With Commerce21 in Mobile E-Commerce
+++ Worth a read
+++ P.S.

+++ VIEWPOINT

Why the Wireless Web Works, Whether in Tokyo, Toronto, or Trieste

In the past week, we've been contacted by a Hong Kong-based VC,
journalists from Germany and the UK, and a couple of US market
researchers, and all sought answers about why wireless -- and in
particular, i-mode -- works. Our answer to such queries (after, of
course, "Subscribe to J@pan Inc!") is don't get caught up in cultural
interpretations. We often read articles in Western media -- even tech
publications that should know better -- that dismiss the wireless
Internet and i-mode as some weird Japanese phenomenon. One standard
retort is, "Oh, it's all about Hello Kitty downloads," implying that
i-mode will fail in other, more sophisticated, markets. Another is,
"People outside Japan won't accept usage-based packet billing -- they
want to know precisely what the bill will be every month, and want
flat-rate metering." The final, and most oft-repeated, is, "The
Japanese spend all their time commuting, so of course they surf on
the keitai. Here in San Francisco (or New York, Dallas, London,
Paris, or wherever), we drive to work and have monster desktops at
home, so we don't need cellphone access."

These arguments are utterly wrong -- though the mistake is
understandable, as noted in the latest J@pan Inc Newsletter (No. 132)
-- and i-mode is clearly a success due to factors that have little to
do with culture or usage patterns that are in any way unique to
Japan, and everything to do with providing useful services that
people (anywhere) will wish to use. Here's a handy list of what gets
an i-mode network going, whether in Tokyo or Trieste, that you can
print and tape to your monitor:

** Packet Switching
Provides always-on functionality and reduces waiting time (a big
criticism of circuit-switched WAP 1.0-based wireless information
services), encouraging users to reach for the phone whenever they
like. The result is even greater usage.

** Packet Billing/Low Packet Fees
Allows mobile surfers to pay precisely for what they use, and
encourages them to leave the phone permanently switched on. This also
helps encourage greater usage, and so long as the packet fees are
just a pittance, people won't worry about the bill (see "Low Content
Access Fees" below). Want to send an i-mode email? It'll cost you
about JPY1.

** Content Micropayments
Provides a way for content providers to earn revenue (thus greatly
encouraging new and renewed content efforts), as well as boosting the
network operator's bottom line, since the operator serves as the
billing agent.

** Low Content Access Fees
Subscribers won't think twice about subscribing to access a favorite
site when the cost is just a couple of dollars per month.

** Semi-Walled Garden
Increases user interest since any Web site is accessible; some of the
best i-mode sites are not operated by official content partners (by
last winter, some 50 percent of data traffic on DoCoMo's i-mode
network was going to the unofficial Web sites). Also provides even
more content at no cost to the network operator.

** High-Quality Terminals
This is key, since long battery life and large TFT LCD color displays
are key for boosting the user experience. The long battery life
permits the user to leave the terminal switched on (see "Packet
Billing" above). Besides, color displays allow content providers to
compete based on brand image.

** Low Barrier for Content Providers
The operator uses existing Internet-standard protocols (HTTP, SMTP,
URL, et cetera) so as to offer potential content providers as low a
barrier to entry as possible. Any Web developer worth their salt can
quickly turn out an i-mode Web site with little additional learning.

** Content Control
The operator selects and controls all content that will appear on the
portal menu, ensuring high quality and influence over content owners,
and that the brand name and service offering are unified; the portal
"owns" the customer. The content is specifically gated to consist of
services, entertainment, and applications useful to people on the go.

None of these factors, you'll note, refer to culture, Hello Kitty, or
commuting. Granted, the intense, public transportation-based
commuting lifestyle of many people in the Tokyo/Osaka area
contributes to the hyperusage of i-mode in Japan, but the lack of a
similar commuting culture elsewhere won't preclude i-mode or the
wireless Web from being successful outside Japan. Teenagers are
teenagers wherever, and I suspect that US teens have just as much (if
not more) free time to idle away on the tiny screen as do their
Japanese counterparts. If AT&T Wireless or KPN wants to be successful
at sparking the growth of their own i-mode networks, they simply have
to make sure their i-modes are built on the factors listed above.

Speaking of building i-mode outside Japan, here's some irony
unimaginable just a year ago. A newsletter issued by Peter Friedland
and Neil Doshi at financial services firm WR Hambrecht & Co. (URL
link below) states in part:

Although not officially announced in a press release,
Openwave noted that AT&T Wireless plans to use Openwave
for 2.5G and 3G mobile Internet infrastructure. We believe
this is significant given that in November 2000, AT&T Wireless
announced a partnership with NTT DoCoMo to deploy i-mode
services in the United States. At the time, the announcement
raised concerns that AT&T Wireless would replace Openwave's WAP
gateways with DoCoMo痴 i-mode technology. Under Openwave's
agreement with AT&T Wireless, Openwave will supply 2.5G and 3G
mobile Internet infrastructure services that will support both
WAP and i-mode technology.

Looks like the first i-mode network in the US is going to deploy on
WAP!

-- Daniel Scuka

WR Hambrecht & Co. report:
http://www.wrhambrecht.com/research/coverage/wireless/ir/ir20010202.pdf

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

--> Look Out, DoCoMo -- Someone's Gaining on You
http://www.businessweek.com/magazine/content/01_21/b3733162.htm
Source: Business Week Online, May 21 issue

EXTRACT: With the recent renewed investment by Vodafone (which now
owns 46 percent of J-Phone), J-Phone is about to become part of a
global empire, centrally run by an aggressive British team. In
comparison, DoCoMo is buying minority stakes in carriers around the
world to win footholds in local markets--a timid strategy that avoids
controlling non-Japanese telcos. If DoCoMo hopes to build up a
heavyweight global presence of its own, it may be time to start
taking lessons from Vodafone.

COMMENTARY: We like J-Phone. The No. 3 wireless carrier here has
spunk, focus, and great mobile Net services -- in many cases better
than similar services on i-mode or EZWeb. The founders of i-mode
freely admit that the explosion of entertainment was one aspect of
i-mode they never forecast. Meanwhile, entertainment and
youth-oriented services is **the** selling point for J-Phone, and
sell it does (the carrier claims to have 50 percent of the teen
market). This is not the first report hinting that J-Phone will
overtake No. 2 EZWeb to go head-to-head with i-mode, and we think
J-Sky's music/ring tone/karaoke download sites, the location-based
merchant coupon services, maps, mail, and chat all hit the wireless
Web sweet spot with deep-pocketed teens and twentysomethings. Next:
Can Vodafone export this success to Europe?

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--> DoCoMo, Call Home
http://www.forbes.com/global/2001/0514/040.html
Source: Forbes.com, May 14

EXTRACT: If you want to know how cozy business gets in Japan, take a
look at NTT DoCoMo's hot-selling i-mode wireless data service. It's a
great deal for DoCoMo, since wireless data fees will account for 10
percent of mobile-phone use and help boost revenues to an expected
$40 billion this fiscal year. But it's a terrible arrangement for
40,000 "unofficial" sites -- those not blessed by DoCoMo. They are
raising a ruckus about how closed the system is. DoCoMo executives
"have set themselves up according to their own group of exclusionary
alliances centered on Old Economy companies."

COMMENTARY: On one hand, this article rightly points out that
DoCoMo's arbitrary and opaque listing standards exclude content
providers that otherwise would seem to be excellent candidates,
maintaining an exclusionary monopoly and a barrier to business.
There's a good argument to be made that these constitute unfair
practices that merit the attention of antitrust regulators. On the
other hand, it's DoCoMo's network, it's DoCoMo's service, and it's
DoCoMo's business. There's no reason in the world why they have to
justify which content providers get access to the portal, and which
get excluded. Also, opening up the portal to anyone (see Viewpoint
above) will help dilute the value of the portal. Is anyone demanding
that Yahoo make its listings open to everyone? And don't complain
that i-mode is the only game in town or that there's no competition.
As of April 30, J-Sky (see previous item) and EZWeb had amassed 13.9
million subscribers between them (that's more than half as many as
i-mode), thank you very much.

It appears that the job of assessing new applications is nothing if
not tiring and frustrating. DoCoMo has assigned 15 people to look
after content partner affairs, and the team receives some 100 new
applications each week. One source in the company said, "We [meet]
for hours at a time debating the pros and cons of each. There is
nothing arbitrary about the way we do business. People have proposed
that they could do that job for us. I wonder where they would get
their staff? I believe that within DoCoMo we have assembled an
excellent team, with years of experience, and have seen almost
everything in way of a proposal. I believe that for someone else to
do it they would first have to headhunt our entire staff. Maybe they
should -- because we would probably be paid more." Wow! What's the
best solution? Sure they're trying hard, but it may be impossible to
eliminate any perception of high-handedness. In the interests of
fairness and optics, one of the best things DoCoMo could do is make
detailed listing standards public, and appoint an arms-length
ombudsman to arbitrate claims of improper exclusion. Oh, and give the
content partner team a little time off. ;-)

--> J-Phone Keeps J-Sky Network Closed, Fears Revenue Decrease
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/130134
Source: Nikkei AsiaBizTech, May 14

EXTRACT: J-Phone said it will keep its J-Sky service network a closed
one for the time being. The Ministry of Public Management, Home
Affairs, Posts, and Telecommunications has been asking NTT DoCoMo to
open its i-mode network, but has not asked other cellular phone
communications companies. J-Phone Group predicts that if the network
is opened, then the additional value of the services will be
lessened, which may lead to a revenue decrease. For that reason,
J-Phone considers the early opening of J-Sky's network to be less of
a benefit, unless the ministry makes the request.

COMMENTARY: DoCoMo obviously isn't the only operator intending to
keep a firm hand on its portal, although it does allow i-mode
subscribers to access any site on the Net by manually entering the
URL (it's a semi-Walled Garden). J-Phone is taking an even more
restrictive approach, and it will be interesting to see whether the
government insists on all three wireless information services being
opened up. If they do, it's a mistake. As stated above, an
arms-length ombudsman might be the way to go.

--> Cybird to Partner With Commerce21 in Mobile E-Commerce
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/moren/130507

EXTRACT: Cybird, which designs and administers Web sites for mobile
phones, announced that it would form an alliance with Commerce21, an
electronic-commerce solution vendor, in the mobile e-commerce field.
Cybird uses "Commerce21," an e-commerce site construction package,
for its mobile e-commerce solution business.

COMMENTARY: Still on the topic of who controls the portal on any
wireless information service, this item neatly addresses one of the
most serious complaints coming from those excluded from operators'
official menus: They have no way to take advantage of the carrier's
fees-on-the-phone-bill service, effectively blocking them from
micropayment e-commerce (or any other kind of e-commerce). Efforts
like those of Cybird and Commerce21 to deploy third-party payment
solutions independent of the carrier could give a tremendous boost to
the non-official wireless sites. The Commerce21 platform comprises
Commerce21 Premium, Commerce21 Enterprise and Commerce21 Malls&Malls,
and some 50 enterprises have introduced these solutions here to date.
In Japan, existing options include Yenraku (Openloop and On the
Edge), Biglobe Liquidation (NEC), and Mobile@nifty (Nifty KK).
Allowed fees range from JPY1,000 to no limit, and services fees range
from 5-20 percent or consist of a flat fee per transaction. All of
these are credit card based, but there are also prepaid card systems,
and one based on payment from post office savings accounts.
Ironically, NTT itself also offers a billing solution based on
transferring e-com fees to a buyer's home telephone line bill. NTT
DoCoMo has already announced that it is studying ways to offer a
similar service to i-mode subscribers.

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+++ WORTH A READ

--> A Wireless Generation Gap
With emerging 4G technologies promising to be cheaper and more
efficient than 3G, companies that skip a generation could win big. An
interesting take on how 3G appears to be the overpriced solution that
no one can make any money with. Meanwhile, 2.5G in Japan continues to
earn bags of cash.

(Business Week Online)
http://www.businessweek.com/bwdaily/dnflash/may2001/nf20010517_156.htm

+++ P.S.

E-mail killer under new cloud
A man who has confessed to slaying a woman he met through an email
dating site is the prime suspect in the murder of another woman,
police said Wednesday. Hiroaki Nishijima -- arrested Tuesday for
murder -- is presumed to have killed 28-year-old Misako Miyauchi,
whose body was found earlier this month in a secluded area of Kyoto
Prefecture. It appears that the suspect contacted his victims via
mobile phone both by calling and by email. Maybe DoCoMo wasn't being
overly cautious when the operator banned dating, matchmaking, and
meeting services from the official i-mode menu?
(http://mdn.mainichi.co.jp/news/20010516p2a00m0dm003002c.html)

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STAFF
Written by Daniel Scuka (daniel@japaninc.com)

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