WW-11 -- America's Net Follows Japan's Lead

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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. 11
Friday, June 8, 2001
Tokyo

INDEX
+++ Viewpoint: America's Net Follows Japan's Lead
+++ Noteworthy News
- Japan's Omron Develops Fast 3G Chip to Run Java
- NTT DoCoMo Denies it Ignored Sony Warning on Cellphones
- DoCoMo Ignored Warnings About Faulty Mobile Phone, Company Says
- DoCoMo 3G Cell Phone Service Receives Mixed Reviews
+++ Worth a Read
+++ P.S.

<----------------------------ANNOUNCEMENT----------------------------

We're on the Air!

The BBC recently interviewed J@pan Inc about 3G. See Editor at Large
Daniel Scuka online at:
http://www.bbcworld.com/Content/clickonline/week22_2001/click_one.asp

-------------------------------------------------------------------->

+++ VIEWPOINT
America's Net Follows Japan's Lead

You'll pardon the rather cheeky headline. While it's intended to be
read partly in jest, we're quite serious on at least this point:
Japan's Internet -- unfolding largely on a wireless platform -- is
already occupying the space that the Net in the US and the rest of
the world should aim for.

This week, respected research firm Jupiter Media Metrix released a
report that found just four companies control 50 percent of US user
minutes online, down from 11 in 1999 and seven last year. The number
of companies controlling 60 percent of online user minutes fell from
110 to 40 to **14** over the same two-year period (an 87 percent
decrease!).

The Big Four? AOL Time Warner, Microsoft, Yahoo, and Napster. Joining
these heavyweights in the next-higher 60-percent control slot are
Juno (a 4-million active user ISP), eBay, Excite Network, Walt Disney
Internet Group, Lycos, and CNET, among others. Is the US Internet
fragmented? Clearly not -- it's becoming highly concentrated. Is
infinite competition pushing the cost of all content and services to
zero? Nope. In fact, this year's trend is to start charging or
increase charges for content and services (AOL's access fees went up
for the first time in Net history, baseball fans are now paying for
the privilege of listening to streaming major league games, and
services that were once free -- like Napster and online file storage
-- are shifting to for-fee models).

In other words, at the height of the Net bubble 12-24 months ago, US
surfers were presented with a large degree of choice for (mostly)
free content and services, but the outcome is that most surfers now
tend to use the same (relatively few) sites and services owned by
just a handful of major players and, finally, are being obliged to
pay for content. Those players -- like Microsoft and AOL Time Warner
-- tend to own not only the means of access (the browser, the OS, the
ISP connectivity), but also the content and the services. We're not
sure if this scares anyone else, but it certainly worries us --
hyperexcessive concentration of the entire online experience in a few
corporate hands can't be good for anyone (except, of course,
stockholders of those corporations).

The evolving for-fee aspect of the US Net is emulating Japan's lead,
but the concentration of content in the hands of the corporate few is
radically unlike the situation here. In Japan, choice -- of a wide
variety of shopping, entertainment, and information services (most
owned by a multitude of small to medium content providers) -- exists,
and is growing on both the wireline and wireless Web. There is
healthy competition between dialup ISPs, and broadband providers are
slashing prices while service areas and quality improve.

In particular, business for wireless content, application, and
service providers is booming. As of April, i-mode had approximately
**1,000** content owners pushing content through some 1,600 official
sites, and there are additional owners/sites on the other large
wireless services.

Further, the mobile Web here remains a valid entry point for startups
to launch innovative services, which in turn generate opportunities
for secondary and tertiary content and service providers, system
integrators, and software developers. Good- to high-quality mobile
content and services are served to millions each day, for reasonable
prices. Meanwhile, the Web-related startup scene in the US is -- like
a fresh fugu at a Ginza sushi shop -- facing imminent and utter
demise.

Moreover, neither DoCoMo nor any other single player controls the
entire wireless Net experience; at least, the operators certainly
don't control the content. DoCoMo, J-Phone, and KDDI merely provide
the platform together with the rather nifty micropayment billing and
collection services. Sure -- Big D will gate and stop some content
and services from appearing on i-mode (especially porn and one-to-one
dating/matchmaking), and dealing with the 900-lb gorilla operator's
bureaucracy and ego is a pain in the rear. But, (a) the lack of porn
is arguably no great loss, and (b) the damn system works, so at least
there's a payoff in the end.

Japan's wireless Web is where the rest of the Internet ought to be,
and perhaps where the US Web would be if it hadn't been for the
dot-com craziness. In its own measured, thoughtful, and inclusive
way, Japan's Net is evolving quite differently than anywhere else.

Maybe the rest of the world can get serious about the Internet, and
catch up to Japan.

--Daniel Scuka

<----------------------------ANNOUNCEMENT----------------------------

For Wireless Watch readers only!

Each week, Wireless Watch gains 70 new subscribers. Wow! To show our
appreciation, on June 15 we'll give those of you who get this
newsletter AND subscribe to the mag free online access to the
magazine's July feature on wireless -- you'll see it two weeks before
anyone else!
Free! Watch for it on June 15. THANK YOU!
-------------------------------------------------------------------->

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

--> Japan's Omron Develops Fast 3G Chip to Run Java
http://dailynews.yahoo.com/h/nm/20010604/tc/tech_omron_chip_dc_1.html
Source: Reuters on Yahoo, June 4

EXTRACT: Japanese electronic control components maker Omron announced
it has developed a microprocessor for cellphones that is 10 times
faster than existing processors. The chip, designed to work with the
Java programming language, was developed for 3G mobile phones. Omron,
which is diversifying into computer system products, aims to ship 10
million chips in two years.

COMMENTARY: Processor speeds are one significant bottleneck limiting
streaming video and audio, videoconferencing, and other sophisticated
mobile services (battery life and heat dissipation are also
problems). Display of MPEG 4-compliant images, video, and audio can
be implemented either through an onboard software application or
through a specialized ASIC (Application Specific Integrated Circuit)
chip. Currently, the most practical solution is implementing the
MPEG-4 video codec in silicon. Software implementations will have to
wait for portable CPUs having 100MIPS or better performance. There's
no word on the speed of Omron's new chip, but we understand typical
processor speeds now are in the 30-50 MIPS range, so maybe this one
runs at upwards of 300 MIPS?

Streaming multimedia is expected to be a big revenue generator on
2.5G and 3G. Video and news clips, sports, entertainment, and ads are
all touted to enjoy widespread usage, so long as the files can be
delivered at reasonable costs.

--> NTT DoCoMo Denies it Ignored Sony Warning on Cellphones
http://sg.biz.yahoo.com/010606/15/sjnl.html
Source: Dow Jones on Yahoo, June 7

--> DoCoMo Ignored Warnings About Faulty Mobile Phone, Company Says
http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20
News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht
&s2=ad_right1_topfin&bt=ad_position1_topfin&middle=ad_frame2_top
fin&s=AOx206BaXRG9Db01v
Source: Bloomberg, June 6

EXTRACT (Dow Jones): NTT DoCoMo has denied a media report that it
ignored a warning from Sony about software glitches with Sony's
SO503i Java-enabled mobile phone handset. "We deny this report. There
never was a warning from Sony," said a senior spokesman at DoCoMo.
DoCoMo also said that it held talks with Sony about the software
glitches and that Sony admitted full responsibility for the technical
problems. "Sony told us this was absolutely their fault. A memorandum
of understanding was signed on May 11 between top officials at both
DoCoMo and Sony regarding this issue," said a senior spokesman at
DoCoMo.

EXTRACT (Bloomberg): DoCoMo waited more than a month to order the
recall of 420,000 of the S0503i phones, said Kanji Ohnishi, head of
product planning at Sony's handset division. Sony shares posted their
biggest one-day decline in five weeks on the first trading day after
the recall was announced May 11. "We were slack," said DoCoMo
spokesman Toru Hinata, acknowledging the delay for the first time.
"If we had checked when we received reports about data leaks, the
recall would probably have happened earlier." On April 10, software
engineer Kenichi Sugimoto demonstrated that he could steal
information from the Sony handset onboard memory, a finding he then
posted on a Web BBS. That posting was picked up by a reporter for the
Nishi-Nippon newspaper, who contacted DoCoMo about the possibility of
data leakage from the Sony models. DoCoMo's response? "There are no
such problems." (We guess DoCoMo was wrong!)

COMMENTARY: Both stories give a fascinating first peak behind the
heretofore solid wall of silence surrounding the undoubtedly
expensive recall of the Sony Java phone. Neither Sony nor DoCoMo has
commented on the cost of the recall, but the total (including lost
sales) may rise to JPY22 billion, according to JP Morgan Chase & Co.
analyst Hiroshi Takada. Matsushita (Panasonic) has also recalled its
i-mode Java handsets, and the company estimated the cost of this
recall at about JPY3 billion.

DoCoMo is having a helluva time with Java and with its new 3G
handsets. J-Phone has already delayed the rollout of its 3G network
because the handset makers "aren't ready yet," and there are some
rumors that J-Phone's 2.5G Java service (due to launch on the Sharp
J-SH07 handset -- see Wireless Watch No. 09) might be delayed past
its scheduled by-the-end-of-June launch.

What we may be seeing is the beginning of the end of the carriers'
dominance of Japan's wireless industry. The phones (specifically, the
onboard software environment) are becoming too complex and the sums
involved -- when something goes wrong -- too large for DoCoMo to
maintain its traditional tight control over the makers. The makers,
in turn, increasingly need the help of specialized software
developers, systems integrators, and third-party application
creators, which will increasingly force the opening of the handset
market. "There's no SI for telecoms in Japan," said Frank Sanda, head
of mobile software developer Japan Communications, in a recent
interview. He's right -- where's Japan's Logica? Or Openwave?

It's time for the industry here to grow up and get past the
carrier-centric, paternalistic engineering development practices of
the past. What an embarrassment that DoCoMo and Sony, two of the most
sophisticated engineering and software companies in the world, are
flinging mud at each other over who's responsible for the Java
glitches.

Free advice for both:

DoCoMo -- Loosen control and let others (maybe smaller startups?)
into the handset R&D process. You'll be pleasantly surprised at the
quality that Japanese third-party SIs can crank out absent your
overbearing control.

Sony: Grow up and stop depending on DoCoMo to hold your hand. Just
for once, have the courage to funnel your newest models to an
operator other than Big D. Sure -- DoCoMo calls the shots in Japan,
but the Sun neither rises nor sets over the Sanno Park Tower, and
you're going to have to learn how to compete with Nokia and cooperate
with Ericsson all on your own if your handsets are ever to be ported
to the rest of the world in any significant numbers. It's time that
Japanese handset makers ended their obsessive-compulsive domestic
relationship with Ma DoCoMo.

<---------------------------ANNOUNCEMENT----------------------------

Attention JI subscribers: The June issue of J@pan Inc magazine
is now available online. The table of contents can be viewed at
http://www.japaninc.net/mag/current.html

------------------------------------------------------------------->

--> DoCoMo 3G Cell Phone Service Receives Mixed Reviews
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/moren/132281
Source: Nikkei AsiaBizTech, June 7

EXTRACT: DoCoMo began its 3G test service on May 30 in Tokyo and
parts of Kawasaki and Yokohama. On May 31, users were unable to
receive email because the server had broken down, and service was not
restored until past noon the following day. There have also been
complaints that it is often difficult to make calls within Tokyo and
the batteries do not last long. But users have commented favorably on
the smart design of the 3G handsets, as well as on Foma's superior
sound quality and high-speed downloading of i-mode content.

COMMENTARY: Off to a rocky start, but at least the phones seem to
work more or less as intended. The reduced battery life was expected
all along, and some developers here say that the batteries will be
back up to snuff in one or two product cycles. There were plenty of
mail and i-mode server outages in 1999 and 2000 as 2.5G i-mode was
ramping up, and now the system works pretty reliably, so the same
will likely happen on the 3G system.

DoCoMo is billing JPY26 per 30 seconds when 3G terminals operate in
circuit-switched mode, and JPY0.05 per 128 bytes in packet-switched
mode. To transfer 1MB of data, it would cost JPY130 in CS mode and
JPY410 in PS mode. In other words, PS mode is twice as fast as CS,
but three times more expensive.

According to a January survey conducted by NTT-X and Mitsubishi
Research Institute (7,700 respondents), some 98 percent of i-mode
users stated they were interested in using Foma (brand name for the
3G service). 12.8 percent answered that they were willing to pay an
additional JPY1,000 per month for the new mobile phone service, while
85.2 percent were willing to use a 3G service provided that the
monthly bills remained at about current levels (JPY770 per month for
content). Keep in mind that early surveys prior to the 1999 start of
2.5G i-mode showed that users would only be willing to pay a little
for data services -- subsequent usage has demonstrated that, in fact,
they'll pay plenty.

<--------------------------ADVERTISEMENT----------------------------

It's coming ...

the Second Annual Investor Issue of J@pan Inc magazine, covering
VCs, the stock markets, fund managers, investment banks, and more.
If it has to do with money and investing in Japan -- and it matters
now -- it'll be in this special issue. If you'd like to advertise,
contact sales@japaninc.com. (Deadline for ad orders is June 15. In
the same issue: a special advertising section on the broadband
market in Japan.)

------------------------------------------------------------------->

+++ WORTH A READ

--> First Impressions of the Foma 3G Wireless Data Card
A posting on the Keitai-L mailing list includes lots of first-hand
details on the installation, setup, usage, and data speeds seen on
one of the Foma 3G data card (PC Card-format wireless modem).
Highlights:

** The card works in two modes: circuit-switched at 64 Kbps and
packet-switched at (presumably) 384 Kbps.

** A trial download of a 1MB file resulted in a speed of about 104
Kbps -- not bad, but far less than 384 Kbps.

** The radio signal is barely OK at places within five meters from
the office tower window, probably due to the trial nature of the
service. (Note: This posting refers to the Ebisu Garden Place Tower
in the Ebisu district of Tokyo, about 3 km from J@pan Inc's offices.)

** The card is bundled with an external antenna.

** In 64-Kbps circuit-switched mode, round trip time for making a
connection to the ISP (in this case, DoCoMo's Mopera service) was
longer than for a comparable ISDN wireline connection to a Tokyo ISP
dial-in access point (POP), at about 430ms. (Note: One recent GPRS
trial in Europe found the average round-trip time to the WAP gateway
from a GSM handset was 1.8 seconds, indicating that the "user
experience" on Foma may be significantly better than on GSM/GPRS,
which claims a theoretical maximum speed of 171.2 Kbps.)

Keitai-L Mailing List
(http://www.appelsiini.net/keitai-l/archives/2001-06/0010.html)

+++ P.S.

First female stalker busted
A Saitama woman who refused to stop contacting her ex-lover has
become the first woman to be arrested under Japan's new stalking law.
Junko Tsukamoto, 31, was arrested for ignoring a police order to stop
sending email to the man who jilted her in 1999. Tsukamoto is
suspected of sending over 2,000 email messages to both the man's
office PC and his mobile phone. Most of the mail implored him to
leave his current girlfriend and return to her. Didn't the guy
realize that he could change the address on his keitai and that all
mail sent to the previous address would then be bounced back? Hmmmm.
Maybe wireless email has become **too** convenient. ;-)

(Mainichi Shimbun)
http://mdn.mainichi.co.jp/news/20010607p2a00m0dm001000c.html

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

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