WW-16 -- i-mode, Spam, and Advertising

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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. 16
Monday, July 23, 2001
Tokyo

INDEX
+++ Viewpoint: i-mode, Spam, and Advertising
+++ Noteworthy News
- i-mode Delay Spells Bad News for Euro Mobile Users
- IPv6 Internet Protocol Comes of Age
- Mobile Phone Subscribers in Asia-Pacific to Top 575M in 2005:
The Yankee Group
- KDDI Debuts Color Mobile Phone with Low-Temperature Polysilicon
TFT-LCD
- Flying Singapore Airlines with i-mode
+++ WORTH A READ
+++ P.S.

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+++ Viewpoint: i-mode, Spam, and Advertising

Wireless Watch readers will be aware that DoCoMo is having a tough
time with spam email on i-mode (see WW 9 and 13). Until recently,
the default email address on new handsets was the handset's phone
number followed by the i-mode mail domain (typically,
090XXXXXXXX@docomo.ne.jp). Although subscribers were free to change
this to something more personalized, few did, and since the numeric
address format followed the 090-plus-eight-digit pattern, it was
easy for spammers to generate millions of valid addresses.

Everything was fine until the spammers got carried away and some
i-moders started receiving more than just one or two unwanted
messages each day. The poop really hit the senpuki (fan), however,
when the press widely reminded i-mode subscribers that their
accounts were being billed for packet fees to receive said
increasing spam mail. (No one seemed to remember that, for years,
wireline Net subscribers were similarly being billed by their ISPs
and NTT for access and dialup fees to receive spam via their PC
email accounts. Oh, well.)

The company has already issued several "gomennasai" press releases
and announced that it will provide 400 packets of inbound mail for
free each month to compensate subscribers for the unwanted spam.

But it appears that even changing one's address to something hard to
guess, like takahashinokeitai@docomo.ne.jp ("Takahashi's keitai" in
Japanese), won't eliminate spam.

On Thursday this week, one i-mode user reported receiving spam
approximately **five minutes** after changing his address to a
non-generic name. "That process was actually a pleasure; you just
fill in your preferred choices in order on a form on a Web page, and
it comes back instantly telling you which one you got. The
changeover appears to happen instantly," said the hapless i-moder.
Obviously frustrated, he went on to speculate exactly how the
spammers got his new address so quickly. "Obviously, the new email
addresses are being leaked as fast as they are created."

The spam message, in this instance, did not appear to come from an
official partner. "It was from melon@oishii.jp," reported the
unwilling recipient, "with the subject 'Re: I understand!,' and
started out apologizing for the 'late reply.'"

But the victim's frustration with DoCoMo, however genuine, may be
misdirected. Although speculation periodically arises, few here
think DoCoMo is actually leaking email addresses to spammers, and
almost no one credits the i-mode server system with being able to
transfer newly requested email addresses to third parties within
five minutes, even if DoCoMo wished to.

One posting on the Keitai-L mailing list explained that savvy
spammers are simply adjusting their address-generating methods to
take into account the possibility of non-numerical addresses. "I saw
a program the other night," read the post, "which featured a dating
club owner talking about spam. Since many people have changed their
[i-mode] email [address] to a custom one, he was using a program to
generate emails based on names, and Japanese and English words."

Keep in mind that the Japanese syllabary is different than English.
To generate an address like thomas@docomo.ne.jp, my computer would
have to create 26x26x26x26x26x26 = 308 million names (and then
filter out the invalid combinations). To generate an address like
yumiko@docomo.ne.jp, I'd have to create fewer than 175,616
combinations.

Another post, however, reported that DoCoMo does sell mailing lists
to its advertising affiliate, D2 (a JV between DoCoMo and No. 1 ad
agency Dentsu). i-mode subscribers can opt-in to receive targeted
mailings by making the appropriate selection in the i-mode option
menu.

There's no doubt that pressure on Japan's wireless information
service operators to exploit the i-mode, EZweb, and J-Sky subscriber
databases must be eye-popping. Collectively, these represent 40.3
million (as of June 30) brand-conscious, deep-pocketed, and leisured
consumers, many of whom are willing to receive targeted,
entertaining, or informative ads by wireless -- especially if the
ads are in the form of a video clip tacked onto the end of the
latest music video or movie preview (although simple text is good
enough for killing time while waiting for the train).

-- Daniel Scuka

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

--> i-mode Delay Spells Bad News for Euro Mobile Users
http://news.zdnet.co.uk/story/0,,t269-s2091558,00.html
Source: ZDNet, UK, July 18

EXTRACT: DoCoMo had previously said that it hoped to launch i-mode
in Europe before March 2002, but on July 17 admitted that this would
not happen. The company blamed the slow rollout of GPRS services,
and claimed that local network operators are having trouble getting
i-mode to work on European systems. DoCoMo manager Midori
Matsubayashi said i-mode would probably launch in Europe by the end
of 2002, but warned that it would be hard to offer compelling
services if operators were unable to get GPRS working effectively.
The networks are also slower than originally promised -- and
although they should make WAP surfing a bit faster, they are still
too slow to support more innovative mobile Internet services such as
video streaming.

COMMENTARY: To quote the news article above, "The delay is bad news
for DoCoMo, which is trying to move beyond its Japanese power base
and achieve global dominance, but analysts believe it is also a blow
to the whole European mobile Internet industry." Let's look at the
factors involved.

First, we think GPRS (General Packet Radio Service) is being falsely
blamed. Although one of the main complaints is speed, Patrick
Reilly, head of the Cellular Communications Division at Intel, says
average data throughput on the new GPRS networks is 13-40 Kbps
(speed varies depending on configuration). This is 1.5 to 4.2 times
faster than the current i-mode speed of 9.6 Kbps -- and plenty fast
to launch innovative and compelling data services based on text,
simple graphics, and ring tones. Why can't KPN Mobile and the other
European partners understand this?

Next, the DoCoMo official quoted in the story complains about the
lack of handsets. This is almost certainly a red herring, since
money talks, and given a sufficiently robust economic incentive the
European and Japanese manufacturers are more than capable of
producing GPRS-enabled handsets in quantity. And if they can't, the
Koreans and Taiwanese will happily respond. We smell lack of guts
all round.

The real problem is that few European operators (including KPN) are
earning enough to justify the CAPEX (capital expenditure) required to
build GPRS systems (much less 3G systems). But GPRS data services
are precisely what are required to increase revenues. While the
European operators may appear to have a real dilemma, don't spend
too much time feeling sorry for them. The situation that DoCoMo
faced back in '98 and '99 was just as tough. We've said it before:
The European partners only have to do what DoCoMo did to launch
i-mode in 1999. Black & white screens, a speed of 9.6 Kbps, and
simple, compelling content will start the cycle going.

--> IPv6 Internet Protocol Comes of Age
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/fw/1353
46
Source: Nikkei Electronics on Nikkei AsiaBizTech, July 16

EXTRACT: Household appliances that comply with Internet protocol
version 6 (IPv6) will be marketed in the second half of 2001. We can
expect to see the advent of home gateways -- portals to the
networked house -- along with IPv6-compliant personal computers.
Then, commencing around the end of 2001, we'll see networked
household appliances, such as game consoles and audio/visual (AV)
equipment for home use. Finally, starting around 2003, we will see
mobile phones equipped with IPv6 capabilities. In October 2001,
Microsoft will launch Windows XP, the next version of its Windows
operating system, which will be IPv6-compatible. Mac OS X is already
IPv6 capable. In May 2001, NTT DoCoMo began field trials aimed at
utilizing IPv6 in its cellular network. The J-Phone Group plans to
equip its mobile handsets with an IPv6 protocol stack in 2003 at the
earliest. One of the prime factors driving these cellular carriers
to develop IPv6 is that the 3rd Generation Partnership Project
(3GPP) will formally adopt IPv6 in "Release 5," the specification
due to be published in December.

COMMENTARY: So what is "IPv6" and why is it significant to cell
phones? Currently, the Internet's addressing system (every computer
connected to the Net has to have a unique numerical address) is
based on a 32-bit addressing scheme -- the familiar
"210.229.233.126" combination known as IPv4. A quick calculation
shows that this address space only allows for about 1 trillion
unique addresses, and in practice it's actually less, since not all
combinations are valid. While that may sound like a lot, we're
already approaching the upper limits since addresses are used
inefficiently (see link to J@pan Inc's IPv6 in Japan story below).

Appliance makers, cellphone operators, and dog collar manufacturers
would like to assign individual addresses to their products (a car
maker, for example, may want to assign several addresses to each car
-- one for the engine, one for the rest of the vehicle, and three or
four for the onboard network). With such a system, the engine could
report its maintenance status to some central servicing network run
by the manufacturer, and you might get an email to notify you when
your tires think they are past their tread life. Presently, this
cannot be done (very easily).

IPv6 boosts the addressing space by increasing the addresses to
128-bit length. Under IPv6, each cell phone handset could have a
unique address (billions more addresses would become available), and
this would allow new services such as voice-over-IP (VoIP),
packet-level encryption, and digital broadcasting direct to your
handset. IPv6 is considered essential for 4G cellular and for
advanced 3G services.

J@pan Inc story on IPv6 in Japan:
http://www.japaninc.com/mag/comp/2000/10/oct00_filter_new.html

--> Mobile Phone Subscribers in Asia-Pacific to Top 575M in 2005:
The Yankee Group
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/moren/1
35344
Source: IT Pro on Nikkei AsiaBizTech, July 16

EXTRACT: Mobile phone subscribers in the Asia-Pacific region will
reach 575 million by 2005, surpassing the European market, according
to The Yankee Group, a US-based technology research and consulting
firm. The prediction was based on its survey focusing on 12
countries/regions (Japan, Korea, China, Taiwan, Hong Kong,
Singapore, Malaysia, the Philippines, Thailand, India, Indonesia,
and Australia) in the Asia-Pacific region.

COMMENTARY: The Yankee Group report mentioned here states that CAGR
(compound annual growth rate) in the A-P region will be 20 percent
in the next five years, and average wireless penetration will
increase to 15.60 percent (starting from 6.93 percent in 2000).
Also, the report said that key drivers would be telecom
deregulation, the expansion of prepaid services, lower handset
prices and service charges, improvements in mobile data services,
and general economic growth and population expansion.

Hmmmmmm. We're overwhelmed by the continuous stream of wireless
predictions that appear day to day, and usually ignore most. If you
don't like one set of numbers, just wait a day or two, and you can
probably find some more to your liking.

But this report had something we haven't seen recently -- a
prediction related to infrastructure spending. The YG thinks some 40
percent of global wireless infrastructure spending from 2001 to 2005
will be generated in the Asia-Pacific region. In particular,
spending in **Japan** and China will be brisk. With Japanese
operators tripping over themselves to roll out 3G networks in late
2001/1H2002, this estimate appears to be on target. We've seen
several US- and UK-based infrastructure-related companies open
offices in Tokyo in the past six months. Maybe they subscribe to The
Yankee Group reports?

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--> KDDI Debuts Color Mobile Phone with Low-Temperature Polysilicon
TFT-LCD
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/13
5727
Source: Nikkei Electronics on Nikkei AsiaBizTech, July 19

EXTRACT: KDDI's AU Group announced it will start marketing mobile
phones with low-temperature polysilicon TFT LCD displays in August.
Toshiba manufactures both the color LCD panels and mobile phones.
The number of displayable colors is 4,096.

COMMENTARY: Toshiba claims to have developed the world's first
polysilicon TFT LCD. According to the company, contrast, color
quality, and response speed have been improved dramatically,
providing extremely good displays. Keep in mind that i-mode,
J-Phone, and EZweb are now well into their third year of operation
and are very mature -- the customer base is likewise mature, and
comprises a market that absolutely demands high-quality color
displays.

The **launch** of Japan's wireless information services, however,
was done on B&W screens (i-mode, for example, started in February
1999, but only introduced the first color handsets in the summer of
2000). More importantly, i-mode created its virtuous circle
(increasing content providers attracting increasing subscribers,
which in turn attracted even more content providers) based on B&W,
low-res graphics. Lesson to anyone trying to do likewise: Don't
waste your time or money trying to market color handsets (they're
too expensive for a neophyte subscriber base). Concentrate on
attracting a large number of good-quality content providers to build
your user base first.

--> Flying Singapore Airlines with i-mode
http://sg.news.yahoo.com/010718/12/19f7b.html
Source: Yahoo News, Singapore, July 18

EXTRACT: From 20 July, subscribers to DoCoMo's i-mode service will
be able to access Singapore Airlines' flight status and flight alert
services in Japanese from their cellphones (this is the airline's
first non-English service). SIA's flight status gives users the
departure and arrival schedules, as well as real-time updates of any
flight's status, so users will be informed of early or delayed
arrival times.

COMMENTARY: i-mode's handlers have unusually strict requirements for
airlines to list on the official default menu. Not all Japanese
airlines have done so, and, except for Northwest, no foreign
airlines have. Requirements include being able to access real-time
flight information, although this is relaxed somewhat for the
foreign airlines.

But despite meeting substantially all of DoCoMo's requirements, SIA
has chosen to go the unofficial route (its i-mode site address is:
www.singaporeair.co.jp/i/), and this new service is not listed on
the official menu. SIA obviously feels that a large number of its
passengers use i-mode, and it also feels that there was no need to
deal with Big D's bureaucracy to get official menu sanction. We
wonder if more foreign operations will choose this route to reach
their Japan-resident customers. Why not? DoCoMo is, after all,
merely the pipeline, just like any other ISP.

+++WORTH A READ

Only 11 Percent of WAP Sites Usable
A study released by Argogroup shows that only 11 percent of WAP
(Wireless Application Protocol) sites are usable by all devices on
the market (according to industry usability guidelines). The
research highlights implementation of WAP services as the major
inhibitor of consumer uptake of the mobile Internet. Argogroup used
its Wireless Wanderer technology to evaluate a sample of 1,596 WAP
sites, using the already-published usability guidelines that served
as the foundation for the (GSM World) M-Services guidelines. The
results showed that only a slim majority of applications (874, or 54
percent) would work on at least one WAP device, indicating that
almost half of all WAP applications simply will not function on any
phone.

This is an interesting breakdown on just how usable the non-Japanese
WAP webs are. At the risk of being just a teensy bit judgmental, it
would appear that the Japanese WAP operator -- EZweb -- is in no way
included in Argogroup's study. We can't imagine any of the official
EZweb sites being anything less than fully accessible by all EZweb
handsets, and we guess that the majority of non-official sites are
fully accessible. This may change with the June launch of
Java-enabled handsets, but not by much. KDDI appears to know what
it's doing -- largely because it has emulated DoCoMo.
(http://www.thewapgroup.com/cgi-bin/wapnews/viewnews.cgi?category=8&
id=995707645)

+++ P.S.
Virgin Seeks Japanese Cinema Partner
Richard Branson is seeking a partner for Virgin Group's Japanese
cinemas in a corporate restructuring which may lead to a partner for
the whole entertainments business, a newspaper has reported. Having
sold its UK cinemas in 1999, Virgin might even sell the chain of
five Japanese movie theaters it owns for 60-70 million pounds, the
Daily Telegraph said. "We're not actively looking for a partner but,
personally, I think it would be healthy to have one," Simon Wright,
chief executive of Virgin's entertainment unit, was quoted as
saying. Wright denied that he was under pressure from Branson,
high-profile tycoon and Virgin chairman, to sell part of the
entertainment businesses to support other parts of a group that
includes planes, trains, and mobiles, the newspaper said.

We think Branson is still eyeing the Japanese cellular market,
possibly as a VMO (virtual mobile operator). And why not? It would
add an interesting dash of competition to the mix of operators, all
of which own their own networks. But it may not be possible to
operate in virtual mode here (regulations, regulations,
regulations), and Virgin may have to invest into a PHS network or
two. Only in Japan would a foreign entertainment conglomerate be
considering the cellphone biz. Hey! PHS provides 64 Kbps and there's
plenty of spare bandwidth for data services. Go for it, Sir Dick!
(http://uk.news.yahoo.com/010717/80/byf5k.html)

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

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