WW-17 -- Billing and the Business Market

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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. 17
Monday, July 30, 2001
Tokyo

INDEX
+++ Viewpoint: Billing and the Business Market
+++ Noteworthy News
- DoCoMo Targets Businesses Amid Slower Growth
- Cell Phone Use Among Young Kids Soars
- KDDI to Absorb Wireless Arm "au" in October
- NTT DoCoMo Says 3G Network Improving
+++ WORTH A READ

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+++ Viewpoint: Billing and the Business Market

A new Yankee Group study has found that wireless operators in Europe
are charging too much for General Packet Radio Service (GPRS) data
services and will fail unless they charge less (see link at end of
Viewpoint). The report states that, "without lower and more flexible
pricing we seriously doubt that consumers will be enthused and that
a mass market will be created." GPRS is a network technology that
allows 2G cellular networks to transmit packet data, enabling
GSM carriers to launch services similar to i-mode.

The key term used here is "mass market," which recognizes that making
wireless information services popular, profitable, and successful
depends on attracting very large numbers of subscribers, content and
service providers, and other third-party players. Any new industry,
such as the wireless Internet, that depends on very large reach has
to position its services at the lowest possible price point, else be
condemned to a tiny market of techno-geeks and early adopters and
ultimately fail.

Consider the fate of the Palm.net network in the US, suffering death
by disuse as almost 30 percent of wireless-enabled Palm users simply
fail to register for the anemic service or pay the usurious monthly
fees (ranging from $9.99 to $44.99 per month).

In contrast, the stunning success of i-mode, J-Phone, and EZweb in
Japan (each of which charge just a couple hundred yen each month plus
packet or airtime fees) is slowly forcing these companies to reinvent
themselves as mass-market-focused "media" companies in the same way
that AOL has.

This is particularly true for NTT DoCoMo, whose every move in the
i-mode space generates huge public and media interest. The company,
long a traditional engineering-centric telco, is fast morphing into a
services-oriented platform owner -- owner, that is, of a platform
accessed daily by some 35.7 million subscribers.

The Yankee report on GPRS in Europe said the average monthly cost to
consumers for 10MB of data is around $170, and rises to $1,500 for
100 MB (pricing for business use is about $230 per month for 100MB).
This consumer rate is slightly cheaper than i-mode's JPY300 per month
base fee plus JPY0.3 per byte packet fee, but the business rate is
higher than DoCoMo's -- and DoCoMo offers no differentiation for market
segments.

In fact, it can be argued that the European operators struggling with
how to price GPRS-based data services are **ahead** of DoCoMo, since
they're already considering how to position consumer-priced and
business-priced services, something DoCoMo is only just starting to
think about.

Companies outside Japan considering starting business-targeted data
services on the i-mode, J-Sky, or EZweb platforms are often surprised
to hear that the Japanese wireless carriers don't offer corporate
billing plans. If an SME here wants to equip 50 sales staffers with
data-enabled mobile phones, for example, that requires setting up 50
phone accounts and paying 50 bills each month, with absolutely no
discount for volume usage and no way to differentiate personal
calling or Web surfing versus business use.

Today, in Europe and Japan, carriers are billing based on the amount
of data consumed, regardless of the purpose or usage. This is a telco
approach and in the long run is unsustainable. Let's hope that DoCoMo
is using this 3G services trial period to figure out how to price
based on the type of service provided, or the kind of data
downloaded. And let's hope that the European carriers realize that
i-mode started as -- and still is -- a mass-market, consumer
phenomenon.

Free advice to any carrier thinking about launching GPRS-based data
services similar to i-mode: Palm has already dropped the ball and
failed to learn from Japan's successful model -- don't do the same.

-- Daniel Scuka

GPRS to Fail at Current Prices: Study
http://www.allnetdevices.com/wireless/news/2001/07/25/gprs_to.html

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

--> DoCoMo Targets Businesses Amid Slower Growth
http://sg.news.yahoo.com/010723/3/19mbw.html
Source: Reuters on Yahoo, July 18

EXTRACT: NTT DoCoMo is looking to repeat its consumer success with
i-mode in the largely untapped business market. "Right now we are
working on developing a corporate customer base," said Ryoji
Sugiyama, a manager in DoCoMo's multimedia division. DoCoMo
subscriber growth, which averaged 1.8 percent a month in 2000, is now
decelerating (it was just one percent in June).

Critics say DoCoMo, unlike Britain's Vodafone Group, for example, has
not adequately addressed the needs of businesses (which comprise 10
percent of its subscriber base but are often willing to pay more for
premium services). DoCoMo has quietly been building up its corporate
sales operations, with some 150 sales staff and engineers now serving
1,000 large corporations in the Tokyo area, said Kate Lye, senior
analyst at UBS Warburg.

COMMENTARY: One of the biggest problems with developing the corporate
market is lack of corporate billing (see Viewpoint above). Because
business users cannot separate personal and private calls (or
personal vs. private i-mode Web surfing), many have grown used to
tedious monthly expensing and some even carry two mobile phones.

But as DoCoMo weighs into the corporate market, the pressure on
J-Phone and EZweb will really ratchet up. Until now, the two
competitors have done reasonably well (or as well as can be expected)
competing with i-mode in the youth/consumer arena. But DoCoMo has got
the deep pockets, ownership of corporate mindshare, and ability to
coordinate with NTT East and West (landline carriers) that J-Phone
and KDDI do not.

Essentially, we can see DoCoMo single-handedly creating a corporate
market that locks out the other two based on the giant carrier's low
coordination costs, platform ownership, and marketing muscle.

--> Cell Phone Use Among Young Kids Soars
http://www.yomiuri.co.jp/newse/20010728wo64.htm
Source: Yomiuri Shimbun, July 28

EXTRACT: According to research conducted by the Life Design Institute
(a branch of Dai-ichi Mutual Life Insurance), 9.8 percent of primary
and middle school students have their own mobile phones. When added
to the number of students in the same age group who regularly use
cell phones belonging to family members, the figure rises to 40
percent. They mainly use cell phones to make calls to friends or to
ask their parents to meet them, the institute said.

COMMENTARY: Looks like the Japan wireless scene -- long fueled by the
youth market -- is expanding into the kiddy market, clearly not one
to be ignored. Even primary and middle school children are using cell
phones for voice and mail -- although they seem to be using prepaid
versions rather than having their own full accounts. Toy-maker Tomy
has sold 273,000 prepaid cell phones designed for children in the
last two years. Tomy says half of these phones are used by primary
school children (the company offers JPY500, JPY1,000, and JPY3,000
versions).

Together with the nascent development of a business and corporate
market (see previous news extract), development of the kiddy market
appears to herald the coming maturity of wireless services
(particularly email) in Japan. Are Japanese carriers' marketing folks
savvy enough to keep ARPU high by developing new segments despite the
leveling-off of new subscribers seen by i-mode recently?

--> KDDI to Absorb Wireless Arm "au" in October
http://biz.yahoo.com/rf/010724/t125868.html
Source: Reuters on Yahoo, July 24

EXTRACT: KDDI Corp. said it would absorb its wireless unit Au Corp.
in October, making the mobile operations a core business as it
prepares for Japan's 3G future. The change will strengthen the
telecoms group's ties to its mobile phone unit by consolidating its
earnings into KDDI's parent earnings.

COMMENTARY: Hmmm. Looks like the marketing folks **are** sufficiently
savvy.

Wireless analysts and industry insiders here have long speculated
that bringing Au back into the corporate fold was one of KDDI's best
options (spinning it off as a completely separate unit has also been
talked about). Wireless information services in Japan reached rough
parity about 12 months ago, and since then brand image and marketing
have been the only sources of differentiation. The Au brand struggled
to gain traction, and a weird name and zero brand image didn't help
(Is Au a youth brand? Is it a family option?) This move should help
the marketing staff considerably.

Au's crown jewels, of course, is the high quality cdmaOne network,
widely known for its technical superiority and voice quality over
DoCoMo. As an added bonus, the move allows KDDI to revise its
earnings forecasts (for the year ending next March) upwards, to JPY92
billion from JPY74 billion (before taxes, etc.).

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--> NTT DoCoMo Says 3G Network Improving
http://biz.yahoo.com/rf/010726/t20884_2.html
Source: Reuters on Yahoo, July 26

EXTRACT: DoCoMo said it has solved many of the initial problems in
the stability of its trial 3G wireless service. Connection rates have
improved to 90 percent as of July 19 from 50 percent at the time of
launch in May, and handset reliability has been boosted.

COMMENTARY: Anecdotal evidence appears to support Big D's claims. In
WW 11 (June 8), we reported on initial user impressions of DoCoMo's
new FOMA service. At that time, a trial download of a 1MB file
resulted in a speed of about 104Kbps. Also, when the handset was
located more than about 5m from the office window, reception became
problematic.

This week, one FOMA user reported a 1.7MB download in 64 seconds
using the P2401 FOMA mobile data card (PC Card format). Again, the
device was about 5m meters from the window, but this time the results
indicate a data speed of about 222.8Kbps -- Wow! -- with no
connection trouble.

+++WORTH A READ

Save Java!
Can computer makers and rebel programmers stop Microsoft from cutting
off the programming language's air supply?

Salon interview with Clay Shirky, a Hunter College professor and Net
pundit heavily involved with Java.

This is a compelling discussion of open source philosophy and
Microsoft's moves related to Java. Microsoft announced in mid-July
that it would no longer include the Java Virtual Machine in its
upcoming Windows XP operating system. The move could hurt competition
and diversity on the desktop, and Shirky thinks that Bill's
abandonment of the JVM, which lets computers run applications written
in the Java computer language, threatened to make it harder for Java
programs to proliferate. Will Microsoft successfully cut off Java's
air supply as it had done to so many other competitors?

Although Shirky doesn't mention NTT DoCoMo in particular, or even
wireless in general, he does provide a concise and insightful
statement of how Microsoft has been able to control the software
industry due to its low coordination costs. Read this interview, but
replace "Microsoft" with "NTT DoCoMo" and "Windows" with "i-mode."
You'll understand how Big D has been able to strong-arm the entire
wireless industry here into following its i-mode lead.

Salon.com:
http://www.salon.com/tech/feature/2001/07/24/java/print.html

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

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