WW-18 -- WAP Embraces i-mode... Well, Not Quite

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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. 18
Monday, August 6, 2001
Tokyo

INDEX
+++ Viewpoint: WAP Embraces i-mode... Well, Not Quite
- France Telecom Hopes to Enter Japanese Mobile Phone Market
- KDDI in Talks to Lease PHS Network to New Entrants
- Deutsche Telekom Moves to DoCoMo-style Mobile Web
- KDDI to Offer E-com Services via EZweb
- Study: Japanese Digital Music Market to Boom
+++ WORTH A READ
+++ PS

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+++ Viewpoint: WAP Embraces i-mode... Well, Not Quite

On Wednesday last week, the Wap Forum (www.wapforum.org) issued the
WAP 2.0 specifications for public review. WAP (for Wireless
Application Protocol) is, of course, the infrastructure technology
whose 1.0, 1.1, 1.2, and 1.2.1 versions failed to ignite any sort of
mobile Net access revolution in either Europe or the US, and in fact
contributed signally to the wireless Web's failure in all markets
(except, ahem, Japan).

For some 12 months now, "WAP" and "crap" have been strung together in
an oft-repeated coupling as countless industry watchers, wireless
developers, content creators, and hapless peripatetic surfers have
rendered their opinions on WAP's overall quality. We've heard
repeatedly about the lack of services and content, the absent billing
systems, the terrible monochrome screens, and the slow connection and
data speeds which have all but doomed most WAP deployments.

But WAP 2.0, according to the WAP Forums news, should go a long way
toward solving WAP's current deficiencies by adopting support for the
xHTML content development language and the TCP/IP packet-switching
protocols. xHTML is highly similar to i-mode's cHTML, and offers an
easy learning curve to Web developers, while TCP/IP is the widely
used Internet packet-switching technology similar to that used on
i-mode. (Both are considered key reasons why i-mode boomed while WAP
withered.)

Unfortunately, the pundits have missed a rather obvious point about
WAP: that it is a technology and a set of network specifications and
protocols -- and **not** a business model. Many have blamed the
failure of the wireless Internet in Europe and the US (made all the
more glaring in light of the phenomenal success of i-mode, J-Sky, and
EZweb in Japan) on WAP, but it really hasn't been WAP's fault.

Where fault does lie is with techno-centric, over-engineered telcos
that boasted about Net access via WAP as The Next Big Thing without
paying sufficient attention to the business of deploying WAP, or the
manner in which paying customers would actually be served with useful
content and services via WAP.

This is precisely where Japanese operators DoCoMo, J-Phone, and KDDI
have succeeded beyond anyone's expectations. Their business models
work, revenue is generated for operators and for third party content
and service providers alike (creating incentive all around to improve
and extend said services), and handset manufacturers have been
strong-armed into providing their best and coolest full-color,
polyphonic, clamshell beauties.

In fact, given Japan's attention to business model details, WAP 1.0
has been a stunning success here (if nowhere else). EZweb (7,907,700
paying subscribers as of June 30) is an authentic, substantially pure
WAP implementation whose WAP gateway was provided, for gosh sakes, by
No. 1 global WAP cheerleader Openwave. EZweb's WAP-based service has
succeeded because of the successful business created on top of WAP.
Lesson learned: people pay for useful content and services, not
specifications or technology.

Which is why we found NTT DoCoMo's sycophantic press release issued
the day after the WAP Forum's WAP 2.0 news just a little galling
("NTT DoCoMo's WAP-NG Initiative Blossoms into WAP 2.0," see link
below), as should anyone whose work involves developing for the
wireless Web in a WAP environment.

The company claims that WAP 2.0 merely adopts technology (the
aforementioned xHTML and TCP/IP) that was first proposed by DoCoMo
and Ericsson back in December 1999. This language implies that DoCoMo
is claiming success for i-mode due to the company's superior
technical smarts -- which clearly is not the case.

It's been said before: i-mode is not a technology, and cHTML is not
i-mode. Don't let Big D bamboozle you into thinking otherwise. AT&T
Wireless, DoCoMo's US i-mode licensee, has already unofficially said
it may launch i-mode-like services using a WAP infrastructure, and
not even necessarily using the i-mode brand -- leaving us to wonder
why they partnered with DoCoMo in the first place.

In fact, WAP 2.0, now that it does include support for xHTML and
packet switching, will be **the** access technology to beat in 2002,
even as the i-mode business model remains the service concept to
beat.

--Daniel Scuka

NTT DoCoMo's WAP-NG Initiative Blossoms into WAP 2.0
http://www.nttdocomo.com/new/contents/01/whatnew0802.html

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

--> France Telecom Hopes to Enter Japanese Mobile Phone Market
http://in.tech.yahoo.com/010803/6/12cul.html
Source: AFP on Yahoo, August 3

EXTRACT: France Telecom wants to enter Japan's mobile phone market
through comprehensive tie-ups with Japanese mobile phone firms,
company chairman Michel Bon said in a report last Friday. Bon said he
was meeting with senior managers of Japan's mobile telecoms leaders
KDDI and NTT DoCoMo, according to a report in the Nihon Keizai
Shimbun newspaper. "We are planning to expand our mobile phone
operations by using our Orange brand," Bon was quoted as saying.

COMMENTARY: Hello! What's this? **Another** foreign wireless carrier
contemplating entering Japan's cellular market (the UK's Virgin has
already come calling, and Vodafone now owns substantially all of No.
2 Japanese player J-Phone). You can now henceforth safely ignore the
US Trade Representative Office when it howls about the lack of
competition in Japan's telecoms industry -- at least, that is, where
wireless is concerned. In comparison, imagine a non-US carrier
partnering on an operational basis with Sprint PCS, Cingular, or
Nextel.

The interesting point to realize is that Japan's wireless market is
so massive (63,389,800 subscribers as of June 30) that there is room
for foreign firms to partner with some of the second-tier Japanese
carriers (of course, partnering with domestic firms is OK too -- see
item below). By the way, KDDI and DoCoMo both denied any plans to
tie-up with France Telecom.

--> KDDI in Talks to Lease PHS Network to New Entrants
http://sg.biz.yahoo.com/010805/15/1a6rb.html
Source: Nikkei on Yahoo, August 5

EXTRACT: KDDI is negotiating with Japan Communications Inc. (JCI), a
Tokyo-based startup telecom firm, to lease the PHS (personal
handyphone system) communications network operated by affiliate DDI
Pocket. Virgin Group of the UK, which has entered many overseas
telecom markets, is also approaching KDDI for possible use of the
firm's cellular phone network, sources close to the matter said. If a
deal is struck, KDDI will be the first domestic telecom carrier to
open its infrastructure to an outside firm.

COMMENTARY: The news that KDDI is considering potential suitors for
its money-losing PHS network (operated by affiliates TuKa and DDI
Pocket) comes as no surprise to Wireless Watch Readers (see No. WW
7). But this is the first open report we've read naming names, and
hinting that discussions are in advanced stages. This report also
said that KDDI is set to announce a leasing contract with Japan
Communications by the middle of August.

We strongly applaud KDDI's decision to talk turkey with JCI, the
Tokyo-based startup founded by Seiji (Frank) Sanda, ex-head of Apple
Japan and a longtime Japan wireless hand. He's kept his business
(outsourcing keitai billing services to corporate clients in the
absence of any similar offering from the likes of DoCoMo, J-Phone, or
KDDI) on an even keel despite having to navigate between the tosses
and turns of Japan's behemoth (and not always cooperative) operators.
If anyone can make the first such network lease/operate deal a
success, it's Sanda-san. How will he turn a profit on PHS? As we said
before, look at data! PHS can deliver 32 or 64 Kbps (this has recently
been boosted to 128 Kbps), giving those existing 3 million KDDI (TuKa)
PHS subscribers access to streaming video and audio on their laptops,
for example, when using the phone as a wireless modem.

--> Deutsche Telekom Moves to DoCoMo-style Mobile Web
http://sg.news.yahoo.com/010802/3/1a294.html
Source: Reuters on Yahoo, August 2

EXTRACT: Deutsche Telekom said today it would start charging users to
view some Internet sites on their mobile phones in an attempt to
emulate the successful business model of Japan's NTT DoCoMo. The
German operator's mobile Internet portal T-Motion will launch a
package of premium services in August priced at DM19.55 ($8.80) a
month, although they will be free until November. The package to be
offered in Germany will offer up to 25 services, including sports,
financial and music news, and a food guide. Services for Britain and
Austria will follow later in the year.

COMMENTARY: While we applaud the plan, we can see at least one
show-stopping problem right off the bat: the monthly service fee is
too high. What DoCoMo has proven with i-mode is that attracting
subscribers requires keeping the basic service plan fee low. i-mode
costs JPY300 per month, and this is a major factor in encouraging new
signups, particularly among non-tech-savvy late adopters who would
otherwise hesitate to sign up for a service they are unsure about
using. Once they sign up, though, they get hooked, and the revenue
rolls on in. DM19.55 per month is about JPY1,123, or approximately 4X
the cost of i-mode. To put this multiple in perspective, DM19.55 will
buy a decent meal at a gasthaus, plus a couple liters of beer (the
best in the world, some would argue). JPY300 isn't even enough for a
tall latte at Starbucks in Tokyo.

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--> KDDI to Offer E-com Services via EZweb
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/136773
Source: Nikkei AsiaBizTech, August 2

EXTRACT: KDDI said it will make "PayCounter," the company's online
settlement agency service for e-commerce Web site operators,
available to e-commerce Web sites designed for cellular phones. Site
operators will be able to offer a variety of payment methods to EZweb
customers by contracting with the PayCounter agency service. There
are four settlement methods: via KDDI calling card, via credit card,
at a convenience store, or cash on delivery. Settlement using the
first method will start in September; the others, in November.

COMMENTARY: This report explains that merchants (site operators) will
be charged JPY250-650 per transaction, depending on the transaction
amount, as well as JPY10,000 to set up the account and JPY5,000 per
month. We think that this is a smart move and that the low commission
and service fees should attract plenty of SMEs and small merchants.
Extending the ability to levy micropayments -- arguably the most
important factor in the success of the mobile Net here -- to the
non-official sites is the next logical step for all of Japan's
wireless webs.

--> Study: Japanese Digital Music Market to Boom
http://biz.yahoo.com/st/010801/28417.html
Source: IDG on Yahoo, August 1

EXTRACT: Japan's digital music distribution market is expected to
grow from its current JPY1.2 billion to more than JPY100 billion in
2006, according to Jupiter Media Metrix.

COMMENTARY: DDI Pocket and NTT DoCoMo have already started music
distribution services via PHS which permit subscribers to download
and purchase digital music via the mobile network. Downloading a
three-minute music track takes about six minutes on a PHS phone at
128 Kbps, and connection charges are about JPY80-90 per minute.
Nonetheless, JPY540 for a single song is still too much, and it will
take better pricing for this form of distribution to become popular.
Until then, most mobile listeners will keep ripping MP3s onto
portable players.

+++ WORTH A READ

Dog Days At Sony
The world laid siege to Sony last week. In the wake of the company's
announcement that first-quarter operating profits in the period to
June 30 had fallen 90 percent from the previous year, investors in
Tokyo and New York hammered the stock down by 15 percent. Reporters
flooded the company with queries about what went wrong. Analysts
openly questioned Sony's commitment to develop an all-Internet,
all-the-time strategy in preparation for the day when its mainstay
consumer electronics and video game machines no longer dominated the
company's earnings.

Sony also bet heavily on the next generation of Internet-compatible
mobile phone service, known as 3G. But NTT DoCoMo put off its
commercial launch of 3G service in Japan until the end of this year,
and service isn't likely to be launched in Europe until the end of
next year. Sony formed a joint venture with Ericsson to make
handsets. But cellphones are quickly becoming a commodity as
production lines in mainland China and elsewhere ramp up, which will
make profit margins too thin for Sony to compete.

We suspect that Sony is also smarting from the JPY12 billion charge
(announced in June) to replace faulty i-mode and EZweb Java-enabled
handsets -- a real, non-latent loss that represents cash down the
drain.

Asiaweek, August 10
http://www.asiaweek.com/asiaweek/magazine/Enterprise/0,8782,169839,00.html

+++ PS

Email-reading Driver Kills Woman

A driver has been arrested after he struck and killed a woman while
reading an email message on his mobile phone. Mitsuhito Fujita, of
Matsubushi, Saitama Prefecture, was arrested at the scene on Friday
after he hit Toyoko Osawa. Charges of criminal negligence resulting
in injury will be upgraded following the woman's death on Saturday
from the injuries she sustained in the accident. Fujita, 26, admitted
to police that he was totally unaware of Osawa's presence because he
was busy reading an email message on his cell phone.

Mainichi Shimbun, August 5
http://mdn.mainichi.co.jp/news/20010805p2a00m0dm001001c.html

=====================================================================
Note: Last week's Wireless Watch (WW 17) was mistakenly issued under
the "Gadget Watch" subject line. The editors apologize for any
confusion.

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

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