WW-20 -- The i-mode Spam Experiment Ends

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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. 20
Monday, August 20, 2001
Tokyo

INDEX
+++ Viewpoint: The i-mode Spam Experiment Ends
- NEC, Matsushita to Link Up on 3G Mobile Technology
- Hello Kitty Finds Mobile Home with FunMail
- Culture Convenience Club Begins Marketing New Singers
Using Mobile Phones
- DoCoMo Irons Out Mobile Phone Glitch
- J-Phone Users to Gain Access to Rival i-mode
+++ WORTH A READ

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+++ Viewpoint: The i-mode Spam Experiment Ends

Last week, driven to near-madness by the heat, humidity, and
unrelenting i-mode spam, Wireless Watch launched the Great Midsummer
i-mode Spam Experiment. To recap: about 15 minutes after issuing WW
on Monday August 13, we went ahead and changed the email address on
one of our i-mode phones to a random alphanumeric string. The string
(created by a Web-based random generator) was arbitrarily limited to
eight characters (i-mode allows three to thirty), and we got:
"dsfdqc1m," so the phone's new email address ended up as:
dsfdqc1m@docomo.ne.jp (we'll keep this address alive for another few
days if anyone wants to try it).

How much spam mail did we receive during the past seven days? The
results are in: None. Nada. Zilch. Zen zen. In other words, not a
single bit of unwanted mail arrived! In fact, since we didn't tell
anyone the address (until now), the handset in question didn't get
**any** mail, which we take as a salutary warning to anyone who does
switch their address: If you don't give out your new address at all,
it appears you won't be plagued by any mail whatsoever -- even from
friends and colleagues. Japan's wireless revolution doesn't get much
more Zen-like than that. ;-)

The lesson we take from last week's seat-of-the-pants experiment is
that changing your i-mode address -- however inconvenient -- probably
is effective. That, combined with DoCoMo's offer of 400 free packets
to each i-moder each month and the ability to now designate up to ten
email addresses to block, goes a long way to reducing the annoyance
of spam. By mid-July, NTT DoCoMo said that some 66 percent of all
i-mode subscribers had indeed changed their email address.

But that also got us to wondering: How much of a hit is Big D's
bottom line taking due to those 400 free packets? The offer can't be
cheap.

The company says that as of June, average daily data packet use on
i-mode was 220 packets (for mail and Web access). It's widely
believed that i-mode's average daily packet use is declining, and one
recent analyst report estimated that the June-to-September period
will show a decline of 1.6 percent in packet usage before the 400
free packet discount, and a not insubstantial 3.6 percent decline
after factoring in the giveaway.

If usage in June was 220 packets per day per subscriber, and there
were 24,989,000 subscribers (according to the Telecommunications
Carriers Association), that means DoCoMo was pulling in some
JPY49,478,220,000 per month.

In September, we guess there will be about 26,500,000 subscribers, so
monthly packet revenue before discounting for the 400 freebies would
be something like JPY51,630,480,000 (after the predicted 1.6%
decline). But revenue will fall even further to JPY50,581,080,000
after taking into account the 400-packet discount, a negative
differential of JPY1,049,400,000 (about $8.7 million). Wow! And
that's just a rough indication of the monthly loss. The free offer
started on August 1, so there'll be eight months from then until
March 31 (end of fiscal year for NTT DoCoMo) for the company to forgo
this revenue. We'd hate to be the guys tracking the spreadsheets for
DoCoMo's end-of-year fiscal results. And all because of spam.

We also wonder what will happen as the spammers start to experience
diminishing returns (as they already obviously are), get bored with
the whole exercise, and stop sending spam. In other words, what
happens when the amount of spam bouncing across the network falls
below 400 packets per user? Then DoCoMo will be in the unenviable
position of actually giving away network usage to subscribers for no
reason.

Unfortunately, there's no experience from the wireline Net access
world that can be applied to wireless. Even in the bad old days when
Japanese home surfers were paying by the minute for telephone calls
and usurious ISP access fees, the marginal cost to receive a single
spam mail, we think, was tiny, and we would hazard to guess that it
was much less than JPY0.3 (i-mode's fee per packet).

Moreover, wireline spam isn't nearly as intrusive as that on a celly,
since no one carries around their NEC or Fujitsu desktop in their
pocket all the time. Wireline spam only bugs you once or twice a day,
when you log on. With wireless, it can bug you all day, every day.
Welcome to the revolution.

--Daniel Scuka

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

--> NEC, Matsushita to Link Up on 3G Mobile Technology
http://www.cnn.com/2001/TECH/ptech/08/17/jphone.imode.idg/index.html
Source: Reuters on CNN, August 20

EXTRACT: Matsushita Communications Industrial and NEC, Japan's No. 1
and 2 producers of mobile phones, will cooperate in developing
software for mobile Internet-enabled handsets, a newspaper said on
Monday. Amid a slowing market for cellphone manufacturers and
decreasing profitability, the deal would mark the first major tie-up
between Japan's top two domestic mobile phone makers in the
development of 3G devices. Matsushita Communications is 56.3 percent
owned by consumer electronics giant Matsushita Electric Industrial,
which will also participate in the tie-up, the Nihon Keizai Shimbun
newspaper said. The three firms will join hands in developing video
transmission software for 3G cellphones, while jointly planning new
PDAs.

COMMENTARY: Another significant shake-up in the cellular software
industry. This mostly echoes the tie-up between Sony and Ericsson
earlier this summer, and means that three of Japan's top-four
cellphone makers have decided that partnering is the only strategy
for future celly development. Oh, and the makers are starting to
**really** pay attention to the other players in the onboard
environment game, i.e. Access (maker of the i-mode browser).

Wireless Watch readers who also subscribe to J@pan Inc News (JIN)
will be aware of Access' stealth press release issued on July 30.
Access issued a Japanese-only, stealth announcement to say that the
company had received a JPY932,000,000 capital infusion (half
allocated to the company's capital base, half to capital reserves)
from Matsushita, NEC, Fujitsu, and Mitsubishi -- all major cellphone
manufacturers.

Why the move? The company didn't comment (other than what the press
release said, that the move would help the company develop products
for overseas markets), but we can speculate that, as the sole source
of the i-mode browser, Access' continued success is vital to i-mode's
success. That the investment came quietly from the handset makers is
no surprise. They are the ones who stand to get stung the most if
there are any more glitches with the onboard software environment, so
even tighter cooperation with Access -- cemented by some $7.5 million
in cash -- is in their very best interest.

--> Hello Kitty Finds Mobile Home with FunMail
http://dailynews.yahoo.com/h/nf/20010813/tc/12746_1.html
Source: Wireless.Newsfactor.com on Yahoo, August 13

EXTRACT: Hello Kitty has found a home on mobile phones in Japan,
thanks to a licensing deal between mobile mail provider FunMail and
Sanrio, the owner of Hello Kitty. Under the terms of the agreement,
FunMail said it will integrate Hello Kitty content into its wireless
messaging system. FunMail said Hello Kitty is available as a premium
option for i-mode subscribers. Basic FunMail service costs JPY200 per
month, and Hello Kitty costs an additional JPY50 per month, which can
be billed to a FunMail user's ISP (Internet service provider) or
i-mode account. Users who subscribe to the FunMail service in Japan
can generate and receive animated messages with the Hello Kitty theme
either from their desktop or from their i-mode phone.

COMMENTARY: Say what you will: kitsch pays. FunMail is one of the
handful of pure wireless-play startups to receive funding in the past
12 months and is the only one (that we know of) based in the US that
has its first customer base and sales in Japan. FunMail also occupies
a sweet spot that few others have taken advantage of: integration of
the service across platforms. FunMail is equally accessible and
usable on the desktop or on a keitai (although there are graphic
limitations on the thin-client celly). The service has also been
ported to WAP and will be made available in a BREW version,
customized for Qualcomm's onboard environment deployed on cdmaOne
networks. Obviously, part of mobile success relies on wide
portability.

Finally, FunMail also proves that, technology aside, services that
can leverage existing brands or capitalize on known public affection
for characters or other animation (FunMail has licensed use of the
hugely popular South Park characters) have a good chance of doing
well on wireless.

--> Culture Convenience Club Begins Marketing New Singers Using Mobile Phones
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/cover/137458
Source: Nikkei AsiaBizTech, August 15

EXTRACT: Music shops find it difficult to make profits from CD sales
in the months when popular singers, like Hikaru Utada and Ayumi
Hamasaki, do not release new songs. CDs typically fail to sell at a
brisk pace during these months. Amid this situation, Culture
Convenience Club (operator of the ubiquitous Tsutaya Video rental
chain) started a trial program called the B3 Project at the end of
February. In the project, the company is marketing promising singers
using mobile phones through Tsutaya Online (TOL), a subsidiary of CCC
based in Tokyo which provides members with information by email and
other media. CCC will permit 1.7 million TOL members to listen to
songs by five promising singers for about one month, in cooperation
with record companies. The company will then carry out a
questionnaire survey on the TOL members about the new singers' music.
When one of the singers who gained strong support from the TOL
members in the questionnaire survey releases a CD, CCC will display
the CD on specially prepared shelves.

COMMENTARY: Further on the theme of cross-leveraging, Tsutaya is
another player in the Japan wireless market that appears to have it
right. The cellphone platform is lousy for Web surfing, but it's
great for downloading music clips, sending out surveys, setting up
contests, and offering discounts or coupons. In this case, CCC is
making use of two extremely powerful advantages: its near-ubiquitous
chain of blue-and-yellow-signed Tsutaya bricks-and-mortar video
rental shops (locations to sell the CDs), and Japanese youths'
abiding love of (and willingness to pay for) the latest pop music.
Tsutaya may just be perfectly positioned to take advantage of the
huge overlap in demographic between keitai-using youth and
music-loving youth (right about 100 percent, we would guess). Now why
can't this be done in the States or the UK, via Blockbuster?

--> DoCoMo Irons Out Mobile Phone Glitch
http://sg.news.yahoo.com/010817/1/1c7fx.html
Source: AFP on Yahoo, August 17

EXTRACT: NTT DoCoMo said Friday it had ironed out an i-mode glitch
that had affected around 100,000 customers. "Upgrades were completed
successfully yesterday (Thursday) at base stations which transmit
signals to the P503i phones and, as a result, users can now operate
their handsets without difficulty," DoCoMo said in a statement. In
July the mobile phone company admitted there was a software problem
with the phones that meant people were unable to make or receive
calls or emails in certain areas. "We corrected the network because
that was quicker than fixing the software," made by Japanese
electronics firm Matsushita Communication Industrial, said a DoCoMo
spokesman. Earlier in the year, the company recalled 230,000 mobiles
due to a separate glitch in Matsushita phones, and the firm was also
forced to recall 430,000 Sony-made handsets because of another
software fault.

COMMENTARY: Most tellingly, this report goes on to quote the DoCoMo
spokesman, to wit: "We have not yet decided who will foot the bill
for fixing the service." But in light of the Matsushita-NEC tie-up
(see first news item above), it's clear that the handset makers
themselves are aware that the onboard software is becoming a major
challenge. DoCoMo is only the customer, and while it's the carrier
that bears the PR burden when the handset software crashes, it's the
makers that control the quality. We suspect there are jobs a-plenty
for experienced telecom software engineers at Sony, NEC, and
Panasonic these days.

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--> J-Phone Users to Gain Access to Rival i-mode
http://www.cnn.com/2001/TECH/ptech/08/17/jphone.imode.idg/index.html
Source: IDG on CNN, August 17

EXTRACT: Users of J-Phone Communication's J-Sky wireless Internet
service can now browse content designed for the rival i-mode service
using their J-Sky handsets. J-Phone's parent company, Japan Telecom,
has started a service, i-watcher, that translates content from i-mode
sites into a format accessible to J-Sky users.

COMMENTARY: This report adds that J-Phone has provided access to 150
free i-mode sites through the service so far. (The service will only
allow access to the unofficial sites, not those on the official
i-menu.) By early 2002, J-Phone intends to allow access to some 500
sites, including subscription sites.

What effect will this have on churn? It's hard to say. The ministry
has already announced that it will mandate keitai number portability
by 2003, which should increase competition and churn. If a lot more
i-mode sites become available on J-Sky (or on EZweb, although that's
doubtful for now), this would mitigate against churn (half of J-Sky
users told J-Phone that they wanted access to i-mode, but not so
badly that they actually switched carriers, we guess). For now, this
is likely just a nice-to-have, additional point of competition.

Interestingly, J-Phone developed the software needed to convert
cHTML-coded i-mode sites into the MML (mobile markup language) format
that J-Sky handsets can read in partnership with Mitsubishi Electric.
This is the same technology used on Japan Telecom's "J-Web By ODN"
service, which launched in July. This allows fixed-line telephones
equipped with an LCD screen to connect to the Net and browse J-Sky
and i-mode content sites, same as L-mode.

+++ WORTH A READ

Japanese Enterprises Bring Mobile E-Commerce Innovations to World
Stage
Japanese enterprises are creating a business based on mobile
telephony that is unprecedented in the world, according to Cybird
Co., Ltd., a Web contents provider for mobile phones. "What we're
doing could bring about a flip [in] conventional business logic," a
company spokesman said. "The plans of many of the enterprises that
want to be listed on our official menu lack originality. They need
some element of interest that doesn't just replicate an existing
service." At present, mobile e-commerce based on Internet access
services for mobile phones, like i-mode and EZweb, is separating into
two different waves. The first consists of ambitious moves on the
part of Japanese enterprises to become world trendsetters in creating
new businesses based on made-in-Japan mobile infrastructure. The
other consists of opportunistic moves to jump on the bandwagon and
run businesses that simply copy forerunner companies' services.

This article provides an excellent overview of the state of the
mobile contents business. Our favorite quote: "For example, i-mode
alone already has 40 ringer-tone melody services listed as official
sites. Even if other providers are allowed in, businesses that simply
imitate existing services cannot hope to make any money. It is all
very well to protest the tyranny of NTT DoCoMo and its ilk, but
prospective content providers would be better to devise enough
originality to impress the official site selectors." True story.

Nikkei AsiaBiz Tech, August 14
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/137449

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Written by Daniel Scuka (daniel@japaninc.com)

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