WW-23 -- August Subscriber Numbers: J-Sky Now No. 2?

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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. 23
Monday, September 9, 2001
Tokyo

INDEX
+++ Viewpoint: August Subscriber Numbers: J-Sky Now No. 2?
+++ Noteworthy News
- Two Foreign Firms Show Interest in KDDI Unit
- Japan Rolls Out 3G Phones
- Qualcomm Pushes BREW in Japan
- China Bans Matsushita Phone Sales After Taiwan Gaffe
+++ Events
+++ Sign of the Times

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+++ Viewpoint: August Subscriber Numbers: J-Sky Now No. 2?

The recent doom and gloom in Japan's IT sector (see J@pan Inc
Newsletter No. 146, link below) finally seems to have hit wireless,
and the numbers don't look good. Last week, the Telecommunications
Carriers Association (www.tca.or.jp) released the subscriber and
other mobile-related data for the month ending August 31, and monthly
increases were smaller than normal, or negative.

Overall numbers, mind you, are still impressive, and there's little
argument with the conclusion that the carriers, particularly NTT
DoCoMo, have been doing something right.

Overall subscriber numbers for the major carriers (for PDC, PHS, and
cdmaOne networks) are shown in the table below.

Note:
** PDC (Personal Digital Cellular):
Japan's predominant cellular standard

** PHS (Personal Handyphone System):
A lower-power, urban-only wireless standard

** cdmaOne: The high-speed digital system developed by Qualcomm (US)

** ARPU (Average Revenue Per User):
Common measurement of a carrier's performance

Carrier July 31 Subs Monthly Change

NTT DoCoMo/PDC....38,055,000.....+272,000
NTT DoCoMo/PHS.....1,887,000.......+4,000

KDDI/Au/PDC........2,053,300.....-115,000
KDDI/Tu-Ka/PDC.....4,035,000.......-6,200
KDDI/Au/CDMA.......9,644,500.....+198,800

J-Phone/PDC.......10,925,800.....+184,700

DDI Pocket/PHS.....2,958,900......-34,600

Astel Gp/PHS.........862,100......-10,600

********Total:....70,421,600.....+493,100

Ignoring for a moment past monthly increases, DoCoMo did okay on its
PDC network, particularly since we can assume that almost all of the
272,000 new subscribers are i-mode subscribers as well as voice users
(i-moders contribute some JPY1,470 to ARPU on top of voice usage).

Big D's PHS network grew modestly, and while 4,000 may not be
anything to shout about, it's not bad considering that rumors persist
that DoCoMo's PHS network does not have as good coverage as DDI
Pocket's, and the carrier as a whole is concentrating on 3G these
days.

KDDI is in far deeper trouble. Except for its crown-jewel,
high-quality cdmaOne network, it lost subscribers -- at both its
Tu-Ka PDC unit and its DDI Pocket PHS unit. No wonder Tu-Ka is up for
sale and capacity on the DDI Pocket PHS system is being leased out
(see news item below). KDDI lost 115,00 and 6,200 PDC/PHS subscribers
respectively, and gained 198,800 cdmaOne subscribers.

Perennial No. 3 player J-Phone added more than 184,000 subscribers to
its PDC system, most of whom will also be counted as new J-Sky
wireless Internet subscribers (J-Sky gained 360,300 new subscribers,
comprising conversions of existing J-Phone -- but not J-Sky --
subscribers and new subscribers).

In addition to contributing nicely to data ARPU, those 184,000-plus
new subscribers mean that J-Phone's share of new subscribers
continues to exceed KDDI's, by approximately 36 percent to 14 percent
(DoCoMo gets most of the remainder). At this rate, J-Phone will
overtake KDDI as Japan's No. 2 operator in the near future -- and
much sooner if KDDI sells Tu-Ka.

Even sooner, J-Phone's J-Sky mobile Internet service will take over
the No. 2 spot from KDDI's EZweb; In August, EZweb gained 220,900
subscribers to reach 8,405,800 total users, but J-Sky gained 360,300
(1.6 times more than EZweb!!) to reach 8,257,100. If this trend
remains the same, J-Sky will surpass EZweb sometime this week.

The interesting point here is that EZweb operates on the cdmaOne
network, which is undeniably better than J-Phone's PDC system (64 or
14.4 Kbps vs. 9.6 Kbps; better voice quality). J-Phone could only
have taken the No. 2 wireless Internet position through superior
marketing, better wireless Internet services, and better handsets.
Don't let anyone tell you that the quality of applications, services,
and content delivered via wireless Internet don't matter. They
obviously do (although, to be fair, J-Sky fees are slightly less than
EZweb's, so price may be a factor).

But DoCoMo's 272,000 new subscribers looks grim considering that this
increase is, according to one analyst, "the worst in five years."
Some industry watchers were also pessimistic about i-mode's
performance. In a briefing to analysts, the company stated that Java
and non-Java packet usage on i-mode was "flat from [that in] July,"
at 220 packets per day (overall) vs. 400-450 packets per day for
Java. There were 5.9 million Java-enabled i-mode users at the end of
August, up from 4.92 million last month, according to the company.
Hmmmm. Maybe data ARPU has finally peaked on i-mode?

Overall, not a good month for DoCoMo or KDDI, and J-Phone must be
modestly pleased. We spoke with Goichi Yoshizawa, executive VP and
COO of J-Phone Communications, last week, who said that despite
J-Sky's late launch (after i-mode and EZweb in 1999), the company has
stuck to its focus of young, high-usage customers. "Our market aim is
young people below age 25. These people have high usage -- of both
data and voice." Looks like J-Phone has finally won some bragging
rights.

--Daniel Scuka

JIN No. 146, "Japan to Lifetime Employment System: You're Fired!!"
http://www.japaninc.com/newsletters/index.html?list=jin&issue=146

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

--> Two Foreign Firms Show Interest in KDDI Unit
http://www.forbes.com/newswire/2001/09/06/rtr349730.html
Source: Reuters on Forbes.com, Sep. 7

EXTRACT: KDDI, Japan's No. 2 wireless telco, is seeking bidders for
its wireless unit Tu-Ka and has sparked interest from at least two
potential foreign buyers, the Wall Street Journal reported on Friday.
The newspaper said KDDI has hired Goldman Sachs as an adviser on the
possible sale. The bank has distributed financial details of Tu-Ka to
prospective buyers, including France Telecom's wireless unit Orange
and Newbridge Capital (which would still need to find an operator to
run the company, we guess).

COMMENTARY: Why sell Tu-Ka? First, as this report mentions, KDDI is
attempting to cut its (large) group debt to JPY1 trillion, from the
current JPY2 trillion-plus. Second, the KDDI group operates a
cdmaOne, a PDC, and a PHS network -- none of which are compatible
(Tu-Ka runs the PDC network). Getting rid of the PDC network will
allow the group to streamline its marketing message -- and marketing
is key in Japan's highly competitive wireless market (see Viewpoint
above).

But then why keep the PHS network, run by group member company DDI
Pocket (which is actually three separate operating companies)?
Because PHS can be marketed as a high-speed (128 Kbps now; more
possible later) data network, and can penetrate markets (i.e.
corporate) that PDC can't.

KDDI said last month it would lease out excess capacity on the PHS
system to Japan Communications, this country's first MVNO (mobile
virtual network operator). Under this arrangement, KDDI and DDI
Pocket should be able to reduce losses, establish regular,
predictable rental income, and benefit from the increased awareness
of data applications that Japan Communication's marketing campaign
should bring.

--> Japan Rolls Out 3G Phones
http://www.economist.com/agenda/displayStory.cfm?Story_ID=767981Source
Source: Economist.com, Sep. 3
(Also mentioned in JIN No. 147)

EXTRACT: Despite the continuing gloom in telecoms, Japan's largest
mobile-telephone operator, NTT DoCoMo, announced on September 3 that
it plans to launch the world's first commercial third-generation (3G)
wireless service on October 1. Even though Japanese consumers often
flock to snap up high-tech products, DoCoMo's decision is risky.

Apart from hoping that most of the bugs that have plagued the new
technology have now been sorted out, DoCoMo is also gambling that
enough customers will be prepared to sign up to what will be a
relatively expensive service, at a time when the Japanese economy
teeters on the brink of recession. The outcome will be closely
watched all over the world, especially by Europe's telecoms firms,
which have splashed out billions of dollars for 3G licenses.

COMMENTARY: It's difficult to understate just how much of a risk 3G
really is. DoCoMo, alone among global telcos, is pushing ahead with
the launch of a network that is replete with unknowns, including how
to guarantee quality of service, how to provide high-speed data
services that people will want to use and pay for, and how to ensure
the functionality of the handsets.

What is known about the new 3G system, based on new, untried W-CDMA
technology, is that the network will be hugely expensive, it will
take most of a year to establish coverage in Japan's major markets,
and there are still severe limitations on the types of services (such
as streaming video and audio) that can be provided.

For now, handsets are estimated to cost upwards of JPY50,000 (two to
three times the price of current i-mode Java models), the service
fees will be expensive, and the network will only operate in a 30km
radius of central Tokyo. We pity the poor marketing managers who have
to make it all work. One senior engineer working on 3G systems here
told us last week, "I don't think anyone realizes how difficult this
really is. I think DoCoMo is being very courageous." We agree.

Read DoCoMo's press release:
http://www.nttdocomo.com/new/contents/01/whatnew0903.html

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--> Qualcomm Pushes BREW in Japan
Source: Extract from interview with Takayuki Nozaki, business
development manager at Qualcomm Japan, Sep. 3

BREW is Qualcomm's Binary Runtime Environment for Wireless, and can
be considered a competitor for Java. BREW runs on handsets that work
on Qualcomm-developed CDMA networks. Japan's single CDMA operator,
KDDI/Au, is due to deploy BREW-enabled handsets by December 2001.

WW: Why BREW?
TN: Even with an enhanced radio chip, we needed an application
platform. Further, it had to be based on open standards. With BREW,
we can open up the lower, radio chipset features to 3rd party
application developers. The APIs are available via the SDK. It's in
English now, but will eventually be available in Japanese.

WW: Have any BREW applications been developed in Japan yet?
TN: At the BREW 2001 developer conference in May we saw some
made-in-Japan applications. These included the "Navitime" map viewer
application, and there are others from K Labs [Cybird's Java and BREW
development arm]. From our point of view, we'd like to see
applications that leverage the chipset's core capabilities. GPS is
key.

WW: What's the BREW deployment schedule for Japan?
TN: We can launch BREW now, on the existing cdmaOne IS-05 chipset.
But the carrier (KDDI) plans to upgrade the network to cdma2000-1X by
December 2001, and provide 144 Kbps download. BREW should launch at
about the same time, and can take advantage of future chipsets as
well.

WW: What about carrier fragmentation, like what's happened with Java?
TN: For application developers, the number of subscribers is
important. BREW is global, [and] we want all carriers to use the same
BREW. But we recognize that there will have to be some differences by
markets.

WW: What about hardware requirements? Network limits?
TN: BREW is much more efficient than Java. The DoCoMo Java virtual
machine takes up some 700 KB of memory; BREW is less than 100 KB. As
far as BREW is concerned, there is no limit for download [other than
onboard hardware]. But we guess the carrier will set some limit.

WW: We understand that BREW applications must be certified?
TN: Yes. The applications will be digitally signed and approved.
Without that, they will neither download nor run. In the US, Qualcomm
operates this program. In Japan, KDDI is likely to run this program.
We hope to have a [Japan] developer conference soon.

WW: Who pays?
TN: The basic idea for Qualcomm is to boost sales of the chipset. We
provide the BREW environment free to handset makers. Application
developers get the SDK for free. So, operators will pay for BREW.

--> China Bans Matsushita Phone Sales After Taiwan Gaffe
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=AO5cBkhWRQ2hpbmEg
Source: Bloomberg, Sep. 6

EXTRACT: China banned Matsushita Communication Industrial Co. from
selling mobile phones for a year because its Panasonic-brand handsets
displayed a reference to Taiwan as a sovereign nation. A one-year ban
would prevent Matsushita from expanding in a market that overtook the
US in July as the biggest for mobile phones, with almost 121 million
subscribers. A year's absence will probably mean Matsushita will lose
ground to rivals, such as Nokia and Motorola, said one fund manager.
The company published apologies in about 46 Chinese newspapers last
month, including the government's mouthpiece, the People's Daily.

COMMENTARY: It appears that Japan's handset makers will have to
expand their risk management and assessment processes, particularly
for China. In assessing future business prospects in the Middle
Kingdom, risk will have to include political risk, as well as all the
other, more common, factors.

+++ Events (ADVERTISEMENT)

** Next Generation Mobile Content Strategies, 11-13 September 2001,
London

Next Generation Mobile Content Strategies goes straight to the heart
of mobile content development. By examining case studies from
industry leaders, delegates will gain invaluable insight into the
mobile market today.

For further information:
http://www.metelecoms.com/mobilecontent6.htm
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---

** Risk Management Forum 2001
September 19, 2001, Nippon Kaiun Club, Nagatacho, Tokyo

The Risk Management Forum is scheduled for September 19, 2001 at the
Nippon Kaiun Club, Tokyo. The conference aims to provide risk
professionals in financial institutions with key information on
industry-wide best practices, balanced with presentations from
prominent researchers on the latest theoretical developments. Secure
your place today at Japan's leading risk management forum by
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For further information:
http://www.gmacjapan.com

----

** Bluetooth Seminar at WORLD PC EXPO 2001, September 20, 2001, Tokyo

With cooperation from the Bluetooth SIG, Nikkei Electronics will hold
a technical seminar focusing on Bluetooth, the short-distance
wireless data communications technology, for development engineers.
Mr. Thomas Baker, the leading figure at the SIG, will provide the
keynote speech, and persons in charge of drawing up specifications
will give lectures on the details of the high-speed spec for "Radio
Enhancements" and on the specifications for 3G cellular phones drawn
up by NTT DoCoMo and others.

In addition, Sony will provide its perspective on Bluetooth
applications in the near future as a company keen on commercializing
Bluetooth products, and a panel discussion on Bluetooth logo
certification -- indispensable for commercialization of Bluetooth
products -- will be conducted by four panelists from Japan's leading
Bluetooth qualification test facilities (BQTF). Simultaneous
translation (Japanese <--> English) will be provided.

For further information please visit:
http://dk.nikkeibp.co.jp/dk/seminar/010920e.html

----

+++ Sign of the Times

A Japanese toy company has released canned Godzilla to serve as a
"topic of conversation" at the family dinner table. The meat, which
comes in corned beef and quail egg flavors, will sell for JPY500 and
come in six different wrappings. Tokyo toymaker Takara released the
food, inspired by the cartoon monster lizard, at a toy exhibition in
the city. The canned Godzilla goes on sale in Japan in November.
Takara spokeswoman Akane Noma expects Godzilla fans to snatch the
cans up.

While this indeed may be a Sign of the Times, we're not sure what
kind of sign it is!

Canned Godzilla Goes on Sale in Japan
http://www.ananova.com/news/story/sm_390307.html?menu=news.quirkies

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

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