WW-25 -- The Adversarial, Patent-like Process of Going Mobile

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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 business of wireless in Japan
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Issue No. 25
Tuesday, September 25, 2001
Tokyo

INDEX
+++ Viewpoint: The Adversarial, Patent-like Process of Going Mobile
+++ Noteworthy News
-- Vodafone Aims to Take Over Japan Telecom/J-Phone Management
-- No Copying of Cellular Phone Content Makes for Difficult Business
Strategy
-- Japan to Deregulate Bandwidth
-- KDDI Delays High-speed Mobile Phone Service

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+++ Viewpoint: The Adversarial, Patent-like Process of Going Mobile

The question of how to get your wireless Web site listed on the
i-mode, J-Sky, EZweb, or Edge-in official menus comes up frequently.
This question is, unfortunately, surrounded by a more than the average
amount of FUD (fear, uncertainty, and doubt). That this should be so
is, perhaps, not a surprise -- particularly for foreign content and
service providers.

First, there's the simple lack of knowledge of who should be
approached. Who controls the mobile platforms? Is it the carriers? Is
it some government body? (The outsider unfamiliar with Japan could be
excused for assuming this -- everything else seems to be government
related or regulated in some way.) What about that company named
"Syburd" or "Cybird"? Don't they have something to do with it?

Remember -- not everyone who arrives here with a cool mobile content
idea is an intimate Japan wireless insider. Add to this language,
technical, business protocol, and other uncertainties, and it's no
surprise that foreigners feel at least a little shut out. (Secret tip
No. 1: Local companies sometimes find it just as challenging, but for
different reasons!)

The answer, of course, is that the carriers control the portals and
everything that goes onto the official menus. And it is in their best
interests to ensure that the official content is as good as can be
found, since it is i-mode et al who run the brand-image risk of
serving up content that might, in a worse-case scenario, turn off
current or new subscribers.

Mind you, seeding the portals with content and services that are of
sufficiently good quality isn't as easy as you might think. Why?
Because the carriers refuse to actually pay for the content. Their
only value proposition to prospective providers is, "Here you go -- 8
million (or 25 million) subscribers served up to you on a platter."

But unless the providers have a reasonably ironclad plan to persuade a
fair proportion of those zillion-odd subscribers to part with one,
two, or three hundred yen each month (the current fee limits on
i-mode, for example), the providers bear 100 percent of the site
creation and development risk.

As a result, the process for getting a new site assessed and blessed
by the network operators, and in particular, by NTT DoCoMo (owner of
No. 1 service i-mode), has evolved into somewhat of an adversarial
affair. The closest thing to compare it to would be obtaining a
patent. Therefore, it's time, we believe, to stop thinking of DoCoMo
as a capricious gatekeeper, and consider the process of setting up an
i-mode site to be pretty much the same as a patent application.

From the applicant's point of view, it's necessary to persuade the
examiner (i-mode) that your plan meets all of the requirements from
the system integration, traffic flow, tech support, human resources,
and content quality points of view.

From the examiner's standpoint, it's important to allow the
application so long as all minimum requirements are met (since the
more good content, the more those revenue-earning packets will fly
over the network). It's in each party's favor to allow the
application, if it's good, but in neither's if the content is bad.

We admit that still leaves a lot of room for arbitrary actions,
opacity, and politics -- factors, remember, which drag on the real
patent system as well. But it's not a bad system, and if the operators
can refrain from springing unreasonable SI requirements into the
approval process (and I'm not saying they have been) and if applicants
can make sure they don't over-promise what they can provide (same
again), the system can work reasonably.

Several of the major platform owners (including DoCoMo) have said
they'll hand over the approval and vetting process to third-party
bodies in the future. We wonder who'll get the task, and how it's
going to be better?

--Daniel Scuka

Official i-mode Menu Contents Criteria
http://www.nttdocomo.com/i/tag/criteria.html

Official i-mode Menu Application
http://www.nttdocomo.com/i/tag/newip.html

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

--> Vodafone Aims to Take Over Japan Telecom/J-Phone Management
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/cover/144507
Source: Nikkei AsiaBizTech, September 25

EXTRACT: Vodafone, Japan Telecom, and East Japan Railway Co. announced
on September 20 that Vodafone International Holdings BV (VIHBV), a
Vodafone unit, will launch a takeover bid for Japan Telecom's shares.
VIHBV will acquire up to 21.7 percent of Japan Telecom's outstanding
shares. After this acquisition, Vodafone will hold 66.7 percent of
Japan Telecom's shares and 69.7 percent of J-Phone Group's shares,
which J-Phone Communications, J-Phone East, J-Phone Central, and
J-Phone West are scheduled to be merged on November 1, and it will
take over the management rights of both companies.

COMMENTARY: A story in The Observer suggested that Vodafone aims to
sell the fixed-line unit of Japan Telecom (thus splitting the wireline
and wireless business) for about US$4.4 billion once the acquisition
of 66.7 percent of JT is complete.

We'd be surprised to see this anytime soon, particularly in view of
the uncertain equity markets. Cable & Wireless is touted as a
potential buyer. Nonetheless, the fixed-line business is, according to
some analysts, poorly run, and could offer boosted profits if the
management is improved. What's the hook? JT owns the No. 2 or 3
fiber-optic network (owned by a single company) in Japan, and Vodafone
could attach a long-term backbone contract (serving, of course,
J-Phone) to the sale.

--> No Copying of Cellular Phone Content Makes for Difficult Business
Strategy
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/fw/144498
Source: Nikkei AsiaBizTech, September 25

EXTRACT: For content providers that market fee-based content,
cellphone distribution has become increasingly promising; however,
copying content from one phone handset to another presents major
difficulties. Content downloaded to one cellular phone cannot be
transferred to another device, which is necessary when a user
purchases a new handset. In most cases, users must abandon their
downloaded ring tones, images, and Java applications (which they paid
for) when they upgrade to new handsets.

COMMENTARY: From an outsider's point of view, this may not seem like
much of a problem. But keep in mind that in Japan, the upgrade cycle
is very short -- a matter of 6 to 8 months. The carriers want
subscribers to have the latest models offering Java, lots of memory,
etc., so as to boost network usage as much as possible. Subscribers
want to have the coolest new pocket rockets to impress their friends.
There's nothing more dasai (uncool) than showing up in Shibuya with
last season's (much less last year's) model.

Further, it looks like handset recalls are here to stay. As recently
as July, over 700,000 handsets were recalled by DoCoMo and KDDI,
collectively. That's a lot of angry i-moders and EZwebbites who had to
hand in their handsets and paid-for content. Address book phone
numbers and mail addresses can, in many cases, be transferred. But not
contents. No images. No Glay pics. No renditions of "Hey Jude,"
rendered in 8-voice polyphonic sound files. Nothing. Nada.

Of course, the copy protection feature is intentional -- to prevent
surfers from, well, not surfing -- and grabbing fun stuff from
friends' keitais instead. Copyright is also a major consideration.
Lots of digital content distributed via cellphone is **not** made
available on the Web at large, since there's no way to control it once
published.

Ironically, one reason why subscribers have come last in all this is
that few bother to complain, accepting the loss of paid-for property
as inevitable.

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--> Japan to Deregulate Bandwidth
http://in.biz.yahoo.com/010923/7/15a9y.html
Source: Nikkei on Yahoo, September 23

EXTRACT: The Telecommunications Ministry aims to allow by next spring
high-speed wireless Internet service providers to use part of the
25-GHz bandwidth without seeking ministry approval. The bandwidth will
be seven times larger than that currently dedicated to cellphone
services and is expected to enable transmission of large-volume data,
including high-resolution images, at a speed comparable to that of a
Net service using a fiber-optic network. The measure is aimed at
easing the entry of new wireless service firms into the Internet
business.

COMMENTARY: Wow! Who says Japan's wireless industry isn't competitive?

--> KDDI Delays High-speed Mobile Phone Service
http://biz.yahoo.com/rf/010918/t35540_2.html
Source: Reuters on Yahoo, September 18

EXTRACT: Japan's second-largest carrier, KDDI, is likely to postpone
to next year the launch of its high-speed mobile Net access service.
KDDI's wireless unit Au (aye-you) was targeting the launch of its
cdma2000 1xEV service for this fall. It had said the speed of 144-Kbps
offered by the service was comparable to the third-generation (3G)
services offered by top mobile operator NTT DoCoMo. A KDDI
spokesperson declined to confirm the report, although a number of
analysts had said they had heard of a possible delay, and the Mainichi
daily newspaper also reported the possibility last week.

COMMENTARY: The delay itself is not surprising; the six-month lag is.
The biggest fallout will come in marketing. Now DoCoMo is the only
carrier that has bragging rights to a new network (the move makes
eminent financial sense for KDDI, however). The worst possible outcome
is that cdma2000 1xEV is delayed longer, and that new corporate
subscribers are attracted to DDI Pocket's 128-Kbps network (operated
by MVNO JCI), cannibalizing the existing cdmaOne 64-Kbps system.
Hmmmm. Tough times ahead for KDDI, perhaps.

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SUBSCRIBERS: 1,120 as of September 25, 2001. Subscribers have grown by
an average of some 45 new additions each week since inception.

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

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