WW-28 -- Has Mobile Gaming Timed Out?

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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. 28
Monday, October 15, 2001
Tokyo

INDEX
+++ Viewpoint: Has Mobile Gaming Timed Out?
+++ Noteworthy News
- Japan's August Mobile Phone/PHS Shipments Fall
- DoCoMo Talks with SKT Collapse
- DoCoMo's FOMA Gets only 5,700 Subscribers Three Days after Launch
- Tu-Ka Suffers Loss of Subscribers for Third Consecutive Month
- KDDI Roll-out Plans
+++ Events (Advertisement)

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+++ Viewpoint: Has Mobile Gaming Timed Out?

The 2001 Autumn Tokyo Game Show (TGS) came and went this past weekend,
and, based on the number of new titles released for cellphones, mobile
gaming appears to be shrinking. The show, organized by the Computer
Entertainment Software Association (CESA) and sponsored by METI
(Ministry of Economy, Trade, and Industry), is held twice per year,
and aims to showcase the latest and greatest game software titles
released (or to be released) by Japan's big names, including Bandai,
Hudson Soft, Microsoft, Sega, Sony, and others.

TGS is held in the sprawling Makuhari Messe exhibition center, located
close to Tokyo Disney Land, and this season's show occupied Halls 1
through 8; event sponsorship -- 53 companies, according to the press
release -- was obviously not a problem. Those 53 exhibitors manned
1,373 booths, making the show almost 50 percent bigger than the spring
2001 event (which showcased only 931 booths from 53 exhibitors).
Crowds, even during and just after the Friday press-only pre-opening,
were intense.

The show was an important event from several game industry
standpoints. It will be the last big show here prior to Microsoft's
oft-rescheduled February 2002 Japan launch of the Xbox game machine,
and multiple pre-release devices and a representative slice of new
titles were available for gamers to whet their thumbs (see the
upcoming November issue of J@pan Inc for an interview with the Xbox
Japan project manager).

Also, the show was the first since the formal launch of NTT DoCoMo's
FOMA 3G network (DoCoMo was listed as a "special sponsor" in show
literature). Big D's strong presence indicates the importance of
gaming to the success of i-mode and the other wireless webs here.

In particular, DoCoMo's i-Appli Java service has seen a lot of games
deployed by most of the major publishers, helping boost packet usage
on the i-mode network. Hudson Soft alone had ten **new** titles for
i-Appli, including Chakushin Appli, an archive site that allows
i-moders to download as many classic Hudson Soft games as they like
for a flat fee of JPY300 per month. There are 28 titles, including
"Bomberman" and the quintessential "Star Soldier" (quintessential,
that is, if you're a mobile gamer).

Surprisingly, DoCoMo demonstrated all of its new Java games on
current-generation 503-series i-mode handsets, while the FOMA handsets
were reserved for demonstrating the 3G network's video conference
capabilities. (Punters with patience could line up to video conference
across a few meters with a comely young hostess; it's obvious that
video dating and matchmaking are going to be big on 3G.)

J-Phone and KDDI were also out in force to demo their latest Java
games. J-Phone's service is called "J-Sky Java" and comprises more
than 65 titles by publishers including Enix, Capcom, Koei, Sega,
Taito, Namco, and Bandai. KDDI didn't have a booth, but then its
ezPlus Java service is only just getting started.

But while mobile gaming did generate some excitement, the fact is that
the number of new titles for the keitai is down. New mobile titles
represented 4.1 percent of the 339 titles announced for all platforms
(PS, PS2, Gameboy, PC, Xbox, Dreamcast, Nintendo, Wonder Swan, other),
compared to 11.0 percent of 309 titles at the spring TGS and 14.7
percent of 334 titles a year ago.

The slack seems to have been taken up by titles targeting PlayStation,
PlayStation2, Xbox, and Gameboy (color), all of which saw a jump in
new titles.

But don't write off mobile gaming just yet. The drop in new titles
released represents, we think, industry preoccupation with PS2, Xbox,
and other platforms, rather than any abandonment of mobile. Also, as
the next-gen game consoles -- offering broadband connectivity -- come
to market in the next 4 to 6 months, interest in downloading games for
other platforms will be stimulated (the gamer mindset will drift away
from cartridges toward network gaming).

Finally, keep in mind that on DoCoMo's i-Appli Java system, games
account for 59 of the 165 channels, and there were 7,410,000 i-Appli
handsets in use as of October 9. That's got to add up to some revenue
-- and a helluva opportunity -- for somebody, somewhere.

--Daniel Scuka

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

--> Japan's August Mobile Phone/PHS Shipments Fall
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/148048
Source: Nikkei AsiaBizTech, October 12

EXTRACT: The Japan Electronic Information Technology Association said
the combined shipments of cellular and personal handyphone system
(PHS) phones in August amounted to 4.19 million units, a 1.4 percent
drop year on year and a decline for the third month in a row. The
declining number of new subscribers and depressed demand from
customers buying new mobile phones in exchange for old ones resulted
in the stagnant shipments.

COMMENTARY: The report states that 3.99 million cellphones were
shipped, substantially unchanged from a year earlier, but also
representing a decline for three months in a row. PHS phones accounted
for 203,000 units, which was a sharp drop of 22.9 percent from a year
ago and represented a 6-month decline.

It appears that with the continuing slump in consumer demand, the
generally high quality of existing handsets (which makes it harder for
new models to achieve that "Gee Whiz--Gotta Have It" funkiness), and
the ubiquity of penetration (a large proportion of adults in Japan
already have one), selling phones is only going to get tougher.

We heard that a year ago, one DoCoMo engineer told an analyst that the
competition was "Vodafone." Recently, the same analyst heard that the
competition is now considered to be -- Surprise! -- NTT, i.e.
broadband connectivity to the home.

The new race may just prove to be between the wireless Internet, and
cramming ever more bits down the wireless pipe (think 3G -- but will
subscribers pay?), and broadband, and fixed carriers' ability to
stream multi-megabits per second to the home for pennies per day.

--> DoCoMo Talks with SKT Collapse
(Original headline neglected "on Verge of" used in text)
http://globalarchive.ft.com/globalarchive/article.html?id=011012001083&q...
Source: Financial Times, October 12

EXTRACT: Talks between NTT DoCoMo and SK Telecom for the Japanese
mobile phone operator to take a minority investment in Korea's largest
mobile phone operator are on the verge of collapse. DoCoMo has been in
talks with SKT for about two years over taking a stake of about 15
percent in the Korean operator.

The talks have been hampered by disagreements over price. SK Group has
set aside a 14.6 percent stake in SKT for a possible sale to DoCoMo.
However, DoCoMo has also been disturbed by apparent reluctance within
SKT toward an early roll-out of W-CDMA, the 3G mobile phone standard
adopted by DoCoMo and many European operators.

COMMENTARY: Oops! If ever an overseas strategy was in tatters, it's
gotta be DoCoMo's. For the last 24 months, the cash-rich company has
been following a policy of taking minority stakes in No. 2 and No. 3
players in overseas markets. How much of a minority? Just enough to
influence the choice of 3G technology -- and ensure that i-mode and
W-CDMA were high up on the investee's radar screen (this would have
the effect of lowering W-CDMA infrastructure costs and ensuring that
Japan was not a cellular standards island, as it has been with 2G PDC
-- see link below).

But the strategy hasn't worked -- through no fault of DoCoMo's. The
wind has gone out of the 3G (W-CDMA) sails in Europe and the US (and
now, apparently, Korea). Licensing costs, infrastructure costs, lack
of public willingness to move to new handsets, and the failure of WAP
have all helped shoot holes in 3G outside of Japan, and now DoCoMo is
left holding the equity bag.

The companies it has invested in are all struggling to deploy even
2.5G systems; DoCoMo president Keiji Tachikawa said earlier this month
that DoCoMo's plans in Asia had been disrupted by the absence of
specific 3G plans in many Asian countries. Looks like being too far in
the lead is just as much a problem as being too far behind.

See J@pan Inc article on DoCoMo's foreign investments
"DoCoMo: Taking over the world, or just saving some money?"
http://www.japaninc.com/mag/comp/2001/04/apr01_how.pdf

--> DoCoMo's FOMA gets only 5,700 Subscribers Three Days after Launch
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/cover/148426
Source: Nikkei AsiaBizTech, October 15

EXTRACT: DoCoMo, which launched 3G mobile communication services on
October 1, barely got 5,700 new subscribers in the first three days of
operation. 2,300 users opted for the standard N2001 handset, 2,300
chose the P2101V, and 1,100 went for the P2401, a PC Card adapter used
for data communications.

COMMENTARY: This report is a little too (negatively) hypish. The 3G
network is still in technology demonstration mode more than anything
else, and there is no point in considering subscriber numbers until
next year, when the 3G system gets built out to other cities (it's
only in Tokyo now).

This report states that NTT DoCoMo aims at winning 150,000 subscribers
by the end of March 2002 by gathering momentum through a year-end
sales battle. What battle? There's no other 3G network battle against,
and in the meantime 2.5G (and, shortly, KDDI's cdma2000 3G system)
offer better (if not faster) alternatives.

--> Tu-Ka Suffers Loss of Subscribers for Third Consecutive Month
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/moren/148040
Source: Nikkei AsiaBizTech, October 12

EXTRACT: The number of subscribers for Tu-Ka Group companies, a KDDI
affiliate, fell by 15,200 to 4,019,800, for its third consecutive
month of decline.

COMMENTARY: Before, PHS was down. Then, last year, it spiked back up.
Now, it's down again. We think this drop will bottom out as carriers
and third-party application and service developers renew their sights
on PHS. DDI Pocket's network has been boosted to 128 Kbps, and offers
packet- and circuit-switched billing. Other PHS networks continue to
offer reliable 32- and 64-Kbps speeds, and PC Card- and Compact
Flash-format wireless data cards appear to be selling well.

Palm Japan, for example, had announced roll-out of a localized Palm
VII integrated with DoCoMo's 19-Kbps Do-Pa packet network for this
past summer. But plans were put on hold (despite DoCoMo pushing for
the move) because PHS offers faster speeds. As Craig Will, VP for Palm
Asia Pacific, puts it, "32 to 64 kilobits per second is pretty damn
good on a Palm." The Palm 505 now sports a port for a CF wireless
card, and in the future the company will deploy a PDA with a SD-format
wireless card. PHS is by no means dead.

--> KDDI Roll-out Plans
There's an interesting chart at the URL below. It gives a broad
overview of KDDI's plans for 3G roll-out in view of the recent delay
to 2002. Starting around April next year, we should see cdma2000 1X
offering 144 Kbps, together with ezMovie, ezPlus (Java), and WAP 2.0.
By fall 2002, the cdma2000 1X-EV system should start.
http://www.kddi.com/english/release/2001/0920/schedule.html

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

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