WW-34 -- Maybe the Lessons from Japan's Carriers Just Don't Matter?

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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. 34
Monday, November 26, 2001
Tokyo

INDEX

+++ Viewpoint:
Maybe the Lessons from Japan's Carriers Just Don't Matter?

+++ Noteworthy News
- NTT DoCoMo's FOMA Still Lacks Luster
- NTT DoCoMo to Launch Global Positioning Svc
- KDDI Unveils Mobile Communications Strategy for 2H of FY2001
- Average User Spends JPY2,600 Monthly for i-Mode
- NEC Close to Roll-Out of Dual-mode 3G Phones

+++ Events (Advertisements)
Wireless Technology Summit 2001
December 5-7, 2001 Doral Golf Resort, Miami, FL

+++ Sign of the Times
Japan's NTT Group Decides on Winter Bonuses

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+++ Viewpoint:
Maybe the Lessons from Japan's Carriers Just Don't Matter?
(Updated Nov. 27 with corrected yen-dollar conversion rate)

After a lengthy wait, 2002 should be the year that the US and Canada
finally get wireless data religion. This past July, AT&T Wireless
started to offer GSM/GPRS data services in Seattle, while other GSM
operators in North America have started similar services.

I was in Toronto last week and called Rogers AT&T Wireless, the
Canadian branch of the AT&T brand, to ask about their recently
launched GSM/GPRS service. It turns out the service was **really**
recently launched. The lady I spoke to said that, Yes -- it was a GSM
service, and, Yes -- she thought I could simply bring in my old
tri-band handset to get the SIM card and sign up for an account.

When I called a local dealer, however, I was told that they had
neither the GSM phones nor any individual SIM cards yet; "Call back in
December," I was told. There was also no word on data pricing. Oh,
well. As we used to say in the army, "Hurry up and wait."

But AT&T in the States has announced its data rates. It appears that
combined voice and data services will start at $50 per month (about
JPY6,200) and will include 400 voice minutes plus 1MB of data. The
carrier plans to cover 40 percent of its target population this year,
and the rest by the end of 2002. One of the first GPRS-capable
handsets is the Motorola Timeport, which sells for about $200 and
transmits packets at about 20-30 Kbps.

Conversely, Japanese carriers have adopted a low monthly base fee (a
couple of dollars equivalent) and ultra-low per packet (or per time,
in the case of J-Sky) usage fees for data, with no surcharges and no
increases/discounts after a certain amount of usage. This approach has
served to hook peripatetic surfers on data (especially mail) usage,
and encourages them to stop watching the clock (a habit learned in the
bad old days of dial-up per-minute home access fees).

It also encourages them to use lots of for-fee mobile Web sites
without worrying that the cost of transmission will significantly add
to the cost of using the site's service (which, in turn, encourages
lots of content and service providers to build lots of interesting
content and services). In short, the low data usage fees have been
instrumental in building the wireless webs here into major success
stories.

On 2.5G i-mode, for example, it costs about JPY2,457 to send/receive
one megabyte (1,048,576 bytes) of data; that's about USD$19.81. AT&T
Wireless will charge more than twice this much for the same amount
of data (plus, granted, 400 voice minutes, for which i-moders pay extra).

Nonetheless, it's obvious that Japan's almost three years of
experience in providing wireless Internet (or wireless data) to a mass
market counts for almost nil in the North American carriers' data rate
plan calculations. And don't think for a second that the likes of AT&T
Wireless, Cingular, and Verizon haven't been watching Japan like
hawks. There is little doubt that they understand the successful
formula behind the super-cheap data pricing on i-mode, J-Sky, and
EZweb, but they don't seem to be implementing it.

This implies that the mobile Internet in North America will start as,
and remain, a high-end niche service for deep-pocketed business users
(and early adopters -- who are largely insensitive to price) for the
foreseeable future.

That's too bad. NTT DoCoMo is one of the richest wireless carriers in
the world (see Sign of the Times below), and it didn't get that way by
charging too few subscribers too much for too little.

-- Daniel Scuka

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

--> NTT DoCoMo's FOMA Still Lacks Luster
http://www.nikkeibp.asiabiztech.com/wcs/frm/leaf?CID=
onair/asabt/fw/155523
Source: AsiaBizTech, November 19

EXTRACT: The new 3G FOMA service has started without international
roaming, one of the main features of 3G, and with higher-speed
multimedia services available only in limited service areas. The FOMA
service certainly has some attractive features, including a futuristic
video phone capability and a high voice quality. But at the same time,
it has such issues as high communications fees and limited service
area coverage.

Industry observers forecast that DoCoMo has to wait another three to
four years before it can launch an international roaming service
full-scale. FOMA is supposed to be able to distribute animation and
music, and exchange picture mail, taking advantage of the higher data
transfer speed of packet-switched 384Kbps or circuit-switched 64Kbps.
However, none of such capabilities were available at the time of the
October launch, except the video phone capability. With some of its
main services postponed, FOMA is lackluster now.

COMMENTARY: The doom and gloom in this item is true. FOMA is a
technological marvel that has little applicability right now -- even
in gadget- and wireless web-crazy Japan. There are almost no services
that take advantage of the fatter pipe, and there won't be for some
time (other than i-motion -- see WW No. 33).

But make no doubt about it: There's no turning back and 3G is the
future. John Buckley and Bjorn Krylander write on the FT.com site (see
link below) that the business press has been highly critical of 3G
technology. But a decade ago media commentators were equally
dismissive of GSM, and their forecasts proved to be ill-founded. The
FT.com survey article includes some entertaining excerpts from the
business press, to wit:

"Much of the initial enthusiasm for the concept
appears to have evaporated and the original launch
target of autumn this year has been slipping. Since
then, the UK economy has sunk into recession, forecasts
of the number of... subscribers... have been scaled
down and the need for heavy investment has scared
many of the original shareholders."

This quote isn't from a recent article analyzing 3G, but instead comes
from a circa-1992 article covering the launch of -- deja vu! -- GSM.
By early 2002, GSM will be serving about ten percent of the world's
population. Looks to us like any early reports of 3G's death -- like
the one above -- are greatly exaggerated.

"Survey: FT Telecoms: Despite Setbacks, 3G Will Transform our Mobile
Lives," Nov. 21
http://globalarchive.ft.com/globalarchive/article.html?
id=011121000606

--> NTT DoCoMo to Launch Global Positioning Svc
http://sg.biz.yahoo.com/011120/15/1uh7d.html
Source: Dow Jones on Yahoo, November 20

EXTRACT: NTT DoCoMo said Tuesday it will launch a global-positioning
service on i-mode phones on November 27. The service ("DLP," for
"DoCoMo Location Platform") is similar to KDDI's GPS system, to be
offered on its mobile phones from December. It allows users to
determine their geographic location or identify the whereabouts of
others via satellite. DoCoMo said it will also provide special
functions enabling corporations to manage user information based on
their geographic locations, such as via wireless intranets.

COMMENTARY: DLP will also enable third-party service providers to
distribute services based on location, such as merchandise discounts
targeted at specific areas, to pre-registered users. Users, in turn,
will pay a basic monthly fee of JPY100 or JPY400 for the service
(JPY100-package users will pay JPY20 per access, and JPY400-package
users will pay JPY1), while service providers will pay a one-time
JPY8,000 connection charge. This will mark the first time that DoCoMo
has directly billed third-party content, application, or service
providers for providing their offerings over the network.

At least one analyst we heard from remained somewhat skeptical that
consumers would want to give out general location information to
businesses, but he did add that DLP could be a vital tool for
corporate users such as salesmen, taxi drivers, technicians, and
deliverymen who need location information to do their jobs.

He also remarked that DLP consumer applications are likely to focus
more on meeting points and specific information desired by consumers
-- such as the location of a popular club or restaurant. It will thus
be important to enable subscribers to sign up with only those
businesses that they choose (particularly given the PR problems
associated with spam email).

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--> KDDI Unveils Mobile Comms Strategy for Second Half of FY2001
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=
onair/asabt/news/155988
Source: AsiaBizTech, November 21

EXTRACT: The strategy aims to clearly identify user targets for KDDI
and each of its group companies, to increase their competitive edge
and minimize competition among them. KDDI is suffering substantial
losses because it offers three services to almost identical markets.
KDDI's mobile communications service consists of: (1) the "Au"
business, which is the cdmaOne mobile phone service provided by KDDI
and Okinawa Cellular Telephone Co., (2) personal digital cellular
(PDC) mobile phone service, which the TU-KA Group provides in the
Tokyo, Nagoya, and Osaka areas, and (3) PHS service provided by DDI
Pocket Inc. These will be reorganized so that each service can be made
most suitable for each market.

COMMENTARY: KDDI intends to differentiate these three networks
services according to target users. It will also start advertising
them under specific service brand names -- such as "GPS Keitai" (for
cell phones) and "Movie Keitai" -- in December. Tu-Ka's PDC system
will concentrate on cellular voice users, with deeply discounted
handset pricing. DDI Pocket's PHS system will focus on enterprise data
communication users, and will offer fixed-rate data plans, while Au
will continue on its path to the new cdma2000 1X-EV high speed network
offering high quality voice and fast wireless Internet. As an aside,
don't be surprised if the PDC or PHS systems are eventually sold off.

--> Average User Spends JPY2,600 Monthly for i-Mode
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=
onair/asabt/moren/155729
Source: AsiaBizTech, November 20

EXTRACT: DoCoMo subscribers spend JPY2,614 per month on average for
i-mode services, NTT Group company InfoCom Research found in an August
2001 survey. This was 1.4 times more than the results of a similar
survey carried out in July 2000, in which the average amount was
JPY1,845. The details of the items users bought most are as follows:
Fee-based ring melodies and music data ranked first, and other
fee-based information ranked second. As a whole, the items that ranked
first to sixth were all online-related digital content, and this trend
has stayed the same from the last survey. However, users who purchased
CDs, videotapes, and DVDs increased most from 7.8 to 16.4 percent,
which showed that the ratios of goods-selling services has gradually
increased.

COMMENTARY: The latest survey was based on a sample of 888 responses
received via the InfoCom Web site. The company says these represent
heavy i-mode users (and that the survey shows that users are
purchasing more products and spending more on i-mode as they get
accustomed to the i-mode payment system).

These must be super-duper-heavy users indeed, since NTT DoCoMo's own
quarterly and annual reports (available at nttdocomo.com) claim that
i-mode (or, specifically, "data") ARPU was JPY1,510 (09/2001) -- a lot
less than mentioned above. The discrepancy may lie in defining "data
ARPU." The InfoCom survey appears to report real spending by real
users.

The NTT DoCoMo site calculates data ARPU by dividing total annual
i-mode packet transmission and i-mode monthly fee revenues by the
number of cellular subscribers at the end of the previous fiscal year
plus the number of cellular subscribers at the end of the current year
divided by two (and by then dividing the result by twelve). Hmmmm...
Who do we believe? InfoCom or NTT DoCoMo?

--> NEC Close to Roll-Out of Dual-mode 3G Phones
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=
Article&cid=FT3619Z8HUC
Source: FT.com, November 25

EXTRACT: NEC, Japan's biggest cellphone maker, expects to start
supplying the world's first dual-mode third-generation mobile phones
to European operators early next year. Hajime Sasaki, NEC's chairman,
said in an interview that the dual-mode phone -- which can be used to
make calls on existing infrastructure as well as new high-speed 3G
networks -- is undergoing trials. "We will ship to the Hutchison group
from early next year," Mr Sasaki said. "I think we will be the first."

COMMENTARY: The dual-mode phone is the product of an alliance between
NEC and Matsushita to pool 3G research and development costs.
Technical difficulties remain, however. Battery life and onboard
software SI are still crucial problems. We suspect that the handsets
will be good to go within two quarters.

+++ Events (Advertisements)

Wireless Technology Summit 2001
December 5-7, 2001 Doral Golf Resort, Miami, FL

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+++ Sign of the Times

Japan's NTT Group Decides on Winter Bonuses

Corporate Japan has long followed the tradition of providing workers
with twice-yearly bonuses as part of their overall compensation.

This winter, employees at NTT DoCoMo are benefiting from their
company's position as not only market leader but also one of the
richest corporate entities in Japan (market cap was
JPY16,662,240,000,000 as of 10:52 this morning).

DoCoMo employees will receive an average of 3.24 months of salary as
bonus, plus a JPY233,000 performance payment. That wireless is a
better business to be in than fixed-line is doubtless not a question
in group employees' minds. NTT East, West, and Communications'
staffers will only receive an average of 2.6 months salary -- down
from 2.9 months last winter and the lowest ever. Recession? What
recession?

(Gathered from analyst reports)

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

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