WW-36 -- The GPS Phones are Here!

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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. 36
Monday, December 10, 2001
Tokyo

INDEX

+++ Viewpoint: The GPS Phones are Here!

+++ Noteworthy News
--> J-Phone Cam-Phone Sales Exceeds 2 Million
--> Mobile Subscriber Stats -- November 2001
--> DoCoMo Aims to Widen 3G Network Coverage
--> 'Unstoppable' Operator Starts to Slow Down
--> NEC says On Track for 3G Europe Rollout

+++ Events (Advertisements)

Fiberoptics Forum
December 13-14, 2001, Tokyo, Japan

+++ Sign of the Times
The GLAY Phone

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+++ Viewpoint: The GPS Phones are Here!

The GPS phones are here, and we're finally starting to see some real
differentiation on services available on the wireless Internet systems in Japan.
To date, the three major systems have offered largely the same thing: an
extensive mix of content, applications, and services delivered on packet- and
circuit-switched networks at 9.6 or 64 Kbps via HTTP into a microbrowser coded
in cHTML, MML, or HDML. In other words, it's been easier to point out what's the
same on i-mode, J-Sky, and EZweb than to find the differences.

The business models have been remarkably similar as well. As was recently
explained by Michael Bjorn, general manager for Internet applications and
broadband access at Ericsson Japan, all three services have been characterized
by offering browsing on a handset, mail, WWW access, operator-run portals, color
screens, a mass-market target, and all have worked to foster a community of
third-party content and service providers.

Billing models were substantially the same as well. All charged a super-low
packet or time-usage fee, and all allowed users to subscribe to third-party
content for JPY100-300 per month (pay-by-subscription).

But 2001 has seen each of the services introduce highly differentiated services
based on new handset or network technology (or both).

Java
DoCoMo led the pack with its January i-Appli launch, but both J-Phone and
KDDI/Au caught up with the June and July launches of J-Sky's Java-Appli and
EZweb's ezplus services. i-Appli has the most severe download limit (10 KB),
while Java-Appli and ezplus are more generous, allowing 30 KB and 50 KB,
respectively. Pricing is substantially the same on each; users pay to subscribe
to Java download sites like they do for any other wireless Web content site, and
typically receive a half-dozen or so downloads per month. Note there are
significant differences in what each operator allows the Java apps to do while
resident on the handset -- some can access the network, others can't.

Messaging Services
Here we see some real differences. DoCoMo (only) is tightly tied up with AOL,
and offers AOLi, an integrated mail service that combines AOL Web mail and
mobile mail. J-Phone (only) offers @Sha-mail, implemented on camera-phones.
Sha-mail allows users to snap pics and email them to any mobile-compatible or
Internet email address. This has been a real coup for J-Phone, and the service
is extremely popular (see news items below). EZweb offers Oshaberi Mode, a chat
system that operates between handsets (DoCoMo also offers AOL instant
messaging). Pricing is a little different on each. It costs JPY8, for example,
to send a picture mail on @Sha-mail.

Location-based Services (network)
In contrast to its early lead with Java, DoCoMo was almost a year late in
getting its i-Area pull-based service running. J-Phone was launched in its
J-Navi and J-SkyStation services (pull and push, respectively) in May and
October last year. KDDI/Au had its ez@Navi pull service up by July 2000. i-Area,
J-Navi, and J-SkyStation are free (J-SkyStation charges JPY100/month for a
premium version), while ez@Navi is JPY210 per month. All are proving to be very
popular.

Location-based Services (GPS)
As we said, the GPS phones are finally here. This month, KDDI/Au launched three
new cdmaOne handsets equipped with a Qualcom GPS chip. The chip is compatible
with enhanced GPS, so it offers 100-meter accuracy indoor and 10-meter accuracy
outside (where the handset can see the satellite). Two models (C3001H and
C3002K) are GPS-only, while the third (C5001T) is also compatible with the
ezmovie video clip service. Until March 2002, a promotional campaign will give
users access to the GPS-based services ("ezwebmulti") for free (after paying the
JPY300 per month basic fee); afterwards, it will cost JPY600 per month for
usage. The handsets also have WAP2.0 browsers and Java.

GPS, video, picture mail, chat, IM: Wow! It's going to be an interesting 2002,
and the carriers are finally going to be able to compete on highly
differentiated services, features, and prices. Only in Japan, folks!

-- Daniel Scuka

KDDI To Launch Next-Generation au Services Across Japan in December
Sales of New GPS Keitai and Movie Keitai to Start Simultaneously
http://www.kddi.com/english/release/2001/1112/index.html

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

--> J-Phone Cam-Phone Sales Exceed 2 Million
Email press update
Source: J-Phone PR, October 5

EXTRACT: J-Phone sold 2.17 million digital camera handsets as of end-September,
and the cam-phone users now account for 19.6 percent of all J-Phone subscribers.
In the May-September period, cam-phone sales -- as a percentage of total J-Phone
handset sales -- grew as follows:

May, 2001 7.4 percent
June 2001 10.2 percent
July 2001 13.7 percent
Aug, 2001 16.8 percent
Sep 2001 19.6 percent

COMMENTARY: At this rate of increase (about 3.05 percent per month), cam-phone
sales will have accounted for 22.65 percent of sales in October and a
substantial 28.75 percent in December. In addition, J-Phone has introduced new
camera-equipped models since May (there are now six), so it's a safe bet that
the number of cam-phones sold is going nowhere but up. It's widely believed that
last month's move of J-Sky Web from third (after i-mode and EZweb) to second
place was due to camera-phone sales. Handsets can store 30 to 40 images in JPEG
format, and it costs about JPY8 to send a single photo as an email attachment.

--> Mobile Subscriber Stats -- November 2001
http://www.tca.or.jp/eng/daisu/yymm/0111matu.html
Source: Telecommunications Carriers Association, December 7

EXTRACT: The TCA Web site has posted the subscriber results for the month of
November 2001. The first table refers to subscribers by system:

System Group Nov. 2001 Oct. 2001
Change Total Total
PDC NTT DoCoMo 318,000 39,145,000 38,828,000
KDDI/Au -87,600 1,757,700 1,845,400
TU-KA -22,500 3,960,100 3,982,600
J-Phone 156,200 11,422,800 11,266,600
PDC Subtotal 364,000 56,286,600 55,922,600

CDMA KDDI/Au 103,800 10,089,600 9,985,800
W-CDMA NTT DoCoMo 3,000 14,000 11,000
TOTAL: 471,800 66,390,200 65,918,400

The next table refers to subscribers by wireless information service (i-mode,
J-Sky, EZweb):

Service Nov. 2001 Oct. 2001 Groups
Change Total Total
i-mode 669,000 29,307,000 28,638,000 NTT DoCoMo (all)
EZweb 112,600 8,837,000 8,724,400 KDDI/Au: 7,505,600
TU-KA: 1,331,400
J-sky 214,200 9,033,700 8,819,500 J-Phone (all)
TOTAL: 995,800 47,177,700 46,181,900

COMMENTARY: KDDI continued to lose subscribers on both the PDC and cdmaOne
networks; J-Phone and DoCoMo picked up new PDC subscribers, while DoCoMo grabbed
3,000 W-CDMA users -- modest, but it's a start. There are now 47.177 million
wireless Internet subscribers in Japan.

J-Sky is steadily pulling ahead of the WAP-based EZweb service, and now claims
9.033 million users versus EZweb's 8.837 million. KDDI is now distributing
all-new marketing brochures that appear to mimic J-Sky's hyper-successful
youth-targeted image; but we think there's no coming back from the third spot.

--> DoCoMo Aims to Widen 3G Network Coverage
http://globalarchive.ft.com/globalarchive/article.html?id=011205000700
Source: Financial Times; December 5

EXTRACT: NTT DoCoMo will soon offer subscribers the option to have the same
number for two phones -- a 2G and a 3G handset -- in an effort to overcome the
limited coverage of its new 3G network. The company is seeking to increase the
number of 3G subscribers tenfold to 150,000 in the next four months, but
coverage remains limited to Tokyo, Osaka and Nagoya. It is planning to launch
dual-mode 3G handsets in the second half of next year. They are not currently
available from suppliers.

COMMENTARY: This move makes sense. As we saw in the TCA subscriber report above,
Big D only grabbed 3,000 new 3G subs in November; the company now has 14,000
W-CDMA users. To reach 150,000 by end-March, they'd have to sign up about 34,000
newbies per month. This is unlikely so long as basic voice coverage is so
limited. The dual-mode handsets should be out next year.

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--> 'Unstoppable' Operator Starts to Slow Down
http://globalarchive.ft.com/globalarchive/article.html?id=011206000362
Source: Financial Times; December 6

EXTRACT: NTT DoCoMo is quickly living down its reputation as Japan's success
story of the new century. Japan's mobile phone operator, which recently seemed
unstoppable, has started to look increasingly vulnerable. With overseas
partnerships cemented through equity investments that cost the group as much as
JPY1,800 billion, DoCoMo should have been set to win over the world with i-mode
and, soon after that, 3G.

Instead, throughout 2001, DoCoMo has been plagued by jitters over the viability
of its 3G service, concerns about its overseas strategy, faster-than-expected
falls in voice traffic revenues, and a siding share price. Since early May,
DoCoMo's share price has fallen 44 per cent from JPY2.9 to JPY1.61 million at
the end of November. Although many in the industry believe there is ample room
for subscriber growth in Japan, where penetration is just under 60 percent,
compared with 80 percent in the Scandinavian countries, revenues are falling.

Consequently, DoCoMo has warned that full-year revenues will be short of
expectations and that, in order to maintain pretax profits as forecast, it will
have to cut costs. In five years' time, DoCoMo could still reign triumphant with
a global 3G network spanning the world's major markets acquired at what might by
then appear to be minimal cost.

COMMENTARY: We told you so. See "Has i-mode Lost its Mojo?," October 2001, J@pan
Inc. That story concludes with:

So far, 2001 has been the year of discontent for i-mode and
its operator parent. Network glitches, falling packet usage,
spam, and the delay in the European rollout are all plaguing
the giant carrier. Sadly, some, like [Indosuez W.I. Carr Securities
analyst] Calder, see little chance for improvement, particularly
in the falling data ARPU trend and its impact on rising marginal
subscriber costs. "DoCoMo is unlikely to turn this around," he
says gloomily.

"Has i-mode Lost its Mojo?"
Or is it just the costly recalls, damaging delays, decreasing growth, and
increasing competition?
http://www.japaninc.com/mag/comp/2001/10/oct01_imode.html

--> NEC Says On Track for 3G Europe Rollout
http://money.iwon.com/jsp/nw/nwdt_rt.jsp?cat=USMARKET&src=201&feed=
reu§ion=news&news_id=reu-t17491&date=20011206&alias=/
alias/money/cm/nw
Source: Reuters on iwon.com, December 6

EXTRACT: NEC, Japan's biggest cellphone maker, said on Thursday it was still on
track to deliver volume shipments of 3G mobile phones to Europe next
July-September, shooting down reports of a delay. NEC spokeswoman Emi Hidaka
said the company had not altered its schedule for delivering the dual-mode
handsets, which would be capable of working with both high-speed 3G and existing
phone networks, to Hutchison Whampoa.

COMMENTARY: Hutchison still expects the dual-mode handsets in the third quarter
of 2002. Dual-mode phones are considered key to the success of 3G in Europe
because they will allow subscribers to make calls in areas where no 3G
infrastructure is yet in place. Most of those subscribers are quite used to
being able to make GSM calls wherever they go in Europe, so, yes -- dual-mode is
probably key. J-Phone in Japan will go with dual-mode to give it a leg up in
competition with DoCoMo.

+++ Events (Advertisements)

Fiberoptics Forum
December 13-14, 2001, Tokyo, Japan

Nikkei Electronics and US-based PennWell will co-host Fiberoptics
Forum 2001 in Tokyo, focusing on technology and market trends related
to opto-electronics.

As we usher in the broadband era, the significance of optical
communication technology is increasing. High-speed board design
utilizing the application of optical switching will become more common
in the next few years. Under such circumstances, the Fiberoptics Forum
will invite prominent engineers from the US to give analysis of such
hot themes as "Optical Communication Components/LSI Exceed 40
Gbits/sec" and "Chip Industry Enters the Contest in the Development of
Optical Switching." In addition, analysts from the US will forecast
the future of market trends from the perspective of the so-called
"optical food chain" -- optical components/optical devices/optical
networking services.

Simultaneous translation (Japanese <--> English) will be provided.

For further information, access:
http://dk.nikkeibp.co.jp/dk/seminar/011213e.html

+++ Sign of the Times

The GLAY Phone
Since April, KDDI/AU and GLAY have been touting the uber-cool, all-black "GLAY"
brand-name phone (based on a C413S handset). GLAY is, as anyone who's been here
for more than 15 minutes knows, one of Japan's top music groups. The handset has
built-in karaoke, a 16-voice polyphonic sound chip, a 256-color, 120x160 dot LCD
display, and Bluetooth. The phone is made by Sony and features Sony's POBox
predictive input system (POBox is also deployed on DoCoMo's SO503i Java phone
and on the C406S and C413S cdmaOne phones).

GLAY, by the way, initially wanted a name that had ambiguous meaning, so they
chose "Grey" -- as in half-way between black and white. Unfortunately, there was
a minor misunderstanding in how to write the name in English, and by the time
anyone noticed the typo, the brand had already generated significant equity.

http://www.glay.co.jp/

POBox -- Predictive Operation Based On eXample
http://www.csl.sony.co.jp/person/masui/OpenPOBox/

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

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