WW-41 -- Bellybutton Gazing, Yada, Yada, Yada ...

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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
====================================================================

Issue No. 41
Monday, January 28, 2002
Tokyo

INDEX

+++ Viewpoint: Bellybutton Gazing, Yada, Yada, Yada ...

+++ Noteworthy News
--> DoCoMo to Open i-mode Network to ISPs
--> DDI Pocket to Offer 128-Kbps Flat-Rate Data Service
--> KDDI to Market Mobile Phone with Video-Recording Function
--> J-Phone Examines Sales Incentives to Boost Profit

+++ Sign of the Times
Sanyo Pictures Camera Venture in China

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+++ Viewpoint: Bellybutton Gazing, Yada, Yada, Yada ...

We here at J@pan Inc would like to thank you out there in Internet
land for reading Wireless Watch. In the 40 issues in the nine months
since launch in since March 2001, we've grown to 1,791 subscribers
-- that's an average of 45 new subscribers each week. While we don't
get a lot of feedback, those of you who have taken the time to send
in mail have been generally quite pleased with WW's content and
direction, and quite kind with your corrections when we've flubbed a
story or goofed a fact. As for the rest of you, we'll assume that
"no complaint" equates to "more or less satisfied."

Wireless Watch has grown into a unique weekly news digest and is, as
far as we know, the only newsletter that covers the inside story
behind Japan's mobile and wireless Internet industries. We intend to
keep covering DoCoMo, J-Phone, KDDI, i-mode, the other wireless
Webs, content, content producers, as well as the networks, the
technologies, the companies, the business models, and -- perhaps
most importantly -- the people who make Japan's mobile scene one of
the world's most interesting. We hope you enjoy reading the
newsletter as much as we enjoy researching, writing and producing
it.

But you will see a few changes in WW over the next few weeks.

The most exciting news is that we've started producing a video
version of WW, which we'll post each week off of the link in the
upper right-hand corner of the WW section of the J@pan Inc site (see
link below). We've already completed the first three trial issues,
and we should have the links and file formats correct and everything
working within a few days (a couple of clips are already open to the
public -- take a look!).

Your host for these 5-10 minute programs will be me, Daniel
Scuka, senior contributing editor, and production and editing will
be done by the experts at Video-Link (http://www.video-link.com), which is
a Microsoft-authorized Windows Media Service Provider and content
developer for streaming online video. Actually, that should be
"expert," since Video-Link in Japan is a one-man shop run by
Lawrence Cosh-Ishii, a talented video head from way back who is one
of the most knowledgeable streaming content engineers working in
Tokyo.

Why a video version? We think that a text-only newsletter -- while
replete with information and commentary in our own inimitable style
-- is insufficient to actually show what's going on here; the
handsets, the operators, the networks, the people, the streets, the
ads and the big picture, as well as the hype (which WW will help
you separate from the reality). We'll focus each week on a company,
a new technology, or a key player, and try to keep the clips to
under 10 minutes so that no one dies of boredom waiting for the
download (you'll be able to choose a clip coded for your bandwidth).

In addition, we're going to ask you to participate in our WW
subscriber survey so that we can get a handle on exactly who you
are. When we review the list of subscriber domain names, it becomes
obvious that you folks are spread out everywhere -- in Japan, Asia,
the US, Canada and Europe, as well as all points in between. We'll
want to survey your demographics, your interests, what coverage you
want to see in WW and which industries you work in. Uh Oh! Brace
yourself for a load of Spam -- **Not**!

We refuse to sell, trade, lend, or otherwise reveal the subscriber
mailing list to anyone for any purpose, but the J@pan Inc marketing
folk will be looking for a sponsor for WW (both text and video)
based on your subscriber data, so please make a point of
participating when we send out the call (should be in a week or
two). Also, if you know of any company interested in sponsorship,
send an email to business manager Taiken Jo (taiken@japaninc.com).

Finally, the earlier point about feedback was no exaggeration -- we
really do get remarkably little comment. Don't at all hesitate to
send responses, comments, opinions, or criticism to me (address
below). While I can't promise to respond to all, I will respond to
all that are pertinent and will include some of your comments in
future issues.

--Daniel Scuka
daniel@japaninc.com

Wireless Watch section of J@pan Inc for accessing the video version
http://www.japaninc.com/newsletters/index.html?list=ww

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This offer ends Feb 15, 2002
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+++ Noteworthy News
(Long URLs may break across two lines.)

--> DoCoMo to Open i-mode Network to ISPs
http://biz.yahoo.com/rf/020123/t46152_2.html
Source: Reuters on Yahoo, January 23

Also: http://www.3g.co.uk/PR/1642.htm

EXTRACT: NTT DoCoMo will allow Internet service providers to offer
their own services on its wireless network from November, the Nihon
Keizai Shimbun newspaper reported on Thursday. DoCoMo currently
offers access to mail and the Web through i-mode, which has managed
to grab 30 million customers in nearly three years and made DoCoMo
one of Japan's most profitable companies. ISPs have been clamoring
for a piece of the action, and DoCoMo had promised that it would
prepare its systems to allow them to link into its wireless network
by March 2003. In a recent news conference, DoCoMo Chief Executive
Keiji Tachikawa hinted that the i-mode network may be opened up
earlier than planned.

--> NTT DoCoMo to release guidelines for ISPs to gain access to
packet network
http://www.nttdocomo.com
Source: NTT DoCoMo press release, January 25

EXTRACT: DoCoMo announced today that it will release a set of
guidelines that ISPs must follow in order to gain access to DoCoMo's
packet network. Such access will allow ISPs to offer their own
services to DoCoMo's i-mode users and is intended to stimulate
further development of Japan's mobile multimedia market. The
information will include: basic policies regarding interface
provision, services available to ISPs, structural access and
contractual conditions. ISPs interested in accessing the network
must agree to the stated conditions and then apply for further
consultations with DoCoMo. Access tests are scheduled to start
sometime around the beginning of November 2002.

COMMENTARY: According to DoCoMo's announcement, opening of the
i-mode network to ISPs will target Type I and II licensed telecoms
providers (roughly, infrastructure owners and lessors) and will
allow ISPs to offer their own services (portal access, mail, push
and pull data, et cetera) via i-mode. DoCoMo also said the system
will allow ISPs to obtain information regarding caller numbers and
their location (with client consent). Handsets will be programmable
(DoCoMo's default i-mode portal is the only menu presently
programmed into handsets), and most handsets now on the market
should be compatible with the new access mode.

DoCoMo isn't the first. In October last year, KDDI became Japan's
first operator to open up its official wireless Web to other ISPs.
KDDI placed a link labeled "Open Site" on its top menu, allowing
users to access Yahoo Mobile, @Nifty, BigGlobe and Lycos Mobile.
This, however, was thought to be more a move of desperation than a
major reworking of Japan's wireless Internet scene (like DoCoMo's
move) since KDDI's EZweb wireless Internet service suffers from such
a dearth of content (and, consequently, subscribers, data usage and
profitability). In December, EZweb also moved to WAP 2.0, and new
handsets equipped with Openwave's WAP 2.0 browser can access
xHTML-coded content -- which includes most cHTML-encoded i-mode
sites.

J-Phone said last year that it has no plans to open its J-Sky
wireless Internet service, but DoCoMo's move, coming at least a year
before many expected, puts pressure on the No. 2 wireless Internet
service network to rethink its plan.

Finally, as we said, this is a major reworking of Japan's wireless
ecosystem. Until now, all carriers relied on proprietary, branded
portals to serve up premium content to their subscribers for a fee
(both usage and access). While subscribers could always access
off-portal content, they could do so only by manually typing in the
URL (or emailing a link to their handset). Ironically, in the case
of i-mode, this limitation proved to be more or less trivial, and
the number of unofficial (off-portal) sites long ago surpassed the
number of official sites.

Note to anyone thinking of launching their own i-mode system (pay
attention, KPN and AT&T Wireless): Don't try this on your own
networks until the system is mature. DoCoMo would rather have eaten
month-old sushi than have opened i-mode anytime until now -- which
is to say anytime until i-mode gained several tens of millions of
content consumers. Now, there is little any third-party ISP
could do to threaten DoCoMo's ownership of the customer, and
besides, DoCoMo may not even care. It makes money off of every
packet that zips over the network, whether to/from an official site
or not.

--> DDI Pocket to Offer 128-Kbps Flat-Rate Data Service
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/165818
Source: Nikkei AsiaBizTech, January 23

EXTRACT: DDI Pocket Inc. said it would start a flat-rate data
communication service at a maximum transmission speed of 128Kbps
using PHS PC Card terminals on March 26. It will provide the service
to the users of AirH" (a brandname pronounced "air edge") at a
maximum transmission speed of 32Kbps, and there will be an
additional service, named "Option 128," for more speed. The monthly
fee for AirH" is JPY3,500, 128Kbps will cost JPY9,300 (includes
monthly basic fee of JPY5,800). Option 128 will cover almost all of
Japan, and it can be connected to PRIN, DDI Pocket's Internet
connection service. DDI Pocket is negotiating with several Internet
service providers for possible alliances.

COMMENTARY: Wireless Watch covered this development last fall, when
Japan Communications Inc. (JCI) said it would become Japan's first
MVNO as a reseller of DDI Pocket's flat-rate service. The launch of
128-Kbps services, however, comes some five months late, due to the
cost of fleshing out DDI Pocket's PHS infrastructure. Honda Electron
said it will also become a reseller of PC Card terminals that access
the 32- and 128-Kbps PHS system.

<---------------------------ANNOUNCEMENT----------------------------

J@pan Inc magazine produces three other newsletters:

** Music Media Watch (MMW); Tuesdays, A brand-new addition to J@pan
Inc's collection of weekly newsletters. MMW provides in-depth news
and commentary on the major developments in Japan's fascinating and
fast-moving music media industry (to subscribe, send mail to
"editors@japaninc.com").

** J@pan Inc Newsletter (JIN); Wednesdays -- A weekly digest of news
and commentary focusing on technology and business in Japan. JIN is
a useful way to keep abreast of events without having to leave your
inbox.

** Gadget Watch (GW); Thursdays -- Looks at the latest gadgets being
rolled out in Japan and is the perfect newsletter for gadget freaks!
Note, however, that we're not responsible for any cases of "Japan
gadget envy" that develop; in many cases the products you'll read
about are available only on these shores.

Subscribe, unsubscribe, and find out more at:
http://www.japaninc.com/subscribe_news.html

We don't sell our lists to spammers, so breathe easy.
--------------------------------------------------------------------
>

--> KDDI to Market Mobile Phone with Video-Recording Function
http://www.nikkeibp.asiabiztech.com/wcs/frm/leaf?CID=onair/asabt/moren/1...
Source: Nikkei AsiaBizTech, January 25

EXTRACT: KDDI Corp. will begin marketing a mobile phone handset this
summer equipped with video recording capability. The handset,
jointly developed with Sanyo Electric, has a small built-in camera
that enables users to record around 15 frames of video per second
using MPEG-4 data compression technology. The video can then be sent
as an email attachment. The unit uses Sanyo's 2.2-inch organic
electroluminescent display, the largest of its kind in the industry.

COMMENTARY: KDDI, sucking for air and falling further behind in the
wireless Internet race, obviously can't have missed noticing how
successful J-Phone's camera-equipped handsets have been. On January
9, J-Phone said that cumulative sales of "Sha-mail"-enabled mobile
phones surpassed 3 million of the little beauts in December 2001.
Keep in mind that at the end of November 2001, about 24 percent of
all J-Phone mobile phones in use were cam-phones, and about half of
new J-Phone subscribers were opting for the terminals. Wow!

KDDI is planning on rolling out a cdma2000 1X network this year,
offering data downloads at the nominal speed of 144 Kbps -- plenty
enough to handle short 10- to 30-second video clips or streaming
video (KDDI EZweb users can already access clips and streams via the
EZmovie service running on the present cdmaOne 64-Kbps system). The
phone is expected to cost some JPY50-60,000, definitely upper end of
the market. But with a built-in video cam, we suspect **all** of the
early adopters will jump at it.

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--> J-Phone Examines Sales Incentives to Boost Profit
http://www.nikkeibp.asiabiztech.com/wcs/frm/leaf?CID=onair/asabt/moren/1...
Source: Nikkei AsiaBizTech, January 17

EXTRACT: When J-Phone launched an advertising campaign in December
for the Sha-mail email service without the use of popular actress
Norika Fujiwara, sales agencies worried that the commercials would
be ineffective. The commercial, showing family members and lovers
exchanging digital photos and messages via email, was designed to
offer easy-to-understand explanations of various Sha-mail functions,
said Darryl Green, J-Phone president. The development caused anxiety
among sales agencies, which sense that J-Phone is departing from
successful strategies, following Vodafone's management
takeover of J-Phone. It takes an average of 5.1 months for J-Phone
to recover its JPY40,000 per customer in handset subsidies paid to
sales shops. It takes NTT DoCoMo an average of 3.5 months, while
Omnitel, Vodafone's Italian affiliate, can recover such costs in
only 1.4 months. "J-Phone has launched a thorough review of its
sales incentive system to boost profit and improve cash flow," said
John Durkin, the senior managing director.

COMMENTARY: We've been hearing mobile industry insiders here saying
for some time that the subsidy system is long due for an overhaul,
and it looks like J-Phone may be taking the lead. While the whole
concept is controversial, in Japan, subsidization has long been a
part of how the carriers control what the handset makers do -- and
in particular which new features handsets bring to the market. It's
been a tightly interlocked chain with the handset makers doing what
the carriers, in particular NTT DoCoMo, bid, since they were
guaranteed payment for their products and benefited from carrier
assistance in R&D. Sales channels were also keen to push sales and
allowed handset prices to fall steeply, since they made plenty on
the subsidization payment.

Carriers, in turn, moved heaven and earth to lock in subscribers
(all offer long-term contract discounts, family billing plans and
other incentives) to keep them long enough to earn back the cost of
the network, the handset and the subsidy payment. J-Phone's moves,
the rise of MVNOs, number portability (mandated for 2004), and the
rising costs of handsets (see previous news item) will all conspire
to chew up the traditional system.

====================================================================

++ EVENTS
MKI chit chat night
Come and join us for an informal telecoms related get together
MKI will present a bottle of Mexican beer to the first 20 people to
say hello to Jim Tajima (sorry, but you can only say hello once) --
so don't leave the office too late !

Date : Thursday 31st January, 2002
Time : 7pm start
Place : Zest Cantina (Iikura),
Grand-Mer Roppongi 1F,
5-18-19 Minato-ku.
Tel : 03-5570-6999
====================================================================

+++ Sign of the Times

Sanyo Pictures Camera Venture in China

Japan's Sanyo Electric Co. said it will start making digital
cameras in China from April to meet growing demand from snap-happy
customers and to cut costs. "Production is due to start this spring
and we aim to make one million cameras in the first year," said
Sanyo spokesman Derek Wentz. "The ultimate goal is to make 10
million units by fiscal 2003 including production in Japan, South
Korea (and Indonesia)," he said. It is 30 times cheaper to hire a
Chinese worker than a Japanese, said Wentz. Sanyo aims to produce
5.4 million digital cameras in the year through March, increasing
output to seven million units next year.

We think that the rising quality of CCD cameras built into
cellphones will start to give the digital camera market a severe
makeover. In 2002, cam-phones will start to approach digital cameras
in lens and CCD quality. What happens when consumers are faced with
buying two gadgets (a phone and a camera), when for less money they
can have a phone and a camera that is almost as good? No one will
pay the same for a device that is fundamentally a phone as for a
device that is fundamentally a camera.

"Sanyo Pictures Camera Venture in China," Jan. 23
http://sg.news.yahoo.com/020123/1/2ciar.html

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

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