WW-42 -- Be Afraid, DoCoMo... Be Very Afraid

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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. 42
Monday, February 4, 2002
Tokyo

INDEX

+++ Viewpoint: Be Afraid, DoCoMo... Be Very Afraid

+++ Noteworthy News
--> J-Phone Cuts Ad Agencies to Overhaul Image
--> Mobile Internet Revives PHS Unit
--> NTT DoCoMo looking for French partner
--> Japan Telecom to Expand Wireless LAN Test Area

+++ Sign of the Times
Mobile Haiku

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+++ Viewpoint: Be Afraid, DoCoMo... Be Very Afraid

{A little long this week. Perhaps better to print and read on paper.}

Despite having built the world's best wireless Internet systems,
what's the one thing that no Japanese wireless carrier can do that
carriers elsewhere -- like, oh, say for example, Vodafone -- can?

Simple: sell to the enterprise. Make the phone (or wireless-enabled
PDA)an IT purchase, just like PCs, servers, software, services,
etcetera. In other words, put the buying and selling of mobile data
devices and services on the same footing as the buying and selling
of all other IT products and services, which would have the twin
benefits of boosting the notoriously inefficient workings of
Japanese enterprises as well as the bottom lines of cell phone and
PDA vendors.

That's why Vodafone's entrance into Japan is very important.
Consider how Vodafone has treated its corporate customers in the UK
and Europe: it's very similar to how a telecom provider would deal
with a large corporate client's data requirements or its nationwide
PSTN requirements.

They assign a single account manager to that company, and implement
some sort of fleet management program for the mobile hardware and
software, resulting in standardization, regular maintenance,
predictable performance, and tight integration with the client's
back-end systems(creating yet more opportunity for the savvy mobile
vendor to sell software and services). The Japanese carriers just
can't do this.

None of this would matter if Vodafone, based in the UK a long way
away, would remain so (Japan would stumble along on its own, thank
you very much). But it hasn't, and Vodafone's management takeover
last fall of No. 3 cellular carrier J-Phone has served to bring an
extremely savvy seller of corporate wireless products and services
right to DoCoMo's domestic doorstep.

And, while we're using Big D's name in today's title, none of the
other Japanese operators have reason to feel any less afraid. When
DoCoMo starts to lose corporate market share, or gets left out
entirely from the creation of Japan's corporate wireless market,
KDDI/Au, Tu-Ka, DDI Pocket, and Astel will feel just as much, if not
more, pain.

Don't for a moment think that some in Japan's mobile industry aren't
thinking about this situation. Just under a year ago, the ministry
was putting pressure on KDDI to restructure and get rid of some of its
non-performing assets. KDDI employed a major foreign investment
banker as their advisor, and entered into discussions with a number
of private equity firms about unloading Tu-Ka and DDI Pocket (see WW
No. 18).
One consortia was based on the Texas Pacific Group; another on
Ripplewood (famous for the resurrection of the failed Long Term
Credit Bank as Shinsei Bank). Japan Communications Inc. president
Frank Sanda was the animating force behind any possible deal. One
plan -- and little of this came out in the press -- was for a
foreign-capital JV to pick up Tu-Ka **and** DDI Pocket, gaining a
combined subscriber base (at the time) of about 5 million.

The new owners could have combined the two networks, using Tu-Ka's
PDC network predominantly for voice and DDI Pocket's PHS network
predominantly for data, and then offer "virtual" 3G services without
any of the investment involved in W-CDMA. They also could have sold
off the subscriber base and then launched marketing under an entirely
new brand name.

There were two candidates for the foreign half of the JV: Virgin and
Orange. For Virgin, it would have been superb -- they could have hit
the market running with a couple of million subscribers.
Unfortunately, then, KDDI was intent on restructuring Tu-Ka before
selling it, and now,DDI Pocket revenue's are finally starting to
take off on the strength of flat-rate PHS data cards (see news item
below), so no deal was brokered.

The epilogue is that Japan Communications Inc. (JCI) has gone on to
become Japan's first MVNO, reselling flat-rate data cards under its
own brand name using DDI Pocket's network targeting -- surprise,
surprise -- corporate customers. And JCI appear to be gaining some
traction. On Wednesday last week, JCI and Baxter Japan, a
$452-million pharmaceutical company, announced a deal to rebuild
Baxter's customer service systems using JCI's 128-Kbps PHS data
service and a suite of wireless applications (no value for the deal
was stated).

Palm Japan is also eyeing the enterprise. Last April, Palm KK said
it would tie up with 11 Japanese system integrator firms to enter
the business-use mobile computing market, including NTT-ME, Otsuka
Shokai, Japan Communications, Hitachi Information Technology,
Fujitsu Prime Software Technologies, and Mitsui Knowledge Industry
(see link to J@pan Inc story on Palm below).

If JCI, Palm, and others are thinking about corporate data, you can
bet your pachinko pocket money that Vodafone is too -- and it now
owns one of Japan's networks!

The lesson is that what goes on in Japan is not irrelevant to
foreign operators who could do, we think, a heck of a better job at
retailing to both consumers and businesses than the Japanese
carriers have done, despite the large numbers of subscribers signed
up to date. All Japanese carriers are facing marginal subscriber
effects -- they've already signed up over half the nation's
population! The future is "ED" -- enterprise data, and the Japanese
carriers just don't seem to get it.

--Daniel Scuka
daniel@japaninc.com

Roaming Into Corporate Japan
PDA giant Palm Japan tries to penetrate enterprise space
http://www.japaninc.com/article.php?articleID=536

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

--> J-Phone Cuts Ad Agencies to Overhaul Image, Selects Hakuhodo
http://quote.bloomberg.com/fgcgi.cgi?ptitle=Technology%20News&s1=blk
&tp=ad_topright_tech&T=markets_bfgcgi_content99.ht&s2=ad_right1_tech
nology&bt=ad_position1_technology&middle=ad_frame2_technology&s=APFX
7QRUSSi1QaG9u
Source: Bloomberg, January 28

EXTRACT: J-Phone, a unit of Vodafone Group Plc, has selected
Hakuhodo as its sole advertising agency, as part of a push to reduce
costs and make the mobile operator's brand more recognizable at
home. The company will pare agency fees by concentrating its
business into a single advertiser, down from the present five.
Marketing has taken on more importance as Japan's mobile phone
companies find it increasingly difficult to attract
new customers in a nation where more than half the population
already has a mobile phone. Vodafone is also focusing on cutting
costs in an effort to make its Japan operations profitable.

J-Phone this month reduced capital spending estimates for this
fiscal year ending March by slashing the amount it invests on
wireless networks. J-Phone's decision mirrors the strategies of
Japanese automakers Nissan and Mazda, which also chose Hakuhodo as
their only advertiser after foreign management took over. Vodafone
said it planned to spend "hundreds of millions of euros," to link it
more closely with companies it controls, such as Eircell in Ireland
and Airtel in Spain.

COMMENTARY: More evidence to support our earlier speculation (see
Viewpoint above)? Sit back and watch, folks, as J-Phone/Vodafone
cleans up in Japan.

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--> Mobile Internet Revives PHS Unit
http://www.asahi.com/english/business/K2002020100499.html
Source: Asahim Shimbun, February 1

EXTRACT: Impressed by its unexpectedly strong performance, KDDI has
decided to shelve plans to sell its mobile-phone subsidiary, DDI
Pocket Inc. The unit is riding high on booming sales of its AirH"
(pronounced "air edge") PHS wireless data cards for laptops and
PDAs. AirH", in turn, owes its success to the growing popularity of
unlimited mobile-access subscriptions offering connection speeds of
32 Kbps for less than JPY5,000 a month. Between its August debut and
the end of last year, about 200,000 new subscribers bought AirH"
cards.

COMMENTARY: DDI Pocket has 2,951,200 PHS subscribers, compared to
DoCoMo's 1,910,000 and Astel's 834,300 (as of December 31, 2001).
Many analysts are concluding that flat-rate, high-speed data was the
sweet spot that many would-be subscribers were waiting for. DDI
Pocket signed up 8,800 new subscribers in December and 1,200 in
November, a complete reversal from previous months, which had seen
the carrier's subscriber base shrink (it lost 11,700 in October
2001). We can see why KDDI no longer wants to jettison PHS!

We find it amazing that it took so long for the management to settle
on flat rate as the correct pricing model. There was plenty of
evidence(conversion of ISDN and DSL from per-minute to flat-rate
billing, conversion of dialup analog access to flat-rate, etc.)
where time and again huge numbers of Japanese subscribers were won
over within a very short time of switching to a flat-rate scheme.

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--> NTT DoCoMo looking for French partner
http://www.europemedia.net/shownews.asp?ArticleID=8141
Source: Reuters on Yahoo, January 23

EXTRACT: Japan's NTT DoCoMo is looking to team up with a French
mobile operator to offer services, so the company doesn't have to
apply for a separate 3G license in the country. That's what the
company's Europe chairman, Hiroshi Nakamura, told French newspaper
La Tribune. He would not confirm whether DoCoMo would join up with
Bouygues Telecom, the company's partner in introducing i-mode in
France.

COMMENTARY: If this is true, than DoCoMo is clearly has not been
deterred by the huge valuation losses on its existing European
investment. Look for DoCoMo to expand the search for suitable
overseas platform partners to work with it in Europe and North
America.

We heard that Calgary, Canada-based wMode, a solutions developer,
received no small measure of interest from DoCoMo types at the Las
Vegas CTIA show in March last year. wMode's "ClearMode"
clearinghouse platform apparently allows post- and pre-paid
subscribers to pay for wireless content via their phone accounts.
One industry watcher explained DoCoMo would like to have such a
tool, since "it would allow them to capture revenues while still
maintaining an arm's length from the less-savory forms of content
providers." We'll see more of this as mini i-modes sprout up
elsewhere.

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********************************************************************

--> Japan Telecom to Expand Wireless LAN Test Area
http://sg.news.yahoo.com/020130/16/2dl7l.html
Source: Asia Pulse on Yahoo, January 30

EXTRACT: Japan Telecom -- J-Phone parent -- said it would expand
testing of its Internet connection service that uses wireless LANs
(local area networks). It tested the service at Tokyo Station from
September through December. Starting in February, the test area is
to include the Shinjuku, Shibuya, Ueno, and Shinagawa stations on
the JR Yamanote line.

COMMENTARY: This trial uses 802.11(b), and is due to continue
through July this year. JT isn't the only player trying to figure
out how to make money on wireless LAN hotspot services. Ericsson,
Marubeni, and Handspring ran a Bluetooth hotspot trial in Tokyo last
year, and there's a wireless LAN service operating on the Odakyu
Electric Railway line that runs from Shinjuku south west to the
ever-popular Hakone weekend getaway destination. The Odakyu service
includes multimedia content from Asahi and the BBC (news), MTV,
sports clips, Nickleodeon cartoons, and others, and runs on an
802.11(b) wireless LAN.

{Those outside Japan who wish to take a virtual ride on the Odakyu
line can do so via Microsoft's Train Simulator game. Rail
enthusiasts can hop into train cabs on Amtrak's Acela line, on the
Burlington Northern and Santa Fe Railway, and on the Kyushu Railway,
as well as the OER.}

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+++ Sign of the Times

Mobile Haiku

Don't know what struck us, but we typed "cell phone haiku" into
Google, and tinywords.com was the first site that came up.
Tinywords.com delivers haiku fresh every day, for free, via email,
cell phone, pager, or any other Internet device, be it mobile or
stationary.

For any non-Japanophiles out there, haiku are short, 17 syllable
poems. This site claims they are "ideally suited for delivery on
mobile devices, which often have severe constraints on message size
and bandwidth." More compellingly, haiku are also the ideal poetic
form for the hectic modern world, where few people have the time for
leisurely reading of poetry.

By sending one "tiny but excellent poem to people all over the world
every day," the site aims to humanize Internet and mobile technology,
increase the appreciation of haiku -- and of poetry in general,
encourage people to write and share haiku of their own, bring people
a moment of quiet reflection and insight in the midst of their busy
days, and spread excellent haiku throughout the world.

Here's the February 1 poem:

spring water burble
in stone cold sky ~ five hundred
sandhill cranes coming

--Su Fidler Cowling

Let us know if anyone gets this to work on i-mode!!

http://tinywords.com

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

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