WW-57 -- Dealing with Disruptions

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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. 57
Monday, May 20, 2002
Tokyo

INDEX

+++ Viewpoint: Dealing with Disruptions

+++ Noteworthy News
--> GPS Handsets to Revitalize Sluggish Mobile Phone Market
--> I-mode Services a Hit with Europeans
--> NTT DoCoMo to Introduce Online Bar Code for Paying Phone
Bills at Stores
--> Japan Mobile Users Seen Up 20 Percent by 2006
--> Tokyo Smart Cards Challenge Cash

+++ Events (Advertisements)
Carriers World Japan 2002
Tokyo, Japan, 10-11 July 2002

+++ Subscriber Statistics, Corrections, Credits, Administrivia

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+++ Viewpoint: Dealing with Disruptions

The question has come up a lot recently about how the carriers are
going to handle the new, disruptive technologies now in the pipeline.
These include e-money systems for cellphones (like bitWallet's EDY --
see WW No. 51), new non-licensed-spectrum networks (like Wireless LAN
and 802.11(b)) and expanded, removable onboard memory.

The memory issue, while at first glance hardly seeming like a true
'disruptive' technology, is actually a biggie. For years, carriers and
handset makers have been able to control exactly what subscribers
could load onto their cellphones. The memory onboard a keitai was only
accessible by the embedded OS through client software like mail or
microbrowser.

There was no way for a keitai owner to copy or move files like mail,
image, ringtone, or other Web content onto or off the handset except
via the wireless interface -- billed per packet, thank you very much.
And prior to the advent of i-mode and the other wireless webs here,
there was **no** way for a user to move files onto or off the keitai,
period.

Now, we're seeing handsets from Sony, Sharp, Toshiba and others that
include SD memory card slots, and for the first time you can copy some
files (like MP3s) onto the handset -- the key adjective being 'some.'
For instance, Sharp's new J-SH51 Sha Mail handset from J-Phone has an
MP3 player client built-in.

But it's kind of useless since you can't copy MP3s from your PC to the
handset using the removable SD memory card for mobile playback; you
can however, connect the phone to a stereo's audio OUT jack and simply
record a track from an MP3 or a CD ("which is a real time-waster,"
said one Tokyo keitai user a few weeks back).

Neither can you download Java applis from the Web, save them to an SD
card, and then copy them to a PC or another handset -- this is
particularly frustrating when you upgrade the handset, and you have to
rely on the carrier sales shop to have the proprietary copying
equipment available to transfer applis that you've downloaded (and
paid for) from your old handset to the new.

But with mobile content increasing in complexity (video, audio, Flash
graphics), there is pressure on the device makers to boost onboard
memory and make it freely accessible to the owner. The Genio e550G/MD
from Toshiba, while not a phone, is one indicator of this trend. It
has a built-in 1GB microdrive! As phones, PDAs, and other connected,
wireless devices proliferate and become more powerful, how will the
networks operators maintain the control they've had in the face of
user demands for more and more interconnectivity?

Wireless LAN and Bluetooth technologies are even more disruptive.

In Japan, you don't have to be a Type I (infrastructure-owning)
licensed carrier to set up an 802.11(b) hotspot network
-- as Yahoo BB, SpeedNet, and others have said they'll do. There's no
way to bill for the spectrum usage, but these players are planning to
bill for the access they provide.

I suspect we'll see inter-hotspot-operator roaming agreements so
that a Yahoo BB hotspot customer can get access via SpeedNet's network
-- and the roaming tariffs can be freely negotiated between these two
"carriers" -- there's no ministry or foot-thick sheaf of telecom
tariff regulations to deal with here. Maybe hotspot operators will
provide all the data connectivity anyone needs and pricey,
by-the-packet systems -- like DoCoMo's shiny new W-CDMA network --
will whither through lack of use.

Obviously, the giant carriers will hedge their revenue streams and
DoCoMo, KDDI and others have all announced that they will launch
stand-alone Wireless LAN or joint 3G/Wireless LAN systems in the near
future. But I think they will have a tough time reforming their
engineering-centric, licensed-spectrum mind sets to adapt to the
livelier -- and more disrupted -- world of hotpsot roaming and
uncontrolled device interconnectivity. Free advice to Japan's
unreconstructed dinosaur carriers, whoever they may be: reform or die.

--Daniel Scuka
daniel@japaninc.com

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

+++ Noteworthy News
(Long URLs may break across two lines so copy to your browser.)

--> GPS Handsets to Revitalize Sluggish Mobile Phone Market
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/fw/184769
Source: Nikkei AsiaBizTech, May 13

EXTRACT: The phone market, which has recently been rapidly losing its
momentum, just might be given new life by the advent of more
GPS-equipped handsets. The au C3003P handset -- manufactured by
Panasonic -- was released in March and looks as if it is going to turn
out to be a very big hit. It now seems likely that NTT DoCoMo, having
seen how popular Au's phone is becoming with users, will follow suit
and start marketing its own new GPS handsets sometime soon. When
earlier models of these types of position-locating GPS phones first
hit the market back in December 2001 the reaction from users was
rather cool, but the C3003P phone has changed that and is turning out
to be a huge hit thanks mostly to the fact that it has a special
built-in magnetic sensor which improves the GPS navigation functions.

COMMENTARY: The magnetic sensor referred to above is a built-in sensor
that senses the Earth's magnetic field, which has a (mostly) fixed
direction. As a result, the handset can decipher its orientation in
space, and the display can rotate the map automatically so that north
on the map points to the real north at the user's location. This makes
reading the maps a lot easier, since they are already oriented.

Also, these babies use both the CDMA network and the GPS satellite
data to figure out where they are. As a result, the user gets useful
location data even when indoors, where GPS satellite signals have poor
or no reception. Wow! If these aren't category killers, we don't know
what is. Once again, just like with Sha Mail and with the original
cell-based location services rolled out last year, Big D has been
caught napping.

--> I-mode Services a Hit with Europeans
http://news.zdnet.co.uk/story/0,,t284-s2110082,00.html
Source: ZDNet, May 13

EXTRACT: I-mode's foray into Europe appears to be meeting with early
success, with the mobile information and entertainment service raking
in 80 percent of its revenues from data income, according to a source
close to the company. A typical mobile phone network operator
currently sees about 5 percent of its revenues from data services such
as text messaging, with the remainder coming from voice calls. But
with standard mobile phones reaching high penetration levels in Europe
and elsewhere, network operators and handset manufacturers have been
searching for ways to continue increasing their revenues -- and paying
for expensive next-generation wireless spectrum licenses.

The i-mode business model appears to have succeeded in increasing data
revenues, said the source. Its most popular services are applications
like email, as well as information services like sports news and
downloading ring tones.

COMMENTARY: This largely supports what we reported in WW No. 55 --
that the Euro baby i-modes are successfully emulating Big D's i-mode
back here. All things being equal, there is no reason why the baby
i-modes won't take off like i-mode did here in 1999; perhaps a little
slower, but just as inevitably.

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--> NTT DoCoMo to Introduce Online Barcode for Paying Phone Bills at
Stores
http://investor.nttdocomo.com/ReleaseDetail.cfm?ReleaseID=
80640&page=article&type=Press
Source: NTT DoCoMo PR, May 15

EXTRACT: NTT DoCoMo announced that it will introduce a new billing
system that enables users to pay monthly mobile phone bills at
convenience stores using a two-dimensional bar code on the screens of
their mobile phones. The service, dubbed 'combien?' will be available
at two AM/PM Japan convenience stores in Tokyo (Ichiban-cho Honsha
Biru and Kokusai Akasaka Biru stores) beginning May 20, 2002. The
service will expand to some 1,400 AM/PM stores nationwide by early
July. It will also be available at several Lawson convenience stores
by mid-July and expand to some 700 locations in Tokyo's 23 wards and
Nagoya as of September.

COMMENTARY: The barcode, which is downloaded from a dedicated
i-mode site to prevent double payment, is valid only on
the day it is downloaded. Should save DoCoMo some serious coin on bill
presentment and settlement costs. Oddly, the system won't work
with certain Ericsson and Nokia handsets -- go figure!

--> Japan Mobile Users Seen Up 20 Percent by 2006
http://www.reuters.co.uk/news_article.jhtml?type=
technologynews&StoryID=961109
Source: Reuters, May 15

EXTRACT: The number of cellphone users in Japan is expected to grow by
20 percent by 2006 as mobile operators steadily expand their
subscription base by keeping churn rates low, Gartner Japan said on
Wednesday. The research firm projected subscribers to number 83.96
million in four years' time, up from the current 69.8 million. Gartner
also said Japanese mobile carriers' revenue from voice and data
transmission would increase to 7.8 trillion yen ($60.70 billion) in
2006 from 6.3 trillion yen in 2001.

COMMENTARY: This appears to echo our point of view stated last week
(see "Not All the Low-Hanging Fruit's been Picked," WW No. 56). Don't
pay too much attention when you hear captains of wireless industry
here complain about marginal subscriber effects and the difficulty of
finding new subscribers -- they're out there -- Gartner says so!

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--> Tokyo Smart Cards Challenge Cash
http://news.bbc.co.uk/hi/english/sci/tech/newsid_1972000/1972969.stm
Source: BBC, May 17

EXTRACT: Japanese commuters have embraced smart travel cards, with
two-thirds abandoning their old passes in the last six months. Japan's
largest train company, Japan Rail East, has just completed the Tokyo
introduction of new smart cards to replace traditional commuter passes
and has high hopes that one day the cards will even replace the cash
in your wallet. Since the company introduced its Suica smart cards
based on integrated circuit technology last November, take-up has been
phenomenal. After only six months, 3.6 million out of the 4.5 million
Japanese who use commuter passes on JR East's network are addicted to
the smart cards.

COMMENTARY: These are substantially the same kind of contactless IC
cards that a keitai will emulate under the DoCoMo plan to use
bitWallet's EDY e-money system as early as the end of fiscal 2002. If
this is the kind of consumer take-up that a mere train pass can
generate, think of DoCoMo's pending riches when the EDY system is used
to permit a cellphone owner to buy anything they want at any shop!

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May 20 -- Japan's Omron has tied up with America's Cellport
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onboard sensors to report maintenance, operation, and other
data to a central server using a keitai. We take a look at a
Cellphone-enabled Jeep parked in downtown Tokyo and speak
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when we'll be able to buy a Lexus that'll transmit low engine
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May 27 -- Takaharu Mita is just a regular guy with a DoCoMo
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=====================================================================

+++ Events (Advertisements)

Carriers World Japan 2002
Tokyo, Japan
10-11 July 2002

With telecom deregulation throwing its doors open to international
players, Japan is experiencing tremendous interest from global
carriers trying to get a foothold in this once monopolized telecom
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=====================================================================
+++ Subscriber Statistics, Corrections, Credits, Administrivia

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