Japan Wireless Rocks

Back to Contents of Issue: April 2002

Wireless guru explains why DoCoMo matters to the rest of the world. By Daniel Scuka

by Daniel Scuka

Richard Siber is one of those deep thinkers that presidents and CEOs of wireless carriers call on for advice and insight into where wireless is going and how it's going to get there. And unlike many so-called technology gurus, Richard Siber actually brings a lot of substance to the table. He's spent the past 17 years in the wireless industry and is currently partner in the communications and high-tech practice of Accenture, which agreed in February to form an alliance with Fujitsu to boost the electronics giant's consulting business. Siber talks to carriers, equipment vendors, regulators and content providers around the world, and spends more time than most figuring out how business opportunities will unfold on the wireless Internet. J@pan Inc's senior contributing editor Daniel Scuka met with Siber after the 3G Mobile World Summit to obtain his take on Japan wireless, 3G and DoCoMo's i-mode model.

With wireless, are the Japanese ahead of the world?

Japan is the birthplace of 3G. It is very interesting to be having a conference on 3G in Tokyo three months after the official launch of the service. Looking at 3G and the potential opportunities, the threats and challenges, it's very apparent that, first, 3G doesn't exist anywhere else, and second, Korea will be the second market in the world. Everyone else after that will take months or years. The foundation out here is that NTT DoCoMo had a vision and executed it -- and it was very important [to prove] that it could be done. Whether the market materializes, or rather, when it does, is the question.

Also, while DoCoMo is building out 3G, it already has a focus on 4G. To put this in perspective, the US has not even identified the spectrum for 3G yet, let alone cleared it for auction, let alone built networks or launched commercial services. Now, the CDMA guys, the Sprints and the Verizons, are saying they're launching 3G this year on a 2.5G network; this is going to be the closest thing [the US has] to 3G for the next three or four years.

Was Japan's free 3G spectrum giveaway an unfair advantage?

Talk about wisdom and foresight in creating a competitive advantage! Europe paid $100 billion for their spectrum. Globally, $300 billion has been committed for spectrum and $750 billion for infrastructure for 3G. The US hasn't done either of those yet, but the Japanese government basically said, ÒLet's come up with another approach.Ó By doing that, they didn't require the intensive capital expenditure up front from the carriers. So the carriers, instead of having to put eight, 10, 20, 50 or 100 billion dollars into [spectrum fees], could take that money and invest it into building the networks. So, [the Japanese showed] foresight and they are creating a longer-term competitive advantage. [The Europeans] are now looking at network sharing as one way to pay for the auctions, and that's opening up another can of worms.

Isn't any domestic advantage irrelevant to the rest of the world?

There are definitely opinions that express that point of view. My opinion is that DoCoMo did something that is of high value and exportable to the rest of the world. DoCoMo is about making and building a sensible business model, and that's what i-mode is. It was the first time in the history of the wireless industry that there was a complete solution offered that took into account the market demographics, the delivery model, an open content platform, an open application development platform, and that provided a billing mechanism so that DoCoMo ultimately started to generate revenue for the value-add it was providing. That was unique and is still somewhat unique today as other carriers finally are beginning to wake up to that model and recognize the benefits it provides.

Historically, especially in the US, carriers built a walled garden. They thought that they owned the customer, they owned the network; they would own the customer's X-Y coordinates. And why should they share anything with anyone? Literally, over the last three months, we've seen Verizon and Vodafone make announcements that they were putting together revenue-sharing value propositions with their content providers and application developers. Then there are companies like Qualcomm with its BREW initiative which is also an end-to-end solution for business; BREW is everything from the chip to the royalty payment. To me, conceptually, it's very similar to i-mode.

Are DoCoMo's current difficulties short-term? Is its model stronger in the long term than any other carrier's?

There are a couple of super players that are established. One is Vodafone with about 210 million subscribers, I believe. Basically one out of four wireless subscribers globally uses a Vodafone-affiliated network. This is stunning. As recently as 1996, Vodafone operated in 10 countries, yet 75 percent of its revenue came from the UK. Here we are five years later, and we're talking about an absolute global powerhouse that was willing to put together the Mannesmann deal, which is still the largest M&A activity in history. [Vodafone and Mannesmann of Germany agreed to merge in early 2000.] They are willing to do good deals and bet the ranch on wireless. And they're also betting a fairly significant amount on data -- 3G is not about technology, it's about delivering value, and it is incremental. We've gone from analog to digital to GSM, GPRS, EDGE, W-CDMA; after 3G will be 4G, after 4G will be 5G; it's evolutionary. DoCoMo's view tends to be a little bit more radicalized -- that sounds negative, but I don't mean it in a negative way. DoCoMo's view tends to be much more far-reaching, whereas some of the other carriers are still thinking about the fundamentals.

If I had a nickel for every executive at yesterday's 3G Summit who said, "The killer app for 3G is voice," I'd have a bundle of cash. That was the lead tag line from yesterday -- except of course from me [laughs].

On one panel, we were saying that 3G is not just about voice; not just about capacity. 3G, in our opinion, is absolutely synonymous with IP architecture. If you build an IP network, the IP network doesn't care what's going across it, and it's very efficient and provides for much lower cost. Also, because you can build lower-cost applications and deliver them cheaper, 3G [helps] increase revenue margins. So yesterday I went in with a very different premise from the earlier speakers, and basically said that 3G equals IP; that you should build 3G to get to IP or vice versa. In doing so, it allows you to open up the intelligence of the network, increase value and develop lower-cost applications.

What about criticism that DoCoMo over-controls the i-mode platform?

Clearly, one argument with DoCoMo is that it's very closed and very proprietary; it's exclusive to Japan, and there are cultural reasons why i-mode has taken off here and nowhere else. I believe most of these arguments don't have a lot of merit. I respect them, but I think the opposite is the case. I think i-mode is an open platform with a revenue-sharing model where anyone can get the toolkit from a magazine for sale in a convenience store. I-mode can't get much more open.

Is exporting the i-mode model creating a new business for DoCoMo?

There are lots of industries where, basically, you have a finite population. In Japan, you've some 120 million, and you've got high penetration for wireless. Someone said yesterday that, based on demographic projections, the population of Japan in 2050 will decline. So if your market is shrinking while your penetration is increasing, you will reach saturation. [NTT DoCoMo president Keiji] Tachikawa put up a very interesting chart during his summit presentation. It showed the number of people in Japan, the number of bicycles, the number of cats and dogs, the number of vending machines, the number of boxes and parcels that get delivered, and that added up to 580 million or something like that. So when it comes to future wireless capabilities, he said, we believe that while the market in Japan is finite, it could still be four times larger elsewhere.

But we've got more than half the world's population having never used a phone or made a phone call; and think about which region the majority of those people live in -- it's China and India. So bringing i-mode to the masses is, I think, actually a classic b-school example of how to develop a typical product export strategy. It is something that works here and can be mass-produced, packaged and shipped out, just like cars.

So what are the lessons from Japan for overseas?

The investments [US carriers have] made have not produced a return on investment that would allow them to have a staff [like DoCoMo does] dedicated to managing the content. In fact, they've actually consolidated some of those activities. We'll see, and I'm speculating here, companies like AOL-Time Warner and Vivendi and others playing a much bigger partnership role [in US carriers' content strategies]. Content is king. But the DoCoMo model is also about low cost -- some ´300 per month. Just about every carrier around the world is taking notice of this. DoCoMo is offering a key to open up an unlimited box for $3!

What wireless developments have caught your interest?

802.11(b) -- it's free, fast and carriers are looking at it to create roaming hot spots in football stadiums, airports and train stations and to fill gaps. It is very difficult to put a regular cell site into a train station, into an auditorium or a convention hall. There are cost issues, zoning restrictions, network architecture issues. I can deliver an 802.11(b) system that would only cost a few hundred dollars to cover large portions of that building.

What will the architecture of the network look like when you incorporate a wide-area network with a local-area network and integrate a personal-area network so you've got a WAN, a LAN and a PAN? One of the things we think is critical is the authentication. What would you use, or how would you use your mobile phone in that train station?

In the traditional model, you get a phone call and it's a voice activity. We think -- and this is DoCoMo's thinking as well, it's actually developing some of this with c-mode and other projects -- the phone becomes a wallet. And the phone can be used to not only tell you when a train is coming, but also to buy the ticket -- basically with a walk-through scanner system. So with authentication, you say who you are, you are authenticated, given some type of credit and then can, in a very secure environment, conduct transactions. So these are all things that 802.11(b), if they take advantage of the WAN network functionality, allows. @

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