WW-10 -- The Wireless World Looks to Japan for Profits

J@pan Inc Magazine Presents:
Commentary on the week's wireless news from Japan

Issue No. 10
Friday, June 1, 2001

+++ Viewpoint: The Wireless World Looks to Japan for Profits
+++ Noteworthy News
- Technical Quality of NTT DoCoMo's Net Service in Question
- SK Telecom, NTT DoCoMo Near Final Agreement
- Cybird to Launch IM Service Targeted at KDDI's EZWeb
- Cellphone Makers to Cooperate; Companies Aim to Create Instant
Messaging Standard
+++ Worth a Read
+++ P.S.


We're on the Air!

The BBC recently interviewed J@pan Inc about 3G. See Editor at Large
Daniel Scuka on air at:



The Wireless World Looks to Japan for Profits
(A little long this week. Perhaps better on the eyes to print.)

The dot-com bubble v1.0 was centered, largely, on startup ventures
based in Silicon Valley and the West Coast, the No. 1 place to be for
VC funding. Almost all of these startups focused on the fixed-line
Web and B2C (wireless hadn't happened yet), and most had a strict,
US-only field of view. Few offered services to non-US customers or
accepted non-US addresses (not to mention credit cards issued by
non-US banks) on their shopping pages. Even fewer had any plans for
expansion to other markets. Launch a double-byte, Japanese
language-enabled site in Japan? No way! Further, for Net startups
offering services, applications, or enabling software, the target
customers were (for the most part) other US-based Net startups -- or
the big technology firms like IBM, HP, and Cisco -- so, again, the
focus was decidedly domestic. But that was then.

Today, the v1.0 bubble has burst, the Net is going wireless, and
there are a couple hundred mobile Net startups in Silicon Valley. And
this time, "they all have their sights on Japan," says David
McQuilkin, VP and MD for Asia Pacific Ventures (which -- despite the
name -- is more of a consultancy than a VC firm). McQuilkin, based in
Menlo Park, California, is a fluent Japanese speaker and comes from a
15-year-plus engineering career at Xerox and Fuji Xerox.

McQuilkin says the US-based mobile-focused startups realize that
Japan is the only place where real revenues are being earned in
wireless, and that most would like very much to snag DoCoMo as a
customer, or -- even better -- take on some tech fund capital from
the giant carrier. McQuilkin's message to such hopefuls is blunt:
"They've got to separate desire from reality." In other words, there
isn't a hope in jigoku that DoCoMo will deal with them.

But he points out that each of the Japanese carriers sits atop a food
chain comprising hundreds of small-to-medium technology vendors. Many
of these small companies merely peddle well-known solutions, and, as
a result, there's opportunity for US (or other) startups who have
innovative technology to get into the market as the foreign partner.
But, "you need tech-savvy sales [staff], Japanese speakers, and a
services delivery organization," he says, adding that selling into
this network is "not just a box sale."

McQuilkin also explains that this vendor-partner approach has the
benefit of providing products integrated into those of the carriers'
existing, domestic suppliers without the carriers really noticing.
"The US startups all want to establish a brand. I say, Forget it!."
McQuilkin's advice is to tie up loosely with a domestic supplier,
since then the US side is still free to bid for competing carriers.
DoCoMo, for one, is (in)famous for its unwritten insistence that its
vendors refrain from selling to competitors, at least until DoCoMo
has established the market lead in that particular technology.

Interestingly, McQuilkin doesn't foresee the world becoming any less
interested in Japan's wireless scene as i-mode and other wireless
information services expand beyond this country. He explains that
Japan has first-mover advantage, and that i-mode, in particular,
"still has a long runway in front of it."

Enterprise enablement is coming, he says, pointing to the example of
small, independent auto shops banding together to offer competitive
quotes for body work, or manufacturers linking their automated
production systems to i-mode so managers can check production line
status from anywhere. "It's just beginning to explode," he says.

Sure enough, on Tuesday, Anite Telecoms, a UK-based provider of
cellular network and handset test systems, held a seminar and press
conference in Yokohama to mark the opening of its Japan office,
attracted here by Japan's lead in 3G deployment. (Granted, there are
problems with 3G, but isn't that even more justification for anyone
with network **testing** expertise to open shop here pronto?)

Anite's customers are middle- to top-tier vendors like Kenwood,
Panasonic, and Hitachi, and the firm intends to use its existing
loose alliances with those vendors to boost sales to -- Who else? --
the likes of DoCoMo, J-Phone, and KDDI.

--Daniel Scuka


For Wireless Watch readers only!

Each week, Wireless Watch gains 70 new subscribers. Wow! To show our
appreciation, on June 15 we'll give those of you who get this
newsletter AND subscribe to the mag free online access to the
magazine's July feature on wireless -- you'll see it two weeks before
anyone else! Free! Watch for it on June 15. THANK YOU!

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

--> Technical Quality of NTT DoCoMo's Net Service in Question
Source: Taipei Times Online, May 27

EXTRACT: Japan's government has decided not to guarantee the
technical quality of high-speed Internet services on NTT DoCoMo's
next-generation mobile phones, raising the possibility that full
launch of the company's 3G services will be delayed until next year
or later. Japan's telecoms law requires carriers to seek regulatory
approval to ensure that planned services clear a certain level of
quality. If they fail to obtain the guarantee, they usually have to
give up launching the service as it stands.

The ministry will allow the company to start a test service, given
that it has already signed up 4,500 quality monitors, but NTT DoCoMo
has to explain to users that it has not obtained official guarantees
on data transmission. (Three types of new phones were to be available
during the test period, but one of them, the P2101V videophone model,
will not begin service for another month due to software problems.)

COMMENTARY: There's been a lot of speculation that the present 3G
delay may translate into something bigger and more disastrous. But
consider the old dictum, "Follow the money" (or rather, "Watch the
stock price.") Since the late April announcement that the 3G launch
had been scaled down to a mere beta trial, Big D's stock price hasn't
moved that much. As of yesterday, it was up 19.2 percent over the
past 13 weeks, and only down 4.7 percent over the past month.

Investors, in other words, don't seem to care. Why? 2.5G (i.e. the
current i-mode) is a cash cow, and voice revenues and minutes of use
are still the prime metrics against which any operator is judged
(plus net additional subscribers per quarter). DoCoMo's got all three
of these wrapped up, plus the operator incurred precisely zero debt
for its 3G license (unlike little partner KPN in Holland, et al).
There seems to be little pressure from shareholders to launch 3G.

--> SK Telecom, NTT DoCoMo Near Final Agreement
Source: Dow Jones on Yahoo, May 29

EXTRACT: Korea's SK Telecom and NTT DoCoMo are expected to finalize a
strategic alliance by the end of June, the Korea Herald reported
Tuesday. SK Telecom president Pyo Moon-soo said that DoCoMo will hold
a board meeting in June to decide the price and size of the stake it
will purchase in the Korean carrier.

COMMENTARY: The move would be perfectly in line with DoCoMo's
established pattern of purchasing minority stakes in foreign carriers
sufficiently large to influence those carriers' choice of technology
(i.e. W-CDMA and i-mode) while minimizing exposure to risk in
overseas markets.

Some analysts have predicted DoCoMo will take a 14.5 percent stake
(worth won 5 trillion at won 350k-400k per share) in SKT, a little
lower than its 16 percent stake in KPN Mobile and 20 percent stake in
AT&T Wireless (does DoCoMo consider Korea to be a riskier market?).
Other comments have pointed to the fact that a purchase at the won
350k-400k per share level would value SKT at US$26.5 billion,
approximately double its current market value (89,152,670 shares *
won 219,500 per share/1,281 won/$) of US$15.3 billion. Why would
DoCoMo pay an almost 100% premium for a position in South Korea?
Perhaps DoCoMo strategists are noting how anything culturally
Japanese (manga, pop music, teen idols, etc.) goes over big with
Korea's teen crowd, and if i-mode can become the preferred platform
for millions of teens in Seoul and elsewhere to download ring tones
and graphics of rock stars, the inflated investment will pay itself
back many times over.

--> Cybird to Launch IM Service Targeted at KDDI's EZWeb
Source: Nikkei AsiaBizTech, May 29

EXTRACT: Cybird announced the start of its new "@AJA Messenger"
service for "ezplus," KDDI's Java service to be launched on EZWeb in
June. The new message service employs subsidiary K Laboratory's
Instant Messaging Architecture (KIMA) software. When users register
names retrieved from registered members and their own friends on the
@AJA Messenger buddy list, the service will let them exchange
messages in real-time over cellular phones without the risk of
disclosing personal information, such as telephone numbers and names.
If message recipients are not using the "@AJA Messenger" at the
moment, the service will automatically start up and receive messages.

COMMENTARY: Pretty cool, we think (see WW 007). Forget surfing the
Web -- the wireless Internet is more and more focused on ring tone
and melody (and, eventually, music) downloads, swapping photos and
images, and -- the killer -- messaging. Heavyweight DoCoMo has already
announced that i-mode users would get AOL IM accounts, so KDDI's move
can be seen as helping boost the trend.

Note that KDDI's Java profile conforms to the open standard
specifications issued by Sun Microsystems, while DoCoMo's Java does
not. That's not an issue in Japan, where Big D is, well, Big D, and
can persuade Java developers (a notoriously independently-minded lot)
to focus on its platform before others'. Overseas though, DoCoMo is
just one more fish in the pond, and sparking i-mode will be even
tougher if Java heads have to craft their code twice (once for
i-mode, and once for everyone else).

--> Cellphone Makers to Cooperate; Companies Aim to Create Instant
Messaging Standard
Source: MSNBC.com, May 29

EXTRACT: Ericsson, Alcatel, Motorola, and Siemens said they will
cooperate in developing enhanced instant messaging services that can
be swapped using their products. The technology expands on the hugely
popular short message service (SMS) mail that lets mobile phone users
send text messages. New services will let subscribers download and
exchange screen savers, images, and ring melodies. Shipment of
EMS-enabled telephones should start in the second half of 2001.

COMMENTARY: The GSM Association says 50 billion SMS messages were
sent worldwide over GSM networks from Jan-Mar 2001 (that's 16.66
billion per month), and forecasts the total to reach 200 billion
global messages for the year 2001 (the rate was 1 billion messages
per month in April 1999).

But it's unlikely that anything SMS-based can provide rich
functionality comparable to the wireless information services based
on a mobile browser (Access, Openwave, etc.) platform. Complementary,
perhaps, but ultimately limited.

Remember back in the wireline Net's early days (c. 1994-95) when
Web-to-email gateways were briefly popular? Lots of companies still
didn't provide browser-based Web access, but they did provide email.
When this writer worked at Fuji Xerox in 1996, we still used the
Xerox-designed Star workstation (no browser). I remember looking for
Web-to-mail and FTP-to-mail gateways that would deliver files from
FTP archives or allow me to send Star-mail messages to colleagues at
other companies that had SMTP or X.25 mail. It was fun, but the mail
paradigm -- send a message/receive a message (perhaps with a file
attached) -- is fundamentally clunky.

As soon as companies (FX included) deployed browsers on all desktops,
usage of whatever-to-mail gateways dropped right off (at least, mine
did). The same will happen to SMS when mobile surfers in Europe have
a browser keitai (similar to the Japanese pocket rockets) in which
the browser integrates and supports easy-to-use browsing, SMTP (or
IMAP4) mail, and GUI services like access to Web storage or to
intranet file servers, as well as offer cool i-mode-, EZWeb-, or
J-Sky-like services.


Attention JI subscribers: The June issue of J@pan Inc magazine
is now available online. The table of contents can be viewed at



--> MIT's Technology Review has an excellent interview with Marty
Cooper, inventor of the cellphone. His point of view is largely
contrarian to today's conventional, incremental approach of targeting
the power users, and he espouses totally new networks that offer easy
functionality for all.

We might argue that the Japanese wireless information services have
come the closest to achieving his vision of how easy the mobile Web
should be -- but then remember that most i-mode users can't even
figure out how to change the default email address on their handset
(and consequently get swamped with spam). Oops! Maybe one day even
the Japanese networks will be truly easy to use for all.

"Europe and Japan seem to be ahead of the United States
in some ways just now because they've rammed through
some standards. In Europe the big phone companies got
together and developed a standard by committee. That's
just not the way to win, ultimately. In the US we have
four standards, maybe more. Guess who will choose which
will win? The people. The market. In the long run the US
will have a much more effective telecommunications industry
because of it." (Marty Cooper)


+++ P.S.

DoCoMo received over 147,000 applicants for the 3,300 3G ("FOMA")
trial phones. Unsuccessful applicants were also entered into a
drawing for World Cup soccer tickets

A posting yesterday on the Keitai-L wireless developer mailing list

ps. feeling low today. Ws hoping till the last minute
for that call from DoCoMo about the 3G phone I won in
the lottery, the call never came. More chance getting
a world cup final ticket....

And a sympathetic response:

Ditto. I got World Cup tickets for three games, including
a quarterfinal in Shizuoka, but still feel cheated I
didn't get the FOMA phone. Oh well, by the time the World
Cup rolls around, I should be able to purchase a FOMA phone
of my very own. Or will I?...

Written by Daniel Scuka (daniel@japaninc.com)

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