WW-24 -- FOMA Fees Full of Twists and Turns

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

Issue No. 24
Monday, September 17, 2001

+++ Viewpoint: FOMA Fees Full of Twists and Turns
+++ Noteworthy News
--> Vodafone Aiming for Control of Japan Telecom
--> NTT DoCoMo to Develop Corporate User Market First for FOMA
--> DoCoMo to Triple Download Speed of i-mode Phones
--> CEO Claims NTT DoCoMo has 'No Bandwidth to Spare for MVNOs'
--> NTT DoCoMo to Give i-Appli Handsets More Applications Capacity
+++ Events


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+++ Viewpoint: FOMA Fees Full of Twists and Turns

NTT DoCoMo issued its long-awaited announcement of the full start of
third-generation FOMA services on September 1, and it looks like the
giant carrier is really going to make 3G happen (see WW No. 23). We
want to start today's WW with some well-earned compliments for DoCoMo.

Like we said last week: It's difficult to understate just how much of
a risk 3G really is. DoCoMo, alone among global telcos, is pushing
ahead with the launch of a network that is replete with unknowns,
including how to guarantee quality of service, how to provide
high-speed data services that people will want to use and pay for, and
how to ensure the functionality of the handsets.

The practical functionality of the W-CDMA protocol system being
deployed by DoCoMo is largely unknown, especially with respect to the
air interface and signal propagation and reflection, and even the
handsets represent a whole new technology.

The W-CDMA spec, for example, calls for the handsets to provide
variable power output, depending on factors like distance to the base
station and the number of other mobile stations in the cell. No one
knows how these new demands will affect battery life, a metric that
directly impacts on the user experience.

One senior engineer working on 3G systems here told us in August, "I
don't think anyone realizes how difficult this really is. I think
DoCoMo is being very courageous." We heartily agree.

But when we read through the fee schedule issued as part of the launch
press release (see link below), we got a bad feeling. Why? The FOMA
fee schedule is a multi-dimensional rat's nest of basic plans overlain
with a confusing array of basic fees, usage rates (for both packet-
and circuit-switched calls, both voice and data), and discounts, all
cleverly designed to confuse even the most ardent consumer

And there is utterly no chance that any corporate comptroller or
accountant will be able to easily separate usage that should be billed
to an expense account from usage that should be charged to personal
use, meaning that early corporate adoption of FOMA remains unlikely.
So how complicated can a billing plan be? Let's take a look.

First, here are the six basic plans (all fees quoted in JPY per

Plan name Basic fee Included free calls
FOMA plan 39 3,900 700
FOMA plan 49 4,900 2,000
FOMA plan 67 6,700 4,000
FOMA plan 100 10,000 7,300
FOMA plan 150 15,000 11,600
Data plan 22 2,200 1,000 (data only)

Note that the "included free calls" allowance covers all communication
modes. Bundled free calls in data-only Plan 22 cover 64 Kbps
circuit-switched communications mode, packet communications mode, and
short message mode. There is also a special introductory allowance of
JPY1,000 per month for all these plans, good until March 2002.

On top of these basic plans, there are discounts depending on what
time the call is made. Standard billing for voice mode and 64Kbp
digital mode happens on weekdays from 00:00-01:00 and 08:00-24:00, and
discount time is 01:00-08:00, plus all day on holidays and weekends.
These rates vary depending on the distance to the called party, and
whether the call is to a landline, cellular, or PHS phone (the rates
also vary if the cellular or PHS called party is a DoCoMo customer, or
a customer of a competing network).

Finally, there are additional fees for telephony services such as IMAP
mail, voicemail, call-waiting, and call-blocking. Phew!!

No doubt, it's a challenge to devise a fee schedule that accounts for
all possible service combinations and that provides benefits and
incentives for different types of users (low data/high voice, high
data/low voice, etc.).

But we think the first iteration of fees is needlessly complicated and
reflects the underlying problem that no one -- particularly DoCoMo --
knows what subscribers will be willing to pay for 3G services,
especially in the absence of any compelling application that makes
good use of the higher data rates. Good for DoCoMo for launching the
network. Now, please, package it in a fee structure that the average
consumer and corporate user can understand.

--Daniel Scuka

NTT DoCoMo's 3G launch notice
(Link to fee schedule is at bottom of this URL)


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

--> Vodafone Aiming for Control of Japan Telecom
Source: Reuters on iwon.com, September 16

EXTRACT: British mobile phone giant Vodafone Group Plc plans to raise
its stake in Japan Telecom to 66.7 percent from 45 percent through a
tender offer sometime this month, says the Nikkei. Vodafone will
invest about JPY220 billion to buy extra shares in Japan Telecom,
Japan's third-largest telecoms firm, in a bid to secure management
control and give it a free hand to merge or sell some Japan Telecom
operations. The British company already is set to hold a direct 39.67
percent stake in J-Phone after it is consolidated into a single
company, instead of four separate units, on November 1.

COMMENTARY: If this happens, Vodafone's 66.7 percent stake would allow
it to control key corporate issues such as changes in corporate rules,
transfer of operations, dismissal of directors, and mergers, among
others. The larger stake would also allow Vodafone to remove Japan
Telecom executives or sell any part of the company's operations (such
as fixed-line services) it considers unprofitable.

One result of a Vodafone takeover would be the creation of a highly
marketing-savvy, foreign-connected (Heck!... foreign-**owned**)
domestic competitor that could give NTT DoCoMo a run for its money.
J-Phone's J-Sky wireless Internet service is already set to take over
second place from KDDI's EZweb this month on the strength of its youth
marketing and innovative brand services.

This may also be the start of a more general degree of competition
between DoCoMo and Vodafone, two of the world's most significant
wireless operators, overseas. For the Japanese mobile user, there may
be benefits in reduced service prices due to increased competition and
better global roaming services if J-Phone rolls out a 3G W-CDMA
network compatible with Vodafone 3G networks. We may also see a better
chance for foreign handset and infrastructure suppliers to expand
sales into the Japanese market. Watch out, DoCoMo! Here comes

--> NTT DoCoMo to Develop Corporate User Market First for FOMA
Source: Nikkei AsiaBizTech, September 10

EXTRACT: NTT DoCoMo said it will initially focus on development of
corporate customers for its third-generation wireless communications
service FOMA, which is slated to be commercialized on October 1. NTT
DoCoMo is expecting that corporate users will increase the demand of
the new data communications and become the pulling power of the FOMA
service, despite the fact that individual users for i-mode data
communications service are the main users for the current PDC cellular
phone service.

COMMENTARY: Nice idea in theory, but -- as we explained in Viewpoint
above -- there are still marketing and billing issues associated with
the network that makes it unattractive for corporate accounting
departments. This news item also points out that there are technical

Specifically, DoCoMo has been forced to wait for audio and video
services to be fully deployed due to technical limitations on the
as-yet young network (now due for launch at the end of the year or in
spring 2002). For now, FOMA is not attractive to corporate customers
and will not be so for at least several months.


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--> DoCoMo to Triple Download Speed of i-mode Phones
Source: Reuters on Yahoo, September 10

EXTRACT: NTT DoCoMo, Japan's top mobile operator, said on Monday it
plans to boost the speed at which information is sent to its i-mode
phones, which boast 27 million users surfing the Net on credit
card-sized screens. The wireless carrier said in a statement that it
will upgrade its i-mode network next spring to allow newer model
phones to receive content three times faster than present, at 28.8
kilobits per second. Despite its lead in technology, worries over
telecommunication shares around the globe have weighed on DoCoMo's
share price, which fell to fresh, 28-month low on Monday.

COMMENTARY: One the one hand, this can be seen as a reaction forced by
KDDI, which will roll out its enhanced cdma2000 network around the end
of the year. The new version of cdmaOne will offer 144 Kbps versus the
present 64 Kbps, and will eventually rise even more -- to almost as
fast as DoCoMo's 3G W-CDMA network. Further, KDDI group operator DDI
Pocket is boosting the data speed on its PHS network to 144 Kbps, and
will offer data services at this speed under the -H" ("edge-in") brand
name. Further, MVNO Japan Communications will lease capacity on this
network and also offer high-speed data services (targeted at corporate

In contrast to these moves, i-mode's pokey speed of 9.6 Kbps on the 2G
PDC network looks positively anemic; yet there is no compelling reason
for subscribers to upgrade to 3G (coverage is still low, and there are
still tech problems with the network). Therefore, DoCoMo has to do
something to boost the competitiveness of its 2.5G network, which will
continue to be the cash cow for some time yet.

Since the new speed will only be available by using a new-generation
i-mode handset, look for this boost to be offered as a marketing
reason for i-moders to upgrade handsets.

--> CEO Claims NTT DoCoMo has 'No Bandwidth to Spare for MVNOs'
Source: Nikkei AsiaBizTech, September 11

EXTRACT: NTT DoCoMo confirmed September 3 that it would launch its new
FOMA third-generation (3G) mobile phone service October 1, as
originally scheduled. At the same time, DoCoMo also said that it is
not pleased about the idea of becoming involved in the mobile virtual
network operator (MVNO) business. MVNOs are supported by the Ministry
of Public Management, Home Affairs, Posts, and Telecommunications. The
Telecommunications Ministry is said to be leaning toward giving its
official approval to the idea of MVNOs as a means of promoting
competition in Japan's telecom services market. NTT DoCoMo, which
commands an overwhelming share of Japan's mobile phone market, has
said that it will refuse to loan its network infrastructure to MVNOs
because it considers them "competitors."

COMMENTARY: True enough, but we think the real reason why DoCoMo won't
support the idea is that DoCoMo simply doesn't have spare bandwidth on
its PDC or W-CDMA networks. DoCoMo CEO Keiji Tachikawa admitted this,
and is quoted in this news item as saying, "In order for us to work
with MVNOs, we'd have to have lots of extra bandwidth available, and
we will barely have enough even for our own FOMA service; there's just
no bandwidth to spare for MVNOs."

--> NTT DoCoMo to Give i-Appli Handsets More Applications Capacity
Source: Nikkei AsiaBizTech, September 11

EXTRACT: NTT DoCoMo said it plans to increase the size of Java
applications that can be handled by its i-Appli handsets. New i-Appli
phones that go on sale next spring will be able to run Java programs
that are up to 30 KB in size -- triple the current limit of 10 KB per

COMMENTARY: A sensible move, considering that competitors KDDI and
J-Phone have already decided to allow 30- and 50-KB downloads on their
Java services. Also, Java is proving to be a cash cow for DoCoMo, and
anything the carrier can do to encourage higher packet usage will
contribute directly to the bottom line.

Now, contrast this announcement with the previous item wherein the
company's CEO said that there's no spare bandwidth on the network. If
Java downloads can be increased by 300 percent, we suspect there must
be at least **some** spare capacity.



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September 19, 2001, Nippon Kaiun Club, Nagatacho, Tokyo

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** Bluetooth Seminar at WORLD PC EXPO 2001, September 20, 2001, Tokyo

With cooperation from the Bluetooth SIG, Nikkei Electronics will hold
a technical seminar focusing on Bluetooth, the short-distance
wireless data communications technology, for development engineers.
Mr. Thomas Baker, the leading figure at the SIG, will provide the
keynote speech, and persons in charge of drawing up specifications
will give lectures on the details of the high-speed spec for "Radio
Enhancements" and on the specifications for 3G cellular phones drawn
up by NTT DoCoMo and others.

In addition, Sony will provide its perspective on Bluetooth
applications in the near future as a company keen on commercializing
Bluetooth products, and a panel discussion on Bluetooth logo
certification -- indispensable for commercialization of Bluetooth
products -- will be conducted by four panelists from Japan's leading
Bluetooth qualification test facilities (BQTF). Simultaneous
translation (Japanese <--> English) will be provided.

For further information please visit:

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Written by Daniel Scuka (daniel@japaninc.com)

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