WW-26 -- Hats Off to Big D!

J@pan Inc Magazine Presents:
Commentary on the business of wireless in Japan

Issue No. 26
Monday, October 1, 2001

+++ Viewpoint: Hats Off to Big D!
+++ Noteworthy News
-- Competitors Make Inroads as DoCoMo Focuses on 3G
-- NTT DoCoMo to Disclose i-mode Specs to Other Net Providers
-- Giga Reveals the Secrets of Success in the Ring Melody Business
-- Phase Two of Mobile Java Content Service with GPS to Come
+++ Sign of the Times


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+++ Viewpoint: Hats Off to Big D!

NTT DoCoMo rolls out the world's first commercial W-CDMA 3G network
today, and we, for one, are impressed.

We'll be the first to admit that the company is often an easy target,
and we've taken our share of direct, though not unjustified, shots at
Big D. Has the company made mistakes? Sure thing. Has it used its
former monopoly status to wield undue influence and dominate the
market? Yup. Does it continue to tell technology, content, and service
providers of all stripes what to do, and how to do it? Yesiree.
Nonetheless, today's achievement deserves a hearty pat on the back.

Mind you, we don't want to get too gushy -- there's still a lot of
work ahead, and for now, the 3G Foma network remains more of a
technology showcase than a solid, revenue-producing, done deal. To
start, the network's service area will be limited to some 30 km around
Tokyo. It won't be until later next year that the rest of the country,
starting with major urban areas, gets connected.

Further there's little you can do on the 3G Foma network that you
can't do better (if, admittedly, slower) on the existing 2.5G PDC
network. All existing content and services on i-mode, for example,
have been optimized for the current glacial 9.6-Kbps packet-switched
service. Yes, you can video conference on the Foma phones, but unless
all your friends are early adopters too, you won't have anyone to
videoconference with.

Speaking of handset capabilities, the new Panasonic and NEC 3G models
are beauts. The Panasonic P2101 model is blue and gold, and has a
video camera for conferencing, photos, and video clip creation. The
trial model that we tried had about 1.5 MB of onboard memory, and
could store about 1:14 min:secs of video at superfine resolution (or
30 photos), 1:35 min:secs of video at fine resolution (or 51 photos),
or 2:08 min:secs of video at normal resolution (or 76 photos).

The handsets, sadly, are still expensive. The Panasonic models cost
JPY69,800 and JPY29,800, the NEC one will run you JPY49,800, and the
PC data card retails for about JPY17,100 (reported this evening by
Manish Prabhune after a visit to one DoCoMo shop in Akasaka).

The phones operate in two modes: packet-switched at up to 384 Kbps and
circuit-switched at 64 Kbps. The circuit-switched mode is used for
transmitting/receiving large volumes of data (e.g. photos, video
calls) at a lower time-based cost, while the packet-switched mode is
used for packet data (mail, etc.) and costs more.

We've heard that real throughput in packet mode is around 220-230
Kbps; but this should quickly improve. The handsets also have a UIM
card (a newer, local version of the SIM card well-known in the GSM
world). If you transfer your UIM card to another handset, your phone
number and other personal data goes with it. Cool!

The video conferencing, by the way, **really** does work. The images
are clear, the sound is good, and there are few dropped frames or
pauses. The camera rotates, so that if, say, your friend is looking
for you in downtown Tokyo, and you are trying to tell him which way to
go to meet you at a particular sushi shop you happen to be standing in
front of, have your friend hold up the phone with the camera rotated
outward, and tell him which way to head based on what you're seeing.
("OK, now cross the street over by that Lawson's on the left, and keep
walking. Watch out for the little old lady with the shopping buggy.")

Sure, this example is perhaps a little goofy, but there is no reason
why new 3G subscribers won't find similarly mundane but just as useful
applications for their phones.

But there is still that problem of lack of content & services that
take advantage of the 3G network speeds, and lack of service area. Of
these, the lack of content and services is the more serious. We're
certain DoCoMo must be worried that, for many potential 3G
subscribers, existing 2.5G services will continue to be good enough.
DoCoMo (and any other carrier that deploys a 3G network) is
unavoidably faced with the "HDTV problem."

After years of development work on HDTV (high-definition TV), the
final product -- though technically sophisticated and undeniably
better than existing color TV -- was stillborn because current color
TV image quality is "good enough," and no one wants to pay $5,000-plus
for a new HDTV receiver for a mere incremental boost in the viewing

In other words, DoCoMo -- and 3G -- still needs a killer app; some
service that can only be provided because of the faster data speeds
that 3G offers. We haven't a clue what that app could be (nor does
DoCoMo, we would surmise), although video conferencing (once enough
users have switched to the new network), music video download, and
database-intensive enterprise applications all suggest themselves.

But we're certain of one thing, and that's that Big D is likely to
figure out what is the 3G killer app before anyone else does -- before
J-Phone, before KDDI, and (Perhaps most importantly?) before Vodafone.
And when it does, the money will come pouring in, just like it does on
the 31-month-old i-mode system, proving all the nay-sayers again
utterly wrong.

Atta Boy, DoCoMo!

--Daniel Scuka

NTT DoCoMo Foma Phone Specifications


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

--> Competitors Make Inroads as DoCoMo Focuses on 3G
Source: Reuters on Yahoo, October 1

EXTRACT: The launch of third-generation wireless services in Japan on
Monday is first proof that 3G works, but pundits warn it may distract
NTT DoCoMo from the more pressing problem of keeping current growth
alive. "DoCoMo may be rolling out 3G, but the company is not doing
anything for its existing customers," said Yasumasa Goda, telecoms
analyst at Merrill Lynch. Recent data, Goda says, suggest DoCoMo is
giving up its valuable lead against its two main rivals, KDDI and
Japan Telecom, which looks set to come under the control of British
mobile giant Vodafone Group.

But in August, DoCoMo's share of new subscriptions fell to 50.9
percent compared to levels above 60 percent in the first three months
of this year and 79.6 percent a year earlier. Another distraction for
DoCoMo has been investment overseas, which resulted in a JPY1.8
trillion spending spree last year. DoCoMo has been working at
breakneck pace with its partners in Europe to get wireless Net
services similar to i-mode off the ground and is facing persistent
questions on whether the telecom stock downturn will force it to take

COMMENTARY: The competitors have not been sitting still while DoCoMo
dwells on 3G. No. 2 carrier KDDI introduced expanded roaming this
year, as well as a Bluetooth-equipped handset. Bluetooth allows the
phone to connect to a laptop PC without a cable and serve as a
wireless modem for the laptop -- pretty cool when you can be surfing
the Web on your laptop in Tully's coffee shop (or anywhere else) with
no obvious means of connection.

J-Phone's latest Sharp phones provide (still-image) mini-cameras and
extremely cool 3-D graphic capabilities, features not insignificant in
J-Sky's pending advance into the No. 2 wireless access service slot
ahead of EZweb. "Even DoCoMo engineers have admitted that the Sharp
(SH07) phone is better than anything they have right now," said one
industry source.

J-Phone's Java service also offers bigger file limits for Java
downloads than DoCoMo (although Big D has said it will increase its
meager 10 KB limit to 30 KB to match).

But we have to disagree with the analyst quoted in the story above --
DoCoMo is doing lots for its existing customers. The company has
rolled out the M-Stage visual and M-Stage music services, it's offered
a packet allowance to account for spam on i-mode, it's planning on
opening up the i-mode service (see item below) -- which can only
benefit i-mode subscribers who will be able to access a greater mix of
mobile services -- and it's done this and more while facing a dreary
situation with its overseas investments and handling some
near-catastrophic handset recalls. The company is also offering new
handsets (with bigger buttons and larger display fonts) targeted at
the elderly. Can anyone name a wireless telco doing as much while
subject to the same challenges?

--> NTT DoCoMo to Disclose i-mode Specs to Other Net Providers
Source: Nikkei AsiaBizTech, September 28

EXTRACT: NTT DoCoMo will from October disclose its i-mode
specifications, including connection procedures, because it plans to
open the cell phone-based Internet access service network to other Net
access providers in March 2003, President Keiji Tachikawa said
Thursday. Tachikawa emphasized his opposition to new regulations the
government is considering imposing on major telecommunications
carriers to promote competition. The government "should stop going
against the global current of deregulation," he asserted. "We should
first consider improving consumer convenience through new services."

COMMENTARY: Case in point from our argument above: DoCoMo realizes
that it can't mange the i-mode portal by itself forever, and this move
will definitely benefit subscribers, since the current DoCoMo-managed
system for vetting content and service providers is -- or at least is
perceived to be -- opaque. See WW No. 25 for our viewpoint on how the
process needs to approximate that of obtaining a patent.

--> Giga Reveals the Secrets of Success in the Ring Melody Business
Source: Nikkei AsiaBizTech, September 28

EXTRACT: Seiji Kawano, marketing manager of Giga Networks, analyzes
the reasons for the success of the ring melody business. Giga Networks
is known as the first mover in providing ring melody service for
i-mode phones. Kawano cited six reasons why ring melody has become
such a popular product.

First, it was the service that many users were waiting for. This
service solved one problem that many mobile phone users had due to the
rapid growth in the number of users. In the initial phase of wide
dissemination, it was a common phenomenon that when a mobile phone
rang, the people present in the office, the conference room, or the
party hall, all took their mobile phones out of their pockets to see
if the call was for them, since most rings sounded the same.

Second, the service lets users customize a mass-produced mobile phone
to their own style.

Third, while most of the mobile phone contents appeal to the visual
senses, such as text information and pictures, a ring melody site
appeals to both the visual and auditory senses.

Fourth, there is practically an infinite range of materials that can
be used as a ring melody, and contents can be updated on a daily
basis, so users do not get bored.

Fifth, while many contents like news and weather forecasts can be
obtained from other sources such as television, newspaper, and
telephone, there is no substitute service for ring melody. And sixth,
by selecting a specific melody, users can show their style and taste
to those around them.

COMMENTARY: This news item also states that a February, 2001, Video
Research Ltd. survey found that users of Internet-capable mobile
phones use the following content services most frequently: ring melody
(56.3 percent), weather forecast (35.0 percent), news (26.1 percent),
music download (22.6 percent), information on transportation such as
train connections (21.5 percent), wallpaper for cell phones (20.3
percent), and sports news (17.2 percent).

A recent J-Phone presentation supports these findings. According to
J-Phone, the top ten usages (based on, "Content used in the past
month") by J-Sky subscribers were: downloading ring tones (60
percent), downloading characters (45 percent), accessing the main menu
(39 percent), train timetables (23 percent), fortunes (21 percent),
games (18 percent), accessing maps (15 percent), sports news (14
percent), dictionaries and general news (8 percent each), and concert
ticketing and reservations (6 percent each).

Note that Giga says the ratio of its users aged 40 and over
**increased** by 10 percent from July 2000 to July 2001. Also,
according to data from DoCoMo, 24 percent of Internet-capable mobile
phone users aged 60 and older say that they often use ring melody

The factors that Kawano-san cites for the success of ring tones are
not dependent on the local culture (or age of user). It can be
assumed, therefore, that each of these factors will similarly apply in
overseas markets, where ring tones and other electronic entertainment
services can be counted upon to provide early revenues for any carrier
building a wireless Internet service like those in Japan.

--> Phase Two of Mobile Java Content Service with GPS to Come
Source: Nikkei AsiaBizTech, September 25

EXTRACT: Toyoshi Takahashi, director and CTO of Bandai Networks, made
a presentation about the company's content business. In his speech, he
mentioned there would be a new function to the company's new "Suki
Suki Pair Character," for Java-based mobile phone services, scheduled
to be announced at the CEATEC Japan 2001 exhibition in October. Suki
Suki Pair Character is a kind of service using push technology as well
as Java technology, and Bandai Networks started providing this content
in late July through KDDI's ezplus Java-enabled mobile phone service.

It features an agent, a strange-looking character which lives in a
user's phone. The agent, named Shigeo, communicates with another
Shigeo living in another user's phone, which facilitates conversation
about subjects that the users find difficult to say to each other
directly. Shigeo, for example, can ask a user's friend how he feels
after a fight, instead of the user directly asking the other party.

COMMENTARY: We mentioned the need for a killer app for 3G in the
Viewpoint above, and this item illustrates one possibility:
character-based services. We think, however, that such a system would
have to be really compelling -- beyond, perhaps anything now

For example, what about an AI-based character service that can
recognize five or perhaps ten emotional states in the phone user
(remember, on 3G all the processing can be done on the network, and
the client can remain relatively thin) -- and react accordingly? Maybe
this could be a service similar to Ananova (www.ananova.com), which
allows the viewer to select serious, light, or quirky news items.

But how much more friendly (and profitable, if used for marketing?)
such a service would be if a keitai version could sense the user's
moods? In any event, Bandai's Takahashi says that, unlike previous
character-based services on i-mode and on J-Sky (which drew 125,000
subscribers in two months), Suki Suki Pair is still having trouble
attracting users, who still number fewer than 4,000. Food for thought?


+++ Sign of the Times

Stupid Keitai Tricks

Police and Japan Airlines officials reacted with understandable alarm
after a woman reported she had received an email from a friend aboard
a flight to Seoul mentioning "Arab-looking men." On Wednesday, a man
on the flight had sent a joke email with the impolitic reference from
his mobile phone. Although the word "hijack" was not used in the
email, given the tight security at airports after the September 11
attacks on the United States, the incident gave police and airline
officials "a nervous moment or two." Korean police are questioning the
man. We wonder if Net- and mail-enabled phones becoming too

Source: "Email Prompts Hijack Scare on Flight," Reuters, Sep. 26

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Written by Daniel Scuka (daniel@japaninc.com)

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