WW-45 -- DoCoMo as National Champion

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

Issue No. 45
Monday, February 25, 2002


+++ Viewpoint: DoCoMo as National Champion

+++ Noteworthy News
--> Analysis: Japan Carriers Urged to Overhaul Marketing
--> NTT DoCoMo Releases 'open i-area' Service Guidelines
--> DoCoMo Hopes for More Customers with Expanded 3G Service
--> NEC to Supply i-mode Mobile Handsets for KPN Mobile Group
--> Japan's Mobile Phone Shipments in December 2001 Fall Sharply

+++ Events (Advertisements)
Japan and international marketing strategy
March 13 2002, Tokyo

2002 Asian Venture Forum/Japan
The Four Seasons Hotel, Tokyo
March 4-6, 2002

+++ Sign of the Times
--> Keitai-induced death, phone in the potty, and 802.11(b) hotspots
in the Big Mikan

+++ Subscriber Statistics, Corrections, Credits, Administrivia

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+++ Viewpoint: DoCoMo as National Champion

If you don't live in Japan, it's rare to get a glimpse of precisely
how many Japanese take serious pride in the overseas achievements of
their compatriots. During the just-ended Olympics, TV carried endless
replays of the performances of skiers, skaters, and other **Japanese**
athletes. Of course, stations also broadcast the gold, silver, and
bronze winners first -- whoever they were -- but after that, most of
the coverage went to the Japanese. And when a Japanese athlete won any
medal, it was big news all round.

This same cultural pride applies to Japanese business as well, and the
success (or failure) of corporate behemoths overseas is big news here.
On February 22, TIME magazine ran a story called, "Deflating DoCoMo,"
detailing the No. 1 domestic carrier's woes as it tries to expand
overseas. The story reads in part:

There's more than revenue growth at stake. There's
national pride. Japan's prolonged recession threatens
to relegate the country to second-class status among
industrialized nations. By selling its i-mode and 3G
know-how overseas, DoCoMo hopes to spread the mobile
Internet -- seeding the market for homegrown Japanese
technology and boosting the country's status as an
info-age innovator.

The author concludes with a quote from Diet member Hiroyuki Arai, who
is also director of the Diet's telecom policy-making committee:

Our mobile-phone technology is ahead of the rest of the
world for now. DoCoMo is our flag bearer. If the company
takes its time getting into the global arena, we will
lose our lead to American or other foreign companies.
Without that kind of commitment from Japanese companies,
our economy will never recover.

Wow! It's not often that you see NTT DoCoMo (or any other company)
held responsible for blazing the path to economic recovery for the
entire nation. But in reality, this is probably precisely what many
influential people in Japanese politics, business, bureaucracy, and
other stations in life think. And NTT DoCoMo in particular is the
champion that everyone looks to.

In September 2000, John Ratliff, then at the Department of Sociology,
Santa Clara University, wrote a precis entitled: "DoCoMo as National
Champion: The i-mode, W-CDMA, and NTT Role as Japan's Pilot
Organization in Global Telecommunications."

Ratliff says that the i-mode success is of special interest in Japan,
following a decade of frustration by Japanese information and
communications firms, who have been unable to match their global
competitiveness in consumer electronics in key high-value added PC and
Internet technologies.

He also argues that NTT DoCoMo has addressed many of the problems of
the Japanese approach to high-tech innovation through an innovative
approach to management, technology and marketing, as well as building
a network of global alliances based on its i-mode success. He states,
"Evidence of DoCoMo's ability to sustain its global first-mover
advantage in the key new industry of wireless Internet could serve as
an inspiration for the entire Japanese IC sector, and herald a
reshuffling of relative national high-tech innovative competencies."

Perhaps the most important point that Ratliff makes is that DoCoMo's
success overseas, if it is successful (he thinks it will be), will be
predicated on a standards-based system (i.e. i-mode), thus emulating
the PC Internet success of the Americans led by the so-called 'Wintel'
duopoly (a success from which Japanese technology companies have been
effectively shut out).

But while the TIME article does a good job of pointing out how
DoCoMo's overseas efforts are faring (poorly), it's a good thing to
remember that time is on Big D's side, and the company has an awful
lot of money; its market cap was a bit less than JPY14,000,000,000,000
today when the TSE closed. Establishing global domination of a
standards-based system is bound to take time, and there are bound to
be setbacks. But, like Ratliff, we think that's precisely what DoCoMo
will eventually do.

--Daniel Scuka

"Deflating DoCoMo"

"DoCoMo as National Champion: The i-mode, W-CDMA, and NTT Role
as Japan's Pilot Organization in Global Telecommunications,"
by John Ratliff http://www.tprc.org/abstracts00/docomopap.pdf

PS. Speaking of the Olympics, and national pride, your faithful
reporter and native Canadian would just like to point out that Canada
won gold in men's hockey last night for the first time in 50 years.



We now produce a weekly streaming video version of the Wireless
Watch newsletter, courtesy of the media gurus at Video-link.com.

Here's the last two weeks' program line-up:

Feb. 25 -- On the mobile Internet, money sounds like ...
ringtones! We talk to Java music developer (and editor of
J@pan Inc's Music Media Watch newsletter) Steve Myers about
audio formats, musical Java games, and how much money is being
made (a lot).

Feb. 18 -- Big D's 3G network is novel for more than just
videoconferencing or data speed. Now, Japanese handsets
have smart cards too. Wireless Watch talks to the smart
card maker about W-CDMA/GSM roaming, applications, and
why you need smart cards on FOMA.

We'll post the latest webcast in various streaming formats each
Monday evening, around 17:00 JST.

Tell your friends, burn your bandwidth, and log on to the inside
story with the Wireless Watch Video Newsletter.


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

--> Analysis: Japan Carriers Urged to Overhaul Marketing
Source: Reuters on iwon.com, February 24

EXTRACT: The number of new users taking up mobile phones in Japan has
tapered off, but analysts say mobile operators could boost profits if
they reduced sales incentives and handset subsidies and lowered their
churn rate. Japanese mobile operators have been spending more than 30
percent of their operating expenses on marketing to expand market
share but, now that growth is stalling, this expansion-oriented
distribution scheme has to be overhauled, analysts said. Japan's
largest mobile operator, NTT DoCoMo, has been tight-lipped about its
marketing costs, and all the operators have been quiet about their
marketing strategies as they fear they could jeopardize relationships
with retailers and discourage their sales force.

COMMENTARY: The manufacturers and retail distribution chain have been
mollycoddled and spoon fed by the carriers, who covered all their
costs, paid massive subsidies, and assumed virtually all of the retail
risk. This report details how a retailer, for example, would buy a
handset from a carrier at a nominal price of JPY50,000 but, with
various incentives and discounts (paid direct from the carriers) worth
perhaps JPY30,000, they could make a profit even if they sold the
handset for as little as JPY20,000. In 2001, the incentive per
subscriber acquired came to about JPY30,000 for DoCoMo, JPY50,000 for
KDDI/Au, and JPY35-40,000 for J-Phone. DoCoMo was seeing a payback
period of 3.1 months, compared to 5.1 months at J-Phone and 5.9 months
at KDDI/Au (varies depending on ARPU).

Japan's handset distribution system -- long a rat's nest of closed
relationships, labyrinthine money flows, and cut-throat competition --
is ripe for remaking, and 2002 is shaping up to be the year that the
lid is finally ripped off. The factors forcing change are a complex
mix of rising handset complexity and cost (3G, dualmode 2G & 3G),
longer development times to integrate onboard software (Java,
streaming audio and video, etc.), marginal subscriber effects (a huge
portion of this island nation's population already have cell phones),
the overall depressed economy and consumers' unwillingness to shell
out the big bucks they did in the past for the coolest new gadgets,
the handset makers' economic woes (all have seen massive layoffs in
the past two quarters) and stiff competition from foreign makers in
China, Korea and elsewhere, who can make just as good for less.

--> NTT DoCoMo Releases 'open i-area' Service Guidelines
Source: NTT DoCoMo Press Release, February 22

EXTRACT: 'Open i-area' allows any information service provider to
supply content to i-area users. 'i-area' is a feature of DoCoMo's
i-mode service, delivering weather, dining, traffic, and other types
of information accessed from 482 separate areas throughout Japan.
Since i-mode base stations can automatically recognize a subscriber's
location, information is organized according to the dialing area in
which the handset is being used. Until now, only official information
service providers selected by DoCoMo were allowed to provide i-area
content via i-mode portal sites. The open i-area service lets anyone
relay i-area information to users through i-mode server centers. Users
will be asked to reconfirm their location prior to accessing
unofficial i-area sites. DoCoMo will start providing this service as
soon as i-mode centers have been modified.

COMMENTARY: As we understand it, this service won't help anyone to
actually find an i-moder's location. But site owners can use it to
discover the location (within a network of some 480 grid cells
nationwide) of site users after the user agrees to be queried.

Opening of the i-mode platform, while moderately interesting, would
have been much more significant back in, say, around October of 1999,
when i-mode and its competitors were still young (and small). Then,
opening up one of the portals would have been really risky -- and

Now that DoCoMo and i-mode have a lock on 30,758,000 subscribers (as
of Jan. 25), there's little any competitor can do to threaten the
company's dominance, so why not open it up? Besides, moves like this
allow DoCoMo the bragging rights to say that they're following
ministry guidance. A panel was set up as early as July 2000 to study
ways to foster fair competition in the wireless Internet, but the
carriers have been able to stymie most change since then.

Ironically, just this week the ministry said it would postpone
ordering the carriers to open up their billing systems to unofficial
content providers, a plan that would have seen the establishment of a
government-mandated oversight council to approve the content (see link
to Nikkei story below). DoCoMo and KDDI reportedly objected to the
plan, saying that any content, after being approved by the council,
could be altered by the content provider, and that the phone companies
themselves could end up being blamed, or sued, if phone users suffer
as a result.

"Opening up of Browser-Phone Billing Services Postponed in Japan,"

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or phone 03-3585-5126.

--> DoCoMo Hopes for More Customers with Expanded 3G Service
Source: Yahoo, February 22

EXTRACT: Japan's NTT DoCoMo said it would expand its unique 3G mobile
phone service early next month in a bid to spark fresh interest in the
handsets. The expansion to areas outside Tokyo would start in March
and by April, the freedom of mobile multi-media access (FOMA) service,
"will be available in virtually every major city and cover 60 percent
of the nation's populated areas", Japan's largest mobile phone
operator said Friday. "Moreover as a result of further expansion
scheduled this autumn, the FOMA service area will cover 90 percent of
all populated areas by the end of fiscal 2002 (by March 2003)," it
said in a statement.

COMMENTARY: FOMA's not exactly breaking any records -- there are only
51,000 subscribers to date -- and you can bet that Big D is going to
haul out the heavy artillery in an attempt to boost the network's
attractiveness. Voice coverage is certainly one area where DoCoMo's
deep pockets can make a difference; watch while they pour on the tech
resources and cash to build out the base stations as fast as possible.
Also, between April and August, the company will cut fees (customers
who use both a current-gen 2G phone and a 3G handset will be offered
discounts of up to 55 percent on each contract), and waive the FOMA
application fee. After August, the new dualmode handsets should be

On a related note, have you ever wondered what the potential market
for wireless terminals in Japan is? Well, NTT DoCoMo is thinking
about this, and recently released to analysts a breakdown of the
mobile phone demand in Japan in 2010:

Potential users (mn) DoCoMo est. in 2010
People 120 67.5
Motor vehicles 100
Bicycles 60
Mobile PCs 50
Motorcycles, ships,
vending machines, etc. 10
Pets (dogs, cats) 20

Digital consumer products
TVs, set-top boxes 90
Digital cameras 30
Video cameras 20
Refrigerators 40
Parcel post, other post 30

TOTAL 570 million

--> NEC to Supply i-mode Mobile Handsets for KPN Mobile Group
NEC Press Release received by email
Source: NEC PR, February 25

EXTRACT: NEC Corporation announced that KPN Mobile Group and NEC have
signed an agreement whereby NEC will supply mobile handsets for KPN
Mobile's i-mode service. As part of the agreement, NEC will deliver
its 'N21i' i-mode handsets to KPN Mobile's operations in Germany, the
Netherlands, and Belgium, thus becoming the first supplier of i-mode
mobile handsets outside Japan. The value and the volume of the
contract were not disclosed. KPN Mobile will be the first company in
Europe to introduce i-mode in spring 2002. Practical i-mode tests with
a group of users equipped with NEC's handsets began in December 2001.

COMMENTARY: This is old news to WW readers (see WW No. 39). Still,
it's interesting, and nice to see a real, honest-to-goodness i-mode
handset somewhere other than Japan. Given the troubles that the
handset makers are having in Japan (see news item below, and item on
subsidies above), it makes sense that they will increasingly rely on
export sales. But to compete successfully, only the biggest and
meanest will survive. There's no much less of a handset subsidy teat
to chew on (or none whatsoever), the retail channel is hostile and
won't push products that customers won't buy, and the technologies are
all different.

By the way, DoCoMo also said this week that it had fielded a new FOMA
3G terminal (with a 'D' code in the model number, so it must be from
Mitsubishi). The FOMA D2101V features **TWO** built-in cameras; one on
the front face of the unit for the videophone, and one on the top edge
for digital video/photos. This baby also has --get this!
-- a 262,144-color LCD display! See a picture at:

See J@pan Inc story on i-mode in Europe
"i-mode Goes Continental," March 2002 issue
(Subscribers only for first 45 days after publication)


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Subscribe, unsubscribe, and find out more at:

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--> Japan's Mobile Phone Shipments in December 2001 Fall Sharply
Source: Nikkei AsiaBizTech, February 21

EXTRACT: Japan's shipments of mobile phones in December 2001
registered 3,116,000 units, resulting in a decline for the seventh
straight month, according to the Japan Electronics and Information
Technology Industries Association (JEITA). Shipments fell 65.8 percent
from the year-earlier level. Mobile phones are defined as cellular
phones, in-vehicle phones, and PHS phones. JEITA said the decline came
from the sluggish growth of new subscriber contracts, the saturated
demand for Internet-capable phones, and the economy slowdown.

COMMENTARY: The makers and the carriers are hurting. In the three
months to Dec. 31, Matsushita, for one, lost JPY172 billion, down from
a group profit of JPY22.8 billion a year ago -- not in the least due
to falling sales of Panasonic mobile phones. Many analysts don't see
how Matsushita -- or other handset makers (other than Sony, of course)
-- can stay committed to the complete range of electronic products
(cell phones, DVDs, digital TVs, plasma displays, LCDs, et cetera)
in the face of stiff overseas competition.

As for the carriers, just look at DoCoMo. WI Carr Indosuez analyst
Kieran Calder reports this week that DoCoMo's net add growth is at -56
percent year-on-year so far in February. Yikes! Although there's no
known explanation, he also points out that the carrier's share price
appears to be strongly positively correlated with its net adds rate
(share price peaked in Mar 2000 and net adds peaked in May-September
2000; share price is now down 20 percent from June 2001 and net adds
are now down -56 percent. Go figure!). DoCoMo has announced a JV with
Nissan to put 3G terminals in cars by 2003.

+++ Events (Advertisements)

Economist Conferences presents:
Japan and international marketing strategy
March 13th 2002, Tokyo

Hear case studies from international success stories and local
dynamites including: AMAZON.COM, STARBUCKS, MAX FACTOR and many more.

Register today and enjoy 10 percent discount of the registration fee!
This offer is exclusively for J@pan Inc readers. Please register at

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2002 Asian Venture Forum/Japan
The Four Seasons Hotel, Tokyo
March 4-6, 2002

Opportunities in Japanese Private Equity: A Contrarian View

With Japan still groping its way through the lost decade searching for
growth, yet another "recession" is baring its path.

The macro picture looks gloomy but opportunities for private equity
investors have never been brighter.
2002 AVF/Japan will explore this contrarian view on Japan.
With more than 350 delegates attending last year, AVF/Japan is a MUST
go event for the serious Asian private equity investor.

For the latest details, please download our online brochure at:

+++ Sign of the Times

--> The Fortean Times reports that Florin Pirliceanu of Romania
misplaced his Nokia 3310 cell phone, and then hanged himself after
leaving a suicide note that read: "I have lost my phone so I have no
alternative but to take my own life." Rather an overreaction we think,
although reasonable, perhaps, if it had been the dual-cam D2101V...

--> From The Guardian: 600,000 people in Britain have dropped their
mobiles down the toilet (1.3 million have had them stolen). One
correspondent on the Keitai-L list pointed out that, in Japan, if you
look real close at both the battery and the battery compartment of
your keitai (depending on age), you will see a little red and white
indicator. "This exists for the sole purpose of letting the carrier
know if they should replace your phone for free, or if you're just an
absent-minded customer who needs to buy another phone to stay
connected." Another comment: Great source of churn.

-->802.11(b) access in Tokyo (also extracted from the Keitai-L list):
** Blenz Coffee in Shinjuku and Kita-Aoyama, as well as some
MOS burgers in Tokyo
** Starbucks in Harajuku (behind Kiddyland); collocated with
Yahoo Internet Cafe

+++ Subscriber Statistics, Corrections, Credits, Administrivia

1,930 as of February 25, 2002

8,570 during 1 January - 24 February 2002 (156 PV/day)

2,505 video streams for 279 hours, 1-24 February (697 mins/day)

In last week's WW (No. 44), we stated that:

Notably, the video clips (max: 15 KB -- about
5 seconds at 80x60 dots) can be edited right on
the handset, and the system will use the 'Nancy'
codec developed here in Tokyo by Office Noa Inc.
We heard the frame rate is about 10 fps.

This was incorrect; the actual frame rate is 2 fps, and the Nancy
codec allows for a total of ten frames. Thanks to alert reader Jamie
Finn of HelloNetwork for pointing this out.

Wireless Watch email newsletter and Wireless Watch Video
Newsletter researched and hosted by:
Daniel Scuka (daniel@japaninc.com)

Edited by J@pan Inc Editors:

Wireless Watch Video Newsletter produced and edited by:
Lawrence Cosh-Ishii (lcosh-ishii@video-link.com) in cooperation with

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Copyright (C) 2002 Japan Inc Communications KK. All Rights Reserved.