WW-51 -- On Smart Cards and Creating Disruptive Technologies

J@pan Inc Magazine Presents:
Commentary on the Business of Wireless in Japan

Issue No. 51
Monday, April 8, 2002


+++ Viewpoint: On Smart Cards and Creating Disruptive Technologies

+++ Noteworthy News
--> Samsung to Export 3G Mobile Phone Equipment to Japan
--> NEC to Make US Mobile Comeback
--> Osaka Hotel to Adopt Cisco's Wireless LAN System
--> J-Phone Climbs to No. 2 in Japan Mobile Phone Mkt
--> NTT Comms Plans Wireless Internet Service

+++ Subscriber Statistics, Corrections, Credits, Administrivia

3G Wireless Special

J@pan Inc magazine invites you to promote your company in our June
2002 issue, which will feature a special advertising section focusing
on wireless technology and 3G.

This year, we're teaming up with Wireless Japan -- the only exhibition
in Japan exclusively focused on wireless technology. The event had
more than 26,000 participants last year and would be an excellent
opportunity for your company to promote its business to people who

For more information, call Fabien Brogard Cipriani on 03-3499-2099
or email: fabien@japaninc.com

+++ Viewpoint: On Smart Cards and Creating Disruptive Technologies

Jeff Funk, associate professor at Kobe University and one of the most
knowledgeable of the Japan wireless hands, has released a report
looking at issues related to mobile ecommerce in Japan.

We think the paper, entitled "From Ticket Reservations to Phones as
Tickets and Money: New Applications for the Mobile Internet in the
Japanese Market" is required reading for those interested in this
space and his conclusions are, perhaps, somewhat surprising (access a
copy via the link below).

The background is NTT DoCoMo's April 1 announcement that it will use
Sony's electronic money (Edy) in upcoming phones -- a major event in
the Japanese and worldwide mobile Internet, as Funk rightly
characterizes it. Funk explains that Japanese consumers will be able
to use their phones to make purchases under 3,000 yen simply by
passing their handsets over an IC (integrated circuit) card reader.

This is the first embodiment of the much-touted 'phone as wallet'
paradigm that we've been hearing about for several years, and with
DoCoMo pushing it, it's bound to be big.

The report examines the Japanese market from a broad perspective and
looks at the simultaneous efforts to use IC cards as tickets and money
and to include such IC card functions in phones. Of course, smart
cards have come a long way in the past few years, and it's now
possible to provide a smart card that embodies a complete execution
environment, such as the UIM card made by Gemplus and included on
DoCoMo's FOMA phones (see link below to our interview with Gemplus).

Funk explains: "As firms improve the processing and short-distance
communication capabilities in IC cards, new applications such as
train, concert, movie and other tickets become possible." (Did
someone say "802.11(b)?")

He also points out that the 'value of a network' concept -- the idea
that any network becomes more valuable as the number of nodes on the
network increases -- is a key factor in the growth and adoption of
smart-card-based ecommerce systems, since many players (licensed- and
non-licensed-spectrum network operators, handset makers, merchants,
banks, financial clearing houses et cetera) have to cooperate to make
it work.

"Communication technologies such as telephones, email and the PC and
mobile Internet are prime examples of products that exhibit network
effects. The early success of entertainment content in NTT DoCoMo's
i-mode service in mid-1999 led to the emergence of positive feedback
between these entertainment contents and young users. Subsequently,
this positive feedback was extended to phones through the interaction
between color displays and color contents," writes Funk, surmising
that the more people who have and use IC card-equipped terminals
(phones and, presumably, PDAs), the more firms will want to accept
them as tickets and money.

Similarly, the more places where these IC cards can be used, the more
people will be interested in acquiring and using such IC cards and
phones that contain the IC card functions. These points may not be
new, but with DoCoMo's recent Edy announcement, Funk's paper is a
rather timely read.

The paper also concludes that smart card deployment is another example
of a disruptive technology and Funk says that the mobile Internet
itself is disruptive for firms that provide content for the PC
Internet because it offers greater portability (more reach) but
smaller screens (less richness) than the PC Internet.

Surprisingly, he thinks that smart cards will also be disruptive for
service providers and phone manufacturers who have traditionally
focused on business users. "This makes the mobile Internet more
disruptive to Western than Japanese service providers since Western
service providers (due to the importance of roaming) and manufacturers
have historically focused on business users."

Even with i-mode more than three years old, the Japanese carriers
suffering from marginal subscriber effects in data ARPU and US and
European industries catching up fast in the enterprise application
space, Japan's mobile Internet industry can still spawn disruptive
technologies that can catch overseas players napping.

--Daniel Scuka

"From Ticket Reservations to Phones as Tickets and Money:
New Applications for the Mobile Internet in the Japanese Market"
April 8, 2002:
(May need to be saved to your PC before opening.)

Wireless Watch video interview with smart-card maker Gemplus,
February 18, 2002:

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

--> Samsung to Export 3G Mobile Phone Equipment to Japan
Source: Korea Times, April 5

EXTRACT: Samsung Electronics said yesterday it was putting the
finishing touches to negotiations with Japan's No. 2 mobile carrier
KDDI to export 3G mobile telephone equipment, a senior official said
yesterday. "At the current time, we are unable to disclose details of
the deal with KDDI, but it is likely to be one of the biggest
contracts ever," said Han Tae-shin, director of public relations at
Samsung Electronics.

COMMENTARY: Samsung said that KDDI will launch a cdma2000 1X EV-DO
(2.4Mbps nominal) service ahead of the World Cup finals, which is to
be co-hosted by South Korea and Japan between May 31 and June 30.
That's the system that will use the Samsung equipment (Motorola
provided the infrastructure for KDDI's cdma2000 1X system that opened
on April 1).

This is indicative of the tectonic changes happening in Japan's
wireless telecoms infrastructure market, and is major good news for
the Koreans, who have had little success selling infrastructure here
before. It's also a boost to the Korean companies hoping to sell CDMA
equipment into China (if they can sell to Japan, China should be a
natural). We suspect that the actual building of the system will be
bigger work than Samsung perceives; Japanese carriers have a checkered
record of requiring so many system changes that the resulting network
ends up being virtually proprietary. Maybe the hard-nosed Koreans can
enforce a little carrier standardization here?

--> NEC to Make US Mobile Comeback
Source: Asahi Shimbun, April 5

EXTRACT: In a move that may put Japanese electronics makers back on
the map in cellphone manufacturing in the United States, NEC Corp.
will develop and market handsets in the United States by the end of
the year, sources said Wednesday. NEC, the domestic leader in mobile
phone manufacturing, plans to introduce handsets for digital wireless
services employing so-called 2.5G technology. The technology has a
wireless capability between second- and third-generation versions.
After selling about 2 million first-generation, or analog, handsets,
NEC had about a 12 percent share of the North American market in
fiscal 1996. But it failed to follow up as mobile technology shifted
to 2G, which introduced digital connections. NEC lost ground as
Motorola and Nokia, now leading players, started making their presence
felt on the world stage. Conceding defeat, NEC withdrew from North
America altogether at the end of 2000.

COMMENTARY: Speaking of foreigners supplying telecoms equipment to
overseas countries, NEC is also supplying the N21i GSM/GPRS handsets
being used on KPN's baby i-mode in Europe (the company has also
provided handsets for Manx Telecom's 3G W-CDMA system on that island).
NEC's US model is expected to be a derivative of the KPN version.
While we haven't handled the N21i yet, one industry watcher here
called it "old-fashioned," referring to the handset's two-year-old,
256-color display, its 18-month-old, 16-voice sound chip and its
pokey, 160-hour standby time. Much more interesting would be any NEC
plans to launch 3G handsets in the US, and the company has said it
intends to do just that.



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:

Apr. 8 -- The phone is still not an 'IT sale' in Japan,
but we talk to one mobile application developer that is
trying to effect change -- and having some success. Hear
why KDDI 3G is a better bet than DoCoMo's FOMA for
enterprise apps.

Apr. 1 -- There's only one airline with a 3G-optimized,
bilingual, B2C presence on all three of Japan's wireless webs,
and it isn't even a Japanese carrier! Join us for an
exclusive, in-depth profile of Cathay Pacific's
consumer-facing wireless strategy and find out why a foreign
airline is spending so much to get mobilized in Japan.

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.


--> Osaka Hotel to Adopt Cisco's Wireless LAN System
Source: Nikkei AsiaBizTech, April 4

EXTRACT: The Rihga Royal Hotel in Osaka said on April 3 that it will
launch a hotspot service using a wireless LAN infrastructure later
this month. The service will be offered on the 23rd and 24th floors of
the Presidential Towers for executives and special guests. The guests
will be able to access the Internet everywhere on these two floors.
With a renovation of the Presidential Towers, the hotel introduced
US-based Cisco Systems Inc.'s access points, the Aironet350 Series,
that are based on the 802.11b wireless LAN standard. The access line
to the Internet that the hotel deployed is a 100Mbps B Flet's line
provided by NTT West Corp. The hotel will lend out wireless LAN cards
and associated driver software to the guests for free. The guests can
also ask for a PC with a wireless LAN card if they desire.

COMMENTARY: We're seeing some encouraging developments in the wireless
LAN space in Japan. There have been a couple of public trials (one on
the Odakyu line, another in Tokyo station) and at least one provider,
SpeedNet, is now building an 802.11(b)-based network for home access
(at certain apartment buildings in the Tokyo suburbs). While we
applaud the Rihga Royal Hotel's plan, we think making such access part
of premium-priced accommodation is a little short-sighted. Such access
should be provided to all guests in all rooms, as well as in lobbies
and elsewhere. In fact, we suspect that with growth in public-access
wireless LANs, hotels that try to save such offerings for their
premium guests will soon be undercut.

"Wireless Hotspots," April 2002 issue
Speedy broadband Internet access is winning subscribers hand-over-
fist in Japan, mostly through ADSL and fiber services that are
hard-wired to your house. Thanks to innovative experiments in
the wireless broadband market, that's all about to change
radically, presenting the consumer with an even better range
of options for that fast online fix.

The KWR International Advisor keeps you abreast of important economic,
political and financial trends as they appear on the global horizon.
The current edition features articles on Enronitis, Asian
Restructuring, Investors and the War on Terrorism, ASEAN, U.S.-Japan
Trade, International Relations and Emerging Market Briefs. To access
your copy and obtain a free subscription, Check out our web site, or
contact e-mail below:
Website: http://kwrintl.com/fforwards/japanincadin.html
E-mail: KWR.Advisor@kwrintl.com

--> J-Phone Climbs to No. 2 in Japan Mobile Phone Mkt
Source: Nikkei on Yahoo, April 6

EXTRACT: J-Phone edged out KDDI for the second-largest subscribership
in Japan's mobile phone market, according to a survey based on data
for the end of March from the firms themselves, the Nihon Keizai
Shimbun reported in its Saturday morning edition. J-Phone, which moved
up from No. 3, took the second rung for the first time since
predecessor Tokyo Digital Phone Co. began offering mobile phone
service in 1994. Its Sha-Mail service, which lets users take and send
photos, made the difference, as more than 4 million Sha-Mail phones
have been sold. The survey showed J-Phone with 12.23 million
subscribers, 17,000 more than KDDI. In terms of market share, J-Phone
had 17.7 percent, 0.03 percentage points more than KDDI.

COMMENTARY: Big D remains, of course, on top, with 40.73 million
subscribers and a 59-percent market share as of end March -- down from
68 percent just a year ago. There are now some 89,400 FOMA (3G)
subscribers; "Corporate sales are going poorly," says DoCoMo president
Keiji Tachikawa.

--> NTT Comms Plans Wireless Internet Service
Source: iwon.com, April 2

EXTRACT: NTT Communications, Japan's largest long-distance telephone
and Internet services firm, said on Wednesday it was seeking
government approval to begin high-speed wireless Internet access
services. The service would use a variant of wireless LAN (local area
network) technology that allows users to access the Internet at up to
10 Mbps without the need to extend costly communications lines into
homes and businesses. The Nihon Keizai Nihon Keizai Shimbun said
trials would start in the summer and be deployed nationwide a year
later. A spokesman for NTT Communications said his firm was interested
in providing such services but was seeking government approval for use
of the wireless transmission bandwidth. NTT Communications would use a
different wireless LAN technology from DoCoMo's that would allow
signals to be sent and received over a much wider area, with a radius
of about eight km (five miles) instead of a radius of a few hundred
metres. The wider area LAN technology was developed by closely held
SOMA Networks, NTT Communications said.

COMMENTARY: Ironically, the wireless LAN initiatives underway now may
provide a boost to PHS, which uses licensed spectrum. Carriers and
others are looking at rolling out ecommerce services that use the
handset as an eWallet and that use wireless LAN for the
terminal-to-terminal connection, and PHS for the Internet connection
(see Viewpoint above). We'll keep our eye on this and focus one or two
upcoming issues of Wireless Watch on developments.

+++ Events (Advertisements)

No events this week.

+++ Subscriber Statistics, Corrections, Credits, Administrivia

2,182 as of April 8, 2002

January 1 - April 7: 10,752 page views

February 1-28, 2002
3,796 streams (908 mins/day); 3.2 views per unique visitor

March 1-30, 2002
4,621 streams (1,557 mins/day); 1.75 views per unique visitor

April 1-7, 2002
1,089 streams (10,546 total mins); 2.7 views per unique visitor;
27 mins. avg. visit

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

Edited by: J@pan Inc editors (editors@japaninc.com)

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

Wireless Watch online archive:


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