BUSINESSWEEK ONLINE : MAY 22, 2000 ISSUE
INTERNATIONAL -- COVER STORY Japan's Cutting Edge (int'l edition) Web enthusiasm and top-notch tech may be creating the first wireless society Packs of teenagers rip through Harajuku, Tokyo's hip youth mecca, sporting the latest in-line skates and matching wristband cell phones--in vibrant shades of Amazon green and orange. Company samurai on their way to work download news to their light metallic palmtop computers, hooking up plastic LCD screens that roll out like a scroll for easy viewing. And homemakers, undecided about what to buy for dinner, pan supermarket food sections with their tiny videophones, relaying color images to family members. On their way out, they pay for their purchases by flashing their handsets past a sensor. Yes, this is the Japan of the future--but not the distant future. Toshiro Iizuka, a soothsayer for the Wireless Age, believes that Japan has already emerged as a testing ground for the world's most daring wireless devices and applications. He hasn't been wrong yet. Iizuka is the chief product designer for Matsushita Communication Industrial, Japan's largest mobile-phone manufacturer, whose phones are sold in other countries under the Panasonic brand. Back in 1989, Iizuka called the current boom in pumped-up cell phones. Seven years later, he designed the first one compact enough to fit in a shirt pocket, thus igniting Japan's ongoing cell-phone mania. Today, nearly one out of two Japanese cell-phone owners sports a descendant or copy of that first featherweight model. Matsushita's latest arsenal of phones is aimed straight at the mobile Internet. Its designers and engineers are cramming tiny cameras, microphones, and integrated circuits into handsets with looks to die for. Get ready for phones in a mind-boggling array of shapes and colors for a variety of activities: wearables for snow-boarding and skating, terminals for playing games and music downloaded from the Web, even handsets rigged for ultracompressed video. ''You'll choose your phone to match your clothes or activity of the moment,'' predicts Iizuka. Matsushita Communication has a lot riding on this version of the future. The Yokohama-based star of the Matsushita consumer-electronics group hopes to leverage its edge in handset technology to conquer the global wireless market. That's not so far-fetched. Until now, its best products have been limited to Japan, which has long been isolated from the rest of the world because of its proprietary digital-cellular standard. This time next year, however, Japan will become the first country to roll out a high-speed ''third-generation,'' or 3G, cellular system. Known as wideband-CDMA, the standard will also be adopted in Europe and parts of Asia in coming years. Japanese wireless companies are betting this will give them a competitive edge. In Japan, this future is already coming into focus. In the past 15 months, nearly 7 million Japanese have jumped on board i-mode, a mobile Net-access service created by the country's famed wireless carrier, NTT DoCoMo. Charged a fee for the amount of data they send, i-mode users pay about $80 a month--or 25% more than ordinary cell-phone users. Based on a ''packet-switched'' technology that is closer to a computer network than a phone system, i-mode offers a continuous Internet connection--somewhat like a slowed-down cable modem, but without the cable. Despite the tiny screen, the menu sports the same kinds of choices you see on America Online--news, games, chat, search, and the rest. For the notoriously unwired Japanese, this whole world is a novelty. And the ability to carry it with you everywhere makes i-mode irresistible. The network was built for 5 million users, and demand already exceeds network capacity. By yearend, the number of Japanese accessing the Net via wireless phones through i-mode or rival services could double. By 2003, the number could reach 41 million, according to International Data Corp., compared to 63 million connecting through phone lines and other wires. I-mode has made Japan the incubator for mobile commerce. Roughly 10,000 Web sites have been specially formatted so that pages will download quickly and look enticing on i-mode phone screens. Entertainment sites are capturing 55% of all traffic, offering everything from cartoon downloads to weather updates at the world's top surfing beaches. Dwango, an online-game venture, has attracted 50,000 (mostly male) subscribers to its fishing-game site in six months. There, ''fishermen'' can try their luck at 2-D replicas of Japan's most famous fishing spots. But i-mode isn't all play. Startup Chintai runs a housing rental service, and sends notifications via i-mode when a property matches a subscriber's needs. FAST APS. All this activity, however, is just the prelude. After 3G kicks off next May, subscribers will be able to send data at speeds of up to 386 kilobits per second, as opposed to today's peak speeds of 28.8 kbps. They'll be able to use their cell phones to check home-security cameras and swap simple video e-mail. By 2003, peak speeds will hit 2 megabits per second. Users will rarely get anything close to that, but displays will get crisper, and all applications will speed up. Some mobile phones will also come equipped with voice-recognition software so visually impaired users can get Internet access. They'll feature IC cards loaded with heavy-duty encryption, allowing them to double as mobile banking and stock-trading terminals. ''The 3G handset isn't going to eliminate the desktop PC,'' points out Keiichi Enoki, head of DoCoMo's Internet business. ''But it'll become the information tool you carry around everywhere.'' Lured by all these opportunities, Matsushita Communication, a $10 billion-a-year company, has pulled out all the stops on research, aiming to generate billions of dollars in sales of 3G phones and base stations by 2005. This year alone, it will pump $1.2 billion into chip and software research. ''We'll be first to market with the best products,'' says company President Takashi Kawada. Trouble is, the competition is just as ambitious. In Japan, where Matsushita has 30% of handset sales, both NEC Corp. and Fujitsu Ltd. beat it to the market with phones bearing full-color LCD screens. Sony Corp. also is revving up in wireless--though its record here is abysmal. And new rivals will emerge elsewhere in Asia. Trend-conscious consumers in South Korea, Taiwan, China, and Hong Kong are rushing onto the Web and snapping up the latest telecom gizmos by the millions. That should provide rapid, low-cost local manufacturers the critical mass to play in the global market. And, of course, fourth-generation systems are a hot research theme at Lucent Bell Labs, Nokia, and other wireless bastions in the West. GLOVE-PHONES? Because Japan is the hottest arena in this competition, it's likely to remain at the forefront of innovation in the wireless Web. Matsushita, for one, hopes to stay ahead of the pack by reinventing the human interface. Detachable keyboards are a nonstarter in the size-sensitive world of cell phones. But endlessly pecking at tiny buttons on a phone keypad also gets old fast. So Iizuka intensely studied the myriad ways that humans use their hands, and determined that the solution could be terminals that are held and manipulated much like musical instruments or game controllers. One of his ideas looks like a cross between a cell phone and a Game Boy: You hold the pad with both hands, and press buttons with your thumbs. The other fingers control buttons on the bottom. Iizuka says he borrowed the concept from the saxophone and from game machines at arcades. For the Harajuku crowd on Rollerblades, Iizuka has another device that is worn like a skimpy glove. With thumb to ear and pinky to mouth, you can talk while you roll, but use your hands in a pinch to break a fall. Chips in the fabric might someday produce and transmit text messages by interpreting finger movements as Japanese characters, or whole phrases--a concept that harks back to ''data gloves'' used for navigation in some virtual reality systems. Some of the more intriguing applications will be in video. Matsushita and rival Mitsubishi Electric are working on home-video systems that parents can access through cell phones to check on the kids. Technologically, these schemes still have a way to go. It now takes about 10 minutes of airtime to download one audio song onto a cell phone, for example. And even with 3G, people would be unlikely to swap video clips greater than 20 seconds in length. ''Were not talking about movie length or quality,'' says Jeff Funk, a mobile telecom expert at Japan's Kobe University. ''But increased speed will boost quality.'' Better screens also will help. Sharp, the global leader in liquid crystal displays, has developed a plastic screen it claims is 10 times stronger than the glass type and two-thirds as light. Within 10 years, there may be flexible screens that can be unfurled and hooked onto cell phones. And while radio spectrum is a scarce resource with defined physical limitations, Matsushita engineers believe that technical breakthroughs will yield quantum leaps in the utilization of radio capacity. The 4G era will open up a world like that of television today, predicts Matsushita's R&D chief Minoru Kuramoto. With a handset equipped with a small camera, he says, ''you'll be able to broadcast video images from wherever you are, to any number of people.'' Few American engineers seem to buy that proposition. And though human ingenuity can work miracles on spectrum, it's too early to predict which company has the winning formula for the wireless arena. But by discarding the rule book on how phones and computers should look and behave, Japanese manufacturers believe they can lead the way. By Irene M. Kunii in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Wireless in Cyberspace (int'l edition) INT'L COVER IMAGE: Wireless in Cyberspace TABLE: The Clash of the Wireless Titans Begins CHART: Across the Globe, Demand for Digital Cell Phones Is Soaring Japan's Cutting Edge (int'l edition) CHART: Japanese Internet, Cellular, and Wireless Net Users Goliath vs. Goliath (int'l edition) CHART: Western European Internet, Cellular, and Wireless Net Users Sprint's a Web Evangelist (int'l edition) CHART: Total Internet, Cellular, and Wireless Net Users in North America China Surfing (int'l edition) CHART: Asia-Pacific Internet, Cellular, and Wireless Net Users Commentary: Yes, It Really Is the Next Big Thing (int'l edition) ONLINE ORIGINAL: IBM's Mark Bregman: "The Immediacy of Data" Will Change How We Work ONLINE ORIGINAL: Let a Million WAP Users Bloom ONLINE ORIGINAL: Matsushita's Takashi Kawada: "All We Have Is a Little Time Advantage" BW E.BIZ: "Martin Cooper: A Wireless Prophet Who's Pushing 'Smart Antennas'" INTERACT E-Mail to Business Week Online

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