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BusinessWeek: January 17, 2000 |
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International -- Asian Cover Story
Amazing DoCoMo (int'l edition) The company's wireless Net phone service is all the rage in Japan--and just might conquer the world Come again? Everyone in Japan knows "i-mode" stands for a white-hot cell-phone service from NTT DoCoMo. The company name is a play on the Japanese word for "anywhere," and the service lives up to that moniker by giving subscribers across Japan cheap and continuous wireless access to the Internet. Europeans, too, can tap into the Net from their cell phones. And thousands of Americans get similar benefits using Palm VII devices from 3Com Corp. But all these systems must establish new dial-up connections each time a user wants to go onto the Internet. With i-mode, users are always connected--as long as they can receive a signal and their batteries are charged. Through this persistent link, subscribers get a full panoply of Web-based goodies: e-mail and chat, games, online horoscopes, calendars, and customized news bulletins. All told, i-mode subscribers can navigate among 4,000 specially formatted Web sites. In coming months, the rest of the world will be hearing a lot more about i-mode--the service, the company that provides it, the stock, and the amazing individuals who helped create this phenomenon. Here are a few quick reference points: Since the company was partly spun off from NTT, Japan's former telephone monopoly, in 1992, DoCoMo has become: --Japan's hottest stock. We're talking a Berkshire Hathaway-level share price. In dollars, DoCoMo has soared from $13,000 a share to $35,000 since June; --the world's most valuable cell-phone company, with a market cap of about $335 billion; --the largest single-country cell-phone operator, with a total of 27.1 million Japanese subscribers; --the most advanced wireless Net access service on the planet, period. "NTT's i-mode is the only network in the world today that allows you [continuous] access to the Internet via a cell phone," says Bill Joy, chief scientist at Sun Microsystems Inc. More than 3 million Japanese have signed up, which means DoCoMo is now on its way to becoming the largest Internet service provider in Japan. "DoCoMo has surprised a lot of people in the U.S.," says Nelson R. Sollenberger, division manager for wireless systems research at AT&T Labs in Florham Park, N.J. "We haven't seen anything like these numbers for any general wireless data service." MASS MARKET. No wonder so many Japanese see DoCoMo as Japan's symbol for New Age innovation--the last, best hope to make Japan a contender in the global Internet derby. In the U.S., companies such as AT&T and Motorola Inc. are dickering over technical standards, the amount of bandwidth required for mobile data applications, and whether wireless Web surfers will prefer smart cell phones or palmtop computers. In Japan, DoCoMo has jumped far ahead, showing the world that there is already a mass market, with millions of consumers who don't care that the technology isn't perfect. In the future, DoCoMo plans to take on the likes of Vodafone AirTouch, AT&T, and British Telecom in markets around the world. Indeed, if the mobile Internet lives up to expectations, DoCoMo could evolve into the world's mightiest wireless giant. But for that to happen, DoCoMo must prove that its new services and business models have staying power. Right now, i-mode lets users perform all kinds of cool tricks. In Silicon Valley or Scandinavia, friends can't swap pictures of their pets on sleek, 90-gram cell phones. Japanese do that every day. But pet tricks won't give DoCoMo a permanent edge over fierce global rivals. Already, European and U.S. cell-phone moguls are greedily eyeing Asia's potential market of 3.3 billion souls. In November, Vodafone and British Telecom announced plans to launch a next-generation mobile service with Japan Telecom, a local carrier in which they both hold stakes. FAMILY TIES. Keiji Tachikawa, DoCoMo's charismatic chief executive, doesn't appear to be alarmed. He plans to fight the competition through a network of friendly alliances--a strategy that will likely include taking equity stakes in companies based mainly in Asia. Tachikawa is betting that hostile takeovers of the sort Vodafone has pursued will be a turn-off in Asia. Shunning those tactics, DoCoMo plans to woo Asian operators with funds and state-of-the-art technology. Tachikawa has plenty of cash to power his expansion. DoCoMo's 1999 operating profits are expected to hit $5 billion, on revenues of $36 billion. Perhaps more important, DoCoMo represents a potent legacy--one that was once referred to as Japan Inc. Through the 1970s and '80s, NTT and its family of powerful equipment suppliers--Fujitsu, NEC, and Hitachi among them--embodied some of Japan's most successful industrial policies. This government-led industrial model looked like a liability during Japan's long recession. But today, newcomers like DoCoMo and its tightly knit content, equipment, and service suppliers can draw on those old family strengths. Giant NTT still owns 67% of DoCoMo. The market cap of both companies combined makes a hostile takeover unthinkable. At the same time, a stratospheric valuation could be currency for DoCoMo's own M&A designs down the road. For Japanese makers of mobile equipment and handsets, hard hit by recession, things haven't looked this promising in years. The local wireless market is expected to be worth $100 billion by 2003, vs. $18 billion in 1999, according to the Mobile Office Promotion Assn. About 60% of the 2003 tally will be generated by wireless Internet services, excluding hardware. Today's head start could hand Japan a leadership role when the mobile Net goes global. DoCoMo's innovators would reap licenses on standards they hew. And their umbrella of Internet content suppliers and equipment makers would get a leg up in global markets. Japan has long lagged behind the U.S. in PC and Internet penetration, largely because of a lack of familiarity with the keyboard. But personal electronics are another story. This is the country that gave the world the calculator, the Walkman, the pocket TV, the Game Boy, and the camcorder. Millions of Japanese grew up playing video and pocket computer games--the so-called push-button generation. Many are now migrating to Net-ready cellular handsets, often bypassing home computers altogether. They form a perfect testing ground for new Net appliances. HEADHUNTING. DoCoMo hasn't always been a hot property. In fact, it languished for years inside giant NTT. In 1992, when DoCoMo was partially spun off, few NTT staffers wanted to be assigned to the mobile carrier. At the time, the market was closed, subscription fees were costly, and the phones weighed as much as lunch boxes. What's more, a new technology known as personal communications services ("handyphone" in Japan) seemed poised to push aside other types of digital cellular systems. But in 1994, the postal ministry liberalized the cell-phone market, domestic competitors with names like DDI, IDO, and TU-KA blossomed, and prices for digital cell phones plummeted. DoCoMo's army of engineers--many inherited from NTT--fought the upstarts by developing the world's smallest cell phones, sharing the specifications with handset makers such as Fujitsu and Matsushita Communication. DoCoMo also blanketed the country with its branded retail shops and came up with a mascot called DoCoMo-chan. All the while, as DoCoMo's conventional digital service was blossoming, DoCoMo's first president--Koji Ohboshi--was searching to extend the company's business beyond voice to data communications. That task fell to electrical engineer Keiichi Enoki. He did what few Japanese managers dare to do--headhunt. His first catch was Matsunaga, a senior executive at Recruit, a publisher of job information, who had a track record of hatching successful businesses. With her help, he lured the third main team member, Takeshi Natsuno, a supercharged Internet entrepreneur who was running one of Japan's early online startups. MOBILE MODEL. After several months of brainstorming, the trio targeted wireless Internet access as the next big thing. DoCoMo engineers built a "packet-switched" network alongside their existing digital cellular network. With packet systems--as opposed to circuit-switched phone networks--there is no need for each user to receive an exclusive radio channel. That means many users can access the network at the same time. The packet model also reduces costs, since charges are based on the volume of data sent and received. Takeshi Natsuno devised the business model to make this system work. First, he dictated that i-mode should serve as a portal site and lined up content providers that users could access directly from i-mode's menu bar. Then he set up a billing method whereby DoCoMo would reap a commission for the services rendered by this first tier. Other content owners would be encouraged to code their Web pages for i-mode as well. But only those belonging to the licensed first tier could be accessed by the menu bar. "People say the Internet has to be free, but we're charging for it," says Natsuno, 34. "This is a model for the mobile Internet that others now want to emulate." Tachikawa, president and chief executive since 1998, insisted on a cheap pricing plan to guarantee the widespread adoption of i-mode. Subscribers pay about 4 cents to send a 250-character message, and half that to receive a message of the same size. Tachikawa also insisted that the functions be as simple as possible. "I can access DoCoMo's share price in just two clicks," he says. The 60-year-old president arrived at DoCoMo with the right credentials. In addition to a PhD in engineering from prestigious Tokyo University, he has an MBA from Massachusetts Institute of Technology. An NTT executive for most of his career, he was responsible for drawing up several of NTT's long-term policy plans in the 1980s. He communicates with all DoCoMo personnel directly by e-mail--a practice still rare in Japan. He also manages to keep up with American baseball--he's a New York Mets fan--and football. But nothing Tachikawa ever said or did has rocked the roof like i-mode. Since the service was launched in February, subscribers have been signing up at a rate of 450,000 a month. By the end of this fiscal year, in March, the number should hit 5 million. If the rate keeps accelerating, i-mode could match America Online Inc.'s subscriber base of 21 million next year. TOONS AND NEWS. I-mode has already become an addiction for millions of Japanese. The "i" stands for information--something young Japanese hunger for. Teens keep their handsets on round the clock and conduct rapid-fire exchanges of messages until their batteries give out. Students and young adults post passport-style pictures online, which can then be viewed or downloaded to their i-mode handset screen. Bandai Co., the maker of Tamagotchi digital pets and animated films, operates a popular cartoon service, and some 600,000 subscribers pay about $1 a month for access to the site. Hiroaki Takahashi, a 30-year-old tuna trader, switched to i-mode two months ago and uses it to catch up on news during his nightly commute. Rehito Hatoyama, 25, who works for a major trading house, constantly checks his handset for the latest hits on the music charts, share prices, and soccer game results. "I want to access information instantly and anywhere I go," Hatoyama says. In its first year of operation, i-mode is on track to post more than $100 million in revenues. That's small potatoes compared with sales of basic cell-phone services. But Tachikawa estimates that a user base of 5 million would generate $1.5 billion in fees from subscriptions, transmitted data, and a 9% commission DoCoMo charges for handling the billing for Web content providers. The success of i-mode sets the stage for DoCoMo's next big act--an evolutionary advance known around the planet as 3G, for third generation. In essence, it is a set of wireless protocols that will enable vastly higher communications speeds. While the final standards have yet to be hashed out in America, Japan and Europe have committed to an approach called wideband CDMA, which will let users view streaming video and a host of other new Net applications at a blinding 2 megabits per second by 2003--compared with just 9.6 kilobits today. In one sense, this migration may seem to neutralize DoCoMo's current advantage. After all, Europe and America will also jump to the new 3G protocols. And the new services will be much flashier than anything you can do with today's i-mode phones. But Tachikawa insists that DoCoMo will be able to carry its services and expertise along to the next generation, without exorbitant costs. All the excitement over DoCoMo today is "just the beginning," says an excited NEC President Koji Nishigaki. "Everyone will be on i-mode in three years." To protect its lead, DoCoMo keeps up a brutal research pace. At a state-of-the-art research facility in the Yokosuka Research Park, southwest of Tokyo, about 700 engineers are testing transmission equipment, cellular phones, palmtops, and car navigation systems based on CDMA, which stands for code division multiple access. The technology was developed by the U.S. military and commercialized first by Qualcomm Corp. But DoCoMo enhanced the basic platform with its own, homegrown mathematics. And it got a big endorsement when Europe leaned in the same direction. Ultimately, Tachikawa hopes to convert other operators to DoCoMo's wideband CDMA system, inside and outside Japan. By proselytizing for W-CDMA around the world, Tachikawa hopes to extend i-mode's reach without having to resort to takeovers. Recently, he negotiated a friendly deal to purchase a 19% stake in Hutchison Telecom, Hong Kong's largest cellular operator. Hutchison is expected soon to announce plans to adopt the i-mode service, and later on DoCoMo's 3G system. In hopes that others might follow suit, DoCoMo is also conducting 3G tests with operators in Malaysia, Singapore, and China, to be followed by possible investments. CONVERTS. But Tachikawa is not ignoring the West. Last March, he struck a deal with Sun Microsystems to incorporate the company's Java program in i-mode handsets coming out in the fall, as well as in the 3G devices scheduled to go on sale next year. In October, Tachikawa and Microsoft President Steve Ballmer agreed to set up a joint venture, called Mobimagic, to develop wireless data services for the business market in Japan. If the new features and services take off in Japan, Tachikawa hopes to transplant them overseas. In November, DoCoMo opened two U.S. subsidiaries in Silicon Valley--one for research and development and the other for promoting Japan's W-CDMA standard. Some of DoCoMo's closest collaborators are already converts. Microsoft, for example, is doing most of its pioneering wireless data work with DoCoMo in Japan, says Ballmer. "And I hope that will migrate back to the United States as our wireless infrastructure improves," he said in a recent speech in Tokyo. As the mobile Internet takes off, DoCoMo will have to fight off competitors while entering new markets. Merger mania is already sweeping through the wireless world--much of it inspired by visions of the mobile Internet. The last few months have seen a flurry of alliances and mergers, such as MCI WorldCom Inc.'s buyout of Sprint Corp. last October. Britain's Vodafone AirTouch PLC is maneuvering to take over Germany's Mannesmann. The pressure from such massive consolidation could make competitors even more aggressive. DoCoMo isn't immune at home. Rivals DDI Corp. and IDO Corp., which account for 27% of the cell-phone market, are merging their cellular operations to push a cellular standard that differs from DoCoMo's. The two are now introducing a packet network for a mobile Net service that will compete against i-mode. For now, however, DoCoMo has latched first and best on to the mobile Internet, a technology with far greater potential than the other portable-electronics markets Japan has conquered. Calculators and camcorders do not carry with them an entire set of complex, Internet-based services, complete with new business models and lush venture-capital funding. All these and more come with the mobile Internet. Thanks to DoCoMo, Japan is out in front of the great land grab. Return to top | |
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  Return to top TABLE Why Japanese Are Mad for i-mode TODAY Internet cruising speeds will soon get a lot faster on i-mode. More than 300-kbps should be possible by next year. And by 2003, peak speeds could hit two megabits--fast enough for high-quality music downloads, Webcasts of TV shows, virtual-reality games using the phone as a Net link, and real-time videoconferencing. TOMORROW DoCoMo's i-mode cell phone service lets subscrbers swap e-mail and pictures, search phone directories and restaurant guides, and download news, weather, and horoscopes. Users connect to the Net at 9.6 kilobits per second--far slower than a PC on a phone modem. But unlike a PC or other Web-browsing phones, the i-mode systems are always connected to the Net. Return to top  Return to top  Return to top Staking a Claim in Japan's Net Gold Rush (int'l edition) Takateru Imaizumi, a 27-year-old computer programmer, still can't believe his luck. Last February, he wrote a search-engine program that would help people with smart cell phones surf the Net and find information that was specially coded to look good on tiny handset screen. He designed the program to work with NTT DoCoMo's new i-mode Internet service. And he posted the program online just a few days after the i-mode launch. The timing was perfect. Content providers--from weather and city guide services to game sites--were already racing to prepare their Web pages for a stampede of mobile Internet fans. And all the sites wanted to register with Imaizumi's "i-search" service. Today, Imaizumi is besieged with offers from investors wanting a piece of the action. "I thought it was a fad that wouldn't last," he says. "Now I know this is beginning of Japan's Internet revolution." BETTING THE STORE. Gold rush might be a better term. And while nobody can predict how rich or deep the veins of Japan's wireless Net will run, dozens of agile startups are scrambling to stake their claims. Some Web sites are tailoring existing services for i-mode. Others, aimed exclusively at Web phones, only exist because of i-mode. But all are inspired by explosion of new i-mode subscribers. A group called the Mobile Computing Promotion Consortium predicts that 21 million Japanese will be surfing the Web on smart phones by 2001, up from 3 million today. By 2003, mobile cyberbusinesses like i-search could be generating $60 billion in yearly revenues. Hiroshi Nishino, a business consultant who advises i-mode startups, calls these phones "wearable computers that give you Internet access 24 hours a day." Once speech-recognition technology matures to the point where keyboards are no longer required to create long text files, "many users could forgo [desktop] computers altogether," he says. Toru Arakawa, president of Access Co., is betting the store on the mobile Internet. An erstwhile developer of software for consumer gadgets, Access now holds an 80% share of the Japanese market for Internet browsers aimed at cell phones and other non-PC gadgets. With sales of about $17 million a year, the company is planning to list its shares next July on "Mothers," a Japanese stock market for startups. After that, Arakawa wants to "catch the wave" in Europe and Asia, he says. PIONEERS. Imaizumi shares that dream. In September, he quit his job at a subsidiary of Fujitsu Ltd. and launched i-search with his 25-year-old brother, Takehiko. Now, the two are sorting through joint-venture and investment proposals from Fujitsu, NEC Corp., and a host of venture capitalists fresh off their jets from Silicon Valley. The brothers know they will soon face competition from the likes of Yahoo! Inc. and Infoseek Corp. But they also know that being first counted for plenty in the wired world, when mind-boggling fortunes were built by early cybersettlers in the Valley. Now, as the Net goes wireless, some of the prime real estate may turn up in Japan. Return to top ONLINE ORIGINAL What's It All About: An i-mode Primer (int'l edition) You don't have to be Japanese to be up on the latest wireless technology The mobile Internet, with its new technologies and services, is a tough concept to grasp. Having plunged deeply into NTT DoCoMo's i-mode universe, Business Week's Tokyo Technology Correspondent Irene Kunii poses and answers a few basic questions: Q: How fast is i-mode? A: The current service has a transmission speed of 9.6 kilobits per second (kbps), which is like using a steam locomotive in today's world. But it's good enough if you're using a packet-switching system, as the i-mode service does. You're not going to get full-motion video, but you can download images at a speed of two frames per second. E-mail is limited to about 250 characters per message, but you can get a series and scroll down. The current screen technology leaves a lot to be desired, though, and reading these messages can strain your eyes. The i-mode service uses compression technology to increase the volume of data that's transmitted, and the underlying packet-switching system makes efficient use of bandwidth. Q: What happens to i-mode when the world moves to the next generation of high-speed wireless services, known as 3G? A: I-mode is a brand and a service, not a technology. When DoCoMo moves to up to 3G services, i-mode will be overhauled as needed. Q: Why is i-mode so popular? A: This service arrived just as Japanese are beginning to crave easy Internet access. The country's computer-penetration rate is only about 13% of households. And while Japan now has some 20 million Internet users, only 3 million to 4 million are believed to be accessing it from home. A big attraction of i-mode is that you can have a constant connection. You can leave your phone on all the time, as long as the batteries are running. You pay only for the data sent and received, and for services you may subscribe to that are offered by official providers (which now number around 300). Since data moves in packets, like the Internet, many people can access the network simultaneously. Another attraction is the low basic subscription fee of $3 a month, for which you get an i-mode e-mail address. And i-mode, like DoCoMo's cellular service for voice, is nationwide, covering 98% of the country. Q: What is the business model here? A: DoCoMo's i-mode planning group knew that they needed a portal type of service to attract users and a menu bar to make it easy to look for information. DoCoMo helps its official content providers customize their i-mode Web sites. Official providers' sites can be accessed directly from DoCoMo's i-mode menu, and official providers can charge a monthly fee for a service. For example, animation and toy company Bandai charges $1 a month for the right to download a character. DoCoMo handles the collection as part of its monthly billing and takes a 9% commission. However, it makes most of its money by charging for the volume of data sent and received. Q: How many Web sites can you access, and what makes them so special? A: It all has to do with how the text on a Web site is processed, so you can read it on a tiny cell-phone screen. I-mode uses a subtext of HTML called compact HTML to convert the information. Apart from the official content providers, nearly 4,000 sites can be accessed by punching in the proper URL. Many existing Japanese Web-site operators are launching i-mode-enabled sites because it's quite simple to convert an existing Web page to one formatted for i-mode. Q: What kind of competition does DoCoMo face? A: DoCoMo is the first to offer a wireless Internet access service, and it has shown the world that the masses are ready for it -- even if it can't provide moving video and other jazzy functions. But DDI and IDO, DoCoMo's two main rivals in Japan, are introducing their own packet network that will operate at a speed of 14.4 kbps. DDI and IDO already have an Internet service, cdmaOne, which is based on an international standard called WAP (wireless application protocol), an alternative to DoCoMo's compact HTML. The two now have about 350,000 subscribers to their e-mail service, but they require a dial-up each time. With the introduction of a packet network, cdmaOne users who purchase the necessary phones will be able to stay connected all the time as well. Some adherents believe that WAP is becoming an international standard that will displace i-mode. For 3G, DoCoMo may go with whatever emerges as the main standard. WAP works much like i-mode, enabling users to access data on Web sites specially formatted for small text. In Japan, only about 100 sites are tailored for WAP, so it's not clear whether they can catch up to DoCoMo in the next year. After that, DoCoMo will introduce 3G with a starting speed of 64 kbps, and it will overhaul i-mode to fit wideband CDMA. Q: What is wideband CDMA? A: Also known as W-CDMA, this is another set of high-speed protocols. The core was developed by the U.S. military, but DoCoMo tweaked it. Based on this standard, DoCoMo will probably be the first service provider to launch a 3G digital-cellular system. Initially, transmission speeds will range from 64 kbps to 384 kbps, depending on what you want to do -- send e-mail or moving images. By 2003, DoCoMo plans to boost the speed to 2 megabits per second. Q: What will the extra speed let you do? A: If you want to order a video for the evening, you'll be able to call the rental outfit and download clips to your smart phone while riding the train home. When you get home, you'll stick the handset in a jack that's connected to your home entertainment system and download the movie. Go get a glass of wine, and when you return, you can sit down and watch that film. Think of what you're doing now with the desktop Internet and transfer it to the mobile Net, and remember: The handsets, display, compression, and other technologies are only going to improve. Q: Does i-mode give Japan a competitive edge? A: Japan is running out of bandwidth for its second-generation digital-cellular system, so it has been aggressive in pushing for early adoption of a third-generation standard. There will probably be several standards adopted worldwide. Japan will be the first country to adopt 3G, and DoCoMo will be the first to the market with its wideband CDMA. There are nearly 48 million cell-phone users in Japan, and 57% of them already subscribe to DoCoMo. So market analysts expect the company to continue to dominate the Japanese market when the world moves to 3G. Many people believe that Japanese manufacturers of handsets and equipment will have the advantage when the same 3G standard is deployed in Europe and parts of Asia. Others argue in favor of Nokia, Ericsson, Motorola, and Lucent. They all have labs in the Yokosuka Research Park, where they're taking part in experiments with DoCoMo on W-CDMA. (Qualcomm, Lucent, and DoCoMo hold the patents for CDMA.) The non-Japanese companies plan to use this high-tech knowhow in both the European and Asian markets. But the Japanese companies still have the advantage, according to Seiji Sanda, founder and CEO of Japan Communications Inc. "NTT DoCoMo has the rights to the chipset, mounting, and miniaturization technologies. So, whoever wants to make the same sleek, lightweight handsets for another market will need NTT's permission," he says. Companies such as Matsushita Communication Industrial (Panasonic), Fujitsu, Mitsubishi Electric, and NEC have been fine-tuning miniaturization techniques in cell phones for five years, and they could become global players. Right now, they have only 20% of the global telecom market between them. Q: How big is the potential market? A: The Japanese government forecasts that in 2010, 120 million Japanese, or almost the entire population, will own a handset. But since many people will own more than one, Japan's market potential is estimated at 360 million units. Currently, Japan's wireless market generates $50 billion in revenue, or 40% of the country's total telecom revenues. By 2003, according to an industry association, the market is expected to be worth $100 billion, with $60 billion generated by mobile Internet business. Return to top ONLINE ORIGINAL DoCoMo's Keichi Tachikawa on i-mode and Beyond (int'l edition) The CEO talks about taking the technology global and why cooperation among competitors is key Keiji Tachikawa has a lot to be proud of. The 60-year-old chief executive of NTT DoCoMo, Japan's largest cell-phone operator, has proven that there is a mass market for mobile Internet access. And ahead of all his rivals in America and Europe, he has served up a popular product called i-mode that provides continuous Net connectivity. DoCoMO's i-mode service now boasts about 3 million subscribers. Business Week Tokyo Technology Correspondent Irene M. Kunii recently sat down with Tachikawa to discuss i-mode and the mobile Net. Here are edited excerpts of their conversation (for an additional video interview, click here ): Q: Why has i-mode been such a runaway success? A: Because we're using a packet-network system and charging a low subscriber fee. Also, we created a demand by offering a wide range of content in the HTML format [used by Web sites]. We were the first to show that it's easy to send e-mail or access the Internet via a cell phone. It just so happened that it matched the taste of Japanese consumers. Q: How much has i-mode contributed financially? A: It's not very much yet in terms of revenue. It was about $50 million for the first half of fiscal 1999, when our average number of subscribers came to 770,000. But the service is growing rapidly, and we expect to hit 4.8 million subscribers by the end of the fiscal year. When that happens, revenue will increase significantly. Q: Your competitors in Japan are introducing a packet network that will make a constant Internet connection possible. Will that affect your business? A: Their service will operate at a speed of 14.4 kilobits per second, so it's not much of an improvement over our 9.6 kilobit service for i-mode. While WAP [wireless application protocol], which they use, is improving, it's still not possible to [apply it] to all the content on the Internet. Everyone now is using HTML, while WAP uses a language called HDML. That means that Web-site operators have to redo all their content in order to cater to users accessing from mobile handsets. This will change with the introduction of a next-generation cellular service. We've proposed to the WAP forum that a standard combining WAP and HTML be adopted for the next-generation system. Q: Do you think i-mode can be extended to users in other countries? A: We are now talking to the Americans and the Europeans, and they all say i-mode is very good. America Online tells us that it regards i-mode as ideal for the wireless Internet. I think it would gain popularity if it was introduced in Europe or America. Q: Looking at your three top i-mode executives, two have been recruited from other companies. Is DoCoMo more receptive to [hiring outsiders] than other Japanese companies? A: We do have many people who have joined us from other companies. In the [i-mode] business, the majority come from the outside. I think if we're attempting something radical, we need to hire experts. That's another reason why i-mode has succeeded. We went outside NTT to look for the right people. The exception is [Keiichi] Enoki, who heads the project. He comes from NTT, but he's not typical. Q: When can we expect DoCoMo to introduce its wideband-CDMA service? A: DoCoMo has already built its network and put in orders with equipment manufacturers. What's left are the handsets and service. We've already asked companies to make their handsets and displayed some of them at Telecom '99, like the video phone or models specifically designed for mobile data transmission. Unlike with ordinary cell phones, there will be many more categories of phones. The new mobile sets will handle not just voice but video, car navigation, data transmission, and music. There will be dedicated sets for the transmission of video approaching [high-definition TV] quality. The problem will lie in deciding what kind of service to offer. DoCoMo is doing a lot of R&D in this area, but we think it's good to conduct joint development with other operators. In October, we helped launch the Joint Initiative for Mobile Multimedia [JIMM], an organization made up of operators. Vodafone, British Telecom, France Telecom, AT&T Wireless, DoCoMo, SK Telecom, Singapore Telecom have all joined this forum. What we're trying to do is to jointly develop services for 3G [third generation services]. If we don't match our protocols, we could end up with different versions, depending on the country. Q: Will it be possible to use the same handset in different countries? A: Yes, it will. And you'll be able to use a service similar to i-mode. This group is now discussing the possibility of adopting i-mode. We're now debating issues such as whether it's better to use XML [another Web formatting standard] for content, and what the protocol should be. In six months, we'll all prepare our responses and try to reach an agreement. It will be open specifications. Judging from our experience, the most likely service will be a next-generation i-mode or something close. It will offer fast speed and Internet access to graphic as well as text-based information. And, of course, the screen will be in color. I think it'll be suitable for music delivery and video conference. Q: When do you plan to launch your 3G service? The original plan was for the end of fiscal 2000. A: It'll be in the spring of 2001. I can't say when definitely, because the licenses haven't been awarded yet. We aim to finish preparations by March of next year. Since it's known as IMT-2000, we'd like to roll it out at least in fiscal 2000 [which ends in March 2001]. Q: Looking ahead to the fourth and fifth generations, what do you think lies in store? A: Looking back over history, a new standard emerges about every 10 years. It started with analog, then digital, and now the third generation. The fourth generation should be ready by 2010 and the fifth generation by 2020. What will change? The next-generation system will provide transmission speeds much faster than what we've had, moving from 9.6 kilobits per second to 2 megabits. That's an increase of 200 times. But we expect that 384 kilobits will be the most commonly used and that will be 40 times faster. It'll be sufficient for video. The fourth generation will provide even faster transmission, in the range of 20 megabits per second. Just to increase the speed 10 times isn't enough of a target. For example, we could aim for the seamless connection of wired and wireless. Users could use wired and mobile phones in the same way. Actually, I oversee researchers who are now working on the fourth generation. I give them targets, telling them, for example, to aim to reduce costs by 10%. Q: The U.S. currently lags behind in the mobile cellular sector. Do you think this will change in the years ahead? A: America has achieved many breakthroughs where the Internet is concerned, and we can expect this to continue. That's why most of the Internet conferences are held in America. For wireless, there are a number of good manufacturers and large operators. AirTouch has many good researchers, and AT&T has impressive research facilities. So, I expect to see more developments come out of there. Q: Do you expect foreign competition to increase? A: The difference will come in the type of services provided. A lot will depend on what content providers one ties up with. There will be competition over such things as easy search methods or cheap subscription feeds. Those who come up with the best idea early on could benefit. Q: Do you have many patents on wideband CDMA? A: Yes, we do. But the industry now believes that things should be open, fair, reasonable. One should pay money for the technology, since the company that developed it paid for research and development. America backs this view, but then you have Qualcomm charging a high royalty [for its CDMA technology]. Since we don't have a contract with them, I don't know what they're charging, but I've heard it's in the order of several percentage points. What it means is that Qualcomm could take a cut of several percent from the sale of our 3G handsets. But in the case of wideband CDMA, we own some of the technology, as do Lucent and Qualcomm. So it'll be difficult to sort through all the patents. That's why we're calling for more cooperation. In the end, users will have to bear the cost, and we want to keep it within reason. Q: You recently announced that you're purchasing a stake in Hong Kong's Hutchison. Do you plan more investments of this time overseas? A: Yes, and we have a philosophy governing foreign investment.... Our basic policy regarding expansion abroad is this: We would like to see our next-generation standard adopted globally without a hitch. To make it possible, we're ready to offer the necessary support. It could be in terms of technology, staff, or money.... We think Asia is the best place for us because of its proximity. Q: It may not be possible to divide up the world so simply. Your rivals eye China and the region as a highly attractive market. A: The biggest region for cellular phones is Asia. It has a population of 3.3 billion, while Europe's is 500 million and the U.S. the same, if you calculate in terms of market reach. So 3.3 billion is huge by comparison. That's what the Europeans and Americans are thinking. Q: What are your plans for China? A: It's still not a place where we can easily invest. I think we'll have to wait for some time before making a move. Q: What about a technological tie-up? A: We already have one. We're doing experiments on wideband CDMA in China with Ericsson. We're doing similar joint tests in Malaysia and Singapore, and we plan the same for South Korea and Thailand in the near future. Q: Do you expect competition in the Japanese market to intensify? A: AT&T and British Telecom have invested in Japan Telecom. So AT&T, BT, and Vodafone have all invested in Japan Telecom, but BT and Vodafone are rivals. And AT&T's wireless unit competes with Vodafone in the U.S. It's a complicated arrangement. Next year, 3G licenses will be awarded in Japan, England, France, and other places. So we're very interested in seeing what these operators will look like when they raise their hands. In Japan, the government will choose three operators, and we expect to be one of them. Q: Do you plan to list shares in New York in the future? A: We are studying the possibility of an ADR [American depositary receipt] because 15% of our shareholders are foreigners. Since we're only listed in Japan, Americans have to buy our stock overnight. I think they should be able to buy our stock during the day in New York. So we're thinking of listing in New York, London, and in the future in a unified European market if one is realized. But it's a difficult process because of the differences in accounting systems. We won't be able to do it in one year. Q: Do you think it would be better for DoCoMo to operate independently of NTT? A: As a manager in the telecommunications sector, I don't know whether the wireless business will continue to do as well as it has. In the end, operators of local wired networks may be the only ones that survive, and fiber optic could become the main form of transmission. That's why everyone is diversifying. It's too dangerous to limit yourself to one area. For that reason, AT&T is moving into cable and has a wireless unit. It's too dangerous to be independent. Return to top ONLINE ORIGINAL "It Could Obviate the Need for Cable" (int'l edition) Wireless guru Seiji Sanda talks about why DoCoMo's technology will revolutionize information delivery The whole wireless world is watching NTT DoCoMo's experiment with continuous, mobile access to the Internet. Irene Kunii, Business Week's Tokyo technology correspondent, enlisted wireless guru Seiji Sanda to help analyze this trend. Sanda is founder and CEO of Japan Communications Inc., Japan's first reseller of cellular-phone services for the corporate market. In earlier incarnations, Sanda helped set up Motorola's wireless operation in Japan, and also ran Apple Computer's Japan operations. Here are edited excerpts of their conversation: Q: What do you think of i-mode? A: This is the world's first mobile Internet service. We're really talking about e-mail and short-text messages. When you want to do something new in marketing, you lay out a service that matches the technology. You had short-text messages in commercial application already, such as the portable terminals that companies like Federal Express use. What's happening now is that it's becoming a part of day-to-day life. The second step will be to enrich the content, offering full-motion video; followed by the third step, to transmission speed of 2 to 3 megabits per second. These two steps will be fulfilled by 3G [third-generation services]. Q: Some Americans have been critical, saying that 9.6 kilobits per second is too slow. A: They're only thinking in terms of speed. And [9.6 kilobits] is not strictly accurate. I-mode offers compression features as well, so you get sufficient speed. It's not bad for what you're receiving, which are short e-mails and simple graphics. People now are at the stage where they'll settle for convenience over quality. Q: Is it just a fad, or is this the beginning of an important trend? A: Japanese are very open and gadget-oriented. But a fad can't grow at this pace for very long. We're already at the Tamagotchi [digital pet] stage. It started out as a fad, but people realized its value and are sticking with it. I-mode is a success because of the Internet craze that's starting here. Japanese people don't have room for a desktop in their homes, and so they lack Internet access. The handset is the alternative to a computer. But something more important is happening. This i-mode trend shows [that the future of] the Internet in Japan and elsewhere is not going to be in the desktop PC. Nokia and others are encouraging people to do things on small devices. So, this is a movement that will take us beyond the desktop Internet. A lot of the Net action that now takes place on desktops will be transported to mobile phones -- e-biz, entertainment delivery, you name it. There's an immense expectation in the market regarding the convergence of telecom and computing in Japan. It's not going to be the same model as in the U.S., so there will be opportunity for indigenous players. I, too, will be forming alliances and looking for software development people. Q: What can we expect from 3G? A: W-CDMA [wideband-CDMA, a high-speed digital transmission standard] will change the world. It will make it possible to deliver anything deliverable on mobile handsets. Mobile handset technology will be a key factor in truly making mobile handsets into computers. So manufacturers will put more R&D into handsets. In the next five years, you're going to see an amazing number of new products launched. In the short term, Japanese companies will lead the way because of W-CDMA. Right now, there is no strong Japanese handset maker in Europe. They had been held back by NTT DoCoMo, which restricted them from using handset technology [much of it developed in DoCoMo's labs] for GSM and other standards. But that's no longer the case with W-CDMA, because DoCoMo now wants to push this standard internationally. Hutchison of Hong Kong will get the best handsets in the world because of its tie-up with DoCoMo [DoCoMo purchased a 19% stake in the company and will provide it with i-mode and W-CDMA technology]. Think what that will do for its business. W-CDMA is going to be dominant. Qualcomm will be there as well, but it will be late and thus lag behind. Much of the world, led by Europe and Asia, will embrace wideband CDMA.... It's the standard offering the most mature technology and one that will come out en masse in Japan. I predict DoCoMo will have 10 million subscribers [for its W-CDMA service, which will probably come bundled with a new i-mode] the first year it comes out. That's more than enough for manufacturers to start investing in the technology. You've got to have a subscriber base, and that's what DoCoMo promises. Q: But DoCoMo is taking such a docile approach toward global expansion. How will it make money without taking over other operators? A: DoCoMo has a large subscriber base in Japan, which already has nearly 50 million cell-phone users. That's a big market that will provide DoCoMo with a sound business. It will also become more influential by investing in operators around Asia. It's not in it for the capital gains. It wants to make sure that its [3G] technology gets adopted in China and elsewhere. Q: What does this mean for the U.S.? A: It could obviate the need for cable TV. If the wireless Internet and data transmission catch on, it will make companies like TCI, which is buying cable TV companies, obsolete. But I think the U.S. will remain behind in mobile. That's because the industry has invested, I'd say in the range of $1 trillion, in laying cable to the home. So it will fight wireless to the home. Look at what AT&T is doing, spending a lot to invest in cable. They won't be welcoming an advanced wireless system with open arms. It's a horrible situation in the U.S., and it's the direct result of too much deregulation. I tell Japanese government officials and politicians: Don't do to the Posts & Telecommunications Ministry what the U.S. did to the FCC [the Federal Communications Commission]. America will be close to the Third World in mobile. Even Mexico and South America will probably migrate to 3G. There's an advantage in being late, because they can skip over all these existing standards to 3G. It's the same in Asia and Africa, in countries that couldn't afford to lay down wire. The advantage of 3G is that it doesn't require a great deal of bandwidth. You can get more out of this technology so that the same amount of bandwidth gives many more people wireless access. Return to top |
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