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DECEMBER
1 , 2000 VOL. 26 NO. 47 | SEARCH ASIAWEEK
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Matthias
Ley for Asiaweek.
Japan's mobile users discover new ways to relate to the Net and each
other.
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The
DoCoMo Generation
Japan's
cutting-edge mobile phone company is boldly going international
By MURAKAMI MUTSUKO and ASSIF SHAMEEN
ALSO:
Bandwidth Boom
With new undersea cables criss-crossing the region, ain't seen
nothing yet in Asia
• China: A turf war
among major telecom players is looming in the world's second-largest mobile
market
• Viewpoint: Singapore
Telecom's CEO, BG Lee, on the perils of 3G spectrum auctions in Asia
Tazaki Hiroko is, like many Japanese consumers, a little hard to please.
The 24-year-old Tokyo secretary can whip out her sleek mobile phone whenever
she wants and gaze upon a color image of Hello Kitty. That's something
only customers of NTT DoCoMo's i-mode mobile phone service can do. She
can also check her e-mail, buy concert tickets, and join an online dating
service with her handset. Still Tazaki is not satisfied. "My dream," she
says, "is to watch live 2002 World Cup games on my phone, wherever I am."
Rest easy, girl. While Hello Kitty is currently airing on tiny screens
only in Japan, DoCoMo is working feverishly to make sure you can watch
video feeds of soccer games whether you are in Tokyo or The Hague, Taipei
or L.A. It may not happen next year, it may not happen at all. But DoCoMo,
using its wildly successful i-mode mobile Internet service as bait, is
striking deals with less-evolved cellphone companies around the world
in an effort to form the first global mobile telecommunications giant
— one capable of delivering so called 3G, or third-generation, information
services to handsets on just about every continent.
Over
the past 11 months, DoCoMo has announced a series of deals that give the
company footholds in several key markets. It is a 20% stakeholder in a
consortium including Hutchison Whampoa of Hong Kong that seeks to build
3G networks in the U.K., Germany, France and Belgium (the group has just
begun raising money to build an advanced cellular network in the U.K.).
In September, DoCoMo sealed a $100-million deal with America Online, the
biggest Internet access provider in the world, giving it a source of vast
storehouses of online content that could be converted to wireless transmission.
It has a technology alliance with South Korea's leading mobile phone company,
SK Telecom, and a research facility in Germany.
Yet DoCoMo, which with a market cap of $263 billion is the largest mobile
carrier in the world, is only warming up. This week, word leaked out that
the company was nearing agreement with U.S.-based AT&T Wireless on a $9-billion
deal which could pair the companies in a launch of 3G services in the
U.S. within a few years. Oh, and DoCoMo also is among bidders for a 20%
stake in KG Telecom, Taiwan's fourth-largest mobile carrier. "Anytime
there is a large block of shares in any wireless company for sale around
the world, you hear DoCoMo is among the potential buyers," says Kirk Boodry,
telecommunications analyst at Dresdner Kleinwort Benson Securities in
Tokyo. "DoCoMo's main aim," says Koike Takayoshi, analyst for SG Securities
in Tokyo, "is to prepare for the 3G era."
Forging
a planet-spanning network capable of delivering wireless content including
music and video is an outsized ambition. The only carrier that has demonstrated
a similar appetite is Vodafone of the U.K., which has been even more aggressively
seeking partners (Vodafone — with a market cap of $239 billion, second
only to DoCoMo — recently took a stake in China's largest mobile
phone company). The undertaking is extremely risky given the costs of
upgrading existing networks to handle futuristic telecommunications traffic
for which there is no known consumer demand. But DoCoMo finds itself in
a unique position. Three years ago the company, then a lightly regarded
spin-off of Japan's giant NTT telecommunications conglomerate, went its
own way in the development of a system for transmitting Internet data
over its cellphones. While other carriers were struggling with pager-like
message services, DoCoMo was creating a system that would operate much
like the Internet itself, making it simple for content companies to create
sophisticated services including the exchange of text and graphics files
and crude animation.
Asiaweek
Pictures.
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Launched
in Japan 21 months ago, the i-mode service has been nothing less than a
phenomenon. Subscribers now total nearly 15 million, and the company expects
to have 17 million by year-end. There are more than 20,000 content sites,
one-fourth of them with revenue-sharing alliances with DoCoMo through which
the cellphone company gets a 9% cut of online transactions. Besides being
hugely profitable — DoCoMo made $3.6 billion in the six months prior
to Sept. 30 — the service has made DoCoMo a model for the rest of the
mobile phone industry, the first in the world to show that the Internet
and wireless phones could be married successfully. Through a combination
of thoughtful navigation design that hides the Net's complexities from users
and clever marketing, DoCoMo has changed the way people use their phones.
"I-mode came at the right time, in the right place, with the right content,"
says Boodry. "It has just dazzled everybody."
Not only has it changed the Internet for consumers, DoCoMo is also a beacon
for hidebound Japanese corporations struggling to find their way in the
new economy. Formed in 1992 when it was hived off from NTT, DoCoMo has been
able to operate at least somewhat beyond the bounds of its stodgy parent.
When the company wanted to develop i-mode's business model, it did the unthinkable
by bringing in outside talent — Matsunaga Mari, a former editor for
a classified ad magazine, and Natsuno Takeshi, an exile from an Internet
startup. Along with Keiichi Enoki, a non-conformist electrical engineer
who is now DoCoMo senior vice president, the pair played key roles in creating
i-mode's content-driven service.
Today, Natsuno is executive director of the company's Gateway business and
the architect of its global business strategy. An MBA graduate from the
Wharton School at the University of Pennsylvania, the 35-year-old exec speaks
English fluently and calls DoCoMo's cellphone partners his "friends." He
can afford to be chummy. Thanks to i-mode's success, "there is no shortage
of wireless companies around the world who are fascinated by what they see
happening in Japan and they believe DoCoMo might be able to help them,"
says Boodry. That gives Natsuno leverage in striking deals that companies
such as Vodafone can't match.
And he is not shy about using DoCoMo's first-mover advantage to attract
global partners. "Look at this Baby Donald [Duck, the Disney character]
on my I-mode phone screen," he says. "No one ever expected this to happen
a year and a half ago. Only those who witnessed the shift [i.e. DoCoMo]
can imagine what to expect with 3G." While carriers in many countries including
the U.S. are several years away from introducing high-speed mobile networks,
"DoCoMo alone is very sure of the potential of 3G, because we have already
experienced the explosive success of the data business. Our overseas business
is to offer our know-how. We cannot give it away free, but we can make a
minority investment in interested partners. I think it is a perfect strategy."
That's not bragging, it's just fact. DoCoMo has discovered a formula for
making money off the Internet, something few companies have achieved. That's
partly because the company has managed to get Japanese, and particularly
Japanese teenagers, to pay for specially-tailored wireless content —
even if it is only a few dollars a month for the right to use a cartoon
character. Some i-mode sites provide crude online games, some sell horoscopes,
others stock quotes. There are news services, e-mail, virtual-reality girlfriends.
There is even an i-mode language, a growing collection of on-screen symbols
called emoji — Japanese for "picture words" — meant to convey
messages to other users in a keypad stroke or two.
DoCoMo charges a monthly subscription fee, which gives users access to myriad
free sites. The carrier also charges for the amount of data a customer receives,
not according to airtime. Users are always connected to the wireless Net
as long as the phone is turned on — an advantage over clunky Wireless
Application Protocol (WAP) services offered elsewhere that require customers
to dial up sites and then wait minutes for connections to be made. Another
big reason for DoCoMo's success: it eliminated the sticky issue of online
payment that has slowed the growth of e-commerce on the wired Internet.
The phone company keeps track of purchases and simply adds them to customers'
monthly bills.
DoCoMo would like to introduce i-mode services on a worldwide basis. Earlier
this year the company bought a 15% stake in Holland's KPN Mobile; the carriers
plan to launch a European Internet portal using i-mode technology and content.
But analysts give the company only a slim chance of convincing other potential
partners that they, too, should adopt its system. While i-mode offers faster
service than WAP, DoCoMo has been held back in its overseas ambitions because
the digital transmission standard used in Japan is different from the widespread
GSM system. That means i-mode phones don't work anywhere but Japan. "The
key to i-mode's success was the packaging," not the technology, says Nicholas
Khoo, an industry analyst with Gartner in Singapore. The entire i-mode system
does not export well, and according to Boodry, the shift to 3G will erase
much of DoCoMo's lead. "It's a whole new ball game," he says.
DoCoMo, however, is positioning itself to stay in front. The company is
backing a transmission protocol called Wideband Code-Division Multiple Access
(W-CDMA), thought by many to be the network technology that will underpin
the shift to third-generation wireless. DoCoMo has already announced it
plans to launch the world's first W-CDMA, 3G service in May. The system
will be turned on first in Tokyo, with service in other major Japanese cities
to follow later in 2001. Mobile network operators in Europe and most of
Asia won't be able to get 3G systems running until 2002 at the earliest.
In the U.S., the government still must hold auctions to divide up the radio
spectrum and make room for 3G.
| Finding
New Friends
|
| Hong
Kong: Dec. 1999: DoCoMo takes a $140 million piece
of Hutchison Telecom gaining a foothold in Hong Kong, the world's
most cellular-mad market. |
| Holland:
May 2000:
DoCoMo's first European venture is a 15% stake in KPN Mobile,
the country's biggest. The two companies announced plans for
a new European Internet portal using DoCoMo's i-mode content. |
| Everywhere:
Sept. 2000: A strategic alliance with America Online will give
DoCoMo access to AOL's English-language content and could help
the Japanese win new telecom alliances in Europe and the U.S. |
|
U.K.: July 2000: DoCoMo
rebounds from a bidding loss for one of Britain's next-generation
licenses by taking a $1.7 billion stake in Hutchison 3G UK Holdings,
one of the winners. The two companies join KPN Telecom to form
a Triple Alliance to conquer new European markets. |
|
Taiwan: Nov. 2000: KG Telecom,
the country's fourth largest provider, is shopping a 20% stake
to potential buyers, including DoCoMo. DoCoMo has refused comment. |
|
Australia: Nov. 2000: DoCoMo
is part of a consortium led by Telecom New Zealand bidding for
Cable & Wireless Optus, Australia's second-largest cellular
service. |
|
United States: DoCoMo has
reportedly been negotiating a 15%-20% stake in AT&T Wireless.
The deal could give Japan a U.S. beachhead — and AT&T extra
capital and know-how as it prepares to bid for U.S. 3G licenses.
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Instead
of hamstringing DoCoMo, the shift to 3G and W-CDMA may give the company
a helpful shove. Today, mobile carriers around the world use several different
incompatible transmission technologies. W-CDMA could provide a universally
accepted platform on which to build a global network where the phones work
anywhere. "3G is offering DoCoMo the first global stage that Japan can enter,"
says Mitsuyama Nahoko, an analyst at Gartner in Japan. Mitsuyama says the
company's international thrust could act as a wedge, forcing open new markets
for its parent NTT as well as for Japanese cellphone manufacturers like
Sony and Matsushita, which have done well domestically but have struggled
to gain ground abroad against Nokia and Ericsson. Some see DoCoMo as a kind
of information-age Toyota, capable of blitzing the mobile telecommunications
business as Toyota did the automotive world in the 1970s. Japan Inc., dispirited
by a decade of economic stagnation, could use a new star in the global economic
spotlight.
Circumstances may conspire against DoCoMo's rise. Six months ago, when stocks
of mobile telecommunications companies were hitting all-time highs, rumors
of a deal like the AT&T tie-up would have propelled DoCoMo shares to Jupiter.
Today, investors are worried about short-term profitibility and liquidity,
not bold bets on the future. On Nov. 22, the day news that the AT&T deal
might be imminent hit the streets, DoCoMo's stock plunged 4.5% on concerns
that the company might have to issue new shares to pay for the deal.
Not that DoCoMo is debt-ridden — far from it. The company has about
$4 billion in cash and a rich parent. NTT owns 67%. But taking a 15% to
20% position in AT&T, the reported stake, will cost more than the carrier
can fund from internal cash flow. Iba Yoshiyuki, a Tokyo analyst for the
giant Standard & Poors credit rating agency, said he is considering putting
DoCoMo on negative credit watch as the company gets "more adventurous" internationally.
The move could be a prelude to a downgrading of the company's gold-plated
AA+ rating. "As a group, NTT and DoCoMo have the balance sheets and the
resources to make a lot of big purchases," says Iba. "Whether that is a
right strategy is another matter."
Moreover, NTT is still calling the shots, and the fustier parent could at
any time decide to abort the mission. "This is not just a matter of DoCoMo
going international," says Khoo of Gartner. "This is about NTT going international."
Adds Boodry: "You have to remember this is a Japanese company with an old
government-controlled, fixed-line company as its parent. As a stand-alone
company, DoCoMo would have been far more aggressive and acquisitive."
For the time being, DoCoMo continues to plot next moves. DoCoMo has its
army of 700 engineers toiling away on 3G development. The company reportedly
is experimenting with music downloads for mobile devices with Matsushita
and Sony. Other services — including, of course, the videophone —
are also on the drawing boards. In June, DoCoMo opened an office in Beijing
as a base for building up its relationships in China, which in a few years
will likely be the world's largest mobile phone market. Analysts say the
company has been in talks with China's principal carriers, China Mobile
and China Unicom — although partnerships with mainland companies, problematic
in the best of times, could be even more troublesome because of the antagonistic
political relationship between Japan and China.
Natsuno says he hopes to find more partners willing to start with i-mode
services and later make the transition to 3G — making the wrenching
process sound like a stroll in the park. "When all of us are familiar with
[second-generation systems], we can make the smooth shift to 3G together,"
he says. "We can make it a real success." And he shrugs when confronted
with the prospect that i-mode, the company's trump card, may soon be obsolete.
"Oh, everything works that way," he says. More important is that DoCoMo
"is making more and more friends every day." When you are trying to build
the world's first global wireless network, you need all the pals you can
get.
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