A roving 'i'

On every street corner and underground rail platform in Tokyo, people can be seen peering and prodding at tiny mobile phones. They are connected to the Web through a service called i-Mode. Everyone from teenagers to grandparents uses the phones, occasionally to send e-mail or read news, but mostly to entertain themselves with such offerings as cartoons and astrology. The creator of i-Mode, NTT DoCoMo Inc., now wants to conquer the world by making its service just as popular on the streets of Europe and America.

The European media has fallen for i-Mode's "always-on" Web access and two-way messaging. Boasting a smart combination of entertainment and business content - and a cute Pokemon-like character on the screen - i-Mode has introduced the Net to more than 18.5 million consumers in Japan in two years, making its parent company, eight-year-old mobile giant NTT DoCoMo, the fastest-growing Internet service provider in history.

At its current rate of growth, NTT DoCoMo could become the world's largest ISP, overtaking 15-year-old America Online Inc. some time next year.

But NTT DoCoMo has even bigger ambitions - it has launched a risky global investment strategy to become the world leader in next-generation, broadband wireless Internet services. By offering download speeds 100 times faster than existing wireless Net access, mobiles could become all-in-one communication, entertainment and information devices. Users could download and listen to music from the Net; they could read a book; keep their calendar; check their e-mail; even watch television or movies - all from one device, anywhere.

DoCoMo will begin its 3G rollout in Tokyo in May and intends to spread the technology around the world via minority stakes it has purchased in wireless carriers in Asia, Europe, South America and, most recently, AT&T Wireless Inc. in the US. DoCoMo owns 20 per cent of British wireless broadband operator Hutchinson 3G UK. And it wants to increase its 15 per cent stake in the wireless arm of Dutch telco Royal KPN NV - bought for 400 billion yen (€3.6 billion) last year - if KPN goes ahead with its planned flotation.

Why is this strategy risky? Today, few people outside Japan subscribe to wireless Net services despite widespread availability. DoCoMo's strategy rests on the assumption that what works in Japan will work elsewhere. But the local market is different to that of the rest of the world: very few Japanese own PCs, but some 50 percent carry mobile phones - so i-Mode makes perfect sense in Japan.

Europeans, on the other hand, principally come face-to-face with the Net on a large screen, through a full-size keyboard and mouse. And so far, their experiences with unreliable and user-unfriendly wireless Internet services - such as WAP - haven't exactly inspired confidence.

But DoCoMo shrugs off the naysayers, pointing to the millions of i-Mode subscribers in Japan. Kei-Ichi Enoki, i-Mode's managing director, says: "The winner is clear here. We have proven our success with that number [of subscribers]." European and US consumers haven't yet seen what DoCoMo has to offer, he says. And unlike the current generation of WAP-based services, i-Mode has a compelling advantage: it actually works.

At NTT DoCoMo's offices in Tokyo's Sanno Park Tower building, women in identical pink dresses greet visitors at a reception counter. Employees in dark suits shuffle quietly from the lifts toward their offices. DoCoMo goes about its business with a sobriety that belies its aggressive goals.

With a US$366.2 billion (€393 billion) market capitalisation, NTT DoCoMo is one of the biggest companies in the world, behind Microsoft and General Electric. DoCoMo's charge is led by chairman Koji Ohboshi, who transformed DoCoMo from an anaemic also-ran when it was spun off from powerhouse Nippon Telephone and Telegraph in 1992 into one of the world's largest wireless phone service providers today.

In order to build i-Mode, Ohboshi assembled a crack team of visionaries in 1997 - perhaps none so representative of the company's personality as Enoki, the head of the i-Mode division since its inception.

Slouching in his chair, Enoki is relaxed and friendly. He frames DoCoMo's ambitions in strikingly benign terms. "We are not Vodafone. We will not make takeover deals," says Enoki. Unlike Vodafone CEO Chris Gent, who snapped up America's Airtouch and Germany's Mannesmann, Enoki wants to infiltrate the competition from within.

He's doing so through strategic investments and partnerships, taking 15 percent to 20 percent stakes in telcos around the world. In the Asia-Pacific region, home to 35 percent of the world's mobile users, DoCoMo has spent $927 million (€1 billion) for parts of Hong Kong-based Hutchison Telephone Company and Taiwan's KG Telecom. In Europe, where mobile penetration is 60 percent or higher, it bought stakes in KPN Mobile and Hutchison 3G UK, and has offices in the UK, Munich, Paris and Geneva.

But DoCoMo recognises there are some things money can't buy. Kiyoyuki Tsujimura, DoCoMo's international expansion chief, says: "I admit our weakness is our level of experience overseas. The knowledge of the local market is crucial. We do not know their markets well enough, [so] we need partners."

DoCoMo's rollout of broadband wireless services in Japan this May will come at least a year before its competitors. Vodafone hopes to offer wireless services to limited markets in 2002, but is making no promises. Deutsche Telekom is aiming for a year later. In the US market, AT&T Wireless is the only major player to announce a 3G release date, aiming for limited deployment in 2003.

But gaining a head start has some drawbacks. Japan's dominant handset manufacturer, Matsushita Communications Industries, is unlikely to have broadband-capable phones ready for the consumer market by this spring.

And DoCoMo will be forced to fight a rearguard action to make sure companies that follow its lead use its technology, W-CDMA (Wideband-Code Division Multiple Access). But several other standards have been proposed, including a Chinese technology backed by Siemens and a variation of W-CDMA developed by Qualcomm that could be incompatible with DoCoMo's version.

The Wireless Application Protocol Forum - a body made up of most European wireless carriers and other technology companies, including DoCoMo - has settled on a limited standard. It will bring together Europe's WAP technology and i-Mode - but only at the level of content scripting. To this extent, WAP and i-Mode are co-operating on a standard. But consumer take-up of i-Mode services is likely to be dependent on the choice of 3G network technology.

However, forum members and other carriers around the world have been cagey about pinpointing which underlying technology - W-CDMA or a competing standard - they will use to bring 3G services to market.

With European and US companies lagging far behind DoCoMo's broadband rollout, W-CDMA could be obsolete by the time the rest of the world catches up. Which is why DoCoMo has actively pushed its technology around the world through equity partnerships.

For instance, by investing $9.8 billion (€10.7 billion) for a 16 percent slice of AT&T Wireless, DoCoMo has access to the US market via its third-largest wireless carrier, with 15 million subscribers. According to the deal, DoCoMo grants free, exclusive licence to AT&T Wireless for all i-Mode technology. In exchange, AT&T Wireless will adopt DoCoMo's W-CDMA. According to AT&T Wireless Services president and CEO Mohan Gyani: "W-CDMA is exactly where we're going."

Kei-Ichi Enoki believes i-Mode's success in Japan was not only inevitable, but also proof that consumers around the world will take to wireless Net services. "We will all eventually own a wireless phone. PDAs and PCs will all be secondary," asserts Enoki. "We are all lazy by nature. It's too much to carry two devices around."

That wisdom conflicts with a recent agreement between DoCoMo and Palm Computing to launch an i-Mode service on Palm PDAs in Japan late this year. And DoCoMo has spread its net still wider with the introduction of L-Mode, a simplified Web-browsing technology for landline phones equipped with a small screen.

Traditional Japanese phone companies contend that DoCoMo is trying to extend its business outside the wireless arena, and the service awaits regulatory approval from Japanese competition authorities.

Whether or not Net-enabled mobile phones come to dominate the world, Enoki gets much of the credit for their popularity in Japan. Enoki led Ohboshi's i-Mode team in late 1997, when the DoCoMo chairman envisaged the creation of an Internet service for mobile phones, aimed at Japanese businessmen.

At the time, DoCoMo was nearing a critical point: subscriber growth for voice services was projected to begin slowing, and increased price competition meant that voice revenues on a per-user basis would continue to decline. Ohboshi argued that expanded data services would excite business users. Enoki, however, recognised opportunities in the broader consumer marketplace.

Under Enoki's guidance, i-Mode enlisted content providers offering news, banking and entertainment such as horoscopes and downloadable cartoons. Some 65 content providers were offered free space within i-Mode's start-up screen, a simple scroll-and-click portal site not unlike the earliest version of Yahoo.

Enoki and his team designed a network that gives consumers quick access to content: turn on the phone and you are instantly connected to the Net; and you can stay connected without racking up per-minute charges. Consumers pay approximately €3 a month, plus a usage fee based on the amount of data downloaded and uploaded. I-Mode's advertising never mentions the Net, focusing instead on applications such as checking bank balances, reading fortunes or getting the latest news.

I-Mode was introduced to the public in February 1999, and success came swiftly. Five months after i-Mode phones hit stores, the company had 1 million subscribers. Another million subscribers were added in the following two months.

Today, DoCoMo is gaining subscribers at an incredible rate of 50,000 per day. Early on, content providers began to take notice and made their Web content i-Mode-compatible. Even companies that were unable to gain coveted space within the i-Mode portal joined the fray, encouraged by the effectiveness of word-of-mouth to promote "unofficial" sites. Approximately 32,000 official and unofficial content providers have made their sites i-Mode-friendly.

With its growing user base, i-Mode has brought DoCoMo new sources of revenue. In addition to the subscription and data charges, DoCoMo takes a 9 percent cut of its subscription-based content services. Japanese entertainment company Bandai, for example, now bills more than €1.1 million a month to subscribers of its Itsudemo Charappa daily downloadable cartoon service. The most popular subscription-based i-Mode service, Itsudemo Charappa features Pokemon-style characters that can be used as customised start-up screens or simply as digital collectibles.

Advertising on the service, while still in its infancy, has begun to bolster the bottom line as well. Altogether, DoCoMo earns an average of €20.50 per month per user for i-Mode services, on top of voice revenues.

I-Mode's success is also the result of unique market conditions in Japan. When i-Mode first launched there was pent-up demand for Net services, yet little preconceived notion of what surfing the Net was like. Home PCs and land-line Net services never gained mass-market status, largely because of the high cost of Net access and low fixed-line phone penetration. Because installing a home phone line can cost over €750, more Japanese consumers have mobiles than landlines. So the Japanese public, unaccustomed to the large screens and keyboards that accompany Web browsing for the rest of the world, saw i-Mode on its own terms: a mobile with information services accessed through a simple, intuitive device.

Much has been written about i-Mode's appeal to young consumers in Japan; indeed, the sleek phones dangle conspicuously from the wrists and backpacks of many Japanese teenagers. But Japan's young trendsetters have never accounted for more than 5 percent of total subscriptions. I-Mode's success has instead come from adult consumers in their 20s to 40s - commuters looking for a subway diversion, info-junkies on the move and professionals with little family time seeking a way to communicate with their kids. Nine out of 10 subscribers initially sign up for i-Mode service to access e-mail and use instant messaging; yet more than 50 per cent of usage time is spent perusing entertainment content.

Cultural factors in Japan also account for some of i-Mode's popularity. In a country where casual conversation with acquaintances is rare, direct eye contact with strangers is considered rude and talking into mobile phones on trains is discouraged, i-Mode fills a uniquely Japanese package of needs. It provides something to stimulate the mind, a silent communication tool, an object to focus on and a barrier to unwanted attention.

I-Mode's absorption into Japanese life offers as many points of caution as it does hope for the rest of the wireless world. Most major wireless carriers in Europe and the US have been offering wireless Net services for six to 10 months; their failure to convert a mass of subscribers to the service reflects both a misguided strategy and cultural resistance.

Europe was the first area outside Japan to see wireless Net services built around WAP. Yet the offerings, which launched in autumn 1999 and were widely marketed last spring, failed in their initial incarnation to incorporate three key elements of i-Mode's success: unlimited content, always-on service and per-bit (rather than per-minute) pricing. And European Net-ready handsets are small and hard to read, unlike i-Mode-ready mobiles.

Despite Europe's proven love affair with mobile communications, no European carriers have achieved even moderate success in pushing wireless Net services. Several US carriers began offering limited Net services last summer, but the services were just as puny and ill-marketed as those in Europe.

Making a success of the wireless Net will depend on forces beyond the control of carriers, content providers and manufacturers. BT Cellnet and Deutsche Telekom plan to roll out middleband, GPRS (General Packet Radio Service) networks by this summer, offering Net access speeds about three times faster than average desktop connections. Third-generation broadband wireless services are at least an additional year away.

But even that timeline may be optimistic. By the time true 3G systems arrive, fixed-line broadband services such as DSL and cable will be more widely available, making the market for broadband wireless services narrower.

More fundamental cultural challenges exist as well. While half of Net users in Britain say they want e-mail access on their mobiles, 20 percent say they aren't interested in mobile access to any kind of Net services. And one-third of Americans say they're "not at all likely" to ever purchase any wireless services - voice or data - according to a survey conducted last summer by Forrester Research.

DoCoMo's Enoki says that consumers outside of Asia simply haven't seen the kinds of 3G services his firm envisages - ranging from one-touch, instant-access e-mail to a Net-connected equivalent of Sony's Walkman. Demand, he insists, will soon awaken.

"You choose to use the most convenient tool that works for you," says Enoki. "The number one [Internet access] device will be a mobile phone."

And if nothing else, DoCoMo may simply increase its investments around the world and bask in the returns from a wireless services market that, one way or another, most believe is bound to stick around. International expansion chief Tsujimura says: "For at least three to five years, we are going to keep our minority-investment strategy. After that, who knows, we might shift ourselves to a capital-heavy strategy."

With plenty of cash, a headstart and the kind of wisdom that can only come from experience, DoCoMo could hardly be in a better position to capitalise on wireless Net services worldwide. Now, if consumers will just pick up the phones.

Will WAP and i-mode go head-to-head?

WAP and i-Mode have been painted by the media as sworn enemies representing two sides in the next tech battle between West and East. In fact, both are products of the existing wireless networks in Japan and Europe. The well-documented problems with WAP stem from Europe's clunky GSM technology, while Japan's sleek and colourful i-Mode phones have benefited from a more advanced network.

Do WAP and i-Mode offer the same thing?

The marketing plans of both operations present one of the most obvious differences between them. WAP moved into the spotlight last year with wireless operators promising the "mobile Internet". But consumers were not impressed when they received bulky phones unable to deliver anything like the experience they had grown used to seeing on their PCs. The media branded WAP a flop, while technicians said the advertisers had misrepresented what it was capable of doing.

In contrast, i-Mode publicity rarely mentioned the Internet, instead presenting the system as a collection of fun services. And it took off. Now some sectors of the European media are proclaiming the death of WAP and some observers are suggesting i-Mode will take its place. But the reality is more complicated and there is a distinct possibility that in a few years from now WAP and i-Mode will be indistinguishable.

Why did we need WAP anyway?

Wireless Application Protocol translates information from the Net so it can be squeezed on to the screen of a mobile handset. It does this by transferring data written in the language of Internet pages (HTML) into Wireless Mark-Up Language. It needs to do that because Europe's current wireless networks and handsets cannot handle the direct injection of Web pages. A different language is needed not only because of the size of handset screens but also because of the way data is relayed to mobile phones.

There are a number of competing wireless network technologies already in use across the world today. In essence they are incompatible because they "slice and dice" available frequency in different ways in order to allow more than one person at a time to make a call. Europe's dominant existing (second generation) system is GSM (Global System for Mobile Communication). On the GSM system, data rates are extremely slow - typically 9.6Kbps compared with a 56Kbps PC modem - and the network architecture, called a switched circuit, is fundamentally different from that of the Internet.

Why is i-Mode more appealing?

In Japan, i-Mode has been able to capitalise on the fact that the wireless network on which it operates works in the same way as the Internet.

It is based on data being sent to handsets in much the same way as data is sent to computer screens when they access Net pages. As a result, i-Mode works in harmony with HTML. In addition, data rates are faster over the Japanese network.

Is WAP doomed?

So what will happen to WAP when Europe gets faster data rates, otherwise known as broadband wireless? The jury is divided. The pro-WAP camp believes the system will be revitalised by the next generation of wireless technologies because data rates will rise - at least getting closer to PC modem speeds within the next 12 months. The anti-WAP camp maintain that as data rates increase and wireless networks take on the technology of the Net, the need to translate Web pages for handsets disappears. The first step along these lines was supposed to have happened already, but like everything in the wireless world it has been delayed by the availability of handsets and network infrastructure. GPRS (General Packet Radio Service - a relatively simple hardware upgrade to Europe's current network) should be introduced some time this year and bring data rates of at least 40Kbps, slightly slower than the average PC modem.

So will WAP and i-Mode co-exist in the future?

Possibly. WAP is no small fry. It was created by a committee, the WAP Forum. Its members include manufacturers responsible for more than 90 per cent of the world's handset market and wireless operators that deliver services to over 100 million subscribers. They are currently working on a new version of WAP, known as WAP 2.0, which will make use of HTML. As Europe's wireless networks catch up with those of Japan, the sworn enemies - WAP and i-Mode - may find themselves fighting on the same side.

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