US Telematics Player Braves Japan

Cellport Systems hopes Japan's drivers will adapt its "server and cellphone-docking station" set-up.

Cellport is essentially a telematics technology provider that licenses its products to carmakers, vehicle systems integrators, and OEM wireless device makers. What is telematics? Simply put, it's the extension of voice, data, and Internet services into the vehicle. It's also a new frontier for wireless applications and therefore a trend that has huge implications for Japan. According to Cellport, over 15 million hands-free carphone systems were sold last year worldwide, and the annual market for hands-free systems will go from $3 billion to $7-10 billion by 2005. Investment house Dain Rauscher Wessels estimates that by 2005, global demand will increase to 30 to 45 million units per year, while telecommunications research group Strategis predicts that automotive services delivered via telematic systems will become a $5 billion industry by 2005. This latter trend is an important selling point for carmakers and dealers looking to establish long-term relationships with customers and create channels for recurring revenue.

The latent demand for vehicular communications systems is obvious to Cellport. "Our contention is that the average consumer [already] brings 'telematics' into the vehicle everyday with the cellphone," says Kennedy. Using the keitai as a carphone has been the most flexible option because carphone systems have traditionally been limited to a single platform and are very expensive to replace. However, keitai use in a car is both difficult and dangerous, and is also illegal in many places (including Japan). Further, current carphone systems installed by car makers create a timing discrepancy -- cellphones are replaced on average every eight to ten months in Japan while cars are usually replaced every four or five years. And it's inconvenient and expensive to upgrade the car's customized phone installation.

The Cellport 3000 docking station addresses this problem by providing a universal docking station that accepts handset model--specific pocket adapters, with the adapters providing a standardized interface between the keitai and the dock. Once the cellphone is docked in the station, it can serve as the wireless conduit for any number of onboard systems, including automotive data systems and GPS devices. Cellport's plan is to license the pocket adapter architecture to phone makers, OEMs, integrators, and the like, who can then market the phones as "Cellport-compatible." Partners will pay a royalty fee to Cellport for each unit sold but will be free to distribute, market, and localize the products as they wish. Currently, the hands-free Cellport 3000 platform has been licensed to Motorola, Nokia, General Motors, and @Road (a location-enhanced wireless Internet provider) in the United States.

Cellport Systems Japan, established in Tokyo last April, is currently in talks with wireless carriers, handset manufacturers, and car makers here about a Japanese version of the Cellport 3000, and hopes to announce a deal by late September. But the firm faces several challenges. First, phones might need to be redesigned to fit into Cellport's system -- and a bulkier Cellport-capable phone will be a tough act to sell in view of Japan's "smaller is better" consumer mindset. Also, the firm is still working to make the mobile server prototype compatible with Japan's new 3G wireless network, although it plans to have the product commercialized by year's end.

And while the current mobile server platform (marketed by Cellport USA) has been licensed to BMW, making similar inroads into the car makers and original equipment manufacturers (OEMs) in Japan so far has been tough. Partnering with major industry players is key to Cellport's goal of universalizing its open platform. "The major obstacle to creating a de facto standard is to get a major OEM to commit to using Cellport's universal interface technology across their entire product line," says Jonathan Lawrence, vice president for telematics and automotive analyst at Dain Rauscher Wessels. Cellport Systems Japan chairman Hiroshi Sakurai admits another problem with selling an open platform is Japan's shimaguni konjo, or closed-minded culture. "We have an island nation's protectionist mindset. It's sometimes difficult for Japanese to understand open architectures like this or Linux," he says. But there are some bright spots.

Cellport's mobile server integrates the Web, GPS, and internal vehicle systems

Two encouraging factors are Japan's sophisticated wireless network infrastructure and the advanced state of telematics in this country. Japan is the world leader in consumer GPS navigation systems, and it's common to see television, DVD, and more recently, Internet connectivity in Japanese cars. "Telematics applications are much more advanced and sophisticated in Japan," says Greg Pelton, director of technology and alliances at Cisco Systems. "For example, you see traffic sensors on the roads that automatically send congestion reports to your car's navigation system. That doesn't exist in the US." Another point is that Japan is further along in legislation covering in-vehicle cellphone use than the US is, which could be a significant catalyst for Cellport's business here.

Of course, a proven foreign technology that seemingly fits perfectly into the Japanese market is not in itself a guaranteed recipe for success. Japan-savvy staff and connections are essential, especially when targeting this country's traditionally protective automotive and telecommunications industries. The company thinks it's found what it needs in chairman Sakurai -- also president and CEO of Japanese voice recognition and voice portal software developer (and Cellport partner) Digital Media (see "Calling Up Content on the Wireless Web"). "Hiroshi has great connections in the Japanese telecommunications industry. Without him, I don't know if I would have had the courage to open up this business so soon," says Cellport USA head Kennedy.

Besides connections, Sakurai's Digital Media provides wireless voice interface applications, crucial for making voice services and Internet use safe, convenient, and legal in the vehicle environment. "Obviously, car navigation systems in Japan are extremely commonplace, and this is one of the first applications. Voice interfaces are another technology we need for cars," says David Collier, a developer at streaming media development house PacketVideo. As a result, voice input and recognition is a key component of the Cellport 3000 product. The company has partnered with Belgium-based Lernout & Hauspie for its voice recognition technology, but Digital Media hopes to be called upon to provide voice apps (L&H recently announced a major rehabilitation plan due to financial difficulties blamed on its Korean subsidiary).

An interesting aspect of Cellport's mobile server is the connection to the vehicle's internal systems. The server converts vehicle network protocols to TCP/IP, the language of Internet communications. This effectively puts the car itself, rather than just the people in the car, on the Internet, and it enables some very interesting -- and potentially valuable -- applications. Say you suddenly remember you left your car headlights on. You could shut them off remotely using the Web browser on your cellphone or PC. "There's so much potential once you put the right infrastructure in place, because then [developing for a car follows] the [standard] Web development model. There are millions of people out there who can do development in that environment very quickly and in a very specialized manner," says Cisco's Pelton.

The server will also feature Cellport's most recent patented addition, LinkSelect, a communications application that automatically chooses the most appropriate wireless link at any given time (based on factors such as data type, cost, and location). Wireless links can vary from cellular to 802.11, a high-speed, short-range wireless LAN protocol commonly used for fleet management and tracking. According to Pelton, a sample consumer application for 802.11 might be pulling into a gas station that has an 802.11 transmitter and downloading MP3 music while gassing up, then paying for the gas and music files electronically via the link. The system also enables P2P (car2car?) applications that permit people in different cars to interact, much like Internet chatroom or CB radio users would.

The company has yet to make any revenue in Japan; it has been busy establishing new partnerships. The ultimate goal is to have the mobile server and hands-free station as a standard feature in new vehicles. According to Cellport, this is an extended process that takes car manufacturers at least two to three years to implement, and the wait could be even longer. "I think it's going to be some time before we see common telematics standards and an open vehicle LAN architecture agreed to by global or even regional auto-makers," adds analyst Lawrence.

In the near term, the company's focus is on establishing the hands-free product in Japan and on Cellport USA's IPO (planned for late 2001 or early 2002). Pelton observes that despite some impressive individual applications, the current reality of Japanese telematics is that it's still single-platform (in-car navigation) and lacks openness, and is therefore difficult to build applications for. Another problem is that carmakers have little communications service experience, while wireless carriers, application developers, and content providers have limited knowledge of the vehicle environment. Partnerships across this telematics value chain must be built, and Cellport Japan's challenge is to bridge this divide. It hopes, though, that the gap dividing the car and the dot-car in Japan is a relatively narrow one.