JIN-130 -- About L-Mode

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the week's business and technology news
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Issue No. 130
Wednesday, April 25, 2001
Tokyo

CONTENTS

+++ Viewpoint: About L-Mode
+++ Noteworthy news
- Ericsson + Sony = Sony Ericsson Mobile Communications
- Sony Tektronix starts Bluetooth wireless rental service
- Access unveils Web browser for home info appliances
+++ P.S.

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+++ Viewpoint

About L-Mode

After much delay, on Wednesday, April 18, the Telecommunications
Ministry granted NTT East and NTT West permission to launch L-Mode.
We've been lulled to sleep by L-Mode up until now because it's been
mired in monopoly debates since seemingly before its conception, but
... time to wake up! Approval has been granted, and the service
will, by all appearances, begin in June.

L-Mode is just like the hugely popular i-mode cellphone service,
except that it's for fixed-line home phones with annoyingly tiny LCD
screens. Like i-mode, which has more than 18.5 million subscribers,
L-mode will offer email and a wide-ranging menu of compact
HTML-based online content. Hundreds of companies have already
expressed interest in providing content to NTT East and NTT West,
who, like DoCoMo does with i-mode, will decide who can become
official content providers. (Also like DoCoMo, they'll base
decisions on content quality, an ethical test, and other criteria.
Free-speech advocates might squirm, but considering all the junk on
the Net, is such filtering really a bad idea?)

We think L-Mode is hugely important in all kinds of ways. Here's
why:

** Printer and mobility included.
L-Mode will work over phone/fax/answering machine units that will
cost about 5,000 yen more than their regular equivalents and have an
LCD screen. The fax unit will also serve as the printer, so users
can print out, for example, a map with directions. Also, Sharp is
reportedly working on cordless devices for L-Mode, including PDAs.
This would give users freedom to move about the house while surfing,
emailing, and shopping online. Sharp, Matsushita, NEC, and Sanyo are
all manufacturing L-Mode devices now.

** E-commerce micropayments -- problem solved.
L-Mode allows for e-commerce micropayments (but only for official
content providers), which show up on the phone bill. NTT takes a
commission off each transaction. This means users can shop online
without entering credit card and personal information. And ...

** No booting up.
With an L-Mode phone/fax unit, there will be no booting up as with a
PC. Users will just press the L button and -- walah! -- be ready to
receive and pay for content and services. (The menu design is such
that the desired content can be reached in three or fewer button
presses.) We've said before that in order for e-commerce to really
take off in Japan, it'll have to be easier and more fun than going
to a nearby konbini. This service might be.

** Local information provided automatically.
NTT knows where its customers live (of course it does -- it's the
phone company). Local information for the user's town and area --
weather, news, et cetera -- is automatic.

** ISPs: angry and rightly so.
L-Mode will operate over PSTN and ISDN lines. NTT invested billions
into building its ISDN customer base, only to see broadband
challengers -- including DSL providers, cablecos, usen, and even
power utilities -- come along with superior Net access offerings.
NTT has responded to these challengers with competing offerings in
each category, but now it can also offer its customers something
else: the low-speed but useful (presumably) L-Mode. NTT East and NTT
West have ready access to 50 million customers; meanwhile, the
nation's largest fixed-line ISP @Nifty has only around 5 million.
Monopoly concerns? Yeah, we'd say so.

** International implications.
Telcos around the world have copied and partnered with NTT DoCoMo
for its i-mode service. If L-Mode takes off, will it too be imitated
internationally?

** PC sales.
How will L-Mode affect PC sales in Japan? Granted, the service
doesn't obviate the need for a PC -- many home users need a full
office suite, for example -- but a significant percentage of PC
buyers in Japan are interested primarily in Net access. How many
will buy inexpensive L-Mode equipment instead?

** Japan's aging population.
Providing content and services for the elderly will be big business
over the next few years. Rather than ask senior citizens to adopt
something extremely new to them -- PCs, ISPs -- L-Mode provides
something more familiar: the phone. It's an evolution, not a
revolution. Sanyo Electric will begin marketing L-Mode units with
special features for the elderly by year's end.

The L-Mode service is lacking in many ways. For one, the pricing
scheme leaves a lot to be desired. Whereas i-mode charges by the
amount of data transmitted -- one reason it's so popular -- L-Mode
will charge by the amount of time spent online (at the local rate of
10 yen for every 3 minutes). The basic charge for Net access will be
just 240 yen per month, but the content and local charges will drive
up the price up considerably.

L-Mode's wandering range will be limited to the home area -- and
that's assuming the cordless devices are for real. Consumers without
L-Mode-enabled cordless gear will be chained miserably to the
telephone. On the other hand, the service will be offered on Japan's
ubiquitous pay phones, so there is a roaming element of sorts. (Many
pay phones in Japan already have LCD screens and won't need much
upgrading.)

Another obvious weakness is that L-Mode will not provide
full-fledged Web surfing. Instead, it will offer the same thing that
i-mode does: "surfing" by numbered menus on a small, boring screen
(with small, boring graphics). Then again, ask Google what most Net
users want more: useful functionality or pretty Web pages. The very
limitations of i-mode and L-Mode force designers to create immediate
functionality. (Be useful or else ...)

The irony of L-Mode is that it's responding to a sharp decline in
local-call and pay-phone revenues brought on by surging cellphone
usage, a surge led by ... i-mode. In March last year, cellphone
usage in Japan surpassed fixed-line usage, a pattern that will
likely be repeated around the world.

-- Steve Mollman

Sources: A wide variety of news articles and NTT East's L-Mode page:
http://www.ntt-east.co.jp/Lmode/english/ (a slightly dated document)

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+++ Noteworthy news

** Ericsson + Sony = Sony Ericsson Mobile Communications

Extract: Ericsson and Sony Corporation jointly announced that they
have signed a Memorandum of Understanding with the intention to
create a new company that will incorporate their respective mobile
phone businesses worldwide. The new company, to be named Sony
Ericsson Mobile Communications, will be equally owned by Ericsson
and Sony and will draw upon Ericsson痴 leading expertise in
telecommunications and Sony痴 leading expertise in consumer
electronics products.

Commentary: Did we call it or what? Our February 2001 cover read
"Europe & Japan, Wireless Wonders: Never mind the United States. The
coolest stuff is what's happening between the No. 2 and No. 3
economies." As we said in the piece, "Japanese and North Europeans
just get along well." This arrangement has all kinds of synergy.
Ericsson needs the expertise in consumer electronics; Sony needs the
expertise in global telecommunications. In other news, the
Stockholm-based company has created a crisis committee of top
executives to oversee its restructuring efforts as it struggles to
regain profitability ...

Source: Press release received via email April 24;
"Ericsson creates crisis committee," AP via News.com, April 23:
http://news.cnet.com/news/0-1004-202-5698056.html;
"Europe and Japan, Wireless Wonders," February 2001, J@pan Inc:
http://www.japaninc.net/mag/comp/2001/02/feb01_express.html

** Sony Tektronix starts Bluetooth wireless rental service

Extract: On Friday, Sony Tektronix began a rental service offering
measuring equipment, electromagnetic dark rooms, and engineers to
companies developing equipment using the Bluetooth wireless data
exchange protocol, company sources said Saturday.

Commentary: With all the incompatible Bluetooths cropping up, it was
only a matter of time before someone decided to make money off the
situation. On the other hand, this is an indication of just how many
Japanese manufacturers are indeed making Bluetooth devices.

Source: The Nihon Keizai Shimbun, April 22, 2001.

** Access unveils Web browser for home info appliances

Extract: Access unveiled a new version of its Web browser, called
NetFront v3.0, for home information appliances that comply with the
latest version of HTML. The full commercial version will ship by
September.

Commentary: Access wants to become the Microsoft of non-PC devices
and make its browser a global standard. This is just the latest step
in that direction. We interviewed CEO Toru Arakawa and H&Q Asia
Pacific VP Pierre Suhandinata for our May 2001 cover story. (Access
was H&Q Asia Pacific's first portfolio company to go public.) It's
fascinating to see such an aggressive Japanese software company.
Then again, if the "post-PC world" means consumer electronics --
doesn't it? -- it makes sense that such a Japanese software firm
would arise.

Sources: Nikkei Asia BizTech, April 20:
http://www.nikkeibp.asiabiztech.com/wcs/; "Toru Arakawa: Small-Time
Visionary," J@pan Inc, May 2001: subscribers only.

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+++ P.S.
One of our editors tells of an always-packed restaurant where they
ask for your cellphone number. When it's your turn for a table, they
give you a ring. Nice.

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NOTE: This newsletter will not be published during Golden week
(that's next week). To those of you in Japan, HAPPY HOLIDAYS!

STAFF
Written by Steve Mollman (steve@japaninc.net)
Assistance with news compilation:
Richard Ochero (richard@japaninc.com)

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