WW-31 -- Who Needs 3G?

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J@pan Inc Magazine Presents:
W I R E L E S S W A T C H
Commentary on the business of wireless in Japan
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Issue No. 31
Tuesday, November 6, 2001
Tokyo

INDEX

+++ Viewpoint: Who Needs 3G?
+++ Noteworthy News
- The Next Digital Battle: Ring Tones
- Court Issues Injunction on DoCoMo Spammer
- J-Phone Unplugs Exec's New Job
- Tu-Ka Launches Commercial High-Speed Packet Services on PDC
- Hutchison orders 1 mln more 3G phones from NEC
+++ Events (Advertisement)
+++ Sign of the Times

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+++ Viewpoint: Who Needs 3G?

We're more and more convinced that the real corporate killer app on
3G will be mail and file access. Sure, many pundits point to the
video conferencing capabilities on NTT DoCoMo's 3G network as "the"
killer app for 3G; true enough, videoconferencing on 3G is very cool,
fun, and extremely useful for person-to-person contact (given that
pricing and packet usage fees are not prohibitive). We've tried it,
and it is compelling.

But we're not certain how 3G can earn early revenue (or any revenue)
on videoconferencing on a mass basis from the corporate and
enterprise market. Further, to get widespread usage, people will have
to change how they work, the (still expensive) handsets will have to
achieve a much higher penetration, and network coverage will have to
expand.

But mail and intranet access are different. Both services already
exist on 2.5G networks, both can be deployed without excessive cost
(and at modest network speeds), and corporate drones are already
using both as part and parcel of their daily work lives. As long-time
users of simple Web storage services like Mydocsonline, we can attest
to the convenience of having access to files stored on the Web from
multiple PCs. Now if the same file management can be provided via
portable devices, there's a cool service.

Actually, you don't need 3G's 384 Kbps to provide such services. You
can already upload and download files tolerably quickly on 64 Kbps
(as offered by PHS and cdmaOne networks). DoCoMo's i-mode network is
being boosted to 28 Kbps in a few months and by mid-2002, mobile
subscribers outside Japan will be able to enjoy data speeds in the
28-40 Kbps range on the 2.5G GPRS networks being built today by
operators such as AT&T Wireless.

These speeds are also plenty fast enough to move word processing,
spreadsheet, presentation, and graphic files on and off a small
device. By 2004, there should be some 5.35 million PHS data cards in
use here(according to one company's estimates), all operating at 64
to 128 Kbps (and possibly as fast as 256 Kbps). At these speeds,
down- and crossloading files from location to location (say, from
your corporate PC to a client's portable device) works really well,
and the average company staffer will find this service useful and
worth the cost.

Further, as such services become more widely used, look for Microsoft
-- until now only a niche player in mobile technology -- to really
get involved. Microsoft's .net Web services initiative fits in
perfectly with this mode of mobile usage.

--Daniel Scuka

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+++ Noteworthy News
(Long URLs may break across two lines.)

--> The Next Digital Battle: Ring Tones
http://news.cnet.com/news/0-1004-200-7738824.html?tag=hot
Source: CNET News, November 1

EXTRACT: The same forces that took on file-swapping companies Napster
and MP3.com are quietly setting their sights on what some regard as
the next digital copyright battle: selling ring tones for cell
phones. Selling ring tones is big business in Europe and Asia, where
hundreds of companies offer snippets of popular music to replace the
prepackaged tones used to alert someone to a call. More than $300
million in ring tones were sold in Japan last year. Nokia estimates
it will make billions selling ring tones by the end of 2005. But the
industry is still relatively unregulated. Several industry insiders
estimated that up to 65 percent of all ring-tone companies aren't
properly licensed. With most of the business taking place in Europe,
American licensing agencies like the Harry Fox Agency or the American
Society of Composers, Artists and Publishers (ASCAP) weren't doing
much about it -- until now.

COMMENTARY: In Japan, one of the largest ring tone providers is Giga
Networks (http://www.giga.co.jp). Users download Giga's MIDI-format
sound files to personalize their keitais. The music database came
from parent Ricoh, a long-time maker of karaoke machines. Like many
Japanese ring tone providers, Giga has worked hard to make sure
artists' rights are respected; it pays ･5 to JASRAC (local version of
the RIAA) for every 30 songs that users download. We heard earlier
this year that JASRAC has some 300 inspectors watching for illegal
download sites.

We agree that this relatively calm state of affairs surrounding
ring-tone licensing is likely to get more complex -- in Japan and
elsewhere. Last week, Motorola announced that it would tie up with
Ztango to sell downloadable ring tones. Ztango is a licensed
ring-tone provider, and will offer the service to Motorola phones
(probably initially in Italy on the Telecom Italia wireless network).
We also heard that at least one large Japanese handset maker is --
like Motorola -- actively courting third-party content owners to
partner on hardware-based mobile services.

--> Court Issues Injunction on DoCoMo Spammer
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nn20011031a4.htm
Source: Japan Times, October 31

EXTRACT: In what is believed to be the first legal action against
spamming on mobile phones in Japan, the Yokohama District Court has
issued an injunction against a firm that is allegedly sending
hundreds of thousands of unsolicited email messages to customers of
NTT DoCoMo Inc. According to DoCoMo officials, Global Network, based
in Nishi Ward, Yokohama, has been emailing advertisements to DoCoMo
customers by randomly generating eight-digit numbers and attaching
them to the suffix @docomo.ne.jp, the root of all DoCoMo email
addresses. Since June, Global Network has been sending junk mail
asking users to visit a Web site for dating, DoCoMo said. On June
8, as many as 900,000 spam messages were sent out within an hour,
with roughly 170,000 going undelivered, DoCoMo said.

COMMENTARY: According to this report, the i-mode network handles a
whopping 900 million to **1 billion** messages per day! DoCoMo says
most of this appears to be spam. Only about 10 percent of this
traffic actually reaches an addressee; the balance gets bounced back
to the sender (presumably, the spammer that sent the mail in the
first place -- serves 'em right!). Nonetheless, this decision
represents only a modest legal victory, and it remains very difficult
for any of the Japanese carriers to take action against spammers due
to privacy and other restrictions. What do most keitai surfers here
do to avoid spam? Change their handset email address -- sometimes
frequently.

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--> J-Phone Unplugs Exec's New Job
http://www.asahi.com/english/business/K2001110200558.html
Source: Asahi Shimbun, November 2

EXTRACT: Goichi Yoshizawa was on his way to becoming chairman of
J-Phone Ltd. on Thursday -- up from executive vice president -- but
was shunted off to the post of senior managing director after a
remark harshly critical of the company's biggest shareholder,
Britain's Vodafone, published in The Financial Times. The job
Yoshizawa would have had went instead to Yoshiro Hayashi, former
president of J-Phone East Co. Vodafone, the world's biggest mobile
phone company, holds a 46 percent stake in J-Phone. The company
originally asked Yoshizawa to be chairman of the combined company,
with Darryl Green, an American and former J-Phone executive, to be
president. In an interview published in the September 3 Financial
Times, Yoshizawa said Vodafone "is good at the money game but not in
operations." Vodafone officials were surprised, according to the
paper. Yoshizawa strongly denied making the statement, and a J-Phone
spokesman said the top-level change had nothing to do with the
article.

COMMENTARY: There is no doubt that the joining together (subsuming?)
of J-Phone and Vodafone is not an insignificant exercise in merging
telco corporate cultures. But any short-term pain is probably worth
it. Speaking in Tokyo last Thursday, J-Phone's Rick Timmons, newly
appointed senior managing director, said that the benefit of the
Vodafone tie-up included global procurement, strengthened R&D,
roaming, the sharing of successful strategies and operating
practices, and the combination of Japanese and Western talent. We've
previously interviewed Yoshizawa-san, and he's a smart and articulate
manager. Clearly, however, the week that your company merges with
another, much bigger, partner is not the time to make any comments
that may be seen as critical, no matter how oblique. Rick Timmons, by
the way, is an American (and an ex-Motorola guy); one J-Phone PR
staffer said this week that most of the Vodafone staff being sent
over to J-Phone are, ironically, American.

--> Tu-Ka Launches Commercial High-Speed Packet Services on PDC
http://biz.yahoo.com/prnews/011029/cgm020_1.html
Source: Press Release, October 29

EXTRACT: Japan wireless operator Tu-Ka group successfully launched
high-speed wireless packet data services over its Motorola-supplied
PDC system. TU-KA group subscribers in the Kanto region and in the
major cities in the Tokai area now have the ability to wirelessly
access the Internet at speeds up to 28.8 Kbps. The services were
launched on October 2. TU-KA plans to expand its high-speed data
services in the major cities of the Kansai area in November 2001.
"TU-KA is ahead of the competition by a few months," said Hiroshi
Fukumuro, managing director and general manager of the Technology and
Engineering Division, Tu-Ka Cellular Tokyo, Inc. "We expect that this
service will enable us to satisfy data service demand, which is
growing rapidly, especially among young people in Japan, and our
customers will be able to experience the benefits of high-speed
wireless data transfer when they download various content, such as
images and music files," said Fukumuro.

COMMENTARY: This report is one more indication that Japan's wireless
data environment is becoming network-rich and technically diverse. In
addition to Tu-Ka's now-enhanced PDC network, there are now at least
five other ways to send data packets over the airwaves here: i-mode
(9.6 Kbps on PDC), J-Sky (9.6 Kbps on PDC), EZweb (14.4 to 64 Kbps on
cdmaOne), EZweb (9.6 Kbps on PDC now boosted to 28.8 Kbps), and PHS
(various operators at 32 and 64 Kbps). The challenge for the nascent,
corporate-targeted data industry is to create, field, and market
revenue-producing data applications separate from the big public
carriers' consumer-aligned networks. By the end of this year, at
least one estimate forecasts that PDA sales will enter double-digit
growth, while PC sales remain predominantly focused on laptops (60
percent, according to one estimate). By 2003, there will be 3.0
million PDAs in service. We think data cards are one promising
vehicle for corporate data.

--> Hutchison orders 1 mln more 3G phones from NEC
http://sg.biz.yahoo.com/reuters/nhkg26251.html
Source: Reuters on Yahoo, November 1

EXTRACT: Hutchison Whampoa, which is building 3G networks in several
European and Asia-Pacific markets, said on Thursday it had placed an
order for more than 1 million 3G handsets from Japan's NEC Corp.
Terms were not disclosed for the order, which is Hutchison's second
for high-speed multimedia-capable 3G phones from NEC. The companies
said in a press release that NEC will begin delivery of the
"videophones" in 4Q2002 to Hutchison's 3G operations, which include
networks under construction in Italy and the UK.

COMMENTARY: This report explains that among carriers holding
(expensive) 3G licenses in Europe, Hong Kong-based Hutchison is among
the most bullish on the prospects for 3G and has one of the most
aggressive rollout schedules, with a launch slated for next year.
This sale represents one of NEC's largest for 3G handsets outside of
Japan, and appears to finally kill the theory that Japanese makers
aren't able to make handsets for sale outside of Japan. One reason
why? Third-generation W-CDMA-based handsets all share the same
fundamental technology obviating the need to develop one model for
domestic use and another for export.

The video capability of these phones may turn out to be one of the
killer apps for 3G (as well as the only service that can't be done on
existing 2.5G networks). In Japan, Sharp's camera-equipped handsets
(provided for J-Phone's 2.5G PDC network) are proving to be extremely
popular; people take a picture of where they are standing (some
recognizable Tokyo landmark like Hachiko, for example), and zip it
over the network to friends with a note saying, "Meet me here!" By
early 2002, new models will be equipped with SD memory slots to
playback audio files transferred from a PC. But Sharp doesn't sell
its beautiful devices to NTT DoCoMo. Big D rejected Sharp several
years back in favor of the four large Japanese makers (Sony,
Panasonic, NEC, and Fujitsu).

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+++ Sign of the Times

Dating and Thieving by Keitai

The number of crimes linked to Internet dating sites has more than
tripled in the first half of this year compared with all of last
year, according to a National Police Agency report released Thursday.
There were 302 cases from January through June, but only 104 for all
of 2000, the report says. Murders have jumped to five from one last
year and the number of rapes has already hit 20, compared with eight
in 2000, the report shows. Mobile phones are also becoming a more
popular way of accessing such sites. About 85 percent of the hits
were made by mobile phones in the first half of this year, compared
with 57 percent last year, the report says.

In a related item, two teenage boys who alerted targets for
snatch-and-grab robberies, have been arrested, but only after aiding
about 120 heists that netted more than JPY2 million, police said
Friday. Police arrested the pair -- an 18-year-old unemployed boy and
a 19-year-old construction worker -- for robbery after a tip-off from
an alleged third accomplice. Police said the pair would prey on
people in Nagoya and Inazawa by cruising around on their motorcycles
and using email sent via mobile phone to notify each other when they
had found a ripe target.

"NPA Sees Rise in Crimes Tied to Dating Web Sites," Nov. 2
The Japan Times
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nn20011102a4.htm

"Mobile mail helps teen thieves pick targets," Nov. 2
Mainichi Shimbun
http://mdn.mainichi.co.jp/news/20011102p2a00m0fp007001c.html

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SUBSCRIBERS: 1,372 as of November 6, 2001

CORRECTION: In WW 30, we misquoted analyst Kieran Calder. The correct
citation should have been: Indosuez W.I. Carr Securities analyst
Kieran Calder expects that 50 percent of DoCoMo subscribers will
migrate to FOMA (3G) within one year of the 3G network achieving
nationwide coverage.

STAFF
Written by Daniel Scuka (daniel@japaninc.com)

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