WW-47 -- Part II -- Whither Japan's Wireless Software Industry?

=====================================================================
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
=====================================================================

Issue No. 47
Monday, March 11, 2002
Tokyo

INDEX

+++ Viewpoint: Part II -- Whither Japan's Wireless Software Industry?

+++ Noteworthy News
--> J-Phone Adds 159,000 Mobile Users in February, Nears Target
--> Three to Launch dual-CPU Cell Phones
--> KDDI Bungles Systems Upgrade, New Users Cut Off
--> KDDI to Deploy BREW to Subscribers
--> KDDI Switches Over to CDMA as Japanese Market Slows
--> New 3G Alliance in Japan
--> DoCoMo, Oracle to Ally on Japan Corporate Services
--> Mobile Phone Market Slowdown is Inevitable, DoCoMo Exec. Says

+++ Events (Advertisements)
ACCELERATED BRANDING ROUNDTABLE
Japan and international marketing strategy
March 13 2002, Tokyo

JAPAN SMALL COMPANY INVESTMENT CONFERENCE
New York City - March 12, 2002

+++ Sign of the Times: Great phone; shame about the MP3s...

+++ Subscriber Statistics, Corrections, Credits, Administrivia

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+++ Viewpoint: Part II -- Whither Japan's Wireless Software Industry?

Last week, we told you that, while we still had faith in the potential
for Japan's wireless technology providers to shine overseas, it's
clear that these companies would face a tough battle to do well in New
York, Seattle, and elsewhere.

Software engineer and Wireless Watch subscriber Victor Wiewiorowski
took the time to offer an alternative, much grimmer (some would say
more realistic) viewpoint, one that we thought worth reproducing. He
says:

In my eyes, GSM phone sets are now taking a great leap
forward above what is available in Japan. The PDA features
of Symbian phones, the Palm OS-based Treo, and now the
Pocket PC-based HP Jornada 928 are far, far ahead in
functionality over Japanese phones, which in my experience
are clunky and hard to use. On the so-praised J-Phone Sharp
SH-07, no two pieces of the UI work the same -- it's a
struggle to get even the simplest tasks done. I won't even
mention my vain desire to download my emails or pictures
from the phone to my PC, have a sync'd calendar etc., etc.

Ouch! Victor gets right to the point, doesn't he? Wait, there's more:

I can only hope that some day these better phones will trickle
down to Japan, but I fear that [their] running on proprietary
standards will mean that from now on Japanese sets will always
be behind what's available in the majority of the world.
Twenty years ago, Japanese were full of 'wordprocessor'
"waapuro" hardware, dedicated machines for wordprocessing and
office work. I am told that for the time, these were quite
advanced and had features that even now are not found on PCs.

Today you will be hard pressed to find one of these dinosaurs
anywhere; the Japanese companies make the hardware, while
Microsoft, Palm, et cetera, make the software. The same will
happen in the handset market; five to seven years from now you
will have a bunch of Japanese hardware manufacturers making
hardware for software written abroad. All that remains to be
seen is whether this software will be Symbian, Palm, or
Microsoft.

Victor concludes with:

Japan's weakness in software will relegate it to a high-class
manufacturer, a role in which it will more and more be
supplanted by China. In the phone area Japan's inability to
follow world standards (GSM, GPRS, et cetera) will in the long
run make local service and handsets more expensive, and with
less variety of available devices than in standards-compliant
markets. A market of 30 million subscribers on a proprietary
network standard will be easy for many manufacturers to
overlook in favor of 300-plus million GSM/GPRS subscribers.

While we can quibble with some of the details, we think this is a
valid argument. What, precisely, will the Japanese do to keep from
becoming the specialist hardware suppliers to the world's networks in
an age when handset **software** is the most significant aspect of the
terminal and service envelope?

Well, for one, we think that NTT DoCoMo will, to a large extent, serve
as one of the vehicles that helps boost Japanese software companies
overseas. DoCoMo has extremely deep pockets, a not insignificant hand
in several European and US markets, and has 3G wireless Internet
momentum equaled by no other.

But consider the companies now working with DoCoMo: VoiceAge (Toronto)
for MPEG-4 multimedia download on 3G, PacketVideo (California) for
MPEG-4 streaming on 3G, AOL (US) for instant messaging on 2G i-mode,
and Access (Tokyo) for microbrowsers on 2G i-mode. And outside of
DoCoMo, Logica (UK) is building the 2G and 3G messaging systems for
J-Phone, while Openwave (California -- again) provided the gateway and
microbrowsers for EZweb. Hmmm... it's starting to look like the real
benefits of Japan's mobile Internet revolution aren't accruing to
**Japanese** software companies, but rather to **software companies
that are in Japan** -- of whatever national origin.

As DoCoMo starts to play overseas, it will be forced more and more to
integrate software that meets world standards (MPEG 4, HPC OSs, xHTML,
et cetera) and vendors -- wherever they're based -- that can only
offer proprietary, non-open software will be left high and dry --
precisely as Victor predicts.

In the final analysis, if you believe that mobile software development
is predicated on having the sophisticated networks in place (and bags
of subscribers using them) to act as the seed or impetus for the
developers, then you have to conclude that Japan as a market is in the
lead, and will remain so for the next two to three years -- and the
glory (and gold) will go to those companies that are here now, working
with the operators of those sophisticated networks.

In other words, while Pocket PC, Symbian, Palm and other vendors/OSs
may have large leads in the GSM/GPRS/CDMA world, software developers
and platform partners (of any origin) that are in Japan now are
already dealing with (and solving) technology and business model
problems that almost every other market in the world will have to
solve three or four years from now.

The key isn't to be Japanese, but to be in Japan.

--Daniel Scuka
daniel@japaninc.com

PS. Victor Wiewiorowski sent along a few interesting links (with
annotated comments):

Symbian phones:
http://www.symbian.com/technology/symbos-phones.html

The Nokia 7650 has a camera with a 640x480 resolution, twice as good
as any of the Japanese handsets:
http://nokia.com/phones/7650/specifications.html

Treo:
http://www.handspring.com/products/communicators/index.jhtml?prod_cat_na...

HP Jornada phone:
http://news.com.com/2100-1040-839725.html

Also note the slew of innovative phones available for GSM, these are
*much* more interesting in design than any Japanese phone, which all
look the same...

Nokia 5510
http://www.nokia.com/phones/5510/index.html

Danger
http://www.danger.com/products.php

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+++ Noteworthy News
(Long URLs may break across two lines so copy and paste to your
browser.)

--> J-Phone Adds 159,000 Mobile Users in February, Nears Target
http://quote.bloomberg.com/fgcgi.cgi?ptitle=Technology%20News&s1=
blk&tp=ad_topright_tech&T=markets_bfgcgi_content99.ht&s2=
ad_right1_technology&bt=ad_position1_technology&middle=
ad_frame2_technology&s=APIbqgxNVSi1QaG9u
Source: Bloomberg, March 6

EXTRACT: J-Phone, Japan's No. 3 mobile-phone operator, added 159,000
subscribers in February, as users continued to sign-up for its
'picture-mail' handsets which allow digitized snap-shots to be viewed
and exchanged. J-Phone, a unit of Vodafone, Europe's largest
mobile-phone operator, said it had 11.92 million users at the end of
February, leaving it just 80,000 short of its target of attracting 12
million customers by March 31.

COMMENTARY: Great news for J-Phone (50 percent of net adds are opting
for the 'Shamail' picture phone handsets!), but overall the net adds
situation is well off last year's boom. Carriers added 466,500
cellular and PHS subscribers in February, finishing at 73.7 million
total subscribers (for 0.6 percent MoM and 12.9 percent YoY
increases).

PHS subscribers are now growing modestly each month (2,400 in
February) -- reversing last year's continual shrinkage trend -- due no
doubt, to the highly popular flat-rate PHS data cards.

By carrier, DoCoMo gained 54 percent of all adds, J-Phone 34 percent,
and KDDI 11 percent. But DoCoMo's market share **fell** for the first
time since late last summer, and KDDI picked up a few more market
share percentage points (are the EZmovie and GPSOne handsets
helping?).

On the wireless webs, some 900,000 new subscribers joined -- and there
are now more than 50 million wireless Internet users here. Big D must
have been pleased with the growth in heavy-packet using Java
subscribers: 480,000 for a total of 11.8 million (roughly 38 percent
of all i-mode users). If that doesn't boost bottom-line ARPU for the
quarter and FY ending March 31, nothing will.

--> Three to Launch Dual-CPU Cell Phones
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nb20020301a2.htm
Source: Japan Times, March 1

EXTRACT: NEC, Matsushita Electric Industrial, and Matsushita
Communication Industrial said Thursday that they will market new 3G
mobile handsets with jointly developed technology in the second half
of this year. In a joint development that started in August, the three
companies have designed the core architecture for a 3G mobile handset
platform, they said. The architecture features two central processing
units, which will enable 3G mobile handsets to transact a large volume
of data more quickly than comparable models with a single CPU, an NEC
official said.

COMMENTARY: The trio said they had set up the new '3G Mobile
Collaboration Office' in Yokohama with about 50 workers, which should
increase to 100 by October 2002. Handsets are becoming computers...

===========================ANNOUNCEMENT===============================

WIRELESS WATCH STREAMS!

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newsletter, courtesy of the media gurus at Video-link.com.

Here's the last two weeks' program line-up:

Mar. 11 -- It's March, and on Japan's wireless webs,
it's video season. We show you exclusive clips of
KDDI/Au's new EZmovie system, take a look at the latest
videoconferencing and video-download services on J-Phone
and NTT DoCoMo. Wireless entrepreneur and ex-Packet Video
man-in-the-know David Collier joins us for Q&A on mobile
video in Japan.

Mar. 4 -- There's one thing Japan's carriers don't do
terribly well: sell wireless data and IT services to the
enterprise. But then there are mobile 'virtual' network
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--> KDDI Bungles Systems Upgrade, New Users Cut Off
http://www.forbes.com/newswire/2002/03/05/rtr530663.html
Source: Forbes.com, March 5

EXTRACT: KDDI said on Tuesday it shut down a newly installed customer
registration system for its wireless service and will have to turn
away new customers for four days. KDDI, which has been giving up
market share to its closest rival, J-Phone, said its 'au' (pronounced
like "hey you") [registration] service was shut down on Sunday in
Tokyo and 12 other nearby prefectures. "We are making utmost efforts
to restore services as soon possible," said KDDI spokesman Akira
Daikoku. He said au hoped to restore the services by Thursday morning.

COMENTARY: KDDI recently cut the handset subsidies it pays to
retailers, generating a rally in share price (J-Phone and DoCoMo have
also said they will do likewise). KDDI's stock was trading at 311,000
yen on March 5, up 36 percent from February 26 and **53 percent** from
an all-time low of 203,000 yen set in early February.

Nonetheless, we saw one recent analyst's report that said, "Almost 18
months after the lifeboat merger of KDD, DDI, and IDO, management
continues to lack any sense of urgency in rationalizing the balance
sheet and improving operations." Wow! The company continues to be
saddled with some JPY2 trillion in interest-bearing debt. What a
shame... and they've got some of the coolest handsets, too. (Of
course, some argue that with Japan's zero-interest rate policy,
massive corporate debts aren't necessarily bad....)

--> KDDI to Deploy BREW to Subscribers
http://www.pmn.co.uk/public/ce/news/march2002/8.html
Source: PMN Publications, March 8

EXTRACT: KDDI has announced it will begin deployment of Qualcomm's
BREW technology this month. KDDI will charge subscribers for the
ability to download applications to their handsets and for the data
transfer revenues incurred through use of the BREW applets. Users will
be able to purchase handsets pre-loaded with several BREW
applications, including NAVITIME map viewer for location-based
services and K Laboratory's 3D animated messaging client. KDDI will
initially supply Panasonic C3003P handsets, operating on the CDMA
network and equipped with Qualcomm's GPSOne location technology.

COMMENTARY: This has been a long time in coming. Qualcomm and KDDI
were mentioning BREW as early as February 2001. We hear BREW is
faster, lighter-weight for equivalent functionality, and more flexible
than Java.

But whatever the benefits of BREW, the argument may be moot: DoCoMo's
already got 11.8 million Java users -- and a clear lead with
developer's hearts and minds. K Labs is interesting, though. Maybe the
best strategy is to develop for **both** BREW and Java?

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--> KDDI Switches Over to CDMA as Japanese Market Slows
http://www.bwcs.com/BWCS-News690.html
Source: BWCS, March 8

EXTRACT: Japan's second-largest mobile network Au Group has stated
that it will stop accepting subscriptions to its 2G PDC network from
31 March. The operator, which is backed by KDDI, is now concentrating
on transferring all of its customers to its cdmaOne service with a
view to migrating them to cdma2000 3G services. During February Au saw
its PDC customer numbers fall by 91,000 to 1.49 million, which
represents 12.4 percent of its overall subscriber base. Both Au and
its affiliate TU-KA group [will] close their PDC networks by 2004.

COMMENTARY: First time we've seen a firm date for the closure of the
Au/Tu-Ka PDC network. Nonetheless, there are a lot of hoops to jump
through before the KDDI group can extricate itself from its
overlapping mobile businesses. Tu-Ka is burdened with debts worth
about JPY360 billion (some JPY100 billion more than at DDI Pocket).

Subscriber numbers on the PDC network (built by Motorola) have been
steadily declining, and this (plus the poor cash flow) was one reason
why negotiations last August with Orange (France) and Newbridge
Capital (US) to sell Tu-Ka fell apart. How can management think about
closing down the PDC network with all that money still owing? Were
Tu-Ka to collapse, it would be a spectacular wireless addition to the
growing line-up of corporate failures...

--> New 3G Alliance in Japan
http://www.3g.co.uk/PR/1960.htm
Source: 3G Website, March 6

EXTRACT: Toshiba and Mitsubishi Electric are in the final stages of
striking an alliance in the development of 3G mobile handsets,
national broadcaster NHK reported on Wednesday. The alliance will
involve the sharing of technology to reduce development costs for the
next-generation mobile phones, whose fast speeds make possible more
complex applications such as video conferencing and fast Internet
content downloads, it said.

COMMENTARY: Add this one to the list of mobile technology JVs between
traditional competitors:

** NEC and Matsushita Electric Industrial
(joined forces in 2001 to build a common OS for 3G handsets)

** Sony and Ericsson
(handset JV for Japan and European markets)

** NEC, Matsushita Electric Industrial, and Matsushita Communication
Industrial (dual processor handsets -- see news item above)

--> DoCoMo, Oracle to Ally on Japan Corporate Services
http://biz.yahoo.com/rf/020306/t43997_2.html
Source: Reuters on Yahoo, March 6

EXTRACT: NTT DoCoMo and database software maker Oracle Japan said on
Wednesday they would jointly develop and market advanced mobile
services for corporate customers. DoCoMo has been seeking partners to
help harness the full capabilities of its nascent 3G mobile phone
services, whose high speeds enable video conferencing and large data
downloads. In the past year, DoCoMo has forged ties with SAP to
develop services for corporate customers and with IBM's Lotus Software
group to develop multimedia applications.

COMMENTARY: Smart move, DoCoMo. We guess they must be reading Wireless
Watch! ;-) Nonetheless, this is merely a good first start. What about
the marketing of integrated IT services and wireless access to
corporations? That's a skill that none of the Japanese carriers have
too much of, and it's going to be an uphill slog to develop the
necessary sales force savvy (see last news item below).

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--> Mobile Phone Market Slowdown is Inevitable, DoCoMo Exec. Says
http://www.nikkeibp.asiabiztech.com/wcs/leaf?CID=onair/asabt/news/173697
Source: Nikkei AsiaBizTech, March 8

EXTRACT: NTT DoCoMo executive vice president Masao Nakamura hinted at
a sense of crisis building within the firm when speaking at the March
6 press conference held to announce DoCoMo's business tie-up with
Oracle Japan. Nakamura said that the number of mobile phone users in
Japan had now reached 73 million and that the saturation point of, at
most, 80 million users is fast approaching. "If this continues," he
continued, "a slowdown in market growth will be unavoidable."

COMMENTARY: Watch while all the Japanese carriers get 'enterprise
solutions' religion real fast. And don't forget retail sales to those
50 milllion dogs, cats, and parcels! (See WW No. 45.) ;-)

+++ Events (Advertisements)

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March 13 2002, Tokyo

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----

JAPAN SMALL COMPANY INVESTMENT CONFERENCE
New York City - March 12, 2002

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Keynotes will be delivered by NTT DoCoMo USA President & CEO Nobuharu
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This event is sponsored by Sonnenschein Nath & Rosenthal and organized
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or contact: jsciconference@kwrintl.com.

----

+++ Sign of the Times: Great phone; shame about the MP3s...

A comment we heard last week from an ex-EZweb user:

Just got one of those J-SH51 handsets from J-Phone.
Good camera on it. But the MP3 player is useless because
you can't copy MP3s from your PC to the SD card and
play them back on the handset. You have to plug the
phone into a stereo and record the MP3 while the CD
is playing. What a waste of time. It defeats the whole
concept of MP3 as far as I'm concerned -- now everyone
has to re-record all their MP3s onto their phones;
AGAIN! And when you want to change songs you have to
repeat the process. They had to design it this way to
prevent music piracy, I guess. If not for this
shortcoming, this would be by far the best phone ever.

======================================================================
+++ Subscriber Statistics, Corrections, Credits, Administrivia

WIRELESS WATCH EMAIL NEWSLETTER SUBSCRIBERS:
2,046 as of March 11, 2002

WEB PAGEVIEWS:
9,822 during January 1 - March 10 (142 PV/day)

WW VIDEO STREAMS:
4,899 episodes viewed February 1 - March 10
1,189 minutes avg. per day during 1-10 March

A sample of referring domains during 1-28 February:

Domain Visits Page Views
co.jp 53 199
co.uk 24 66
com.au 13 61
com.sg 5 48
f-secure.com 6 42
inktomi.com 82 100
intel.com 3 19
mot.com 4 20
motorola.com 35 194
sonera.fi 3 19
telia.com 6 33
ualberta.ca 7 21
verizon.net 21 60

STAFF
Wireless Watch newsletter and Wireless Watch Video Newsletter
researched and hosted by: Daniel Scuka (daniel@japaninc.com)
Edited by: J@pan Inc editors (editors@japaninc.com)

Wireless Watch Video Newsletter produced and edited by:
Lawrence Cosh-Ishii (lcosh-ishii@video-link.com)in cooperation with
Video-Link.com

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