WW-53 -- Sneak Peak at J-Phone Report

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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. 53
Tuesday, April 22, 2002
Tokyo

INDEX

+++ Viewpoint: Sneak Peak at J-Phone Report

+++ Noteworthy News
---> Japan Mobile Phones Show First Sales Slip
---> DoCoMo's New 3G Product -- the Portable Office Hub
---> More Static for 3G
---> Can mMode Import Wireless Web Craze?

+++ Sign of the Times
---> Gerontocracy and its Perks Sap Resources

+++ Subscriber Statistics, Corrections, Credits, Administrivia

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+++ Viewpoint: Sneak Peak at J-Phone Report

There's a Vodafone/J-Phone presentation available online that appears to have
been released around the time of their end-of-FY results this spring. It
provides a lot of interesting information, and it's clear the Vodafone is
really, **really** interested in what happens at their Japanese subsidiary.

Herewith we present a sneak peak at some key points covered in the presentation
(we say "sneak peak" because you won't find this report by searching on the file
name on the Vodafone.com site).

Of course, the points are all stated from a self-interested Vodafone/J-Phone
standpoint, and, without having attended the original presentation in person,
it's difficult to appreciate some of them in context. But with those caveats in
mind, the presentation is well worth a review.

Slide 8 -- Reiterate Outlook in FY 2003
** Year-end customer growth under 10%
** Increased ARPUs: Double-digit revenue growth
** Continued margin improvement
COMENTARY: Even if customer growth is under 10% in 2003, that will give J-Phone
around 13.4 million subs in March 2003, which We estimate based on a little less
than 10% increase on top of the 12,232,000 they had at end-March 2002. The
double-digit revenue growth, if they can achieve it, would make J-Phone a
significant competitor to NTT DoCoMo. Nonetheless, Japan Telecom expects a group
net loss of 71 billion yen for the business year that ended on March 31
according to iwon.com on April 21.

Slide 10 -- Japan
** 50% penetration - well behind Europe - growth still to come
** Most advanced wireless data market
** 80% of J-Phone痴 customers have internet access enabled phones
** >50% using internet services
** >30% have phones that take full color pictures
** Multi-media messaging a reality since H1 2001
COMMENTARY: It's interesting that senior Vodafone/J-Phone managers perceive room
for additional growth in Japan. Some analyst reports have been pointing to
marginal subscriber effects as the reason why growth in DoCoMo subs is falling
off. We wonder how valid the comparison to Europe is for assessing what the
ultimate market penetration will be. What if all the folks who are going to buy
cellys here (and who are the lucrative heavy users) already have them? If so,
Dr. Tachikawa's focus on pets, packages, and vending machines (See WW No. 45)
makes sense, and we wonder what J-Phone will do.
http://www.japaninc.com/newsletters/index.html?list=ww&issue=45

Slide 20 -- Japan Market Summary
** Second largest mobile market by revenue
** High ARPUs
** 2X European average
** Midrange penetration ・growth upside
** Current penetration 53.1%
** No 3G spectrum costs
** Mobile data early adopter
COMMENTARY: We guess the first fiscal quarter of the baby i-modes in Holland and
Germany will reveal what sort of non-SMS, Japanese-style-content data usage
European subscribers will generate. In any event, keep in mind that more than
50% of data usage on all three of Japan's wireless webs is for mail; ring tones
and screen wallpaper account for most of the remainder. J-Sky, i-mode, and EZweb
teach little about mobile data usage in a corporate/enterprise context --
considered one of the main selling points for mobile data in Europe.

Slide 30 -- J-Phone痴 Share of Net Customer Growth is High
As of FY01/Q4, J-Phone said it was gaining 30% of monthly net adds, second only
to DoCoMo (69%) and well ahead of KDDI/Au (6%) and Tu-Ka (-5%).
COMMENTARY: We guess that since the launch of Movie Sha mail, this ratio has
increased, if anything, at the expense of NTT DoCoMo and KDDI; J-Phone is indeed
now in second place. Wow! Is there a major wireless market anywhere in which the
No. 2 slot changed hands on the strength of a single handset, intensive
brand-centric marketing, and an i-mode-copy-cat wireless web??

Slide 37 -- [ARPU] Driven by data
This slide shows ARPU variation from 2000/03, which was 8,100 yen (2% due to
data) to 2002/03(E), which was estimated to be 7,800 yen (13% due to data).
COMMENTARY: This trend is similar to what the other Japanese carriers have been
finding. Note that for all Japanese carriers, MOU is trending down -- unlike
most other advanced markets (like Korea).

Slide 40 -- Data Drives More Usage
This slide shows ARPU per user, and indicates that:

Type of User ARPU as a percentage of
average subscriber's ARPU
------------ -------------------------
Voice-only users 70%
Web, SMS mail users 107%
Web, long mail users 120%
COMMENTARY: Sure -- but the key question is, How many subscribers fall into the
later category? And as new data-intensive services are released, how many heavy
data users will be cannibalized from existing services, leaving only the
light-weight users, who generate little additional ARPU?

Slide 43 -- J-Sky Content, by percentage
Games 20
Other 16
Images 13
Ring tones 12
Sports 8
TV/Movie/Music 8
Shopping/Life 6
Horoscopes 5
Weather 4
Traffic/Travel 4
Index search 4
COMMENTARY: No comment, other than -- as mentioned above-- that mail now
represents over 50% of usage on all of Japan's wireless Webs.

Slide 44 -- How Do Content Providers Get Paid?
** J-Phone charges customers for accessing specific 3rd party content through
their phone bills
** Content providers are reimbursed by J-Phone
** J-Phone charges content providers a fee for handling the customer billing and
listing their content on J-Sky
COMMENTARY: Note the J-Phone will bill the mobile content provider to offer
sites via J-Sky; this is different than the original model of how the wireless
webs worked in Japan (wherein the carriers merely extracted a bill handling fee)
and is in concert with rumors I've heard about DoCoMo and i-mode as well. Of
course, for content providers, the bigger you are -- and the more packet traffic
you generate -- the greater the chance you can negotiate low or no fees.

Slide 47 -- Sha-Mail Has Also Sparked Strong Interest Among DoCoMo Users This
slide shows a chart -- perhaps from a market survey -- indicating that some 35%
of NTT DoCoMo users would "like to use Sha Mail." COMMENTARY: We suspect that
DoCoMo downloaded this presentation and noticed this particular point long
before we did, since they've already announced their own camera phone for
release sometime mid-2002.

Slide 50 -- Capex Discipline
** Rationalization of 3G build out
** Joined Vodafone global purchasing
** Review of costs and specifications
** Focused 3G Capex on FY 02 service launch areas:
Jun 2002 -- Tokyo launch
Oct 2002 -- major urban areas
Mar 2004 -- 90% coverage
COMMENTARY: Watch for a press release on June 30 for J-Phone's 3G launch!

Slide 51 -- Handset Rationalization
** Number of handset models in 2002: 23
COMMENTARY: Note this has dropped from an initial planned fleet of **35**
handsets!

3G
** Global roaming opportunity for incremental revenue
** 3G call completed (Japan-Spain)
** Tokyo launch on track for June 2002
** Main cities launch on track for October 2002
** Core and spectrum capacity for increased customers
** Better voice quality than PDC
** More data
** Global standard, benefits of group purchasing and standardization
COMMENTARY: So, in a nutshell, here is why J-Phone think 3G is the way to go.

Slide 61 -- Leverage Vodafone
** Leveraging J-Phone for Vodafone
J-Sky
Sha-Mail, Movie Sha-Mail
Relationship with application service providers
Service innovation
Further business scale
Relationship with handset suppliers
COMMENTARY: We would have thought that the main leverage of J-Phone for Vodafone
would have been access to established relationships with the Japanese handset
suppliers (and so this bullet should have been first); handsets drive
everything. Why else did KPN launch i-mode in Europe with an NEC model?

--Daniel Scuka
daniel@japaninc.com

Access the original presentation at:
http://www.vodafone.com/download/investor/presentations/vodafone_japan_2...

Note to subscribers: Please accept our sincere apologies if we caught you by
surprise with the switch to HTML format last week. Those of you who sent in
notes asking to be kept on the ASCII-text-only list will continue to receive the
text version. Drop me a note if you're receiving the HTML version and want to go
back to ASCII. HTML will be the default for future sign-ups, but we'll add a
select box to the sign-up page as soon as we can.

A Little Shameless Self-Promo (from one of the flat-rate-fee-receiving authors):
The i-Mode Developer's Guide (Addison Wesley Professional), by Paul Wallace,
Andrea Hoffmann, Daniel Scuka, Zev Blut, Kyle Barrow, is finally shipping from
Amazon. A great way to jump into the i-mode world if you're a programmer, and if
you're a business development type, Chapters 1 through 7 are for you.
http://www.amazon.com/exec/obidos/ASIN/0672321882/qid=1019459603/sr=
8-1/ref=sr_8_3_1/104-4591270-7088714

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+++ Noteworthy News

---> Japan Mobile Phones Show First Sales Slip
http://asia.cnn.com/2002/BUSINESS/asia/04/16/japan.mobiles.biz.reut/inde...
Source: Reuters on CNN.com, April 16

EXTRACT: Japan's domestic sales of mobile phones shrank in 2001 for the first
time, a research firm said Tuesday. Gartner Japan said handset sales fell 2.4
percent last year to 40.6 million units, the first decline since it started
compiling the data in 1990. That is the latest indication that the world's
second-largest mobile phone market is nearing saturation. NEC Corp, maker of
popular folding phones, grabbed top spot with 28.3 percent of a market in which
competition among vendors is getting even hotter. It took over the lead from
Matsushita Communication Industrial, maker of Panasonic brand phones, which
slipped to second with sales of 7.3 million units for a 17.9 percent market
share.

COMMENTARY: Gartner says that NEC sold 11.5 million phones, and that Sanyo was
No. 3 and Sharp No. 5 on the strength of their camera-equipped models
(Mitsubishi Electric was fourth with sales of 3.6 million handsets). The also
forecast that demand for 3G phones may begin to pick up in 2H2002. The camera
phones are interesting. Even DoCoMo will deal with Sharp for the new i-mode
camera phone, and this presages a re-ordering of the long-established pecking
order amongst the handset makers.

Sony (now Sony Ericsson), NEC, Matsushita, Mitsubishi, and Fujitsu have long
been the tier 1 suppliers to DoCoMo (only) and to other carriers. Hitachi,
Kyocera, Sanyo, Sharp, and Toshiba have been the tier 2 players, supplying
the non-DoCoMo carriers (and sometimes DoCoMo). Finally, Kenwood and Japan
Radio have also been active in the market. Oh, yes -- there's also Nokia,
Ericsson, and Motorola (out of the market for a number of years now).

---> DoCoMo's New 3G Product -- the Portable Office Hub
http://money.iwon.com/jsp/nw/nwdt_rt.jsp?cat=USMARKET&src=201&feed=
reuｧion=news&news_id=reu-t22960&date=20020416&alias=/alias/money/cm/nw
Source: Reuters on iWon.com, April 16

EXTRACT: NTT DoCoMo unveiled on Tuesday a new type of 3G mobile phone with
built-in ports to hook laptops and PCs to high-speed Internet networks. DoCoMo
already has four 3G terminals on the market and has said it is seeking more
innovative ways to take advantage of 3G's fast speeds capable of sending video
to mobile phones. The 3G terminal built by Fujitsu is about the size of a small
laptop, weighs 720 grams and connects to the Internet or to corporate networks
at 384 kilobits per second, more than six times the speed of a conventional
dial-up connection. The phone, which can be used to set up a temporary office,
comes equipped with a keypad, four Ethernet ports, a USB (universal serial bus)
port and has a Bluetooth-enabled handset that works without a cable.

COMMENTARY: President Tachikawa told Reuters in an interview that the company is
preparing to unveil several new 3G models over the next few months that would
appeal to business users and be used in news ways. We think this is a smart move
on Big D's part and neatly taps into the consumer and small business
"do-it-yourself" spirit on which Japan's consumer PC and IT network sales shops
(Yodobashi Camera, Bic Camera, Laox, any one of about two dozen shops in
Akihabara) have long profited.

The F2611 features:
(Access complete specs here:
http://foma.nttdocomo.co.jp/catalog/term/f2611.html)
** Packet transmission up to 384 kbps (sending and receiving)
** Hub for connection of up to four PCs
** Router enables settings to be handled via PC web browsers
** Bluetooth handset (included) for use up to approx. 7 meters from terminal
** "Multiaccess" function allows simultaneous voice and packet transmission
** Four 10BASET (RJ-45) LAN ports
** One USB 1.1 port

===============================================================================
ANNOUNCEMENT
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WIRELESS WATCH STREAMS!

We now produce a weekly streaming video version of the Wireless Watch
newsletter, courtesy of the media gurus at www.video-link.com

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

Apr. 22 -- Interview with a Keitai Enthusiast
We interview Roy Tseng, a Tokyo resident, Web developer,
and long-time keitai enthusiast (as well as ex-JI Web
master) about the good, the bad, and the cool on Japanese
cell phones. Find out how J-Phone's camera phones can be
used in Tokyo bars to boost one's social life.
Well, sort of...

Apr. 29 -- Unclogging the Bowels of the Mobile Web
Next week, we look at the recently launched Tango Town
wireless Web site, one that works as well with Japanese
fonts, characters, and data encodings as with English.
Is this a model for multilingual mobile sites on the
babble of baby i-modes in the European multilanguage
market?

We'll post the latest webcast in various streaming formats each Monday evening,
around 17:00 JST. Tell your friends, burn your bandwidth, and log on to the
inside story with the Wireless Watch Video Newsletter.

http://www.video-link.com/wireless/index.asp
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---> More Static for 3G
http://www.time.com/time/asia/magazine/article/0,13673,501020422-230451,...
Source: Time, April 22

EXTRACT: Pity the telcos. Or scorn them for their bad investments. Remember the
billions they pumped into 3G, that supposedly transformative technology that
would have us all downloading Matrix sequels over our wristwatches and holding
videophone conversations with grandma? All that's beginning to look a little bit
moot as another wireless technology, faster and much cheaper than 3G, gains
popularity. Playing spoiler is a wireless Internet access system called Wi-Fi
that is increasingly available in airports, restaurants, hotels, subway stations
and other public places. Originally intended for use in private home and office
networks, Wi-Fi (which stands for wireless fidelity) isn't as sophisticated as
3G cellular. The small, stand-alone Wi-Fi transmitters that pass information
between computers and the Internet have a range of about 90 m; you can't roam
far from a base station without losing the connection. But blazing speed妖ata
zips along at 11 megabits per second, more than five times faster than the
transfer rate of planned 3G systems洋akes Wi-Fi a practical way for commuters to
download their e-mail while waiting for an airplane, a train or a client.

COMMENTARY: This is an interesting article. It reveals, in part, that: (a) Wi-Fi
could capture up to one-third of the revenues mobile carriers had hoped to get
from corporate 3G users; (b) portable computer makers now sell many models with
built-in Wi-Fi capabilities; and (c) setting up a network takes no license and
no special skills. A simple base station costs as little as $300.

That latter point, while factually true, is disingenuous. While it may not take
special technical skills nor a license to set up a network, it does take a
helluva lot of smarts, business savvy, and marketing ability to make Wi-Fi-based
services work. Also, it is by no means an easy thing to "wire a city;" owners of
hotels, train stations, airports, and other obvious locations all have
technical, business, and marketing issues to resolve whenever a would-be
802.11(b) operator comes knocking. This piece states that "Wi-Fi won't make 3G
obsolete;" we agree. But it will become significant.

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fabien@japaninc.com
T: +813-3499-2175 ext. 1709
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---> Can mMode Import Wireless Web Craze?
http://story.news.yahoo.com/news?tmpl=story&u=/zd/20020417/tc_zd/5106400
Source: ZDNet, April 17

EXTRACT: With the debut of "mMode," AT&T Wireless is offering games, messaging
services and other features on a customer's mobile phone -- all for an
additional monthly fee. To use the service, customers will have to buy one of
four phones, which range in price from $79 to $200. mMode, the US version of the
wildly popular i-mode offered by Japanese carrier DoCoMo, is among the first
attempts by US carriers to sell more than just faster wireless Internet access
over their new telephone networks. The success or failure of mMode could shape
what other carriers offer to their customers. Sprint PCS, for example, plans to
launch a higher-speed phone network in early summer. Alan Reiter, a wireless
analyst with consultancy Wireless Internet & Mobile Computing, was skeptical
that the service could dramatically push that US number higher. "There are no
magic bullets," he said.

COMMENTARY: AT&T Wireless will charge by amount of data; 2MB per month for
$12.49 (for example). But note that the carrier will **round** up the amount
used per 24 hours to the nearest kilobyte. Yikes! That 30 or so roundings-up per
month. Assuming that the round up is from XX.5~XX.9 to XX+1 KB, that could be as
much as 30 x .4 KB = 12KB per month of additional billing. ;-(

AT&T Wireless claims that this approach is "industry standard" (based on
rounding up of voice minutes usage) but we think it's "industry stupid." The No.
1 lesson from Japan's wireless webs -- and we've said it before -- is bill tiny
amounts for usage so that customers don't think about self-metering and they
will end up using a **lot** more packets. Data packets aren't the same as voice
minutes.

+++ Sign of the Times

Gerontocracy and its Perks Sap Resources

When DaimlerChrysler acquired Mitsubishi Motors, they discovered
that there were 68 "senior advisers" in the corporate woodwork. All
of these men had offices, staff and various perks, while in general
their contribution to the corporation ranged from the ineffectual to
the positively dangerous. Mitsubishi Motors could probably be taken
as a microcosm of Japan: a company that, in fact, had reasonably good
products and technology, but because of gerontocratic management and
all the costs associated with it was crumbling to the point of
disintegration.

Not directly related to wireless, but this is absolutely one of the most dead-on
accurate description of what really goes on behind the corporate shoji that
we've ever read.
http://www.japantimes.com/cgi-bin/geted.pl5?eo20020422jl.htm

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+++ Subscriber Statistics, Corrections, Credits, Administrivia

WIRELESS WATCH EMAIL NEWSLETTER SUBSCRIBERS
2,249 as of April 21, 2002

WIRELESS WATCH WEB
January 1 - April 21: 11,387 page views

WIRELESS WATCH VIDEO
Feb 1-28, 2002: 3,796 streams (908 mins/day); 3.2 views per unique visitor
Mar 1-30, 2002: 4,621 streams (1,557 mins/day); 1.75 views per unique visitor
Apr 1-21, 2002: 3,219 streams (26,865 total mins); 1.5 views per unique
visitor; 13 mins. avg. visit

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
( video@japaninc.com ) in cooperation with www.video-link.com

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