Hard Sell: Japan Communications Inc. Puts the M in MVNO
By Niall McKay, Mon Jul 22 00:00:00 GMT 2002

Japan Communications Inc. is one of the world's most successful MVNOs. TheFeature talks to the man that made that happen - Dr. Frank Sanda, JCI's Chairman, President and CEO.

Dr. Frank Sanda is not your typical Japanese CEO. He earned a PHD in electrical engineering at the University of Detroit in the US, started his working life in financial services industry, became the general manager of the Japan cellular subscriber division of Motorola and then the President and CEO of Apple Computer in Japan.

He seems equally at home with navigating the nuances of Japanese politics and getting his hands dirty in the hurly burly of international business. Its just as well, without this combination of skills it is unlikely that he would have been able to build one of the world’s most successful MVNOs - Japan Communications Inc. - which sells managed wireless network solutions to the business community and has an annual turn over in excess of $100 million per year. This year, despite the tough economic climate, the company will turn a profit.

MVNO means Managed Virtual Network Operator. Typically these companies buy network bandwidth from the wireless carriers add marketing, branding and value added services to provide a more attractive service to their customers. One of the most visible MVNO globally is probably Virgin which uses Richard Branson’s peculiar combination of chic, marketing muscle, high quality customer services together with the Virgin brand to both resell and compete with wireless network operator services in Europe and the US. But there are many others such as Sense Communications in Norway, Tele 2 Europe in Denmark, Cellular 3 in Ireland, Telstra in New Zealand, and Energis.

An Unknown Acronym

“Six years ago when we were starting out the term MVNO didn’t exist - that came later,” says Dr. Sanda. “The original business idea was to provide value added wireless data services as well as connectivity. If you look at the computer industry companies such as IBM, HP and Unisys have built businesses by providing solutions as well as equipment. It’s these solutions, sales systems, databases, customers services that help corporations run their businesses, not the computers. On their own, computers are petty useless. The same is true for the wireless industry. The carriers are like the water companies, they will bring water to the curb but whether you drink it or bathe in it is your problem. We take their connectivity and build business solutions for corporations. We are like a system integrator for wireless data.”

So, at the high end, JCI provides wireless connectivity and technical support for the corporate road warriors. But that’s not all. It also provides solutions that allow access to the corporate intranet, e-mail, databases, the Internet and applications, as well as software that allows the customer to control levels of access and usage time. On top of this, it also offers complete wireless voice services, allowing the customer to get the least expensive connection regardless of the carrier. “It may seem obvious but if you are going to become a MVNO you have to bring something unique, something that the carriers don't offer to the table,” says Sanda.

At the low end, JCI provides a prepaid wireless service called b-mobile. With it, anybody can buy a wireless Personal Handy Phone System (PHS) card for between $600 and $800 for one year unlimited connection (PHS is a data service offered in all parts of Japan that provides 128 kilobit connection, however, the service will soon include various 3G services).

All the user needs to do is plug the card in to the PCMCI slot, load the software and they will have access to the Internet for twelve months. JCI provides Internet connection, managed services such as security and encryption as well as compression technology that boosts the download speeds from 128 kbps to 200 kbps. Indeed, the service has proved so popular that soon it will come pre-installed on PCs from major US manufacturers. Compaq (now HP) has already chalked up a joint agreement with the company in Japan soon other US PC manufactures will follow suit).

Sony is also venturing into the MVNO business, and will offer a competitive service pre-installed on its range of laptop computers and devices. And other Japanese companies such as Kyocera, Mitsubishi, and Fujitsu have already started their own Wireless MVNO business. “Often when the user gets their new computer or device home it is difficult for them to connect to the Internet. So now the many computers will come pre-configured with nationwide connectivity,” says Sanda.

Indeed, MVNO will grab a sizable slice of the market. The wireless consulting firm Strategy Analytics predicted, in a recent report, that MVNOs will reap over $65 billion of revenues globally by 2005.

802.11, a Threat?

Still, JCI has an uphill battle on its hands. For one thing, the network operators such as DoCoMo, J-Phone and KDDI, who yesterday regarded data services as an afterthought now realize that it can become a cash cow and are aggressively offering new wireless data services. Furthermore, public 802.11 networks blindsided many traditional telcos by offering low cost broadband connectivity thus making 2.5 and 3G data services a much harder sell.

So far, JCI and most other MVNOs are providing connectivity over the PHS networks in Japan but soon they will add CDMA 2000 and other 3G data standards, but there is an ever increasing number of public 802.11 networks offering low-cost broadband connectivity in urban locations.

“I believe that on it’s own 802.11 will never become a viable business,” says Sanda. “That's because it was designed as an open standard. So if I said to my customers that I was going to provide them with 802.11 connectivity they would not be interested. Why pay JCI for a service that is essentially free. However, what JCI does is provide guaranteed wireless connectivity. How we achieve that is our problem.”

“Shortly, JCI services will roam between a variety of different networks, PHS, CDMA and 802.11. The computer will always be connected. The JCI software will switch seamlessly between all the networks, no passwords, no changing the configuration, just a single uninterrupted connection. That’s what our customers pay us for. When a connection goes down they know they can ring us and we will sort out the problem and they come to us because they are sick of ringing a wireless provider who tells them that its not a network problem but a hardware problem and ringing the hardware provider who tells them it’s a software problem and so on.”

Simple Concept

Certainly, it was acting as a single point of contact that got JCI started in the first place. In the 1990s, large companies either bought cell phone solutions from a single carrier such as DoCoMo or simply sent their staff down to the local cell-phone shop to buy their phones. Either way each cell phone was billed individually. Furthermore, there was no distinction between business and personal usage.

“This posed several problems for large corporations. Firstly, changing cell phone providers was a board level decision, secondly, billing was a nightmare, and often companies had several accounts staff just processing cell-phone invoices,” he says. “And staff were using cell phones for personal usage. So, we bought the services from the carriers and resold them to the corporations, that way they were not locked into a single carrier. Then we offered a single point of billing and I introduced personal billing where after a certain time in the day the individual rather than the company would be billed for the service. Furthermore, we offered all our invoices in PDF format so that companies or individuals could download the bill at anytime of the day or night.”

Then when the Japanese Ministry of Posts and Telecommunications (MPT) was establishing the legislative foundation for the PHS and the 2G and 3G wireless services, Sanda lobbied to open the networks to the competition “I was involved with the 3G standard and I also helped to put the PHS specification together,” he says. “I could see that what we needed in Japan was a tariff based on the network operator’s costs. Anything else would not work.”

Why? Because if the Ministry allowed the networks fix their own pricing they would simply squeeze the competition at both ends by gradually increasing the price of connectivity to the MVNO and lowering the price to the general consumer. And if the Ministry set the price it would discourage the network operator from building the infrastructure.

So, a tariff based on the cost of the network to the operator kept everybody happy. “The system works well,” says Sanda. “I both advise and compete with the other MVNOs and cellular operators. When we started, the operators were not interested in data. They didn't know how to sell it to their customers. So, we have helped grow the market. And they make money from each new customer we sign up.”

So What’s Next for the Company?

Now as the company becomes profitable in Japan it is looking to other markets to expand its business. “We are currently looking at creating a joint venture in Hong Kong and China,” he says. “These markets are underdeveloped in terms of wireless so we feel that we can really make some progress there.”

However, Sanda, says that the US is not on the company’s radar despite the fact that its one of the world’s largest underdeveloped markets. “They simply don't have the network infrastructure yet,” he says. “Besides for the moment, I would settle for being the number one wireless data provider in Asia.”

Who wouldn't?

Niall McKay is a freelance journalist based in Tokyo Japan. He can be reached at www.niall.org .