"The Times They May Be Changin'"
By Eric Ransdell, Mon Jun 17 00:00:00 GMT 2002

In Asia the wireless future is now.

William Gibson, the godfather of cyberpunk fiction, once wrote: “The future is here, it’s just not evenly distributed.” In all of high technology, that statement is nowhere more true than in the wireless space. While Japan has not one, but two operational 3G networks and Korean teenagers are exchanging color digital photographs of the World Cup over their mobile phones, most Europeans are still waiting for MMS and the vast majority of Americans have yet to even send an SMS.

While the rest of the world plays catch-up, in Asia the wireless future is now. Despite the worst recession in Japan’s post-war history and with the effects of the bursting of the high tech bubble still rippling throughout the region, Asia remains the world’s most dynamic and innovative wireless space. Yet in the past Asian companies have not been able to translate that leadership role into dominance of the world’s wireless markets. But to paraphrase that old Bob Dylan song, “The times they may be changin’.”

Japan remains at the vanguard of Asia’s wireless revolution. Whereas Europe has a single network standard (GSM), Japan currently has 10 different mobile networks. “So in Japan we have open competition between many very different technical standards, different services, different brands, different business models and all this is coupled with one of the world's most advanced electronics industries,” explains Gerhard Fasol, founder and CEO of Eurotechnology Japan, a business development and consulting company based in Tokyo.

“So right now we see a kind of shoot-out in Japan between all these standards and all these technologies where only the strongest will survive. It's like a huge laboratory for different new technologies and business models, which you'll find nowhere else in the world, except maybe on a little bit smaller scale in Korea.”

Asian Leadership

It’s that hothouse environment that keeps Japan on the bleeding edge. And if there were any doubts about Asia’s leadership in the mobile world they were put to rest late last year when China finally reached the 135 million subscriber mark to surpass the United States as the world’s number one wireless marketplace. While the rest of the world still seems to be coming to grips with that fact, in China that was 30 million subscribers ago. By the end of April of this year, China had 166.6 million mobile phone users. With that figure growing by 5 million every month, it is on track to reach a mobile population of 200 million by early 2003.

What these numbers add up to is not just an enormous market opportunity, but a shifting of the center of gravity in the wireless universe. Throughout the 1990s Japan led the world in wireless innovation and the rolling out of new technologies, but its largely proprietary systems prevented it from realizing its potential as global market leader. For its part, Korea has been a fast follower of Japan and, over the last few years, has blazed its own trails through widespread adoption and innovation to become the world’s only pure-play CDMA nation. What many Asia-based analysts believe is that these powerful forces are going to converge with China as the engine of growth.

“Asian energy in mobile is going to be concentrated in China for the next few years and I think, ultimately, Asia is going to lead the world in mobile,” says Craig Watts, a telecoms analyst with Beijing-based Norson Telecom Consulting. “Japan and Korea are already well established and China will give that a big push forward. When the size of the market establishes itself the technology is going to run with it and an Asian stronghold could develop.”

More likely than not, the catalyst for that process will be the advent of 3G in China. With the exception of the 1 million users China Unicom has signed up for its new CDMA network, China is an exclusively GSM market. Which is why western vendors such as Nokia, Ericsson, Siemens and Alcatel were able to take their years of European GSM experience and parlay them into significant market shares on the mainland.

Yet it has long been known that the Chinese government deeply resents what it views as a technological dependency on western vendors. What seems certain is that the Chinese are determined to use 3G to rectify that situation. “Some people are saying this is our big chance,” says one source close to China’s all-powerful Ministry of Information Industry. “The US won the first round with the Internet and PCs. Europe won the second round with GSM and mobile phones. Now China wants to win the third round with 3G.”

Competition and Cooperation

No countries are in better positions to help China realize that ambition than its immediate neighbors to the east. Last year the only event equal in significance to China’s surpassing of America was NTT DoCoMo’s rollout of the world’s first 3G network. The high cost and poor service of DoCoMo’s FOMA service initially made it appear that Japan’s maiden 3G voyage was headed for a disaster of Titanic proportions. But thanks to rival KDDI’s successful rollout of its 3G WCDMA network in April, which attracted 330,000 users (or triple the number of DoCoMo’s 7-month-old subscriber base) in its first month, Japan can now be regarded as the world’s 3G leader.

Japanese vendors such as NEC and Matsushita are already working with China Mobile as it upgrades from GSM to WCDMA. But the area where Japan may have the most influence is in mobile data. At the moment there are more mobile internet users in Japan than in the rest of the world combined. In fact, China Mobile’s Monternet corporation, which effectively enabled an entire mobile data services industry to emerge in China in the last 12 months, is almost an exact replica of NTT DoCoMo’s iMode business model. The Chinese also like the fact that NTT DoCoMo’s homegrown iMode system is finding a market outside Japan with iMode networks already launched in Taiwan, Germany and the Netherlands this year.

China also likes what it sees in South Korea. Embracing Qualcomm’s CDMA as a standard when most other countries were opting for GSM, has resulted in the creation of a domestic wireless industry that is well poised for global CDMA dominance. In handsets, for example, Nokia, Motorola and Siemens (which replaced Ericsson in the the number 3 slot last year) still dominate the world market.

But Korea’s Samsung is coming on strong with a market share that’s growing by 36.8 percent, the world’s fastest according to Gartner Dataquest. For their part, many Korean companies view China as the world’s biggest opportunity - and one that’s right on their doorstep. Korean companies, including Samnsung and SK Telecom, are already working closely with China Unicom, whose CDMA network is expected to be upgraded to 1x by the end of this year.

"Asian Aesthetic"

If 3G continues to be successful in Japan and Korea, it is almost certain to act as a further catalyst for 3G in China. The government’s MII is already under intense pressure from mainland manufacturers such as Huawei and China Eastcom, who feel they were left out of the GSM bonanza.

Yet western companies in Asia are not going to quietly fade away. “China’s not launching 3G anytime soon and by the time it does many countries are going to have 3G experience, including all the main European players, “ says Connie Hsu a telecoms analyst in Pyramid Research’s Hong Kong office. Hsu also points out that with four integrated mobile carriers in place in China by 2003-4, there will be incentives for carriers not to use the same standard, a situation that will create opportunities both for Asian and European players. Asian dominance of the wireless world is still but a glimmer in most technocrat’s eyes. But to get an idea of how it might work one need only look at the handset markets in Japan and Korea - where it’s almost impossible for western companies to sell their products because of their inability to keep pace with fast-changing trends in design and technology. “There’s an Asian aesthetic emerging,” says Norson’s Craig Watts. “And I think the European companies are going to have a tough time with this because they are less technologically advanced and culturally further away. In addition, they don’t understand the mobile data opportunities to the degree that the Japanese and Koreans do.”

Adds Eurotechnology’s Gerhard Fasol: “The kind of handset my 11-year-old son has in Japan comes with a full color screen, a JAVA virtual machine, mobile internet, full internet email in addition to SMS, 3 weeks battery life, a large internal memory for 100 or more JAVA applets and doesn’t exist anywhere in Europe. “In fact,” he says, “many people in Europe and the US have never seen such a handset. When I give presentations to European telecom professionals, even today I sometimes see surprised faces when I show demos of Japanese mobile handsets and their functionality. That shows how deep the communications barriers still are.”

Barriers of a different sort have long kept Korea, Japan and China from the kind of cross-border cooperation that Europe displayed with GSM. But as the World Cup currently demonstrates, despite historical enmities, cooperation is possible when the greater good of the region is at stake. Though they find little common ground on many issues, when it comes to 3G, Korea, Japan and China all believe that Asia should lead the world. And as their national teams have amply demonstrated, when it comes time to play ball, the Asians are much tougher competitors than anyone had previously imagined.

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Eric Ransdell is the former Silicon Valley Bureau Chief for US News and World Report magazine. Now living in Shanghai, he covers mobile technology in Asia.