What’s the best way to introduce 3G?
DoCoMo and KDDI, the world’s two leading 3G operators, offer two
antithetical answers. They have made fundamentally different decisions
about everything from branding to air interface technology to pricing.
KDDI is building upon its existing brand and technology. DoCoMo
started fresh with a sub-brand and technical standard that were radical
departures from the status quo. KDDI wants to move all users to its 3G
base as soon as possible. DoCoMo sees its 40 million PDC customers
migrating gradually over the course of several years. KDDI has made 3G
the lynchpin of all killer applications moving forward. DoCoMo is
sprinkling applications like cameras, Java and video across three
disparate standards of 3G, 2G and its cheap, high-data Personal
Handyphone System (PHS).
It is too soon to draw any conclusions,
but KDDI’s playbook for 3G certainly looks better at this stage of the
game. The operator, which has a reputation as an underdog in the local
market, has signed up 1.15 million subscribers in three months for its
au brand service. The service uses CDMA 2000 1x air interface
technology, an upgrade of the existing au network that sends data at 144
kilobits per second. KDDI predicts the service will reach 7 million 3G
subscribers by next spring.
DoCoMo’s FOMA, on the other hand, is
regarded as an embarrassing disappointment for the nation’s most
powerful mobile company. The service has only signed up 115,000
customers in nine months despite a high-profile TV campaign featuring
one of Japan’s most popular pop idols and tens of billions of dollars in
infrastructure investment.
For observers in Japan, the reasons
KDDI’s success over FOMA so far are obvious and directly related to
choices around technology, brand positioning and handsets.
Because KDDI’s 3G service was based on backwards compatible
technology and brand equity, the service was an easy transition for
customers that leveraged all of benefits of the existing CDMA One
network. The operator also worked with manufacturers to ensure that 1X
handsets matched or surpassed preceding models in design, performance
and pricing.
FOMA
Foibles
FOMA, on the other hand, is based on W-CDMA
technology, which is incompatible with DoCoMo’s 2G standard called PDC.
DoCoMo only provides network coverage for W-CDMA in Tokyo and Osaka,
which means FOMA phones are useless outside these cities until national
coverage is completed in spring 2003 at the earliest. DoCoMo is also
working on dual mode handsets that will enable users to access W-CDMA
and PDC networks. But these phones will not be ready until next spring
either.
On top of this, FOMA handsets have alarmingly poor
design and performance in comparison to the operator’s sleek, elegant
i-mode phones. FOMA phones are among the most expensive on the market
(around 40,000 yen) and have battery life that is roughly one-fifth that
of KDDI handsets.
Nathan Ramler, a telecom analyst at UBS
Warburg investment bank in Tokyo says: “I try to use FOMA here at the
office and the battery is always going out.” He adds with a laugh,
“There is no way I would have one of these if I wasn’t a telecom
analyst.”
DoCoMo officials freely admit that in the race to
launch the world’s first 3G service last year, some of FOMA’s
shortcomings caught them by surprise.
“We were the first in the
marketplace and the consumer response was unexpected. The pricing and
lack of standby hours due to short battery life were all part of the
reason that FOMA didn’t catch on,” said Naokazu Kasahara of the DoCoMo
Public Relations Department.
Nonetheless, the operator still
stands firmly behind FOMA, but does not expect it to replace 2G as a
mainstream consumer network by next year.
“At this moment, there
are 40 million i-mode users on the PDC network. But that does not mean
they will necessarily go to FOMA service,” said Kasahara. “We want to
move to 3G in gradual stages. There will be too much confusion among
consumers if we shift dramatically toward FOMA and it will be a big cost
in rollout coverage.”
If DoCoMo is able to meet its target of
FOMA coverage for 90 percent of Japan by March 2003, then Ramlser
believes “that will be the inflection point where it can start to become
relevant as a mass market product.”
2G Still
Paints a Pretty Picture
None of FOMA’s troubles
have detracted from DoCoMo’s power to continue its undisputed reign in
2G phones. This is evidenced in the latest June sales figures where the
operator took more than half of the whopping 3.8 million phones sold
that month. This summer, the operator has renewed its focus on 2G where
it can deliver lucrative applications pioneered by rivals and deliver
them to its i-mode constituency. An obvious example is i-shot, DoCoMo’s
belated response to the camera phone craze set off by J-Phone’s
“sha-mail” service one year ago.
“For a long time, DoCoMo
didn’t want to launch a camera phone, they just want to push FOMA, which
has a picture taking function. And they didn’t want to be perceived as
following J-Phone. With the i-shot, they are sort of backtracking on
this,” said Ramler.
DoCoMo’s multi-faceted approach couldn’t be
farther from KDDI, which since March has focused on 3G as the
denominator for all applications and handsets moving
forward.
“1X is the common platform for all of au,” said Fumiko
Kaneyama of KDDI at a presentation for the industry trade show Wireless
Japan in Tokyo this July. “This includes camera phones, GPS, java,
movies and music.” The five models on the market now offer combinations
of these applications, but no one phone offers everything. (Only one
current phone, manufactured by Toshiba, has a function for receiving
movie clips.)
“The emphasis by KDDI is on 2G data usage, which
is probably most appropriate for weaning people onto a high-speed data
platform while the environment for 3G applications matures,” said
Ramler.
Another element of KDDI’s strategy to increase
subscribers is its heavy subsidization of 1X handsets. KDDI’s critics
argue that the operator can continue to take losses as it brings on
subscribers, many of whom are already au customers merely upgrading from
a 2G handset. According to Ramler, KDDI subsidizes approximately 40,000
to 45,000 yen per handset in contrast to a 32,000 yen per handset at
J-Phone and 30,000 yen for each DoCoMo
phone.
J-Phone Takes Game
Global
Both DoCoMo and KDDI will feel the heat next
year when J-Phone unveils its own 3G network using W-CDMA, which is
currently in trials. J-Phone entry will change the dynamics on several
levels. For on thing, it is perhaps the shrewdest marketer of the three
as it proved with sha-mail service that KDDI and DoCoMo have taken a
year to emulate. But more than any other operator, J-Phone is a portent
of internalization of 3G through its parent company Vodafone. J-Phone
has already indicated it will contribute expertise in camera phones to
Vodafone’s global service offering. It is easy to imagine that Japan
could become the testbed for the world’s largest operator’s plans to
dominate the next generation of networks.
“Anything J-Phone does
is globally relevant,” according to Gerhard Fasol, CEO of Eurotechnology
Japan. “For this reason alone, J-Phone’s trials are very important and
may be immediately relevant for the DoCoMo/Vodafone power balance in
Europe for example.”
Wireless geeks around the world will keep
an eye on Japan for the next year, hoping to glean a few clues from a
technology contest played out for the first time. The different
strategies at play could spell doom for certain companies and
technologies. Fasol, however, thinks the maturing mass market will be
big enough that the several different strategies can
succeed.
“In the end, some people may use FOMA for some
particular applications at work,” said Fasol “They might use a PHS card
for their PC wireless connection. They may use wireless hotspots in
their lunch break and a wireless LAN at work. And then a KDDI or
accelerated i-mode phone for their personal and business communications.
There will be many families with 10 or more wireless devices on
different networks for different purposes – my own family here in Tokyo
is already close to this
situation.”
Dmitri Ragano is a consultant
based in Tokyo, Japan.