DoCoMo Disagrees With Its Own Path To Success
By Mike Masnick, Thu Feb 03 00:00:00 GMT 2005

NTT DoCoMo seems to have found its stride again lately, but that doesn't mean it's sure of what comes next.

NTT DoCoMo seems to be successfully riding the mobile roller coaster. For a while, it was the talk of the mobile universe with the success of i-mode, only to have that reputation hurt with the difficulty in getting its FOMA 3G service accepted and its mostly failed international expansion plans. However, in the last year or so, it seems to have righted the ship. It introduced flat-rate pricing and offered cooler phones, leading to rapid growth in FOMA subscribers.

However, that doesn't mean all is well at DoCoMo. CNET's is running an interview with Kei-ichi Enoki, DoCoMo's executive VP and managing director of products and services, who is often credited as being one of the "driving forces" behind i-mode. While he's obviously pleased with where things are right now, he expresses a lot of concerns. He even suggests that AT&T Wireless and DoCoMo were about on par seven years ago, but DoCoMo went after the consumer market in Japan while AT&T Wireless went for the business market in the US -- and going after consumers was the right move. He almost makes it sound like it was a flip of the coin, but DoCoMo came out on the lucky side.

Snapping back to the present (and future), however, he's excited about the ability to make 3G handsets more central to what you do in your life, which he describes as a "purse handset," which appears to just be a smartphone with the FeliCa mobile payment system. Still, he's not sure how everything is going to turn out. Despite the enthusiasm in some areas for video calling, he thinks it's a small market, noting that most videoconferencing is for work and that no one really wants to do it. He's equally skeptical about TV over mobile phones, noting that it's not a difficult technology, but there is, perhaps a "psychological issue," that makes it not that compelling to users. It's a nice way of saying there's really no demand for it.

He also confronts some of the differences (and similarities) between Japan and the US when it comes to mobile data services. He dispels the idea that Japan is more successful because everyone commutes to work via public transportation (giving them a time and a place where mobile Internet access makes sense) by pointing out that most people outside of Tokyo have cars and drive to work -- and they use i-mode more than commuters. However, there are some differences between the US and Japan, and it focuses on how the market is set up. He suggests that Americans are fearful of top-down standards, leading to market competition that creates de facto standards, whereas mobile data in Japan has been more successful due to government-led standardization. This may be an over simplification of what has really happened in both places (and plenty of people would disagree with both assessments), but it does give you a sense of how he views the different environments and what forces he expects to play on mobile data services in both areas.

Still, the most interesting part of the internet concerns business models and pricing. While many credit DoCoMo's decision to offer flat-rate pricing for its ability to sign up so many new customers, and take back the crown from KDDI as the leading Japanese mobile service provider, Enoki is clearly ambivalent (leaning towards hostile) to the idea of flat-rate pricing. He basically admits he was forced into it by competitive factors (again, showing a general distaste for actually having to compete), but that it's a bad idea, in part because it increases mobile data usage without a corresponding increase in revenue. He fears that this model doesn't actually work when there's limited spectrum, because there are no pricing controls to make sure the spectrum isn't overburdened. He sums it up by saying: "the business model for the mobile phones is that we wanted the customer to use it a lot and increase our revenue. Coming up with higher-function handsets--that's the way we increased our revenues. If you go to a flat rate, revenue is limited."

That sounds good, from the corporate side, but completely misses out on the aspect of how the market actually works. DoCoMo was forced into flat rate pricing by the market, because that's what customers want. Per minute or per byte fees, while they may increase revenue per user, don't actually encourage usage. The end result was fewer users doing fewer things on the phones. DoCoMo could innovate all they wanted, but if the pricing didn't make sense, then it wasn't going to be used. What he's basically saying is that he believes so strongly in the idea of enabling application providers to create software and services that a killer app will make people price insensitive -- but he simply ran out of time. This suggests he either misjudged DoCoMo's developer partners or the power of the market -- or possibly, both. The fact that DoCoMo's newfound success is based on policies that seem to go against what the company believes in might mean that DoCoMo's next moves aren't quite as daring, as it isn't entirely comfortable with the business model it's been forced to embrace. It certainly opens up plenty of opportunities for a new provider, like Softbank to really challenge DoCoMo in the near future, if only it could get the spectrum it wants.