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Piece Provided by TheFeature.com
Japanese Lead Doesn't Translate Into
Competitive Advantage
By Steve Wallage
Japan may be 12-24 months ahead of Western Europe,
but their global success is not secured.
The arguments for Japanese success
NTT DoCoMo has enjoyed great success with its data
service, i-Mode. Users now surpass 22 million, and NTT
DoCoMo keeps 9 percent of all content revenue. There
are over 1,600 official and 40,000 voluntary sites
supporting the service, which is based on the NTT
DoCoMo-developed cHTML (compact HTML), rather than
the much maligned WAP.
The success of i-Mode has left many European and US
mobile operators running scared. NTT DoCoMo
relationships now span the world - for example, AT&T
Wireless in the US, SK Telecom in Korea and KG Telecom
in Taiwan. These are all minority stakes -typically 15-20
percent.
Can this success be replicated in other markets,
particularly as NTT DoCoMo seeks to grow
internationally?
Equally with 3G. NTT DoCoMo is using the same 3G
variant, W-CDMA (wideband code division multiple
access) as European operators. It is also well ahead in
its deployment plans for the technology.
Despite the delay from May to October in introducing
3G, NTT DoCoMo still believes that it will have six million
3G subscribers by the end of March 2004, and will be
making a profit on 3G in the year beginning March 2004.
Many European operators will be struggling to even
have a full commercial 3G service at this point.
The other great opportunity for Japanese vendors
appears to be the mobile terminal market. 3G handsets
seem to favor them for three reasons.
First, they have first-mover advantages through their
domestic market. Second, the size of the market for
W-CDMA handsets will allow the Japanese vendors to
develop economies of scale. Third, the success factors
for 3G handsets are those areas in which Japanese
vendors typically excel such as consumer electronics,
miniaturization and entertainment.
A good example is Mitsubishi - it has strong capabilities
in flash memory (fifth largest producer in the world),
semiconductors (for example, working with Intel to
develop a 3G chipset), and encryption technology to be
used in 3G.
The lessons from i-Mode
European and US
commentators have been
in raptures over the
success of i-Mode. Many
have tried to identify the
key lessons to be learnt.
For example, according to
IT research company,
Aberdeen Group, its
success is due to: an
open policy towards
portals and advertising; availability of handsets and
applications; and the always-on works well and easily.
According to research-led investment house Durlacher
and Finnish VC group EQVITEC Partners, there are five
key success factors: always-on capabilities, useful
applications (despite low speeds), relatively low prices,
low usage of fixed Internet access, and youth services
such as messaging, ringing tone and wallpaper
downloads.
The i-Mode success is undoubtedly due to some great
marketing, but also due to the availability of packet
networks; and the Japanese love of such devices and
applications.It is also worth remembering that the
Japanese ARPU (average revenue per user) is nearly
double the Western European average.
But how successful is i-Mode in reality? There has been
much debate as to how 'active' many of its stated users
are and there is concern over the lack of quality content
and the poor user interface.The big mistake of
commentators is to somehow believe that NTT DoCoMo
can emulate its Japanese success into other markets.
Will i-Mode even be offered in Europe and the US?
In Europe, NTT DoCoMo is working with Telecom Italia
Mobile and KPN Mobile to offer mobile Internet services
in Germany, Italy, the Netherlands and Belgium. The
plan is to offer combined i-Mode/WAP handsets by the
end of the year.
NTT DoCoMo is also taking a 25% stake in a mobile
data company formed by KPN, and including the mobile
portals established by KPN.
Yet there are major reservations about whether such
offerings will ever develop. The future ownership of KPN
Mobile looks uncertain, and Japanese press reports
suggest that NTT DoCoMo is unlikely to increase its
Dutch investment.
Given all the problems with GPRS handsets, the
availability of combined i-Mode/WAP handsets will be a
major hurdle.The high proportion of pre-paid users,
eradicating the relationship between user and operator
found in Japan, also creates a major obstacle to the
rollout of i-Mode.
In the US, AT&T Wireless has exclusive rights to i-Mode,
and is compelled to offer W-CDMA instead of cdma2000.
It remains unclear whether it will offer the service, or
how closely it will resemble i-Mode.
The current realities for
the Japanese handset
vendors
The Japanese handset
vendors are still highly
reliant on their
domestic market. None
has broken into the top
six global vendors.
Europe has proved to be an extremely difficult
market for them, other than one or two successful
handsets. For example, Mitsubishi has had to
downgrade expectations of European terminal sales
from 16 million to nine million in the year to March
2001.
Most are also making losses on their mobile terminal
business. Equally, the contracts for non-Japanese 3G
infrastructure have rarely gone to Japanese vendors.
The latest trend has been one of alliances with
Japanese vendors. Ericsson has teamed up with Sony
to form a 50/50 joint venture, Sony Ericsson Mobile
Communications. Its ambition is to be market leader
in 3G handsets. Toshiba is working with Siemens,
while Mitsubishi is widely rumored to be looking for a
Western partner.
European commentators have perceived these deals
as indicative of the challenges facing the Western
vendors, and a further boost to the Japanese
vendors. There is no doubt that Sony was able to
negotiate a far better deal with Ericsson than it
would have 6-12 months ago, and that Ericsson was
desperate to reduce its exposure to mobile terminals.
Yet, in reality, the Japanese vendors need these
relationships at least as much as the Western
vendors.
Such agreements do not have a good history - for
example, the relationship between Sharp and Alcatel
failed. The deal is also not exclusive - Ericsson has
not ruled out further deals with other vendors, and it
already has a 3G-handset agreement with
Matsushita, while Sony has mobile chip-design
agreements with Phillips and Nokia.
The two sides seem to have kept their own
subsidiaries, though it would seem to make more
sense to have put them into the joint venture. For
example, Ericsson will retain its outsourcing
agreement with Flextronics.
Many of these deals are likely to fail, and not go close
to meeting their planned targets.
How valuable is the Japanese lead?
Historically, the Japanese market has moved in
different ways to Western markets. For example, the
Japanese developed PDC (personal digital cellular)
as their 2G standard rather than GSM or CDMA. Color
terminals are highly popular in Japan, though have
yet to make an impact in Europe.
The Japanese market and culture is very different.
The market is also likely to develop very differently
in Europe, where business users will become the
important early market for GPRS and 3G.
Due to the high cost of handsets, business users
being more likely to be early adopters, and
price-skimming strategies adopted by operators. Yet,
about 60 percent of Japanese i-Mode websites are
entertainment, 20 percent are informational and only
the remaining 20 percent are transactions and
database applications.
First-mover advantages are limited
The early bird catches the worm,
but the early worm gets eaten. Put
another way, its the second mouse
that gets the cheese. First-mover
advantages are limited for three
main reasons:
First, plagiarism rules - every mobile operator has
learnt from i-Mode. In fact, mobile operators are
highly skilled in copying the best ideas - take the
examples of pre-paid or tariffing ideas. On the
terminal side, Western vendors will continue to
develop partnerships to offset the advantages of
Japanese vendors.
Second, execution is key. The real challenge for the
Japanese companies is to take advantage of any
short-term lead that they have. In the past, they have
been unable to do this.
Third, marketing and branding are vital. Local
knowledge and content partners are key to success
for a service such as i-Mode. The impressive content
partners and brand of i-Mode has no value in Europe.
Equally, the lack of operator and channel
relationships for the Japanese handset vendors is a
major weakness.
The future battlegrounds
According to the Japanese telecommunications
council, of spending on 3G between 2001-2010, 67
percent will go on services compared with 11
percent on mobile terminals. i-Mode will soon look
like an early generation of mobile content and
transaction services.
The challenge for the handset vendors is to move up
the value chain. The Western vendors seem better
equipped to develop value-added services - for
example, early efforts in areas such as wireless
application service provider (WASP) and portals.
Initiatives on areas such as mobile security (MET) or
wireless instant messaging (wireless village) have
been established by Nokia, Ericsson and Motorola.
So many mobile commentators conclude that Japan is
12-24 months ahead of Europe - which is well ahead
of the US. This is far too simplistic and has little
bearing on competitive advantage.
In fact, US m-commerce companies are very well
positioned for global success. But that's another
story.
Steve Wallage works and writes for the451, a
website that offers critical news analysis, comment
and opinion on the technology, communications
and media industries with an emphasis on their
convergence. Steve has more than 13 years of
experience as a technology analyst specializing in
telecommunications.
Most recently, he was a principal analyst at Gartner
Group tracking the voice, data and IP service
markets for the carrier, vendor and financial
community. He predicted how these markets are
likely to grow, and helped develop the business
plans of leading vendors while analyzing key trends
in the market.
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