Playing to WIN

Telecom Asia, July, 2004 by John C. Tanner

Telecom Asia: What are the hot apps for 1x and 1X WIN services at the moment?

EZ Chaku-Uta has been one of the most powerful driving forces of KDDI's 3G success. EZ Chaku-Uta allows users to download about 30 seconds of a song's chorus with the artist's vocal--a feature not available with conventional ringer melodies. Total downloads for Chaku-Uta reached 81 million as of the end of May.

Additionally, EZChannel for 1X WIN is gaining popularity. This is a program distribution service enabling users to enjoy a variety of heavy multimedia content as if they were TV programs or magazines. By selecting a program from a guide provided on EZweb and reserving them, content is updated on a daily or weekly basis and delivered to users automatically at midnight or early morning. The content can be replayed until the next content arrives.

What has been the biggest challenge in offering 3G services to date?

KDDI has put an emphasis on explaining to customers that KDDI's 3G services are an enhancement of 2G, which means the 3G systems, 1X and 1X WIN, have backward compatibility with the 2G system, cdmaOne. In KDDI's 3G services, the service area, size and weight of handset, cost of the handset and battery longevity are the same as those of 2G, so that customers feel no stress in upgrading from 2G to 3G.

Now that your W-CDMA rivals appear to be growing at a faster rate than before, what's your strategy for fighting them off?

Considering the fact that over 80% of "au" users have already shifted to 3G and the fact that the total number of NTT DoCoMo customers is 46 million--compared to au's 17 million--it is natural that NTT DoCoMo's 3G ratio is growing faster than before.

KDDI provides unique services like EZ Chaku-Uta, movie-mail, GPS navigation, EZ channel, etc, on 3G infrastructure. KDDI will be continuously innovative in introducing attractive content and applications that will not be provided by other operators. Additionally, KDDI has introduced a flat-rate service of packet transmission for 1X WIN, thanks to the low cost of our EV-DO network. KDDI hopes the tariff will attract users of our rivals as well as our 1X users.

Most 3G operators tend to target consumers--does KDDI have a strategy for targeting the enterprise/corporate space with 3G applications/services?

KDDI has already acquired approximately 200 corporate users for our GPS MAP service, which is a location information management service that takes advantage of highly accurate location measuring capabilities to improve transport management, sales and marketing activities, and the dispatch of maintenance personnel. KDDI also offers mobile live video distribution service for remote monitoring of corporate users. In addition to ordinary handsets, KDDI is aggressively encouraging the use of module type 1X and EV-DO terminals for data communication for automobiles, digital cameras and/or vending machines.

NAME: KDDI Corp

BUSINESSES: Mobile services, including cdmaOne, cdma2000 1X, and 1X WIN (EV-DO); Internet services, including dial-up, ADSL and FTTH; IDD services; and global enterprise solutions such as managed data services (IPLCs, frame relay, ATM, IP-VPN), data centers and Inmarsat services.

MAJOR SHAREHOLDER: KDDI is a public company that trades on the First Section of the Tokyo Stock Exchange.

BACKGROUND: KDDI is the product of a 2000 merger between international carrier KDD, long-distance and mobile operator DDI, and mobile operator IDO. Before the merger, however, both DDI and IDO--which already offered mobile services like PDC and PHS--had decided in 1997 to deploy CDMA services. By 1999, they had teamed up to jointly offer CDMA nationwide. A year later, they added 64-kbps data services to their CDMA portfolio. Since the merger, KDDI phased out the last of its PDC subscribers in April 2003 (though it still owns another PDC operator, Tu-Ka). Last month, it struck a deal with the Carlyle Group and Kyocera to sell most of its 81% stake in its PHS subsidiary, DDI Pocket (ironically, the only PHS operator in Japan whose user base is growing rather than shrinking). KDDI went 36 in December 2002 with the launch of cdma2000 1X, followed by 1x EV-DO (branded 1X WIN) in November 2003. Its 1x service has been a runaway success, outpacing its competitors' 3G offerings by a mile and racking up 14.3 million subscribers as of the end of May 2004. Around 340,000 of them are 1x WIN subscribers, 52% of which are former 1X or cdmaOne users.

FINANCIAL HIGHLIGHTS: KDDI doubled its consolidated net profit for its latest fiscal year ending 31 March, 2004 to 117.02 billion yen ($1 billion), from 57.4 billion yen a year ago. Its "au" mobile business was the main driver for that growth, posting a 12.2% year-on-year increase in operating revenues, and a 345.2% leap in operating income. Its 1X ARPU for the quarter from January to March 2004 was 8,100 yen--three-quarters of it from voice. While that's 300 yen lower than the previous quarter, it's higher than the company's 2G CDMA service, which registered an ARPU of 5,560 yen for the same quarter.