DoCoMo's i-mode success: the basis for a 3G model? - Company Business and Marketing

CommunicationsWeek International, July 16, 2001 by Simon Dux

The likely delay of Japanese mobile giant NTT DoCoMo's i-mode service application platform is bad news for Europe's push to generate mobile data revenues.

DoCoMo and its European partner KPN Mobile were hoping to launch an i-mode services platform for the German and Dutch markets before the end of this year. But spokespeople for both companies are now suggesting that the joint-venture has not yet been fully established and this may impact the original launch date by several months, according to observers.

KPN's debt problems have compromised its mobile subsidiary's planned joint venture with DoCoMo. The Japanese mobile operator had moved quickly to develop European connections--a 15% stake in KPN Mobile and a 20% stake in Hutchison 3G UK Holdings--to help pioneer 3G services in Europe. But analysts believe there is a growing possibility that DoCoMo will have to write-down the valuations of these investments when it reports its interim results in September.

DoCoMo has become a victim of its own bullishness to a certain extent. An aggressive rollout schedule for its 3G services--subsequently missed--has brought the company under intense scrutiny by the financial community, and a string of handset recalls has since demoralized investors. In its latest setback, DoCoMo has suspended sales of its Panasonic P503i Hyper series Java phones, manufactured by Matsushita Communication Industrial Co., but the concurrent recall actually represented only a small fraction of the installed Panasonic handset base.

DoCoMo has delayed its full commercial launch of 3G services in Tokyo--its Freedom of Mobile multimedia Access (FOMA) wideband-CDMA platform--by four months to 1 October. But DoCoMo has not modified its target of 150,000 FOMA subscribers by the end of the second quarter of 2002.

"We agonized over when to launch our [3G] service," said Yuichiro Pat Kuwahata, head spokesman for NTT DoCoMo, interviewed at the CommunicAsia exhibition last month in Singapore.

DoCoMo's i-mode will reach saturation soon: it has around 60% penetration in Japan today and the carrier suggests 80% could be the limit. That means new services based on 3G will be needed to grow further. DoCoMo's Kuwahata said the pressure to launch 3G services is great but suggested that the standards process is still evolving.

Takeshi Natsuno, executive director, gateway business development, NTT DoCoMo, said trials with 4,000 business and residential subscribers in Tokyo were progressing well, despite some setbacks. "The technology ...is new and managing the network is as important as the technology itself."

But DoCoMo is clearly positioning i-mode asthe launching platform for its 3G services.

"The difference between 2.5G and 3G can't be seen by end-users," said Natsuno, emphasizing that it is the applications that will drive 3G. "That is why we'll continue to use i-mode in 3G."

The model allows DoCoMo to increase traffic and airtime, which in turn increases its own revenues. I-mode is a packet-switched environment, enabling a volume charge--one packet (128 bytes) will cost 0.3 Yen. In addition to the traffic revenue. NTT charges content providers a retainer fee, leaving them to generate their own revenue, unhampered by paying for access on the DoCoMo's service. According to Natsuno, the content providers in Japan are making $40 million per month, excluding e-commerce transactions, and DoCoMo gains 9% of this, plus of course 100% of the traffic revenue to the sites.

"Content gives us positive feedback in terms of increasing our subscribers," said Natsuno. "As we increase the number of subs, the average [size of] packet transmission is going up."

Natsuno said that DoCoMo earns roughly $20/month/subscriber from i-mode.

But there is scope to grow revenues still further with higher bandwidth applications. And new handset technology is on the way.

"The younger generation is driving the applications beyond 9.6 [kilobits per second], which was traditionally acceptable for mobile transactions," says Kazuo Iwama associate general manager, marketing, at NEC, one of DoCoMo's key technology partners.

Flourishing developer sites

The result of the content-friendly model has been a huge number of sites developing, spurred on by the compact HTML environment. Today, over 45,000 i-mode websites have been developed, for end-users.

Natsuno said embedded Java functions, coupled with compact-HTML was the technology "most attractive for third party content providers, not for operators or wireless vendors. This is the Internet model, not the telecom model."

DoCoMo takes this a step further by investing heavily in educating content developers and end users. "They have a team of around 60 people working solely on educating content partners on the possibilities of the platform," said Paul Tempest-Mitchell, communications business development manager at Sun Microsystems Ltd. "DoCoMo educated its user base not to be frightened by packet-based services."

"We never mention words like 'tech,' 'web" or 'browser' because technology itself can't create value for the end user," said DoCoMo's Natsuno. "Consumers only care about the final amount of money they are paying."