Japan: The birth of the Wireless Information Society

by Madanmohan Rao (madan@inomy.com)

Almost exactly 30 years ago, Motorolaís Martin Cooper, now regarded as the father of the modern cellphone, unleashed an entire industry when he made some of the first calls with a portable cellular phone in New York city. The rest, of course, is history ñ a lot of which is being written right here in Asian countries like Japan.

Today, IDC predicts that by 2006, 3 billion cell phones will be in use, and 50 percent of Internet users will be mobile. Gartner Dataquest estimates that by 2007, nearly 120,000 Wi-Fi hotspots will exist worldwide, with Asia accounting for about a third of these.

Star Performers

Despite setbacks last year like billions of dollars of written-off investments in overseas companies and a faltering start to its 3G service, wireless Internet star NTT DoCoMo seems to be rebounding this year. It has capitalized on camera phones, wristwatch phones and fingerprint-authentication systems, and hopes to attract over a million subscribers to its 3G FOMA service this year; it may even invest in Hutchison 3Gís UK launch.

DoCoMo and J-Phone have reportedly sold 9 million camera phones each, though DoCoMo hopes to grab a lead with new megapixel-plus camera phones. It has also launched a new wristwatch phone called Wristomo. I-mode has close to 40 million subscribers today.

DoCoMoís newer 3G handsets are lighter, cheaper and have longer battery lives than previous models. KDDI launched GPS-enabled mobile phones in December 2001, and DoCoMo has recently followed suit.

According to the Multimedia Research Institute, camera-equipped cell phones in Japan made up a third of total cell phone shipments in the first half of fiscal 2002, and over two-thirds in the second half.

In April this year, KDDIís CDMA2000 1X voice and data network crossed the 7 million user mark, within a year of launch. Subscribers in 47 of Japanís prefectures and administrative divisions can access the service with a maximum downstream speed of 144 Kbps and a maximum upstream speed of 64 Kbps.

According to the 2003 Telecommunications Market Review and Forecast, an annual publication produced by the US-based Telecommunications Industry Association (TIA), the largest regional market outside North America is the Asia-Pacific region. It is estimated that close to half a billion cell phones will be sold worldwide this year. Wireless tablet PCs are also expected to do well in Asian countries like Japan due to better performance and conveniences in handling Asian character-based languages.

Japan''s domestic handset shipments have posted strong growth as camera phones and high-speed 3G services continue to spur upgrade demand, according to the Japan Electronics and Information Technology Industries Association (JEITA). This is certainly reason to celebrate for handset makers like Hitachi, Sanyo, Sony, Toshiba, NEC, Japan Radio, Matsushita, Sony, Casio, Denso, Kyocera, Pioneer and Victor.

Emerging Markets

The Japanese market is a testbed for many international companies exploring new media opportunities. For instance, Radvision provides solutions for the development of voice and video over IP and 3G wireless products and applications for clients like Sanyo Multimedia. Hitachi has signed on with Canadian company Certicom for mobile security solutions, especially for critical enterprise applications such as e-mail and Web browsing.

Japan is the leading Asia-Pacific market for WLANs as well, and numerous new product lines incorporating WiFi features have emerged. For instance, Fujituís new LifeBook S6120 comes with Intel''s Centrino chipset, allowing wireless surfing at broadband speed. It has integrated Bluetooth and some powerful security features.

There are also other welcome developments on the broadband Internet access front. In Japan, close to half of all homes are expected to have broadband 12 Mbps connections by the end of 2003, at rates half of comparable US prices. In Japan, Nippon Telegraph & Telephone (NTT ) plans to invest .4 billion in 2003 on new fiber-optic networks.

An ambitious national goal of bringing 100 Mbps fiber links to all homes has been set for the end of the decade. Sony is also involved in a national grid computing project.

The Japanese Post and Telecomms government department is reportedly scrapping licensing requirements for WiFi base stations in an attempt to create 5 million WLAN base stations by 2007.

Best practices: The feedback loop

The wireless Internet has exploded in Japan due to a superb positive feedback loop, according to Kobe University professor Jeffrey Lee Funk, author of ìThe Mobile Internet: What Japanís experience tells us about the mobile Internet.î

The loop involved the initially chosen content, mobile device capabilities, phone prices, packet networks, business models, and user targeting. At first the users were young and the services provided were simple; then the user base expanded, content became more complex, and the devices much richer ñ which is not how the US and Europe are approaching this market.

The successful players in Japanís mobile Internet value chain include carriers (NTT DoCoMo, KDDI, J-Phone); content and service providers in areas like finance (Daiwa, DLJDirect), entertainment (Bandai, Dwango), horoscopes (Index), ringtones (Giga), concert tickets (Lawson, Pia), navigation (Toshiba, Matsushita), music information and sales (Tsutaya), employment (Recruit), restaurant information (Guru Navi), travel (Open Door), virtual shopping (Rakuten, NetPrice), books (Kinokuniya), portals (Digital Street, Yahoo Japan), m-payment (Bit Cash, NTT, Japan Net Bank); advertisers (ValueClick, D2C); and dozens of phone manufacturers.

ìThe reason why the mobile service providers must create such a comprehensive business model for the mobile Internet is that the service provider plays a much more important role in the mobile than in the fixed-line Internet in creating the necessary positive feedback,î argues Funk.

In addition to airtime and packet charges, revenues are derived from content subscriptions, ads, ticketing, entertainment, messaging, product/service sales, coupons, and transaction commissions. People are willing to pay for content if it saves time or kills time.

ìThe US success in the fixed-line Internet has blinded many Americans, and to a lesser extent Europeans, to the possibilities inherent in the mobile Internet,î says Funk; it is a mistake to look at the mobile Internet through the filters of fixed-line Internet users.

Challenges in Japan, though, arise in avoiding spam, reducing the lagtime for registration of official sites, opening up i-modeís payment gateway to all providers, and ensuring more linkages between official and unofficial sites,

Content models

On the wireless Internet, few news and information services have been as successful as those in Japan. The news sites have played a prominent part in the growth of mobile Internet services in Japan ever since NTT DoCoMo launched its I-mode service in February 1999. That service, the first mobile Internet service in the country, had grown to 34.5 million subscribers by the end of August 2002, making it a huge potential market for any content provider.

Japanese content providers for information services like news have played a key role in boosting the wireless Internet as a medium in Japan, thanks to strategic partnerships for delivery and billing with the wireless operators. Today, news is available on handsets in Japan from news media like Reuters, Dow Jones, Bloomberg, CNN, Asahi Shimbun, Mainichi Shimbun, Nihon Keizai Shimbun, Jiji news agency, and Nippon Hoso Kyokai.

And I-mode is not the only game in town. Two competing services, J-Sky from J-Phone Inc. and EZWeb from KDDI, had 10.9 million and 11.0 million subscribers respectively in late 2002, giving Japan a total mobile Internet user base of 56.4 million users.

ìA content provider has to produce three versions of their content ñ one for each carrierís service ñ but it also brings a big advantage. Because the carriers have much more control over their services, and because each content site is being accessed by users of only one carrier, it makes charging for content very easy,î according to Martyn Williams, an IT analyst in Japan, and contributing writer in ìThe Asia-Pacific Internet Handbookî series.

The major national dailies are led by the Asahi Shimbun, which charges 100 yen per month for its service. The Nihon Keizai Shimbun business newspaper charges 300 yen per month, with other competitors charging around 200 yen.

The Asahi Shimbun newspaper ñ whose daily circulation of 12 million is greater than the combined total circulation of the top nine U.S. newspapers ñ is reportedly making US0,000 a year selling subscriptions to its popular wireless Web site. Yomiuri Shimbun has less than half a million wireless Web subscribers.

The Wireless Information Society

It is not just technology and business models where Japanís wireless ecosystems leads ñ it is also in the social and political phenomena that are being triggered by ubiquitous telephony.

For instance, Japan is at the cutting edge of dealing with contentious issues like mobile spam. Japanese wireless carriers are struggling to deal with the growth, in particular, of pornographic spam messages.

Recently, a Japanese court reportedly ordered spammers to pay for unsolicited porn spam sent to subscribers of NTT DoCoMo. KDDI''s au service plans to block access to some dating sites over concerns of underage prostitution. NTT DoCoMo plans to introduce a service allowing parents to block access to dating sites on handsets used by their children, and J-Phone may also introduce content-filtering functions in new handsets.

Research firm Strategy Analytics even predicts that the global market for mobile adult-oriented services could be worth billion annually within five years.

Last year, the Japanese government established opt-out rules for mobile advertising and severe penalties for mobile spammers, including jail sentences. According to DoCoMo sources, more than 80 percent of the 950 million messages its subscribers receive each day are unsolicited -- although much of that is filtered out automatically by anti-spam measures before it reaches users.

Email and mobile phones have also helped Japanese activists organize protest marches and rallies against the US-led war on Iraq. These groups include World Peace Now, Peace Act, Chance, Asia Pacific Peace Forum, No-War Network and Peace Boat.

To keep track of media developments like these, the University of Southern Californiaís Annenberg School for Communication has launched Japan Media Review (www.japanmediareview.com), a new online journal focusing on Japanís Internet and wireless environment, produced in partnership with the USC East Asian Studies Center and GLOCOM, the Center for Global Communications at the International University of Japan.

In sum, the success of Japanís wireless Internet lies not just in the tangible market value and technological innovation it has spawned, but in the deeper and long-term absorption of the wireless ecosystem at multiple levels of its socio-cultural fabric. From market opportunities and emerging tech trends to content models and user behaviour patterns, Japan will continue to set the pace for the age of the wireless information society.

Madanmohan Rao is the author of ìThe Asia-Pacific Internet Handbookî and can be reached at madan@inomy.com