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3G Crunch Time for DoCoMo and J-Phone

3G Crunch Time for DoCoMo and J-Phone

Launched in October, DoCoMo's 3G FOMA service signed up only 30,000 subscribers in its first three months. There's no guarantee that 3G will be a success to rival i-mode, or even catch on in a significant way.

According to Yoshinori Uda, NTT DoCoMo's EVP, the Japanese pioneer of the world's first third-generation W-CDMA mobile phone service may not meet their target of 150,000 subscribers by the end of this coming March.

Uda openly conceded to an audience this month in Scottsdale, Arizona, that DoCoMo could find it difficult to sign up 150,000 users to FOMA (Freedom of Mobile multimedia Access) by the end of the fiscal year, as previously targeted by the company. Achieving that target "is very difficult," he admitted.

Although Uda added that DoCoMo was still confident they could meet their target of 1.5-million subscribers by the end of March 2003, the 3G service DoCoMo launched in October has managed to sign up only 30,000 subscribers in its first three months. The small number is being blamed on the narrow area coverage and expensive handsets. FOMA services were initially available only in the Tokyo area and were just recently extended to Osaka and Nagoya.

In the meantime J-Phone, Japan's third-largest mobile operator, has announced a capital spending cut of about 50%, from $4.5 billion to just over $2.3 billion, largely by scaling back on current 2G investment. The spending cuts, which will come in the current financial year to the end of March, reflect the strong influence of Vodafone, which last year gained control of J-Phone. Darryl Green, J-Phone's new president, said the spending cuts wouldn't affect J-Phone's own scheduled rollout of next-generation 3G services at the end of June.

According to Kirk Boodry, telecoms analyst at Dresdner Kleinwort Wasserstein in Tokyo, the spending cuts also highlight the increasingly difficult business climate mobile phone companies face even in Japan, where penetration rates are still below those of some European countries and reflect a pragmatic recognition that J-Phone can't afford to compete head-on with market giant DoCoMo, which is three times its size.

Vodafone believes dual-mode handsets that can access both 2G and 3G networks are essential for the spread of the new service. However, analysts warn that the technical difficulties of producing reliable dual-mode handsets small enough to satisfy users could delay the widespread take-up of 3G.

Lessons from the Past
Nonetheless DoCoMo plans to spend massively over the next three years on their 3G service, continuing to believe in the benefits to consumers.

Kouji Ohboshi, DoCoMo chairman and the driving force behind the development of i-mode, likes to tell the story of how Japan's most admired new service was born amid widespread skepticism. Ohboshi, who was then DoCoMo's president, gave the go-ahead to develop and market i-mode in spite of widespread doubts as to whether such a service would succeed.

When handset prices declined sharply in 1996, individual usage began to spread and the market looked as if it was headed toward saturation, so Ohboshi decided DoCoMo needed to shift from voice to data services. "It was a (handset) dumping hell," he recalls. "So I decided that relying on voice alone would not enable us to differentiate our services."

According to Ohboshi, DoCoMo met this challenge with a deep sense of uncertainty, but this nurtured an entrepreneurial spirit and drive that has been at the root of the group's success ever since. When DoCoMo was split off from NTT, their parent company, it was a very small organization. "NTT would never fail," says Ohboshi, "but DoCoMo could have collapsed." Instead, the i-mode team conducted meticulous research into what consumers wanted from the service and tailored it accordingly. "We had to survive on our own. We struggled," he recalls.

Tachikawa: 'We're Going to Create Demand'
"It is impossible to know whether 3G will succeed until you do it," says Keiji Tachikawa, DoCoMo's president. "Everyone says there is no demand (for certain advanced services), but you can create demand. So, we are going to do it," he states emphatically.

DoCoMo's faith in the benefits of their services has been their strength. But it can also be a liability. Some products born of this confidence have been market flops. For example, a mobile camera unit marketed by DoCoMo, which must be attached to a mobile phone, has been overshadowed by rival J-Phone's camera phones, which have a camera embedded in the phone.

There's no guarantee that 3G will be a success to rival i-mode, or even catch on in a significant way. The new service will require huge investments of human and financial resources. Whether DoCoMo can confound the critics again depends on their ability to be as sensitive and responsive to consumer needs as they were when they were a struggling upstart fighting for survival.

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