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KDDI Jump-Starts 3G Service, AT&T Wireless Announces 'm-mode'

KDDI Jump-Starts 3G Service, AT&T Wireless Announces 'm-mode'

It has been a busy month here in Tokyo. Early on, KDDI, Japan's second-largest telecoms group, said it aimed to ship 7 million advanced service 3G handsets, thus considerably intensifying competition over advanced third-generation mobile phone services.

KDDI said its 3G service, due to launch this month using QUALCOMM's CDMA2000 1x technology, would be available in most major cities. It will start with 70% coverage of the population and expand to 90% by the end of the year. Starting in April, all handsets shipped by KDDI will be 3G-ready and if the carrier achieves its goal of selling 7 million in the first year, users of 3G handsets will comprise more than half of its 12-million CDMA subscriber base.

KDDI's aggressive launch of CDMA 1x services has raised expectations that it will take the lead in 3G services. Both NTT DoCoMo and J-Phone, which are using the WCDMA standard, face huge costs to roll out their networks, as WCDMA is incompatible with their existing PDC networks. Conversely, KDDI already has a CDMA network, which is being upgraded to provide 3G capabilities so all users will be able to use their 3G phones from the start, even where the network hasn't yet been upgraded.

After five months, DoCoMo has signed up only 66,900 subscribers to its 3G service and is therefore, at the time of writing, thought likely to miss its target of 150,000 subscribers by the end of March. (It forecasts 6-million subscribers by the end of 2004.) J-Phone, for its part, will start 3G services this summer in the Tokyo area, with coverage expanding to 90% by March 2004.

The start of its 3G service comes just in the nick of time for KDDI. The falling popularity of its Tu-Ka service, based on an old standard, has meant that it could be overtaken by J-Phone, which already has 11.92-million subscribers and is growing more rapidly than KDDI.

European i-mode
In the middle of the month, i-mode services were started in Germany by E-Plus. Meanwhile KPN Mobile, in which DoCoMo has a 15% stake, expected to launch i-mode in Holland and Belgium in April.

The start of i-mode in Europe will be a crucial test of whether the mobile Internet is going to be the driver for advanced third-generation services that operators are counting on. If such services succeed on the 2.5G networks, there's a better chance that 3G, which is costing operators billions in license fees and capital investments, will take off. But if i-mode fails to capture a following, the implications for 3G could be grim.

DoCoMo expects to offer 60 different types of content when the service starts in Europe, says Yoshinori Uda, senior executive vice president. But if mobile operators adopt a similar revenue model to DoCoMo, which takes only 9% of content revenues, it should encourage the creation of many more sites.

Rival operators believe cultural differences between Japan and Europe could stunt i-mode's growth in Europe. DoCoMo's service caught on because mobile e-mail was already an indispensable part of life for many young Japanese. Cartoons have also proved a big driver of i-mode in Japan, which some believe bodes less well for Europe. However, if cartoons fail to catch on in Europe, there are other applications to attract users. The most popular of these, already a big winner on the Web, is soft porn. E-Plus will start by supplying a service to download topless photographs.

Yasumasa Goda, an analyst at Merrill Lynch in Tokyo, believes the recent popularity of SMS (short messaging services) in Europe means it is already halfway there. But, says Goda, for i-mode to succeed, DoCoMo and its European partners have to find what the "killer application" will be for the European market - and it seems this could be very different from Japan.

AT&T Wireless + i-mode = 'm-mode'
The highlight of the month was undoubtedly the announcement that AT&T Wireless will be launching a mobile Internet ser-vice in April, using NTT DoCoMo's technology, in an attempt to duplicate i-mode's success in the U.S. The service, which will cater to both business and consumer markets, will be called Òm-mode.Ó It will be the first result of DoCoMo's $1-billion investment in AT&T Wireless, which bought it a 16% stake in 2000.

The decision by AT&T Wireless not to use the DoCoMo i-mode name and its licensing fee payment arrangement could strain relations and prove a stumbling block to the success of the new ser-vice. DoCoMo's strategy until now has been to roll out its i-mode services through its overseas partners as a way to raise its global profile, increase the economic value of those partners, and improve returns on its investment. Furthermore, its policy is to collect licensing fees from those partners for their use of i-mode technology. Both KPN Mobile and E-Plus are paying licensing fees for the use of the technology. AT&T Wireless, however, says it has a royalty-free relationship with DoCoMo.

Also AT&T Wireless's services will be equally focused on consumers and business users. This contrasts with i-mode, which boasts more than 30-million subscribers and owes its success to the consumer market.

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