Getting Even
DoCoMo sparked the explosion of Japan's cell-phone market -- and is now embracing the Internet.
By ROBERT GUTH
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- Kouji Ohboshi got demoted. Then he got even, spending the past eight years turning his place of exile, a former backwater within Japan's old phone monopoly, into the country's largest cell-phone provider and one of the world's five most valuable companies.
For an encore, Mr. Ohboshi has set in motion a project that could make Japan a dominant player in the Internet's next frontier: e-commerce over mobile phones.
Mr. Ohboshi, 67 years old, is chairman of NTT Mobile Communications Network Inc., better known by its nickname, DoCoMo. Under his guidance, this unit of Nippon Telegraph & Telephone Corp. has sparked the explosion of Japan's cell-phone market, now one of the world's largest and most sophisticated. That very success is threatening his franchise: Demand for mobile services here has exploded beyond all expectations, creating a shortage of DoCoMo's wireless spectrum that is rapidly eroding the quality of its service. So it is rolling out so-called third-generation, or 3G, cell technology, which uses spectrum more efficiently, in early 2001 -- years ahead of the U.S. and even ahead of Europe's savvy mobile players.
DoCoMo's pace is giving Japan a head start in developing high-speed Internet services that are at the heart of 3G, such as moving pictures and interactive games, over mobile phones and other portable devices. Its push has galvanized Japan's computer and electronics giants, who were humbled in the 1990s as nimble U.S. companies battered them in the personal-computer market and European makers dominated the cell-phone business outside Japan.
The force behind this latest push isn't the same kind of high-profile government campaign that characterized an earlier era, when Japan tried to catch U.S. leaders in areas like mainframes and memory chips. Yet similar hopes and ambitions ride on Japan's mobile Internet success. Japanese technology companies are investing vast sums now in the belief that working with DoCoMo will give them a lead over rivals when 3G rolls out in Europe and the U.S. in coming years.
"We're pouring on all of our power," says Masaki Akiyama, senior managing director of Matsushita Communication Industrial Co., Japan's largest cell-phone maker and the No. 4 handset maker world-wide, with an 8% share. "We want to take at least 15% of the world market by early in the 21st century."
"Japan really is at the forefront of where things are happening" in mobile phone technology, says Kenneth Trojniar, president of Lucent Technologies Inc.'s Japanese wireless operations. "You have to be here." He says that Lucent, an acknowledged latecomer to DoCoMo's game, is investing "hundreds of millions of dollars" to break into Japan's mobile market.
The unlikely catalyst for this frenzy is Mr. Ohboshi, an establishment man who never quite fit in. His story explains how DoCoMo grew into the giant it is today. Mr. Ohboshi's iconoclastic personality helped define the company, which says a lot about why DoCoMo is likely to continue in the pioneering path he helped forge.
Mr. Ohboshi studied law at Japan's top university and then nabbed a job in 1957 at NTT, then a staid monopoly dominated by engineers. He rose despite a reputation as an independent thinker who struggled against NTT's conservatism. As branch manager in Hiroshima, for instance, he riled the higher-ups by tearing down an NTT building and putting up a hotel in its place. Even today, after stepping back from the day-to-day operations of the company, he gets a buzz from youth culture, sporting a bulky G-Shock wristwatch, a favorite of hip kids world-wide. But he is also a product of the old Japan, a fact revealed by the long underwear (a favorite of older Japanese businessmen) that peeks out from under his trousers when he sits.
In the mid-1980s, NTT came under pressure from Japan's telecommunications ministry to deregulate and trim rates. Mr. Ohboshi, NTT's point man in these talks, earned enemies inside NTT by leaning toward the ministry on key points. NTT avoided an AT&T-style breakup but the government did spin off its tiny wireless division, then a money-loser. In 1992, having lost one too many turf battles within NTT, Mr. Ohboshi was shipped off to run the backwater group, say former colleagues.
Mr. Ohboshi silently vowed to show up his bosses, former colleagues say. "He hated NTT's ways and he wanted to show them that he was a stronger person than they thought," says one.
Mr. Ohboshi downplays the friction and denies the move was a demotion, but says he briefly considered calling it quits until one night when he read through 500 letters from customers complaining about NTT's wireless service and high prices. He then made a promise to himself: "I will stake my whole life on making this company succeed."
He set about building a company that was the rebellious antithesis of its parent. He emphasized youth and flashy marketing. He held birthday parties for employees and took young workers out for drinks. He treated engineering -- traditionally the lifeblood of NTT -- as a necessary evil to achieve his end: building services that attracted customers.
To build a more market-focused company, Mr. Ohboshi hired a team from McKinsey & Co. headed by Tomoko Namba, a 30-something consultant with a Harvard MBA. The two had met a few years earlier, when as a consultant she surprised a roomful of NTT brass by telling them they were missing some profitable opportunities. Mr. Ohboshi, she recalls, was the only one to ask her questions. Eventually she gave Mr. Ohboshi a key piece of advice that would shape his strategy: The future of the mobile business lay not in voice calls, but in services such as Internet access.
Deregulation of Japan's mobile market was coming in 1994, threatening Mr. Ohboshi's existing franchise. Figuring he had nothing to lose, Mr. Ohboshi launched a series of gambles that that would spark DoCoMo's rush toward 3G technology. In 1993 and 1994 he invested a whopping $5.5 billion into building a nationwide digital cellular network. Then he forced his engineers to slash costs, by shrinking product-development time to six months or less from up to 3 years, so DoCoMo could slash rates. "It was shameful that an economic power like Japan had cellular-phone rates two to three times those in the U.S.," Mr. Ohboshi recalls thinking.
Many DoCoMo engineers protested against Mr. Ohboshi's seemingly impossible demands and to this day few will talk about the friction. When his aggressive rate-cutting irked two top DoCoMo officials, he banished them to run regional DoCoMo operations, according to former colleagues. (Mr. Ohboshi denies these moves were demotions.)
"When everybody else argued that what Ohboshi wanted had never been done before, he would say 'Good, then we'll be the first to do it,' " recalls Ms. Namba. "He is a very unreasonable leader."
Mr. Ohboshi has left road kill outside DoCoMo, too. In a breakfast meeting of top Japanese telecommunications executives and bureaucrats in 1995, recalls one executive from a DoCoMo competitor, Mr. Ohboshi stunned the industry by pledging to quickly drive the cost of cell-phone service down to U.S. levels. "He set the target for the market, but it was just too aggressive for us," says the rival executive, who lost his job when his company restructured after big losses.
But success only forced DoCoMo to move even faster: Its subscriber base soared ten-fold between 1993 and 1997. DoCoMo engineers and officials calculated that by early 2001, they might run out of radio spectrum. They realized they would have to leap early to the next-generation technology, which offers more capacity. Some officials worried that going from simple voice service to full-bore, 3G-style multimedia might be too much for most customers to handle. But following Ms. Namba's earlier advice on the importance of Internet access, Mr. Ohboshi took the wraps off a new service that provided a stepping stone.
That service, called i-mode, is now growing by 15,000 new subscribers each day and by March will have about five million total subscribers. The service offers access to several thousand Web sites modified so their content fits onto the small screens embedded into i-mode phones. I-mode's success is already giving Japan a role in shaping the next wave of the Internet. Japan was a follower in the first wave: Dominated by Microsoft Corp., Intel Corp. and U.S. personal-computer makers, it centers on surfing the Web via PCs. The next stage is expected to be dominated by Internet appliances, cheap, easy-to-use devices like cell phones and game machines that could eclipse the PC, as it exists today, as the tool of choice for tapping e-commerce services.
DoCoMo's next move is unfolding an hour south of Tokyo, on a hilltop not far from where Commodore Matthew Perry's warships first opened Japan to the West 150 years ago. In 1998, Mr. Ohboshi set up what he calls "Japan's Silicon Valley," a $200 million, glass-and-steel research center that sits on earthquake-resistant rubber shoes. Here, thousands of engineers from DoCoMo, Telefon AB L.M. Ericsson, Fujitsu Ltd., NEC Corp., Nokia Corp. and Lucent are hammering out designs for 3G handsets, base stations and services. Next door, Matsushita Communication has its own building, where 500 engineers labor on 3G technology.
All are part of a world-wide effort to make 3G into a global standard so that the same phone can work in Tokyo, Paris or New York. Today, the U.S. has three major standards, Japan its own unique standard, and Europe and a number of countries in Asia use the dominant technology, known as GSM.
DoCoMo and Ericsson have jointly produced a 3G technology that standards-setters in much of Asia and Europe have agreed will be the common 3G technology for those two continents. The U.S., led by San Diego-based Qualcomm Inc., will push its own, but future phones are expected to have a "dual mode" function, allowing them to operate globally.
Detractors point out that DoCoMo is taking an expensive gamble. DoMoCo's 3G capital investment will cost up to $20 billion over the next few years while the kinds of applications that 3G is supposed to make possible, like video conferencing, are unproven even in today's world of existing fixed-line Internet access.
DoCoMo is trying to build those applications now. Toshio Miki, a senior engineer, was just tapped to start up DoCoMo's first research lab in Silicon Valley. Starting this month, Mr. Miki will quickly hire up to 50 people and begin scouring U.S. Internet start-ups for business ideas that DoCoMo can introduce in Japan when 3G debuts.
Solving the 3G challenges will fall to DoCoMo's President Keiji Tachikawa, an MIT graduate and longtime NTT veteran to whom Mr. Ohboshi turned over day-to-day operations in 1998. Mr. Tachikawa, who is considered more of a mainstream NTTer, and less likely to ruffle NTT's executives, will also guide DoCoMo's planned expansion into international markets.
Mr. Ohboshi, meanwhile, says his work is complete.
Japan's mobile phone market now boasts 50 million subscribers (half of which are DoCoMo customers) vs. about 75 million in the U.S., a country with double the population. The value of DoCoMo's stock, which was listed in 1998 in the world's biggest-ever IPO, surpassed that of parent NTT late last year.
On a recent misty morning, Mr. Ohboshi leaves his office for Tokyo's Meiji Shrine, named for the emperor who sparked Japan's industrialization a century ago. As his chauffeured car creeps through the shrine's wooded outer garden, Mr. Ohboshi says he is happy that his mission to lower prices and help spread mobile phones has succeeded. "My era is over ... I am satisfied," he says.
But he's leaving nothing to chance. He steps from the car and walks towards the shrine where he says he will pray for DoCoMo's future prosperity. |
