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To: w0z who wrote (122664)	8/2/2002 7:14:01 AM
From: w0z	Respond to of 152472

"1X is a failure." outlook4mobility.com Lessons We Should Learn From Japan A few weeks ago I mentioned that Japan is the only country in the world with two different flavors of 3G wireless systems up and running: NTT DoCoMo's FOMA, which is based on its as yet non-standard WCDMA technology, and KDDI's CDMA2000 1x system. Japan's third carrier, J-Phone (now owned by Vodafone) was about to enter the fray. Since then, J-Phone has decided, rightfully I believe, not to enter the 3G market until the end of the year when it can implement the flavor of WCDMA that will be used by the rest of the world. With two 3G vendors online there are some interesting lessons coming out of Japan. As of the end of April, it is reported that NTT DoCoMo's FOMA system had 106,000 subscribers and KDDI had 330,000 subscribers. Since KDDI's system has only been available since the first of April while NTT DoCoMo's system has been up and running since October 2001, one might be inclined to declare CDMA2000 1x the winner and question the viability of WCDMA. I prefer to look at this differently and ask, "What did each of these carriers do prior to their launch to impact their ability to attract customers to their 3G networks?" Coverage NTT DoCoMo turned on its system with coverage in only a portion of Tokyo and has been adding coverage. KDDI, on the other hand, turned on its system with coverage in more than thirty cities and is committed to nationwide coverage by the end of the year. But this is only part of the story. CDMA2000 1x is backward compatible with KDDI's IS-95B nationwide system. 3G data users might not be able to send and receive higher-speed packet data when out of CDMA2000 1x coverage, but there is no difference when using voice. On the NTT DoCoMo system, WCDMA users need a second handset for PDC voice service. The Lesson: Don't turn on a 3G system until dual-mode phones are available so that customers can move freely from 3G to 2.5 or 2G voice coverage using a single handset. Another lesson might be to not turn on a 3G system until its coverage is the same as that of the existing 2 or 2.5G system. But that means spending a lot more money initially. Devices When NTT DoCoMo launched its WCDMA system, there were few WCDMA phones. They were larger than those in use on the PDC/i-mode system and battery life was poor to say the least. Over time, the phones will evolve in form factor and battery life, but for now, customers have to really want 3G services to carry one of today's WCDMA phones along with a second phone for ubiquitous voice services. At KDDI's launch there were five phones similar to existing phones, all with color displays. One has a built-in GPS receiver and a compass, and one has an onboard digital camera. By September, KDDI will supply only 3G phones because their use increases the voice capacity of its system. The Lesson: Don't rush a 3G system into operation ahead of the availability of a good selection of phones and data devices. Unless there is a data solution that is so compelling that customers will put up with almost anything, customers will be unhappy, which means it will be easier for competitors to steal customers. So far, I haven't seen a data application on 2.5 or 3G networks that is that compelling. This advice does not play in Europe where there will only be one 3G standard, but it does apply to most of the rest of the world where there will be at least two competing standards (WCDMA or UMTS and CDMA2000 1x) and is especially in the U.S. where there will be a third flavor of 3G known as EDGE. Another lesson here is not to launch 3G services until there are dual-mode phones that are backward compatible with 2 and 2.5G systems. I don't believe for a minute that many customers will carry more than one phone, or that they will put up with a larger phone and less battery life to access 3G services Content When NTT DoCoMo launched its FOMA services it took a lot of content that was available on its i-mode system (which operates at a data rate of under 10 Kbps) and moved it to the 3G network. New content that takes advantage of 3G data speeds has been slow in coming. There are only a few FOMA-only applications and fewer still that benefit from increased speeds. KDDI is in the same boat in this respect. There are some location-based services that are only available on the 3G network, but as BREW and JAVA-based handsets are rolled out there will be more. For now, KDDI is finding it necessary to discount wireless devices and data applications in order to get traction on the network. Neither of these operators was ready with new or unique data products when their 3G services were launched. Lesson: After spending millions or billions to build out a 3G network, if all that is offered is faster access to stuff already available on the 2.5G network (most of which customers have not found compelling), it will be difficult to convince people to fork over money for a 3G device. I believe that 3G networks that offer new applications that take advantage of the higher speeds will attract the largest number of users in the shortest time. Such applications might be interactive games if teens are the target market, more robust connections to corporate information stores or location-based services with downloadable maps. But it certainly won't be something like email that already arrives on most wireless devices faster than it can be read. Pricing NTT DoCoMo priced its 3G data services at a premium over voice--data costs about 1.8 times voice. KDDI on the other hand, offers data at a price point that is 30% lower. And it will be able to stay well ahead of the pricing curve because it will spend less to upgrade its system than NTT DoCoMo will to complete its system. Japanese data users are accustomed to paying for data by the bit or packet, but I'm not convinced that this type of pricing will work in other parts of the world. In the U.S., high-speed wired data services are pretty cheap. Lessons: Network operators in countries where wired high-speed data access is the norm will discover two things. First, most customers won't be willing to pay a premium for wireless data. Second, the type of data they will pay for will be mission-critical in nature, not access to the Internet. Conclusions We can learn many lessons from what is happening in Japan. Some are evident as outlined above and some are subtler. Japan will be a valuable proving ground as the first country to offer two flavors of 3G services--one that requires a new network and one that is an upgrade to an existing network. At this point, no one knows what will drive customers to 3G networks and services or at what price. As long as we understand the similarities and differences between Japan and the rest of the world, those that follow should learn valuable lessons and can modify their business plans so they don't get caught by surprise. I, for one, still believe that data services will provide only incremental revenue for wireless network operators for the next five or more years. This revenue can certainly help carriers increase their profits, but it will be incremental to voice. Providing compelling data applications on great devices at reasonable prices can lower churn, attract new customers and enhance quarterly results. However, the bottom line for me is still this: If an operator can't make money selling voice services on a network and counts on data to break even or show a profit, it had better find another line of work! Andrew Seybold