Talk About Quiet
Thursday April 10, 5:35 pm ET
By Benjamin Fulford, Forbes Magazine
KDDI: a 3G success story nobody seems to have noticed.
biz.yahoo.com
A major success story has slipped by almost unnoticed amid the doom and gloom surrounding third-generation mobile telephone services. KDDI has 6 million 3G subscribers in Japan, second in the world only to South Korea's SKTelecom. Just as the early 3G hype predicted, these users are doing neat new things with their phones and paying on average 30% more each for the privilege. This, combined with a permanent annual $666 million cost cut generated by scrapping an old network, will allow KDDI to post Ebitda (earnings before interest, depreciations and amortization) of 20%, or $4.5 billion, on sales of $23.6 billion in the fiscal year that ended in March, based on the first three quarters of the year and company projections for the final period.
KDDI's 3G success is even more startling considering that NTT Docomo (NYSE:DCM - News), with 58 million subscribers to KDDI's 14 million, managed to get only 190,000 3G subscribers, one-tenth the forecast amount for the first year, despite marketing hype.
KDDI attributes its success to CDMA2000 1X technology developed by Qualcomm (NasdaqNM:QCOM - News). There are those who say KDDI's current network falls short of being true 3G, but the difference is technical. While it can only transmit at speeds of 144,000 kilobytes per second, or less than half the 384,000 Docomo 3G offers, it has the huge advantage of being backwardly compatible with KDDI's 2G network. Instead of having to build an entirely new and incompatible network from scratch asDocomo, Vodafone and other European operators have done, the system can be upgraded to 3G with software updates. Building a new network meant that early Docomo 3G subscribers were initially unable to call outside of major cities even as KDDI 3G users had nationwide access from day one. Also, starting this fall, KDDI plans to leapfrog Docomo and Vodafone's Japanese J-Phone subsidiary by offering connection speeds of 2.4 megabits per second. With the second- and third-generation technology now coexisting, KDDI's first-generation pre-WCDMA network, built for a Japanese protocol known as PDC, has been completely scrapped.
"We never emphasized that our new phones were 3G, which is a technical thing most customers don't care about; instead we focused on new services like personal GPS and the ability to take and send videoclips using our phones," says Yoshitaka Ishida, head of KDDI's p.r. department.
Docomo's 3G phones also failed to get popular because they are large, have short battery lives and have connections that keep getting cut off, says Kirk Boodry, analyst at Dresdner Kleinwort Wasserstein. The KDDI system, by contrast, requires less energy, and its phones are smaller and have longer battery lives.
So what do 6 million 3G users actually do with their new phones? The most popular new function is the ability to send 15-second videoclips. "These are things like parents sending movies of newborns to grandparents or friends sending short scenes from drunken parties to people who could not attend," Ishida says.
"The biggest reason given by customers who choose KDDI phones is a service that lets people choose actual songs, and not just reproductions on a synthesizer, as their ringing sound," says a phone salesman at Yodobashi Camera, a discount electronics store.
Just outside KDDI headquarters in Tokyo's Shinjuku area a group of university students were standing in a circle, all staring at the screens of their 3G phones. They explained that they were looking at photos of rooms and making reservations for an upcoming school trip.
The other neat use is GPS equipped phones that show where you are on a map. Companies also use this system to keep track of sales and service staff.
In March KDDI started an experimental service that allows phones to become credit cards. Chips containing Visa card information will let customers simply point their phones at a terminal to make payments. The days of handing over cards and signing pieces of paper appear to be numbered.
Despite all the nifty new things possible thanks to 3G, many risks lurk. One is that average revenue per user in Japan for all of Japan's mobile companies is sliding downhill along with the rest of the nation's economy.
Another risk despite all the new services is that 70% of 3G mobile revenues still come from ordinary voice calls. Just as is now happening to fixed-line telephones, a switch to high bandwidth means it is only a matter of time before some companies offer ultracheap mobile phone calls using Internet protocol.
By the time that happens KDDI hopes to have switched to an entirely new business model. Once the world's telecom infrastructure finally moves away from low-performance, voiced-based networks, telecoms should replace television as the world's main information medium, Tadashi Onodera, KDDI's president, has predicted. In this new world each individual will have the ability to broadcast video information to the entire world, using a KDDI handset, the company hopes.
KDDI management knows it can't run away from change. Part of KDDI used to be KDD, a government-sanctioned, long-distance telephone monopoly. Long-distance revenue is now $1 billion a year, less than a third of their peak $3.4 billion. |
