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3G: Not a Bang, but a Whimper

It's the telecom industry's vision of the future: third-generation, or "3G," mobile phones providing high-speed, wireless Internet access that will change the way millions of people from Stockholm to Taipei work and play. If all goes according to plan, the Pied Piper leading the way into this new world will be Japan's NTT DoCoMo. After all, this is the company that pioneered instant mobile Internet access with i-mode, a slow but reliable mobile Net access service introduced in early 1999.

Yet when DoCoMo introduces the world's first commercial 3G service on Oct. 1, it will be a modest affair indeed. Japan's largest wireless operator will be targeting mainly corporations that can afford $500 to $600 each for bulky 3G handsets plus a basic monthly fee of up to $130. And those who do sign up shouldn't expect flawless transmission of audio and video. DoCoMo is still experiencing the network jams and technical glitches (batteries that die too quickly, video images that abruptly go blank) that forced it to delay the 3G launch from May to October.

"A LETDOWN." If he's disappointed, DoCoMo President and CEO Keiji Tachikawa isn't showing it. "We're working with a brand-new, highly complex technology," he says. "The 3G phone is the equivalent of a laptop PC stuffed into a handheld, so we've done well." Maybe so. But "consumers who thought they'd get these fantastic phones come October are in for a letdown," says wireless expert Jun Nakai, author of a new book on Japan's 3G technology.

Tachikawa counters that DoCoMo, which designed the 3G standard known as Wideband CDMA, is steadily improving the technology. The present plan is to offer service first in central Tokyo, where the majority of Japan's large corporations are based. By December, the carrier will extend coverage to the country's next two largest cities, Osaka and Nagoya. DoCoMo is hoping to sign up 150,000 subscribers in all major Japanese cities by next March. "It's a smart plan," says Shinji Moriyuki, a telecom analyst at Tokyo's Daiwa Institute of Research. "With fewer clients at the start, it'll be easier for DoCoMo to improve the handsets and the network."

Even so, it will be years before the new 3G service, known as FOMA (for Freedom of Mobile Multimedia Access), becomes profitable. DoCoMo has to recoup hefty investments, from the hundreds of millions it has spent in research and development to the $8.5 billion it will cost to build the infrastructure over the next three years.

Not that DoCoMo can't afford to lose on 3G for a while. With 38 million mobile subscribers, it controls 59% of the Japanese market and last year earned $6.6 billion on sales of $40 billion. Unlike European operators, who paid billions in auctions to their governments for 3G spectrum licenses and are now in dire financial straits, DoCoMo is sitting on $990 million in cash. And then there's its thriving i-mode service, which in the past 30 months has lured 28 million subscribers. The main attractions are its handy e-mail service and information sites offering such fare as horoscopes, news reports, and stock highlights.

RIVAL GAINING. Yet DoCoMo is no longer the only game in town. J-Phone, which is about to be taken over by British giant Vodafone Group PLC, is planning to launch its own 3G service in the Tokyo area next June. J-Sky, J-Phone's rival service to i-mode, is rapidly gaining in popularity thanks to competitive pricing and innovative phones that can access the same i-mode sites. "We'll give DoCoMo a run for their money," boasted Vodafone CEO Christopher Gent in Tokyo on Sept. 26.

Meanwhile, Tachikawa's foray into Gent's home territory has not been a success. DoCoMo made some big investments in European telecom companies KPN Mobile and Hutchison 3G UK last year with the expectation of introducing both i-mode and 3G to Europe in 2001 or 2002. That scenario won't happen, however. A telecom world dominated by 3G will be a dream deferred for quite a while longer. By Irene M. Kunii in Tokyo

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