What's That Ringing in DoCoMo's Ear?

Only a few months ago, NTT DoCoMo (DCM ) seemed to have Japan's mobile Internet locked up. Its i-mode, the world's first wireless Web-access service, was a runaway success, and people had great expectations for its even faster third-generation, or 3G, service. But few had bothered to factor in KDDI Corp., Japan's No. 2 mobile carrier. In April, KDDI launched a high-speed service that has stunned DoCoMo and roiled Japan's wireless market. In the service's first month of operation, KDDI signed up three times as many subscribers as DoCoMo did in the previous eight months. Boasts Ted Matsumoto, president of Qualcomm Japan, KDDI's technology partner: "Japan will no longer be DoCoMo country."

It's too early to predict the outcome, but things are bound to get ugly. After all, there's a lot at stake. The winner will lay claim to a big chunk of Japan's market for mobile data services, the most promising growth area in an otherwise saturated industry. Moreover, the outcome in Japan could affect the future of 3G around the world. Europe's mobile carriers, who are committed to DoCoMo's W-CDMA technology, might decide to further delay or even shelve plans to offer 3G services. That would deal a blow to DoCoMo's dream of making its technology the global standard.

All this augurs well for KDDI, which on Apr. 1 unveiled an upgrade of its existing network that makes it possible to deliver peak data speeds of up to 144 kilobits per second, 10 times faster than most current networks. But unlike DoCoMo, the company made no mention of the term "3G," focusing instead on promoting the technology as fast, hassle-free, and cheap to use. It also retained the name of its existing service, au, to evoke a sense of continuity. In a jargon-weary world, the tactic has paid off. KDDI signed up 334,000 subscribers to the new service in its first month, surpassing its own target of 280,000. By comparison, as of the end of April, DoCoMo had managed to lure only 105,500 subscribers to its Freedom of Mobile Multimedia Access, the 3G operation it launched last October. "Many KDDI subscribers weren't aware they were signing up for a 3G service, and that's a plus." says Hironori Tanaka, an analyst at Morgan Stanley Japan.

KDDI's CDMA2000 1X technology has a lot going for it. For starters, it offers a low-cost upgrade from its existing network. The 3G handsets work on 2G networks, too. "Since we're using the same base technology, we can keep our upgrade costs very low," says Hirofumi Morozumi, senior general manager of KDDI's business administration division. That translates into competitive user rates. KDDI's au starts at $20 a month, $10 below FOMA. And KDDI's 3G cell phones are priced from $160 to $250, while FOMA sets cost up to $500. Moreover, KDDI's coverage extended to 70% of the Japanese population from Day One, and the company plans to boost it to 90% by yearend.

By contrast, DoCoMo's FOMA has been a letdown. A big problem is that coverage is only available in major urban centers, and even then it's spotty and trouble prone. Because DoCoMo is rolling out a network with new and complicated technology, it won't be able to offer national coverage till 2004.

Everyone knows that to sell a service, you need compelling content. Even here, DoCoMo has fallen behind. Last year, upstart J-Phone Co., another cell-phone operator, stole the limelight with a camera phone that downloads images and zaps them from user to user. This year, KDDI's new global positioning system handset is a hit: The phone pinpoints the user's position in a split second and pops a map onto the phone's screen. KDDI will soon introduce a security service that contacts police and lets them know a subscriber's exact location in an emergency.

With its army of engineers and access to capital, DoCoMo is hardly an underdog. Moreover, its 3G technology is backed by powerful allies such as handset king Nokia Corp. and by most of Europe's mobile operators. But unless it counters the rise of KDDI, DoCoMo could wake up one day to find that the world has said "No, thank you" to its version of 3G.

By Irene M. Kunii in Tokyo

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