Europe Is Going Mad for i-mode

Telecoms across the Continent are offering DoCoMo's service

At 35, Axel Dreyfus is already a veteran of the wireless Web wars. A co-founder of the failed British online media startup 365 Corp., Dreyfus has hawked digital content by every conceivable means -- Web sites, interactive voice systems, and the famously unsuccessful wireless application protocol (WAP). Now, bruised but unbowed, Dreyfus is giving it another go as chief executive of Haïku, a Paris-based outfit that sells phone ring tones, games, and screen savers. His technology of choice: the world's most popular system for delivering wireless data services -- i-mode from Japanese telecom giant NTT DoCoMo. "It's a great opportunity for us," Dreyfus says. "If we hold on to our first-mover advantage, we'll generate stunning profits."

That's a surprisingly bullish take on a technology that many feared was stillborn in Europe. But from a slow start in Germany 15 months ago, i-mode is finally gaining momentum as more and more small mobile operators adopt the system that is already used by 39 million Asians. France's No. 3 carrier, Bouygues Telecom, rolled out a smorgasbord of i-mode services last November and has signed up 200,000 subscribers who pay as much as $5.60 a month -- plus $11.50 per megabyte of data traffic -- to get wireless e-mail, news, banking, and games. Nearly half also pay extra for premium content. Spain's Telefónica Móviles launched its own i-mode offering on June 25. And on June 26, Italy's No. 3 mobile operator, Wind, said it will join the i-mode club this fall. Some 600,000 people currently use i-mode in Europe, and that number could more than double by 2004.

What's the attraction? Unlike the often-shoddy WAP offerings of a few years back, i-mode is a tightly woven, easily navigable package of preselected services. DoCoMo provides the software and branding, while carriers cut deals with local content providers: Bouygues features Michelin guides, Agence France Press headlines, and online banking through Société Générale. Content providers like i-mode because it's easy to program for -- the format is nearly identical to regular Web pages -- and they get 86% of the carrier's take from content sales. Also important, i-mode runs on upgraded wireless networks, known as 2.5G or GPRS, that offer faster, always-on connections. And it will migrate easily to the zippier 3G systems that are set to roll out over the next few years.

Despite such strengths, i-mode faces challenges in Europe. In the three years since WAP bombed, big carriers have learned how to build their own bundles of easy-to-use data services. Europe's No. 1 mobile operator, London's Vodafone Group PLC, is tearing up the track with its new 2.5G-based Vodafone live! service, which has attracted 1.5 million users since its debut last October. Like i-mode, live! offers access to downloadable games and ring tones, but it also lets users swap photos snapped with popular new camera phones. Other majors, including Anglo-French Orange and German T-Mobile, offer a similar range of wireless offerings. Against such competition, i-mode will remain a distant runner-up, argues mobile analyst Lars Vestergaard of researcher IDC in London. "It's going to be an uphill battle," he says.

Such concerns aren't stopping Europe's second-tier players. "This is a way for smaller carriers to steal a march on the giants," says analyst John Delaney of telecom researcher Ovum in London. Instead of having to develop their own costly technology the way Vodafone did, they can pay to license i-mode and then share a small cut of revenues with DoCoMo. "It will save us a lot of time," says Laura Rovizzi, Wind's Internet and multimedia marketing director. DoCoMo's terms are a well-guarded secret, but analyst Mark Berman of Credit Suisse First Boston in Tokyo figures that if subscribers keep coming on board, DoCoMo could earn "$500 million [annually] in five to six years" from European partners.

That's a comedown from DoCoMo's initial aspirations. Back in 2000, the company sank more than $5 billion into European carriers to promote i-mode, along with DoCoMo's variant of 3G technology. But distracted by the telecom financial crisis, European telecoms such as KPN Mobile were slow to move. When the Dutch company's German subsidiary, E-Plus, finally introduced i-mode in March, 2002, the service stalled because of a lack of handset choices. Things are better now that Nokia Corp. and Siemens have rolled out i-mode models. Even so, E-Plus has snared just 140,000 German i-mode customers -- less than half the number who have signed up with live!, according to British researcher EMC.

Yet KPN Mobile has no regrets about choosing i-mode. Offering the service helped KPN Mobile sign up 225,000 new customers in the Netherlands, Germany, and Belgium during the first quarter, the company says. And its i-mode subscribers spend an average of $8 per month more than ordinary voice users. "Going with i-mode has helped us establish a solid basis for future data services," says Amos Kater, KPN Mobile's director for group innovation.

That's the ultimate value of i-mode for smaller carriers that are aiming to compete in the coming age of 3G. Analysts expect technology standards to merge someday, rendering moot the differences among i-mode, live!, and other systems. But by then, smaller carriers will have at least a foothold on the wireless Web. Hopeful content providers such as Haïku's Axel Dreyfus are counting on it.

Corrections and Clarifications The graphic accompanying "Europe is going mad for i-mode," (European Business, July 28), should have stated that the service is available from a half-dozen providers in Europe, not a dozen.

By Andy Reinhardt in Paris, with Irene M. Kunii in Tokyo

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