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Originally published as a guest column in Fierce Wireless, 9 June – Ed.
If 2001-2003 has been Phase 1 of Japan’s 3G era (all three major carriers launched W-CDMA or CDMA 2000 networks in this period), then 2004 is definitely shaping up to be Phase 2 — and the difference is that now Japan 3G is moving overseas. The assault is being led in part by Japan’s keitai makers who, under NTT DoCoMo’s lash, have invested heavily in sophisticated new terminals and are now looking to markets further afield in order to generate additional ROI.
After all, Japan only has 82 million mobile subscribers and with net monthly additions down sharply, it appears that the domestic market is experiencing saturation. The savvy engineering minds at the likes of NEC, Panasonic, and Sharp haven’t failed to notice this and are keenly looking at Europe, the US, and China as under exploited new markets for hypercool Japanese keitai.
And don’t feel too sorry for them: that lash from DoCoMo has been accompanied by infusions of cold, hard cash to the tune of 37 billion yen over two years (fiscal 2004 and fiscal 2005) delivered via heavily guarded armoured car, one might envision, to Fujitsu, Mitsubishi Electric, Motorola Japan, NEC, Panasonic Mobile, and Sharp for the express purpose of underwriting “early development of ever-more sophisticated FOMA [3G] handsets in terms of native applications and functionality” (DoCoMo press release).
With the makers’ R&D labs working at white-hot intensity to create genki new mobile phones, late 2003 and the first half of 2004 have seen a plethora of new features fielded (or soon to be) on new 3G and ultra-improved 2G handsets.
These include 64-voice ring-tone chips, CD-quality music download services (limited to 30-second clips due to DRM), video ring tones, analog TV, FM radio, “FeliCa” contactless e-wallet payment functionality, and videoconferencing. If a colleague rings you on your FOMA videophone at one of those inconvenient, personal moments (say, while playing slots at a pachinko parlour during work hours), you can select a personal avatar to be displayed on the caller’s phone to hide your real face (and location) — and control its facial expressions using the keypad.
In the meantime, carriers and content providers are delighted with the new features as they translate into higher revenues once in consumers’ hands. Since KDDI’s launch of flat-rate data pricing last fall, content ARPU at the carrier generated by “EZ Flat” users is up to 1,470 yen compared to 610 yen for non-flat-rate users, according to Makoto Takahashi, general manager of KDDI’s Contents Media Division; EZ Flat is only offered to users of the newest, highest-tech CDMA 2000 1X EV-DO phones.
And over at Label Mobile, the content-providing JV set up by the 5 major Japanese music labels to serve CD music clips to 3G cellies, president Masakatsu Ueda is pretty happy. Branded as “Chaku Uta,” the service has instantly become the most significant mobile content category in Japan. Most tracks sell for 100 Yen but prices vary from 50-200 Yen; the company expects to serve 150 million downloads in 2004. And you have to have a 3G keitai to play.
With all the money rolling in to various coffers, the handset makers figure it’s time to go global. In February 2004, Panasonic Mobile Communications announced an aggressive and well-thought-out strategy aiming at boosting terminal sales in GSM markets overseas. The maker forecasts GSM market demand at 325-335 million units over the next three or so years, or about 130 million handsets in 2004 through 2006.
However, the company expects demand from China and Asia to grow from about 134 million last year to about 160 million! PMC is hoping for a 1-trillion yen, 40-million handset production schedule by 2006 and is aiming at an 8-percent global market share. Clearly, as GSM carriers elsewhere migrate to 3G, there will be even more opportunities to resell made-and-perfected-in-Japan 3G technology.
In January, Fujitsu was also reported to be re-entering the European market with both 2- and 3G phones by 2005 (according to the Nikkei business newspaper). Fujitsu’s last foreign foray, in the US, ended in 1997. The Nikkei reports that Fujitsu plans to develop dual-standard phones with France’s Sagem SA, with which Fujitsu signed a technology partnership agreement back in 2002. The new phones are reported to support both GRPS and W-CDMA.
NEC is also looking at reentering the US market.
Perhaps the most interesting mobile terminal success story has been that of Sharp, a small, boutique electronics maker based near Osaka that traditionally found it tough to compete with the massive industrial strength of the Fujitsus and Hitachis. The long-time 3rd-tier supplier was permanently locked out of the DoCoMo orbit and only fielded a few models to Vodafone and KDDI.
With the stellar success of the first camera phone in 2001 at J-Phone, Sharp was recruited by NTT DoCoMo to supply a clone to Big D and the savvy Osakans parlayed that foot in the door into top-tier supplier status with market leader DoCoMo. Sharp has since been courted by global leader Vodafone Group to supply the highly successful GX-110/20/30-series of GSM handsets (virtual copies of already-marketed Japan models) as well as newer 3G models. While it’s still a tough business, Hideaki Kamitsuma, group GM for international marketing, likely couldn’t be happier. Sharp now has sights firmly set on overseas.
Ironically, the excitement doesn’t relate solely to 3G and new technology. Japanese makers are also eyeing strong potential sales for older, “cellular-lite” PHS (Personal Handyphone System) technology into emerging markets in China and South-East Asia. On May 28, news reports revealed that US-based investment group Carlyle was negotiating to buy a stake, together with Japanese terminal maker Kyocera, in DDI Pocket, the strongest of Japan’s domestic PHS network operators. Future sales in China are clearly a motivating factor.
And overseas sales of PHS terminals and infrastructure may not be limited to emerging markets. In April the Japan’s PHS industry group reported that a commercial PHS service had been launched on 8 March 2004 in the towns of Jal and Eunice, Lea County, New Mexico, USA by LEACO Communications in cooperation with Stellar Holdings. Subscribers can have both their home phone and PHS phone ring together as extensions on the same number.
Ultimately, Japanese handset and terminal makers may have an advantage that goes far beyond mere domestic 3G market experience with ubersophisticated mobile Internet tastes.
Writing in Bungei Shunju in November 2003, Tokyo University Takahiro Fujimoto said that (all) Japanese manufacturers excel at “products whose functions require many components to be designed in careful detail and mutually adjusted for optimal performance.” He further described how this requires close teamwork within a company as well as cooperation with suppliers.
In other words, Japanese cell phone makers appear to have distinct business cultural factors in their favour, and 3G has given them the boost they need to expand globally. How will the Motorolas, Nokias, and Samsungs of the world compete?
— Daniel Scuka
Some sage advise when entering new turf; Stop, Look and Listen.. it’s also good to secure a local guide. Japan is the cradle of mobile civilization – we been been dedicated to this space since 2001 – trust our archives here offer some useful material.
Domestic activities continue to set the pace, and sharp players are looking at global markets. We have hard-earned industry expertise and trusted network of contacts with access to advanced intell. and potential deal flow. Need a lift.. Ok, buckle-up!