KDDI WINs With Mobile Flat Rate; and Half-Price Calls to Mom
KDDI WINs With Mobile Flat Rate; and Half-Price Calls to Mom

KDDI WINs With Mobile Flat Rate; and Half-Price Calls to Mom

KDDI WINs With Mobile Flat Rate; and Half-Price Calls to Mom

They’ve gone and done it now! KDDI’s just announced a double whammy; on November 28, the company will offer 3G’s first flat-rate packet services with all you can surf for 4,200 yen (about $37) on the souped-up, 2.4-Mbps (max) EV-DO version of CDMA 1X that KDDI has branded “WIN” (We Innovate the Next) – presumably to beat up on DoCoMo’s W-CDMA-based FOMA. Then, today, it said it was halving the cost of calls from KDDI Au mobile subscribers to KDDI ADSL/ IP home phones on the Dion Service. The knives are out! With three new service innovations, two new terminals, and a data card, the company appears to be following what Kenshi Tazaki, vice president and team manager of Gartner Research Japan, calls a “high risk strategy” (think of all those potential lost packet charges!). Will Big D respond in kind just as it was hoping to glean megabucks from FOMA users? “It’s a very aggressive shot at DoCoMo and stakes out a clear position by KDDI in the mobile market,” says Tazaki.

KDDI announced yesterday that its 800-kbps (average) CDMA 2000 1X EV-DO WIN service would finally start November 28 in the Kanto, Chubu, and Kansai regions (Tokyo, Nagoya and Osaka, basically) – moving to 70-percent population coverage by end of March 2004 (and nearly full-whack at 90 percent by September 2004).

Let’s look at the services and specs first.

WIN will feature three major new service innovations and two new phones that could make individual (less so corporate) subscribers of other carriers weep in their macha green tea bowls. First, WIN will offer the “EZ Channel” program transmission service providing contents chosen from a program guide; programs will be renewed both daily and weekly and are downloaded automatically early each morning, with contents including electronic books and variety TV programs. KDDI didn’t say how many channels it will have at launch, but promised to increase them.

The second innovation is the high-quality “EZN Movie” service, which will allow the streaming download of (incredibly) short movies, about three minute’s worth at 1.5 Megabytes maximum file size using the 3GPP AMR compression standard. Long playback waits for download-and-play-locally movie clips (previously the standard for all three Japanese carriers) have thus been shortened. Third, WIN will also incorporate live camera image transmission with the EZ movie function compatible with, initially, Canon’s VB-C10 network camera. Wow!

There’s more: new email services will handle up to five attachments, up to 150 kbytes total. Movie Mail will be on the 3GPP format with picture size allowing for MPEG-4 visual and AMR sound compression. Frame rates run at 15 fps, encoding at 64kbps for pictures and 12.2 kbps for sound.

Both the Hitachi W11H and the Kyocera W11K handsets will boast 2.2-inch, QVGA screens and will store up to 20 MB of data via a 16-MB mini SD card; they’re also armed with 310,000-megapixel cameras and both will have 1.3-inch subscreens at QQVGA capable of 260,000 colors. Talk time should run a respectable 180 minutes.

Two Birds with One IP Phone

The second blow that must have Vodafone red-faced to say the least is that KDDI will from next week cut by half the cost of calls from Au keitai to homes equipped with IP phones on KDDI’s ADSL Dion service. Likewise, call prices from Dion phones to Au keitai will be slashed in half. This just weeks after Darryl Green of Vodafone talked of a separation of Church and State (Vodafone and Japan Telecom) pronouncing that his aim was to make Vodafone’s mobile services “more desirable” than JT’s fitted-up lines. Au subscribers who have IP home phones don’t even have to apply for the service, because they will receive it automatically.

Tazaki says such moves have had an increasing air of inevitably about them with the disparity between mobile broadband and fixed broadband services getting painfully obvious to fast adopters and, well the rest of us in Japan generally. The author can get 24Mbps ADSL for about $30 a month and broadband companies (with a price service war started and still being pursued ruthlessly by Yahoo BB) are falling over themselves to offer even faster services with three months free and “win-a-(you name it)” just to grab subscribers.

“KDDI’s approach is to start providing services based on the wireless Internet access environment and hotspots rather than the data method,” says Tazaki.

“In the past, Au were very concerned about dropping data packet prices. But now with high-speed broadband at low fixed rates and mobile phones morphing into smart phones in the near future, the difference in price for broadband-mobile services is beginning to show. Simply, the mobile phone is becoming closer to the PC,” he adds.

Flat Rate and Gin-Tonics All Round?

Back to mobile. So will the flat rate wireless Internet lead to a price war? The news came just as a major TV network here was describing yet another case of traumatized parents facing huge packet-charge bills with the claim, “Young Taro-chan couldn’t have been downloading from all those websites at 5:00 AM; he says he was in bed, asleep.”

Of course the real coup with this is that data revenue from, lets say, an average of 8,000 yen in overall mobile phone bill monthly in Japan is only about 20 percent compared to voice. Thus, courtesy of 1X this spring, KDDI was taking about 6,000 yen a month from voice and 1,600 yen from data. If you look at the move this way, KDDI might actually be getting a spare 1,400 yen or so per subscriber that they weren’t earning on 1X.

But now back to the price war question: Soon? The answer we got from Gartner’s Tazaki-san is “maybe not” – at least initially, although KDDI (which has been piling on 1X subscribers) seems to have kicked a lot of sand in FOMA’s face. The real gouge could come from struggling Vodafone, which just won’t be in a position to compete with 3G services for some time and whose 2G services might start to look old hat very quickly next year if word gets out on the street about cool new – and fast – contents and applications.

Our initial reaction was that this move was a real punch in the packet pocket to DoCoMo just as FOMA sales were starting to climb. Data ARPU for FOMA has been steadily climbing from over 3,000 yen per month to 3,250 yen this spring. According to earlier DoCoMo statements, the average FOMA user accessed the mobile Internet 274 times per month or nearly 10 times daily. And DoCoMo says packet use on FOMA doubled from about 900 packets/user/day in the dark days of FOMA’s winter to over 1,800 as the company brought out new terminals and stretched network coverage this past summer. Factor in the assumption that DoCoMo is balancing FOMA packet rate reductions to boost subs and downloads and pull in the cash, the concomitant question would be, Is KDDI’s flat-rate move going to hurt DoCoMo?

The answer again was probably no, according to Tazaki. First of all, although DoCoMo’s Tachikawa has repeatedly talked about lowering packet rates, DoCoMo can afford to wait and see what impact, if any, there will be on new subscriber additions. “There are some critical issues and risks involved. First of all, we don’t know how many additional subscribers the flat rate will glean,” warns Takasaki.

If and when there is an impact, then flat rates from DoCoMo are a real possibility. But, in the same way that Microsoft can afford to outspend and outlast almost all desktop software rivals, DoCoMo – with its market dominance and (we think) relatively “inelastic” relationship with shareholders – can afford to sit on its thumbs and hope that KDDI’s strategy backfires and Au kills off its 3G/Golden Goose before it’s even laid its egg.

And if flat-rate data starts to rule, DoCoMo will just haul out its massive cheque book to underwrite a similar move of its own. At least, for once, it looks like mobile data users will benefit from the battles.

— Paul Kallender