Morphing I-Mode Phones to Upstage 3G Debut

date: 27th December 2000, source: Yahoo

Hyper-fast third-generation mobile phones are coming to Japan in mid-2001, at least 18 months ahead of the rest of the world, but their landmark debut will be eclipsed by innovations in existing technology, analysts say.

Japan's second-generation ``2G'' phones, including NTT DoCoMo's (9437.T) popular 'i-mode' Web-linked service, already offer Internet access, business card-sized color screens and an array of organizer functions, and more advances are planned for the first half of next year.

``The best scenario for DoCoMo would be to extend i-mode's popularity,'' said Tsubasa Securities analyst Motoharu Sone.

I-mode has attracted 16.8 million users in its brief 22-month history and is still growing at the breakneck pace of 40,000 to 50,000 new subscribers each day.

Still available only in Japan, i-mode has vast potential for global growth, analysts say, since European and U.S. carriers have had little success luring a wide user base to Wireless Application Protocol (WAP), a competing standard.

By contrast, analysts and industry players say that advanced 3G, despite eye-popping features such as full-motion video and CD-quality sound, looks poised for a subdued debut.

Subdued Debut

The first 3G services due in May, while able to deliver data at 64 kilobits per second, or six times faster than 2G, will still fall far short of the 384 kbps maximum that 3G technology would permit.

And initially, corporate users will likely be the only ones interested in 3G services, which are expected to be priced beyond the reach of most individuals.

DoCoMo itself has played down any suggestions that 3G phones -- at least in their early phase -- will be a hot new gadget for consumers to play with.

``The assumed 3G model of watching video over the Net may not be the best way to generate revenue,'' said Keiichi Enoki, NTT DoCoMo's managing director for i-mode services. He noted that users are unlikely to want to stare at a small cell-phone screen for hours at a time.

Hyped expectations for 3G technology raised telecoms shares around the world to unseen heights earlier this year, but doubts have eroded more than $200 billion in market value from the top 10 telecoms firms in the last six months.

Still, DoCoMo is confident it will be the first to find the best business model for 3G services and recoup its investments.

Analysts generally agree, citing DoCoMo's lead over global competitors such as Vodafone Group Plc (VOD.L), adding that its closing share price of 2.13 million yen on Wednesday, down nearly half since the beginning of the year, vastly undervalues its business.

``Share performance in 2000 was at its worst,'' Tsubasa's Sone said. ``I think we can expect a better performance in 2001.''

Java Jolt

Analysts also point to changes taking place at the higher end of current technology -- or ``2.5G'' -- such as adding the versatile Java software platform, and predict these will upstage 3G's launch.

``I think it's going to be more a year of Java than a year of 3G,'' said Kate Lye, telecoms analyst at UBS Warburg.

Subscribers in Japan can already check their e-mail, surf more than 20,000 i-mode-tailored Web sites and download the latest ringing tones or screensavers.

Java, a versatile programming language developed by Sun Microsystems Inc that runs mini-programs called applets, will boost security for mobile phone-based commercial transactions by encrypting credit card numbers and bank account information, making it safer to pay for things online.

Java will also spur location-based services on 2G phones, such as chirping when the user nears a store that is holding a sale. Java-enabled mobile phones for NTT DoCoMo's i-mode service will hit the market in January, followed by competitors DDI Corp (9433.T), better known as KDDI, and Japan Telecom Co Ltd's (9434.T) J-phone in the middle of the year.

Content Is King

``As the world's premier wireless data provider, NTT DoCoMo is the best-positioned carrier to realize (and demonstrate) the benefits of Java,'' Dresdner Kleinwort Benson analyst Kirk Boodry said in a report.

In addition, the already wide assortment of 2G mobile phone content in Japan is about to get wider.

DoCoMo will integrate its mobile phone services with America Online Inc's local Internet service provider AOL Japan, allowing users to access e-mail through both providers, as well as the vast pool of media content brought to the table by AOL's merger with Time-Warner Inc.

Restaurant guides, news, interactive games and a wealth of other information and services are already available on i-mode.

Java-enabled phones will bring more sophistication, including a Web-based fishing game in which the phone vibrates when a fish takes the bait and is ready to be reeled in with the jog-shuttle dial.

Mobile phone handsets made by Sony Corp (6758.T) will be able to play MP3 digital music files from a gumstick-sized memory storage unit, which can be inserted into a special slot at one end of the phone.

DoCoMo has also tied up with Sony Computer Entertainment, a Sony subsidiary, to develop interactive games that can be played both on i-mode phones on the road and on PlayStation video game machines at home.

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