3G handsets: Japan will invade Europe

Unlike their Western rivals, the Japanese manufacturers NEC and Matsushita, followed closely by Mitsubishi, are reasserting their technological advance in 3G. This will give them a significant competitive advantage not only in Japan but also in Europe, constituting a serious threat to European handset manufacturers' revenue prospects.

It emerged last week that of the eleven handset manufacturers who have signed contracts with the Japanese mobile operator NTT DoCoMo for its 3G launch this May, only two will be ready on time - the Japanese manufacturers NEC and Matsushita.

The mobile phone shortage won't hit DoCoMo too hard, as it only expects 150,000 people to sign up for 3G in the first year. But it is serious for the manufacturers who failed to meet the deadline. Their problem is that 3G handsets are extremely complex, requiring expertise in areas such as chipsets and memories, radio interface, displays and power consumption. But most important is the sophisticated software, which needs to be tested and debugged.

Still, NEC and Matsushita have managed to get round the difficulties, while Mitsubishi and Fujitsu aren't far behind. It's not hard to see why. Japanese electronic devices have many of the same characteristics as 3G, in terms of miniaturization, power consumption, modern design, weight and integration of different electronic functions. Also, Japanese manufacturers have made substantial efforts in R&D. Matsushita has been working on 3G technology for nearly seven years, spending around $42-50 million a year and devoting around 1,000 people to the project.

As a result, the Japanese will have a considerable competitive advantage. In Japan, Panasonic, NEC and Mitsubishi already have 60% of the market. Their head start in 3G will make it still harder for Europeans to get a look in.

The Japanese firms are also well placed in Europe. Complying with different European radio protocols will not be a major issue. And they will gain a serious competitive advantage if they are the first to offer 3G phones. They might also gain early support in phone subsidies from European operators, who will need to offer handsets as soon as possible to recoup the huge cost of licenses and infrastructure. European manufacturers will have a tough time in the 3G market.