DoCoMo’s 3G service delay raises more questions

Other firms see May 30 launch as test case on viability of new generation of mobile phones

by Ryan Nakashima

Last week’s decision by NTT DoCoMo Inc. to scale back the introduction of third generation (3G) mobile phone services confirmed the skepticism of many observers about its launch date. But it proved the company was willing to cut prices to allow more consumers to access its richer, higher-speed content.

Speculation before the announcement on April 26 was that, at the rate charged to current i-mode users of 0.3 yen for one packet (128 bytes, or about 12 Roman characters’ worth) of information, the cost of downloading even a 1-minute movie clip would be several thousand yen.

But according to NTT DoCoMo, the 4,000 users of its scaled-back service, beginning May 30, will only pay 29 yen per minute to watch rich-content services such as short news clips and sports highlights or to talk on a real-time videophone — about the same as current mobile rates.

Those who use the videophone models will be able to carry on a face-to-face conversation with a picture quality better than i-mode’s and at a speed of 10 frames per second. A normal television runs at 25 frames per second.

DoCoMo will also reduce its packet rate to one-sixth the cost on the current network, to 0.05 yen, so users can send e-mail and view i-mode pages more cheaply.

DoCoMo spokeswoman Tomoko Homma said the company wants to make the service available to as many people as possible.

“If we put the price for data too high, no matter how much we want customers to use the service, they won’t be able to. We want to make the transmission cost as cheap as possible,” she said.

Users will be chosen from a lottery after the company starts collecting applications on the Internet and from newspaper advertisements starting Thursday.

Interest is expected to be high.

“That television-phone made me interested in buying a next-generation phone,” said Masahiko Shibata, 33, who was shopping for cellphones in Minato Ward last week. He added he would like to be a test candidate if possible.

Shibata spends about 15,000 yen a month on his i-mode phone, which he has used for eight months, but said he would be willing to double his monthly bill if the service included more functions.

As for the device itself, “if it’s under 50,000 yen, I’ll think about buying it,” Shibata said.

For the time being, test users won’t have to pay for the new handsets, nor will they be hit with a monthly basic charge.

The maximum download speed during the trial period — 64 kilobytes per second — falls far short of NTT DoCoMo’s previous promises of 384 kbps.

High quality phone calls made on this “64K digital communications” service will be 1.8 times as expensive as the current price when calls are made to the phones and even more costly when calls are made from them.

The content NTT DoCoMo will offer via a single unit currently takes several gadgets to operate, but there will be no increase in speed. NTT DoCoMo’s Picwalk device is used to listen to streaming music and to download tunes, while the Eggy is for watching movies, sports, entertainment or news clips. Picwalk, Eggy and current mobile PC cards run on personal handy-phone system technology and access information at 64 kbps.

NTT DoCoMo’s music distribution service will not be available on the new phones until the full-scale commercial launch Oct. 1.

“I think the launch is going to be pretty anticlimactic,” said Mark Berman, Credit Suisse First Boston’s director of equity research, before the April 26 announcement. “DoCoMo’s carefully been trying to play down expectations and they’ve been helped by the fact that everyone is so negative about 3G overseas.”

Berman said he expected the upper limit of DoCoMo’s new network to be around 50 or 60 kbps, “or maybe even slower,” based on his assessment of laboratory tests. Between one and three users were able to obtain 470 kbps from a single base station of the new technology, he said.

“What that implies is then, if it’s one user and 470 kilobytes, 10 users would then only get an average of 47 kilobytes and so on.” But he added that the speed would increase as the company increases the density and number of base stations.

While the test run will help work out bugs in the system, one of the pressing questions for 3G in Japan and around the world remains: Just who is going to pay for the new network?

NTT DoCoMo plans to spend 1 trillion yen on plant and equipment over the three years to March 2004.

Masayuki Nagatake, executive vice president of Jupiter Media Metrix, said it will be hard for the service to become popular because of the cost of the new handsets. “The equipment itself will be expensive,” Nagatake said, predicting the cost of a handset will exceed that of the most recent handsets in the i-Appli series, which retail for around 30,000 yen. Before last week’s announcement of the delay, he also expressed doubts about the price of the data transmission.

“If they continue with the same pricing system as i-mode, IMT 2000 (the next generation phone system) will be very, very expensive. So they have to think about charging in a different way for data transmission to arrive at a lower price.”

One cellphone shopper, Naoko Sato, 28, who only spends about 3,000 yen a month on her non-Internet-ready Tu-Ka phone, said she would buy a 3G handset if it fell to about 10,000 yen.

“Even with these models,” she said, indicating the row of current Web-ready cellphones on display, “if you download something, it costs several hundred yen a month. It seems like the more you download, the more it costs, until the bill gets huge.”

NTT DoCoMo predicts 150,000 users will buy into the new service from Oct. 1 to the end of next March, and 6 million by March 2004.

Berman said the high handset price will keep the number of subscribers low, allowing NTT DoCoMo to spread over time the cost of increasing the number of base stations from the current 200 in Tokyo.

“You can’t have those i-mode users wanting to get onto the 3G network,” he said, saying the system would break down.

“At some point between May 30, when the network starts, and some point in the future, they’ll be able to flip the switch and say, now we can bring the million people a day or whatever a day onto the 3G network.

“The question is how long, and what do they do in the meantime?”

Despite the slow start, both Berman and Nagatake say that in the years to come, 3G will enable more active mobile commerce and more effective advertising because of the powerful, easier-to-use handsets and faster data transmission.

Jupiter forecasts that mobile commerce in Japan, including money made from advertising, shopping and fee-based sites, was worth some 39 billion yen in 2000 — 95 percent of all mobile commerce worldwide. It expects that figure to hit 594 billion yen by 2005.

Berman said that even if NTT DoCoMo obtains some small portion of that total through such things as obtaining fees from companies that include charges for their services on NTT DoCoMo’s monthly phone bill, “they’re going to make a fortune on this.”

The company expects the new network to be profitable by 2005.

Berman said the new network is part of a stream of improvements — first to i-mode, then Java-enabled i-Appli handsets — that have seen customers gradually using more, higher-profit-margin data-transmission services, like shopping and surfing.

“You’re building up a base of subscribers and you’re trying to get that base of subscribers to spend more money. That’s all you need.”