EUROPEAN AND JAPANESE ENVY

Why does it seem that most of the rest of the world has a better communications system? We often hear that Europe and Japan are ahead in terms of wireless technology; surprised Americans have a hard time understanding why they don’t have the latest in devices and systems. Although there are many factors that have contributed to the apparent head start of Europe and Japan, one of the most important is geographic size and population density. In short, they simply have less space to cover and often more people in that smaller space.

Cellular gets its name from the system of cell use and reuse that essentially divides up the area to be covered into cells. Each cell can only handle a certain amount of traffic before it, too, needs to be divided into smaller cells to increase capacity. The first   analog cellular systems employed frequencies that covered a relatively large area while handling a modest  amount  of  traffic.  As  the  popularity  of  cell  phones increased,  more  and more analog cell sites  were  needed. Digital 2G systems were designed to handle this increasing traffic by utilizing more efficient digital systems that required less power and could fit more calls into the same amount of bandwidth. These digital  2G systems were not only more expensive that 1G analog systems but required more cell sites. This greatly  increased  the  total  build-out  costs  of  service provider network infrastructure.

Because many European countries could fit into the United States several times over, and Japan could fit into Europe several times over, European and Japanese operators could roll out a 2G network with more complete coverage for less money than could an American operator. We see this same effect in the coming 3G systems—is anyone really surprised that Japan will have it first?

Americans shouldn’t feel too badly: the United States is the home of the PC-based Internet, whereas Europe and Japan want bandwidth for the mobile phones. By mid-2001 over  65 percent of European Union citizens had a mobile phone,  more  than  twice  the  percentage  who  had  home Internet access. In some countries, Finland and Sweden for example, mobile penetration levels have reached 70 percent, and there are some predictions that some countries may reach 100 percent penetration (one for every man, woman, child, and dog—yes, even pets can wear communication collars that track their location. Imagine being able to call your pet via the built-in attached speaker). Mobile communications is a global $200 billion industry with a growth rate of 12.5 percent a year. European wireless operators spent an astronomical $130 billion in 2000 on licenses (a staggering amount to spend on “air”) to offer 3G services, and will have to spend as much to build out their networks. As global culture continues to merge, disparities will eventually equalize as each nation learns from other’s advances.

EUROPEAN EXPERIENCE

Most countries in Europe, specifically the Scandinavian countries and Finland, are focused on communications and mobility. Wireless telephony has been part of European life for most of the past two decades. In these countries, more than 60 percent of the populations use mobile phones. In many cases the use of mobile phones is so popular that it has dramatic impact on the growth of conventional landline phones. Consequently, mobile phones are replacing conventional phones in certain households and lifestyles. As such, it is predicted that by 2004, one third of all Europeans—over 200 million people—will regularly use Internet services on their mobile phones, according to research company Forrester. As this Internet fever takes hold in Europe, more Europeans are racing to route e-commerce through mobile phones. It’s estimated that within the next two years more Europeans will be surfing through a Web phone than a PC. The Wireless Internet is poised to become the most important channel for online banking and financial services in Europe.

Across Europe, new wireless data services and applications are being launched. As operators make the transition from circuit-switched to higher speed data services, they and the market will provide applications that make use of the resources available to further drive usage of the network. They will also have to make a move away from time-based billing and examine the alternative revenue streams that are available to applications providers. In Western Europe, 45 out of 57 mobile network operators in 18 countries, representing approximately 90 percent of all the mobile phone users in Europe, have already created online portals.

FINLAND: THE LAND OF THE MIDNIGHT SUN, REINDEER, AND MOBILE PHONES

In Finland, the number of the households having a conventional telephone has decreased during the past ten years from 94 percent to 78 percent.  Simultaneously  the  amount of households having a mobile phone has shown a very rapid growth from less than 5 percent to 73 percent. By 1998, more Finnish households had a mobile phone than a conventional telephone. Approximately 88 percent of households in Finland have at least one mobile phone, and more than 20 percent of these households have more than one mobile phone, which is up from 65 percent in 1999. More than 20 percent of households in Finland have only a mobile phone (one or more), and that  number may grow in a few years.  (Source: Statistics Finland; www.cellular.co.za/news.)

Finns in particular have a strong affinity to their Nokia mobile phones. In 2000, over 1.4 million new phones were purchased (in a country with just over 5 million people). These phones are used to send messages, especially by teens. In 2000, over 1 billion SMS messages were sent. Furthermore, wireless phones are also being used in a variety of mobile transactions.  For  example,  to  purchase  beverages  from  GSMenabled vending machines, the user dials the number indicated on the machine, which results in the release of the soft drink from the machine. The cost of the beverage appears on a monthly bill, together with the charge for the phone call.

MADE IN JAPAN: THE LAND OF THE RISING WIRELESS INTERNET

The Japanese market has given the world a glimpse of what the Wireless Internet might look like, and it is a prime force in the direction and momentum of the Wireless Internet market. NTT DoCoMo is Japan’s leading mobile phone operator and largest ISP and the world’s leader in Wireless Internet access. Since starting its data service (called i-Mode) in February 1999, NTT DoCoMo has seen its subscriber base grow to top 26 million as of August 2001; it averages 40,000 to 50,000 new subscribers per day. This spectacular growth is driving NTT to implement 3G technologies that will provide for greater capacity and allow creation of new applications. Only about 15 percent of Japanese consumers and business people access the Internet via PCs. Thus to many of NTT’s i-Mode customers, the i-Mode is synonymous with the Internet. According to NTT DoCoMo, the “i” stands for interactive, Internet, and independence.

In Japan, businesses from airlines to television stations to banks all provide their services via i-Mode. DoCoMo earns a 9 percent fee from content providers that charge for their information. DoCoMo has four revenue models: monthly subscription fees, per-packet data transmission fees, commissions on billing, and revenues for traditional voice services. In 2000, DoCoMo reported that 70 percent of i-Mode traffic came from users in their teens to early twenties, with about 60 percent of i-Mode traffic  going to official sites that specialize in entertainment. According to NTT DoCoMo, the average total bill for i-Mode data transmission is about $13.00 (U.S.) per month. Equally impressive, the average i-Mode user generates an additional 36 percent increase in revenue over voice-only subscribers. Much of this increase can be attributed to direct access, use of data packets, and increasingly higher voice minutes of use.

The increase in voice usage is interesting in that we believe it represents a hidden upside to most United States business models. Even more impressive is i-Mode’s transmission speed of only 9.6 Kbps. Even at this “slow speed,” some of the best selling applications are (surprisingly) cartoon-character screen savers that download each day for $1. The i-Mode service has been so successful that at times DoCoMo has curtailed its advertising in efforts to slow down subscriber growth while improving network capacity. When DoCoMo launched i-Mode, it had 67 Web site providers: By the end of the first year, there were 721 information providers responsible for 1,280 sites on DoCoMo’s main i-Mode menu, and third party developers had created  another 31,085  i-Mode  sites.  Additionally,  it  was announced in February 2001 that that Google had developed a new technology that gives i-Mode users in both English and Japanese access to the more than 1.3 billion Web pages Google has indexed to date. Google’s technology converts a request for a standard HTML Web page to be viewable on an i-Mode handheld device. i-Mode’s success is enhanced by the huge number of content sites available to the subscriber. To better understand the reason for i-Mode’s popularity, and the rapid and overwhelming adoption of the Wireless Internet by the Japanese people, we must look at Japan itself. In Japan, space is at a premium—homes and offices are small and there is very little extra room to accommodate PCs, monitors, and printers. Furthermore, Japanese society is traditionally an early adopter of technology in general and it is a commuter culture.

Today, only about 15 percent of Japanese consumers and business people reach the Internet using PCs. The remaining 85 percent are willing to accept the limitations of smaller display  screens  and  keyboards  on  wireless  handheld  devices. Furthermore, the price of PC Internet access via landline phone is  higher in Japan when compared to the United States or Western Europe. The average costs are $20 per month plus $2 per hour of use. The installation price of a home phone line is approximately $700, as compared to a cellular connection for $28; and i-Mode users pay only for the number of packets used. Because the Japanese are traditionally early adopters of new technologies, they have been very quick to adopt new i-Mode products and services. For example, Japanese consumers have purchased dog collars that transmit their animal’s location to their wireless device, PC, or fax machine. Entertainment-related sites where you can download images, ringing tones, play interactive games, read your horoscope, find dating services, weather, and news are most popular. Because the majority of Japanese students and employees commute (usually by train or bus) an average of 30 to 40 minutes per day each way, they have ample opportunity for mobile communications and entertainment. Pocket-size devices are really well-suited to these commuter environments where, more often than not, there is no room to even open a newspaper. Even a small notebook computer is too big to carry on a bus or train, whereas the i-Mode device is the perfect size to be held in one hand. Table 3-7 shows the popularity of i-Mode content by category.