From the Desk of�� John Barker - Company Business and Marketing

Japan Is Not Closed

Opinion By John Barker, European Correspondent

Rumors of the death of Japan have been grossly exaggerated. The feeding frenzy in some Western media would have you believe that the world's second most powerful nation has gone belly-up. Not true. Japan may be sorely wounded, but it sure ain't dead. A look at the Japanese telco scene may suffice to show that the United States has nothing to gloat about.

The number of mobile phone users in Japan reached nearly 70 million in March, an increase of 1.5 million for the month. This means that the number of cell phone users showed a growth of 10 million in the last twelve months, slightly more than the previous year, indicating that the pace of growth in the number of cell phone users has yet to slow down.

Most of the increase can be attributed to NTT DoCoMo and its wildly successful i-mode service. Sixty percent of NTT DoCoMo's mobile phone users have opted for i-mode. The number of subscribers to its i-mode mobile Internet service passed the 20 million mark in March. The company plans to expand its i- mode mobile phone network in Europe and the United States within the year. DoCoMo, which provides both the wireless network and Internet access service for i-mode, also plans to open the i-mode Internet network to other Internet service providers within two years.

DoCoMo now is moving at the speed of light. Third-generation (3G) mobile phones promising faster data transmission, CD-quality sound and video services are due to be launched in October using the W-CDMA standard. Not content with that, DoCoMo already has announced plans to bring in fourth generation (4G) services as early as 2006, four years before anyone anticipated. The company has paid dearly to make such an ambitious claim: it has more than 1,000 R&D staffers and spent nearly $1 billion on R&D in 2000 alone.

DoCoMo and Coca-Cola will begin trials in Tokyo this summer to let people pay for drinks from vending machines using i-mode phones. You simply dial the number on the front of the vending machine and your account is debited. Obvious, really. The system already is successfully being used in wireless- savvy Scandinavian countries. It represents a potentially important first step to see whether mobile phones or devices can act as secure electronic wallets.

Neither is Japan lagging behind in the voice-over-IP (VoIP) race. Microsoft and Cisco in Japan reportedly have forged a marketing relationship to encourage Japanese companies to use an Internet telephone system. The Internet phone system is a combination of Microsoft's Windows 2000 Server operating system and Cisco technology for integrating audio, video and data over the Internet. In addition to phone calls, the system allows video and audio data and faxes to be transmitted via telephone. The two firms say that switching to their system from existing PBX (private branch exchange) systems can reduce costs to one-seventh the existing level. A single server can manage 2,500 telephones over the Internet, eliminating the need for separate switchboards at each branch office.

Admittedly, DoCoMo is one of the few success stories Japan has got at the moment. Nevertheless, it is a big success story, albeit one in danger of being engulfed by its own success due to pressure on existing lines. That is why the early rollout of 3G is so vital to its future.

DoCoMo is looking like the next Microsoft, carrying all before it and creating a new world standard that will be hard to resist. Like Microsoft, success breeds success. The much-weakened Western telcos like AT&T and BT will find it hard to resist approaches from the cash-rich behemoth that is DoCoMo. As we said many times before: the Internet changes everything. Don't write off Japan just yet.

John Barker can be reached at tossa@pobox.com. >TK Qwest Communications International [Q]: Microsoft [MSFT]: AT&T [T]:

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