NTT DoCoMo: i-mode Wireless Internet Services

Gartner© 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved.Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to bereliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretationsthereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

DPRO-96594Nahoko Mitsuyama

Operational Management Report3 September 2003

NTT DoCoMo: i-mode Wireless Internet Services

Summary

Launched in 1999, NTT DoCoMo’s i-mode service is a success in Japan, with subscribers numberingmore than 38.65 million. Consequently, many operators have looked to it as a wireless Internet rolemodel.

Table of Contents

Company Overview

Technology

Products and Services

i-mode Business Model and Strategy

Challenges and Competitors

Strengths and Limitations

Insight

List Of Tables

Table 1: NTT DoCoMo’s 3G Milestones

Table 2: Overview: NTT DoCoMo

Table 3: Analysis of NTT DoCoMo’s Monthly ARPU

Table 4: i-mode Technical Details

Table 5: Latest NTT DoCoMo i-mode and FOMA Handsets

Table 6: NTT DoCoMo’s i-mode: Selective Data

Table 7: i-mode Content Breakdown: 1Q03

Table 8: Selected NTT DoCoMo Alliances and Joint Ventures (March 1999-July 2003)

Table 9: NTT DoCoMo’s Equity Loss

Table 10: NTT DoCoMo’s International Expansion

Table 11: i-mode Outside Japan

Table 12: i-mode Pact

List Of Figures

Figure 1: NTT DoCoMo Group of Companies

Figure 2: i-mode Network Architecture

Figure 3: i-mode Wholesale Network Configuration


© 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved.DPRO-965943 September 2003 2

Company Overview

Today, NTT DoCoMo is one of the most valuable telecom companies in the world. It was formed in July1992, when the cellular communications services of Nippon Telegraph and Telephone (NTT) were carvedout from the former telecom monopolist’s other lines of business. At that time, the government was alsoconsidering breaking up NTT into a long-distance carrier and two local carriers in an effort to promotecompetition in the telecom sector. In July 1993, NTT DoCoMo was reorganized into nine regionalcompanies (see the figure “NTT DoCoMo Group of Companies”), and on 22 October 1998, NTT DoCoMo(a holding company that also operates in the Central region) was listed on the Tokyo Stock Exchange.NTT DoCoMo operates cellular networks based on the Japanese personal digital communication (PDC)and wideband code division multiple access (WCDMA) standards. On 1 December 1998, it took overNTT’s unprofitable Personal HandyPhone System (PHS), with the aim of turning it around within fiveyears. NTT DoCoMo also operates a paging service and paging equipment sales business (Quickcast)and an international dialing service.

Figure 1: NTT DoCoMo Group of Companies

NTT DoCoMo has plans to convert its regional subsidiaries into wholly owned subsidiaries by way ofshare exchange, as stated in a memorandum of understanding (MOU) dated 8 May 2002. This is seen asa precursor to merging into a single operating unit, which would facilitate decision making and bring aboutimproved efficiency.

NTT DoCoMo has 26 overseas subsidiaries, including major ones, such as DoCoMo Europe, DoCoMoU.S.A., DCM Investments and NTT DoCoMo Telecomunicações do Brazil. Overseas R&D centers, suchas the Munich-based DoCoMo Communications Laboratories Europe, is mainly involved with leading-edge technology in network infrastructure and security. DoCoMo Communications Labs U.S.A. isengaged in fourth-generation (4G) mobile communications, Internet and software technology R&D. NTTDoCoMo also has a large R&D center located in Yokosuka Research Park, Japan. This advanced center



focuses on wireless/network technology, multimedia and 3G cellular equipment development. NTTDoCoMo’s sustained commitment to fundamental research has put it at the forefront of the wirelessrevolution.

In October 2001, NTT DoCoMo became the first cellular operator in the world to offer commercial 3Gservices (based on WCDMA) called Freedom of Mobile Multimedia Access (FOMA). Initially, the servicewas available only in the Tokyo metropolitan area, Yokohama and Kawasaki. However, by March 2004,the service is expected to cover 99 percent of the population nationwide.

Table 1: NTT DoCoMo’s 3G Milestones

Date 3G Service Coverage

30 May 2001-30

September 2001

Introductory service in 23 wards in Tokyo and limited areas in Yokohama and

Kawasaki. 22 percent population coverage.

1 October 2001 Coverage within 30-km radius from Central Tokyo.

December 2001 Service commenced in Tokai and Kansai areas (50 percent of populated areas in

Japan are covered).

April 2002 All major cities nationwide, with approximately 92 percent coverage of the populated

areas in the Kanto-Koshinestu region.

March 2003 91 percent population coverage nationwide.

Source: NTT DoCoMo.

Back in 1992, only a few of NTT’s staff exhibited interest in joining the fledgling NTT DoCoMo, becausemany were concerned about its viability. However, the company has since been wildly successful,capturing 57.45 percent (or 44,361,000 cellular connections) of the cellular market in Japan at the end ofJune 2003. The company’s i-mode wireless Internet service — launched in February 1999 — has sweptthrough Japan with tsunami-like force, and its enormous popularity and success have been the envy ofcellular operators worldwide who have been struggling with their own wireless Internet service based onWireless Application Protocol (WAP). The service enables Internet access via small, lightweight andtrendy cellular handsets replete with color screens and Java-capabilities. Initial problems, such as networkoutages in 1999 (due to NTT DoCoMo grossly underestimating the demand for i-mode services) andfaulty handsets, were rapidly resolved, and i-mode has not looked back since.

As of December 2000 (barely two years after its launch), there were 17,161,000 i-mode subscribers(equivalent to 50.15 percent of NTT DoCoMo’s total cellular connections base). By 30 June 2003, thenumber had risen to 38,648,000 (87.12 percent of NTT DoCoMo’s cellular base), and i-mode comprised60.00 percent of the wireless Internet market in Japan (in term of users). Initially, i-mode was availableonly on the PDC cellular system, but it is now available on the PHS (February 2001) and FOMA networksas well.


Corporate

Headquarters

NTT DoCoMo

11-1, Nagatacho-2-chome

Chiyoda-ku

Tokyo 100-6150

Japan




Ownership Publicly listed subsidiary of NTT, which is itself a public-listed company. NTT is the

majority shareholder, with a 62.96 percent stake. Other major shareholders include

Japan Trustee Services Bank (4.15 percent) The Master Trust Bank of Japan (3.99

percent) UFJ Trust Bank (1.11 percent) and State Street Bank and Trust (1.01

percent).

Number of

Employees

20,792 as of 31 March 2003.

Date Wireless

Services Launched

1979 (Hi-cap), 1993 (PDC), 1995 (PHS), February 1999 (i-mode), October 2001

(FOMA).

Estimated Revenue Operating revenue: ¥4,809 billion (financial year ending 31 March 2003).1

Average Revenue

per Subscriber

For the financial year ending 31 March 2003: PDC — ¥8,120 per month (including

data contribution of ¥1,750); FOMA — ¥7,740 per month; PHS — ¥3,530 per

month.

Network Infrastructure

System Deployed WCDMA, PDC800/1500 and PHS. Wireless LAN (WLAN) 802.11b service

(“Mzone”) on commercial basis (starting 1 July 2002).

National Coverage National.

Number of Base

Stations

Data not available.

Network

Enhancements

PDC Packet data transmission speed upgraded to 28.8 Kbps in May 2002,

commercial 3G service (FOMA) in October 2001.

i-mode Pricing Elements

Individual Business

Tariffs

Monthly basic subscription (¥300) and data download charges (¥0.3 per packet,

with each packet equivalent to 128 bytes). Separate monthly subscriptions apply for

certain i-mode sites.

An e-mail (up to 20 full-size characters) costs ¥1/message (to send) and ¥0.9 (to

receive). An e-mail of 250 full-size characters costs ¥4 (to send) and ¥2 (to receive).

Data download charges on FOMA are set from ¥0.02-¥0.20, depending on the

subscription package chosen.

Corporate Dialing

Plans

Intranet, LAN access and virtual private network (VPN) solutions are available.

(1) NTT DoCoMo changed its accounting scheme from Japanese one to USGAAP in fiscal 2002.

Source: Gartner.

At a time when cellular operators worldwide are faced with the issue of declining average revenue peruser (ARPU), the introduction of i-mode has enabled NTT DoCoMo to soften the adverse impactsubstantially. Its total monthly ARPU (voice and data) declined by only 7.3 percent between the firstquarter of 2001 and the first quarter of 2002, although voice ARPU declined by 17.2 percent over thesame period. This was because the decline in voice ARPU was mitigated by a 80.7 percent increase in i-mode data revenue over the same period. Contribution of i-mode to total ARPU has increased steadilyover time, but it is showing signs of a slowdown in the first quarter of 2002. The table “Analysis of NTTDoCoMo’s Monthly ARPU” provides a breakdown of NTT DoCoMo’s ARPU.



Table 3: Analysis of NTT DoCoMo’s Monthly ARPU

Total Monthly ARPU

(¥)

Voice Contribution

(¥)

i-mode Contribution

(¥)

Contribution of i-

mode to Total

Monthly ARPU

(percent)

1Q01 8,650 7,770 880 10.2

2Q01 8,770 7,300 1,470 16.8

3Q01 8,570 7,060 1,510 17.6

4Q01 8,540 6,960 1,580 18.5

1Q02 8,020 6,430 1,590 19.8

2Q02 8,150 6,520 1,630 20.0

3Q02 8,170 6,460 1,710 20.9

4Q02 8,200 6,430 1,770 21.6

1Q03 7,990 6,120 1,870 23.4

Source: NTT DoCoMo, Gartner.

NTT DoCoMo’s data contribution to revenue had once led those of its competitors, but it has caught upwith them gradually. J-Phone’s data contribution to ARPU was 21.1 percent (for the latter half of fiscal2002, ending 31 March 2003), while KDDI au lags behind with the data contribution of 15.5 percent (forthe financial year ending 31 March 2003). NTT DoCoMo has also managed to keep the customerturnaround rate low (monthly average of 1.22 percent for the financial year ending 31 March 2003),whereas cellular operators elsewhere have to grapple with customer loyalty issues brought about byincreased competition.

Having controlled the local cellular market with a commanding 57.45 percent market share (as of June2003), NTT DoCoMo has cast its eyes overseas in search of growth opportunities. To date, it has madeseveral key strategic investments overseas, and it seeks to license its i-mode technology elsewhere whilesimultaneously promoting the new WCDMA technology. But before we analyze NTT DoCoMo’s businessmodel and strategy, we will first look at the technology and services available on i-mode.

Technology

i-mode is basically Internet access service operating on a packet-based network (PDC-P) overlaid on topof NTT DoCoMo’s PDC cellular system (see the figure “i-mode Network Architecture”). Connectionsaccessing the Internet are routed through an i-mode gateway, as opposed to a voice call, which is routedto the normal public switched telephone network. i-mode access is now also available on the FOMAnetwork.

Table 4: i-mode Technical Details

Data Speed 9.6 Kbps, upgraded to 28.8 Kbps in May 2002. Speeds of up to 384 Kbps are

available on NTT DoCoMo’s FOMA network.

Data Exchange

Protocol

Compact HTML (cHTML). This is a stripped-down version of the popular HTML

format used in traditional Internet access. A convergence between cHTML and

Wireless Markup Language (WML) toward Extensible HyperText Markup Language

(xHTML) is expected to happen in the future.

Transmission Mode Packet switched.

Internet Access

Mode

Always “on” (as opposed to dial-up).

Source: Gartner.



Figure 2: i-mode Network Architecture

Source: NTT DoCoMo/Gartner.

In January 2001, NTT DoCoMo launched its “i-appli” service applications that include video games andonline financial services. This service is available on Java-based handsets. Users can download andstore a variety of dynamic and graphics-rich applications via these new handsets. The capability of thehandset to manipulate applets has been well received by consumers. i-appli users hit 17.13 million as ofthe end of March 2003. Of all the subscribers having Java-enabled handsets, 50 percent downloadprograms written with Java, and approximately 60 percent of i-mode access is generated by Java users.The i-appli handsets also feature Secure Socket Layer (SSL) protocol that provides encryption for securetransmission of personal information. As such, the new phones can also be used for financial servicesand m-commerce.

The table “Latest NTT DoCoMo i-mode and FOMA Handsets” below shows some of the latest i-modehandsets that have been introduced recently. i-mode handsets are far more advanced than those of theGlobal System for Mobile Communications/general packet radio service (GSM/GPRS) world, and theyhave contributed to the service’s popularity.




Handset Model Launch Date Handset Features

mova F505i 11 July 2003 • Enhanced i-mode,

offering packet data

transmission speeds of up

to 28.8 Kbps, three times

faster than the original

PDC-based i-mode.

• 1.28 mega pixel built-in

Charge Coupled Device

(CCD) camera. 16 times

digital zoom.

• Main display: 2.2-inch,

262,144-color Quarter

Video Graphics Array

(QVGA). Sub display: 1.1-

inch, 256-colors Organic

Electroluminescence

Display.

• Fingerprint reader for

client certification.

• 6-minute video recording

for one record, totally 67

minutes at maximum.

• Detachable memory

(16MB mini Secure Digital

[SD] memory card), which

can stock approximately

1,010 photos or record 29-

minute video.

• Macromedia Flash

capable.

• Two-dimension bar code

reader.

• Infrared Data Association

(IrDA) standard port.





mova N505i 4 July 2003 • Enhanced i-mode,





PDC-based i-mode.

• 320K pixel built-in

Complementary Metal

Oxide Semiconductor

(CMOS) camera. 3-times

digital zoom.

• Main display: 2.4-inch,

262,144-color QVGA. Sub

display: 1.1-inch, 65,536-

color Thin Film Transistor

(TFT).

• AccessReader capability

that enables one to capture

a URL or a telephone

number by taking its photo.

• 6-minute video recording

for one record, totally 67

minutes at maximum.


(16MB mini SD memory

card), which can stock

approximately 2,300

photos or record 1.5-

minute video up to 14

records.


capable.


reader.

• IrDA standard port.





mova SH505i 20 June 2003 • Enhanced i-mode,





PDC-based i-mode.

• 1 mega pixel built-in CCD

camera. 8-times digital

zoom.

• 2.4-inch, 262,144-color

QVGA display.



card), which can stock

approximately 985 photos

or record 30-minute video.


capable.


reader.


mova SO505i 4 June 2003 • Enhanced i-mode,





PDC-based i-mode.

• 1.3 mega pixel built-in

CCD camera. 16 times

digital zoom.

• 2.2-inch, 262,144-color

TFT liquid crystal display

(LCD).


(Memory Stick Duo), which


985 photos.


capable.


reader.






mova D505i 23 May 2003 • Enhanced i-mode,





PDC-based i-mode.

• Main display: 2.2-inch

(approx.), 262,144-color

Thin Film Diode (TFD). Sub

display: 1.1-inch 65,536-

color TFD.

• 630K pixel built-in CCD

camera. 8-times digital

zoom.


(Memory Stick Duo), which


970 photos.


capable.


reader.






FOMA Handsets

N2102V 18 July 2003 • 64-Kbps digital

videophone.

• Two built-in CMOS

cameras (320K pixel and

110K pixel).

• PictureVoice capability

that allows a user to add

voice to a picture message

and send it as “i-motion

mail.”

• AccessReader capability

that enables one to capture

a URL or a telephone

number by taking its photo.

• Better voice quality for “i-

motion” (sound and video-

clip distribution service) by

adopting Advanced Audio

Coding (AAC) in addition to

Adaptive Multirate (AMR).


65,536-color TFT. Sub

display: 1.0-inch 65,536-

color TFT.

• Adopts FirstPass for client

certification.





F2102V 3 July 2003 • 64-Kbps digital

videophone.

• Two built-in CCD


110K pixel).



card).

• Two sound speakers.

• Better voice quality for “i-

motion” (sound and video-

clip distribution service) by

adopting AAC in addition to

AMR.


65,536-color TFT. Sub

display: 1.1-inch

monochrome STN.

• Adopts FirstPass for client

certification.

N2701 11 June 2003 • WCDMA/PDC dual-mode

handset.

• Two built-in CMOS


100K pixel).

• 2.2-inch 65,536-color TFD

display.

• Simultaneous voice and

packet data transmission.

• “i-motion mail” moving-

picture-mail capability.

Source: NTT DoCoMo.

Products and Services

NTT DoCoMo’s i-mode offers a kaleidoscopic array of services that encompass many aspects of aconsumer’s lifestyle. As of March 2003, there are 3,462 official i-mode sites and 64,207 voluntary orunofficial i-mode sites. From July 2000 onward, English i-mode sites were made available in Japan.

NTT DoCoMo allows its subscribers to access unofficial Web sites, and this has increased theattractiveness of i-mode. The “walled garden” strategy adopted by cellular operators elsewhere during theearly days of wireless Internet services is now rightly seen as an inhibitor to service adoption.

i-appli sites stand at 550 as of March 2003. As can be seen below, the number of sites is still increasing.E-mail access is a hugely popular application, as are ringing tones, wallpaper and character downloads,and entertainment applications (for example, games).



Table 6: NTT DoCoMo’s i-mode: Selective Data

1H01 2H01 1H02 2H02 1Q03

Total NTT

DoCoMo

Connections

(m)

37.321 39.635 41.462 42.874 43.861

Total i-mode

Subscribers (m)

24.989 30.182 33.493 36.209 37.758

Total i-appli

Users (m)

3.995 10.481 14.237 15.658 17.130

i-mode

Penetration

(percent)

67.0 76.2 80.8 84.5 86.1

Number of

Official i-mode

Sites

1,760 2,932 3,064 3,389 3,462

Number of

Unofficial i-

mode Sites

45,810 51,744 55,371 61,180 64,207

Number of i-

appli Sites

119 233 338 515 550

Source: NTT DoCoMo.

NTT DoCoMo has adhered to strict guidelines for i-mode sites to maintain the quality of content availablethrough the i-menu and to encourage continued diversification of i-menu Web-sites. Some of the mainguidelines are as follows:

• All content must be updated several times a day so that it is as current as possible.

• All content must be as comprehensive as possible, providing access to other levels of relatedinformation.

• Content design must be attractive to encourage repeat hits on i-mode sites.

• Content must be highly readable. Users must be able to easily understand the information andservices.

NTT DoCoMo has also created a subsidiary called NTT DoCoMo.com to provide advice on contentproduction to information providers. It is also possible for NTT DoCoMo to invest in the informationproviders’ businesses. The breakdown of content is as follows:


Category Percentage to Total Access

Melodies/Images 39.0

Games/Fortune Telling 19.0

Entertainment 21.0

Information 11.0

Database 5.0

Mobile Banking/Credit Cards/Securities/Insurance 5.0




Category Percentage to Total Access

Source: NTT DoCoMo.

To access i-mode services, consumers need only to pay monthly basic subscription fees (¥300) to NTTDoCoMo and monthly subscriptions to i-mode information providers (in the range of ¥100 to ¥300).However, some of the sites are free of charge. Consumers also need to pay NTT DoCoMo ¥0.3 perpacket of data download. Affordable rates and the packet-based charging scheme have been contributingfactors to the success of i-mode. The following are some of the available i-mode services:

E-Mail

i-mode allows subscribers to send e-mails to i-mode cellular phones and Internet e-mail addresses.Messages of up to 250 full-size or 500 half-size characters can be sent. Pictograms are supported by e-mail. Group e-mails (up to 12 recipients) are also available. E-mail charges are calculated based on theamount of data transmitted and not by airtime. The cost of sending an e-mail ranges from ¥0.9/messageto ¥4.2 per message. Receiving an e-mail will incur charges ranging from ¥0.9/message to ¥2.1/message.E-mail service supporting photo attachments (“i-shot”) is also available since June 2002. The cost for an i-mode user to receive an “i-shot” URL is ¥2-3 and approximately ¥17 to download a photo.

i-mode subscribers are also able to receive an AOL e-mail address (@aol.com) free of charge byregistering for the AOL service. E-mails sent to the @aol.com address are forwarded to the user’[email protected] address. Mails of up to 250 full-size characters can be read on i-mode, but mailsexceeding this size (up to 25,000 full-size characters) will have to be accessed on the AOL site by usingthe Web function. Sent e-mails are limited to 2,000 full-size characters.

Entertainment Services

a) Ringing Melodies Download and Karaoke

Subscribers are able to download ringing melodies, access karaoke releases, access music chartrankings and obtain music lyrics from content providers, such as Sega, Yamaha, Bandai and KyoceraMultimedia.

b) Cellular Phone Screen Savers

Animated cartoon characters can be downloaded to the i-mode phone. Popular sites include Charappa!(Sesame Street Characters and Japanese cartoons), Always Snoopy (Peanuts characters), i-Disney(Disney characters) and the Standby Display Collection (photos of pin-up girls and pets).

c) Games/Gaming

Game sites include those from Hudson, Bandai, Takara, Panasonic and Namco. There are a wide varietyof board games, shooting, racing, sports, slot machine games, simulation and role-playing games. i-modephones can also be fully linked to the popular arcade game Virtua Fighter 4 (VF.NET).

d) Fortunetelling

Various options are available including horoscopes, tarot reading and voice analysis. Users can also getadvice on friendship and compatibility anytime. Content providers include So-net, Bandai, i-Disney andNEC.

Transaction Services



a) Mobile Banking

Mobile banking sites offer full-banking services, including fund transfer, account balance confirmation andwithdrawal records. Sites for mobile banking include those of UFJ Bank, Sumitomo Mitsui Banking, Bankof Tokyo-Mitsubishi, Mizuho Bank, Resona Bank, Saitama Resona Bank and Citibank.

b) Credit Card/Securities/Insurance

Subscribers are able to receive stock movement information as and when they want it, conduct stocktrading, check their credit card bill and pay their life insurance contracts. Participating companies includeDaiwa Securities, Nomura Securities, Visa, JCB Cards, Nippon Life Insurance and Meiji Life Insurance.

c) Travel Services

Services such as airline confirmation, hotel reservations and car rental are available. Partners includeJapan Airlines, All Nippon Airways, Northwest Airlines and Nippon Rent-A-Car. Routes and travelconditions can also be accessed easily, as are public transportation route information/timetable and towninformation.

d) Ticket Booking

Concert information and ticket purchases for concerts and sports events are available from PIA, LawsonTicket, E-Plus and others.

e) Mobile Commerce (m-commerce)

i-mode subscribers are able to order games, CDs, video compact discs (VCDs), books and magazinesonline. Sites include those from HMV, Itochu, Kinokuniya, Cybird and Neowing.

Gourmet/Lifestyle Info

This category includes restaurant guides, mobile telephone directory (Yellow Pages), dictionary search(portable dictionary), business listings and Japanese cooking recipes. You can also access beauty andhealth information, shopping and package inquiries (FedEx, Nippon Express and Yamato Transport).

Information Services

This category provides news (for example, Nikkei, Asahi Shimbun, CNN, Dow Jones and Bloomberg),weather forecasts, sports news, television program listings, location services, car navigation (“i-navi”) andmuch more. The “i-area” service links local area content from i-mode menu sites and i-mode handsets toenable users to access information about the area they are in.

In April 2002, the “c-mode” service was launched, and it is expanding nationwide. This is a cooperationbetween Coca-Cola, Itochu and NTT DoCoMo to provide services such as “C-mo” (vending machines thatfunction as information terminals equipped with computers, display, speakers and printers) and “Club C-mode” (purchase of admission tickets to amusement centers, and pay-per-download maps and content).Users need to access the Club C-mode site to select the services desired. A two-dimensional bar code (CTicket) will then be sent to the handset, and users need only to display the bar code at C-mo units forauthentication to complete the purchase.

Apart from consumer services, i-mode also offers intranet and VPN capabilities to business corporations.This service enables the road warrior to access his or her corporate e-mail and scheduler while on themove. In Japan, a car’s navigation system can also be connected via i-mode to get location informationand nearby hotels and restaurants (“i-navi” link). Location services leverage on the DoCoMo LocationPlatform (DLP).



Services for FOMA

The following additional services are supported on the FOMA network:

• i-motion: video-clip service over i-mode. i-motion site categories include news/TV,hobbies/entertainment and commercials.

• M-stage visual: video distribution service.

• M-stage music: music distribution service.

• Videophone: 64-Kbps motion picture transmission.

In October 2002, three new services were added to M-stage series.

1) M-stage V-Live: one-to-many video streaming service

1. This service is also accessible via personal digital assistants (PDAs) connected to the PHSnetwork. The platform employs a Moving Picture Experts Group-4 (MPE G4) standard for data encodingand an AMR standard for voice encoding. The service was extended to FOMA on 1 May 2003, thus auser can access to a V-Live content with FOMA visual-phone handset. Subscription to “Infogate” (portalsite for PDA with 100 yen monthly charge) is required.

2) M-stage Visualnet: multilocation video conferencing service

2. This allows a FOMA subscriber to host a multilocation video conference with a FOMA visual-phone handset. 100 yen monthly fixed charge.

3) M-stage book: electronic book distribution service

3. A user can download electronic book contents by connecting PDA to the FOMA or PHS network.Subscription to Infogate is required.

i-mode Business Model and Strategy

There have been many attempts to explain i-mode’s phenomenal growth in Japan. Some have laudedNTT DoCoMo’s business acumen, while others have dismissed i-mode as a uniquely Japanesephenomenon that cannot be duplicated elsewhere. To date, plausible reasons put forth to explain i-mode’s success include these:

• The unique characteristics of Japanese culture

• The ability of NTT DoCoMo to dictate technical standards and its huge bargaining power overhandset vendors

• The abundance of content and applications

While there is merit in the above assertions, due recognition must also be given to NTT DoCoMo’sbusiness model, which is central to the vitality and success of i-mode. In effect, NTT DoCoMo hassuccessfully established a networked organization, that is, one that comprises autonomous andsemiautonomous companies working in concert to deliver services to consumers in the most effective andefficient manner possible.

Within this structure, NTT DoCoMo functions as the nucleus, managing and controlling the networkinfrastructure and processes that enable the business ecology to thrive and prosper. NTT DoCoMo’smanagement has rightly recognized that no one company can excel in all value activities (for example,data transport, portal management, transaction and billing, content creation and application development).



Rather, it has chosen to concentrate on its strengths in data transport, portal management, facilitation oftransaction/billing and aggregation of content.

In areas where NTT DoCoMo lacks expertise, it has successfully co-opted partners via alliances andpartnerships (see the table “Selected NTT DoCoMo Alliances and Joint Ventures”[March 1999-July2003]). Alliances and partnerships also serve to reduce the inherent risk in deploying emergingtechnologies, of which wireless Internet access is one. Of course, NTT DoCoMo’s dominant position inthe Japanese market (leading to huge bargaining power) and its ability to dictate standards have made allthese tasks much easier.


Date Details

March 1999 Alliances with Sun Microsystems (Java platform), Symbian (EPOC platform) and

Microsoft (Windows CE) to boost its mobile computing capabilities and hedge its

bets on the dominant mobile computing platform. Alliance with Microsoft includes

application and software development.

August 2000 Alliance with Sony Computer Enterprises to link up i-mode services with Sony’s

hugely popular Playstation game consoles and access to games.

August 2000 Agreement with the Walt Disney Internet Group (the Web business of Walt Disney)

for access to Disney’s content (cartoon screen savers, songs, news and

information).

September 2000 Took a 42.3 percent equity stake in AOL Japan for 10.3 billion yen to have access

to Instant Messenger, AOL e-mail and content.

September 2000 Agreed to an Internet portal venture with KPN Mobile in Europe (launched in 2001).

Venture will incorporate KPN’s established Internet activities, like Het Net, Planet

Internet, m-info and its WAP portal. NTT DoCoMo will take a 25 percent stake in the

venture.

December 2000 Agreed to a joint research effort with Hewlett-Packard for 4G high-performance

multimedia development (MOTO-Media).

December 2000 Joint venture with Sony, Sakura Bank, Sakura Information Systems, Japan

Research Institute, Toyota Motor, Denso, DDI, Sanwa Bank and Bank of Tokyo-

Mitsubishi to develop e-money (an electronic payment system on cellular handsets).

January 2001 Launched a wireless music distribution service with three other partners — Sony,

Itochu and Matsushita Communications Industrial. The joint venture company will be

named Trinotes.

January 2001 Teamed up with KPN Mobile and Telecom Italia Mobile to offer fast mobile Internet

service in the Netherlands, Italy, Germany and Belgium.

February 2001 Teamed up with Sega to enable access to Sega’s Dreamcast video arcade games

via i-mode handsets.

November 2001 Joint action plan with Nokia to cooperate specifically in the promotion of open

mobile architecture for WCDMA-based 3G services (in areas such as browsing,

messaging and application execution environment).

June 2002 Collaboration with Oracle to make Oracle’s database and global positioning system

software compatible with DoCoMo’s 3G, or third-generation, wireless technology.




Date Details

December 2002 Announced jointly with AT&T Wireless that commercial launch of WCDMA in the

four U.S. markets is planned by the end of December 2004 in San Francisco,

Seattle, Dallas and San Diego. NTT DoCoMo and AT&T Wireless also agreed to

form a special committee (Technology Committee) of the AT&T Wireless’s Board of

Directors to oversee the results of the four-city launch and make recommendations

to the full board about the scope and timing of future WCDMA rollouts.

December 2002 Acquisition of additional shares in ACCESS, aiming at strengthening the ties.

Consequently, DoCoMo’s ownership percentage raised from 2.13 percent to 9.61

percent. In line with this, the two companies signed a licensing agreement under

which ACCESS licenses to DoCoMo the browser it originally designed for

DoCoMo’s 3G handsets.

February 2003 Collaboration with Macromedia to jointly deliver Macromedia Flash technology to i-

mode. The technology is embedded into 505i series.

March 2003 Agreement with Samsung Electronics to jointly develop i-mode handsets that are

compatible with 2G GSM/GPRS wireless networks.

April 2003 Collaboration with Visa International, Nippon Shinpan, OMC Card and AEON Credit

to start a pilot program from June 2003 to test a service for making credit card

payments at bricks-and-mortar merchants via DoCoMo 504i and 504iS series

mobile phones, which are equipped with IrDA ports.

April 2003 Agreement with Singapore Telecom Mobile (SingTel Mobile) to collaborate in

relation to the field of 3G mobile multimedia services based on WCDMA technology.

April 2003 Agreement for the purpose of mutual cooperation in the provision of 3G services

with Hutchison Whampoa in order to develop and promote 3G services based on

WCDMA technology by DoCoMo, H3G UK and H3G HK.

May 2003 Collaboration with Japan Airlines (JAL) to test applications operating on 3G and

wireless LAN networks for JAL ground staff use at Narita Airport from 2 June to 30

November 2003. The test involves the use of 20 PDAs and five personal computers

equipped with FOMA data cards for simultaneous voice and data transmissions.

Source: Gartner.

Currently, NTT DoCoMo’s 10 leading application partners are Sun Microsystems, Microsoft, SAP, SonyComputer Entertainment, Sega, Walt Disney Internet Group (Japan), Symbian, 3Com and Hewlett-Packard.

To mitigate the uncertainties associated with entering a virgin territory, NTT DoCoMo has placed bets onseveral alternatives for software platforms (via alliances with Sun, Symbian and Microsoft) and games(Sony and Sega). Despite the numerous alliances and joint ventures, NTT DoCoMo has still managed toappropriate part of i-mode’s gains for itself. This is achieved by having total control over the i-modestandard and ownership of the i-mode portal platform. NTT DoCoMo has so much market power that it iseven capable to dictate i-mode handset specifications to the phone manufacturers. Furthermore, thehandsets bear the name of NTT DoCoMo and not the name of the manufacturer!

Today, NTT DoCoMo derives i-mode revenue from the following:

• End-user revenue (monthly subscription charges and charges for data downloads).



• Bill collection fees from service/content providers (NTT DoCoMo acts as a billing agent for official tolli-mode sites).

• Advertising revenue (in June 2000 NTT DoCoMo established an advertising agent called D2Communications).

Future revenue streams could include the following:

• Portal usage fees from service/content providers.

• Transaction or m-commerce commission from service/content providers.

Also central to i-mode’s success is the capability of NTT DoCoMo and its partners to provide value (withinthe Japanese context) to their consumers on four key dimensions at affordable prices:

• Immediacy — the ability to retrieve information as and when the end user wants it, with low latency.

• Ubiquity — the ability to retrieve information from almost anywhere.

• Mobility — the ability to retrieve information on the move.

• Utility — the usefulness and ease of obtaining information as defined by end users.

NTT DoCoMo has also wisely positioned i-mode as a consumer service (avoiding technology details) andmarketed the service as such. Its consumer-centric approach has certainly been instrumental to i-mode’smass adoption within a short time frame.

Unbundled i-mode Access Provision

Following the discussion in the telecommunications industry and Ministry of Public Management, HomeAffairs, Post and Telecommunications (MPHPT), NTT DoCoMo started offering a service that allowsInternet service providers (ISPs) use of NTT DoCoMo’s PDC-based packet network in November 2002.ISPs became able to offer their own services over the i-mode network with functions provided by NTTDoCoMo as follows:

• NTT DoCoMo provides ISPs with caller numbers and locations only after handset customers haveinput the required information.

• NTT DoCoMo releases its Web access functions to ISPs so that users will be able to access ISPportal sites (equivalent to conventional “iMenu” portal sites) and Web sites (equivalent toconventional independent sites).

• Users also can access their ISP’s mail server with i-mode handsets. This will enable ISPs to operateboth push- and pull-type message transmission services.

ISPs’ network and that of i-mode are connected by leased circuit at the speed of 1.5 Mbps or 6.3 Mbpswith monthly charges. End users who have PDC-based i-mode service compatible handsets have accessto this service. Users who have not registered for the i-mode service need to submit an application for thepacket transmission service’s Dual/Light Plan to gain access to ISP content. The basic monthly charge forthis plan is 150 yen and packet transmission fee is 0.3 yen per packet. Users will also be required tosubmit an application to their ISP and preinstall information via the handset prior to service use.

Figure 3: i-mode Wholesale Network Configuration



Source: NTT DoCoMo/Gartner.

Global Initiatives

Having dominated the Japanese market, NTT DoCoMo set its eyes on overseas expansion. Its globalcampaign was aided by the fact that it did not have to open its checkbook to obtain a 3G license in Japan.In 2000, the Japanese government awarded 3G licenses to NTT DoCoMo, KDDI and J-Phone at nocharge. This allowed NTT DoCoMo to free up its cash hoard for overseas forays.

NTT DoCoMo has taken several minority strategic stakes in overseas cellular operators (see the table“NTT DoCoMo’s International Expansion”) that enabled it to have a foothold in key European, NorthAmerican and Asian markets. The intention, of course, is to promote i-mode and WCDMA via thesecompanies. Hutchison 3G and KPN Mobile have secured 3G licenses in the United Kingdom and theNetherlands, respectively. KPN Mobile also has interests in Germany (E-Plus) and Belgium (BASE).

The investment in KG Telecom is also important, because Taiwan is viewed as a beachhead for eventualentry into the vast China market. The similarities in culture and language between the two countries canserve as a learning ground for NTT DoCoMo’s China campaign. Though KGT’s i-mode attracted morethan 100,000 users by May 2003, Business in Taiwan may enter into a transition period. KG Telecom andFarEasTone (FET) signed a letter of intent to merge on 17 July 2003, which offers KGT shareholders toconvert one KGT share into 0.46332 FET share plus NT$6.864 in cash. FET and KGT have a combinedsubscriber base of 7.7 million as of the end of the first quarter 2003, on par with Chunghwa Telecom andTaiwan Cellular. FET is providing its own mobile Internet service “i-style” and has 3G license in Taiwan.NTT DoCoMo has not announced its stance to this merger yet.

Those initiatives, though, caused negative financial impact to NTT DoCoMo due to drops of the stockprices of its partners. NTT DoCoMo’s equity loss for fiscal 2001 ending March 2002 was 812.7 billion yen,including losses for AT&T Wireless, KPN Mobile and KG Telecom. NTT DoCoMo also needed to writedown its equity investment in fiscal 2002 as follows:


AT&T Wireless Services 67,584 million yen




Hutchison 3G UK Holdings 2,233 million yen

KPN Mobile N.V. 67,949 million yen

KG Telecommunications 5,709 million yen

DoCoMo AOL 6,089 million yen

5 Companies Total 149,564 million yen

Due to dilution in NTT DoCoMo’s shareholding percentage in KPN Mobile N. V. (KPNM) and to loss ofcertain of its minority shareholder’s rights (such as board representation during the year ended 31 March2003), NTT DoCoMo no longer has the ability to exercise significant influence over KPNM (see the table“NTT DoCoMo’s International Expansion” below). Consequently, NTT DoCoMo removed KPNM from thescope of equity method accounting.


Date Company

(Country)

Equity Stake (percent) Amount

September

1998

Tele Sudeste

Celular

Participacoes

SA (Brazil)

3.6 95 million real

December

1999

Hutchison

Telephone

(Hong Kong)

19 US$410 million

May 2000 KPN Mobile

(the

Netherlands)

15 4 billion euros

July 2000 Hutchison 3G

U.K. Holdings

(United

Kingdom)

20 £1.2 billion

November

2000

KG Telecom

(Taiwan)

20 (expanded to 21.43 percent in

June 2001)

US$517 million

November

2000

AT&T Wireless

Group (United

States)

16 US$9.8 billion

May 2001 Hutchison

Telephone

(Hong Kong)

— additional

equity stake

6.37 US$30.44 million

December

2002

KPN Mobile

(the

Netherlands)

Not subscribe new shares: As a

result, NTT DoCoMo’s voting

interest will decrease from 15

percent to approximately 2.2

percent when KPNM issues new

shares to KPN.

—




Date Company

(Country)

Equity Stake (percent) Amount

April 2003 Hutchison 3G

U.K. Holdings

(United

Kingdom)

— 10-year shareholder loan worth

£200 million to support

constructing 3G network

Source: Gartner.

Recently, the effort to export i-mode has received much needed impetus. i-mode-based services areprovided in seven countries and regions outside Japan as of the end of July 2003 (see the table “i-modeOutside Japan” below). To strengthen the promotion of i-mode in Europe, NTT DoCoMo establishedDoCoMo i-mode Europe B.V. in the Netherlands in July 2002, aiming at providing consultation to itspartners in Europe regarding technology and marketing, as well as support in the setup and operation of i-mode services. Other important tasks of this new consulting firm areto promote i-mode service in Europe,encouraging operators to choose i-mode as their mobile Internet service, and to provide consultation toEuropean operators who are willing to set up the i-mode service.

After NTT DoCoMo experienced equity loss in its foreign partners, it started to focus on winning alicensing pact rather than acquiring minority strategic stakes in order to expand i-mode business outsideJapan (see the table “i-mode Pact” below).

Table 11: i-mode Outside Japan

Launch Date Company

(Country)

Network Note

26 June 2003 Telefonica

Moviles

Espana

(Spain)

GPRS HTML/WML1.X dual-browser

handset

15 November

2002

Bouygues

Telecom

(France)


handset

15 October

2002

BASE

(Belgium)


handset

20 June 2002 KG Telecom

(Taiwan)


handset

18 April 2002 KPN Mobile

(the

Netherlands)


handset

16 April 2002 AT&T Wireless

(United States)

GPRS “m-mode” based on i-mode

technology

16 March 2002 E-Plus

(Germany)


handset

Source: Gartner.



Table 12: i-mode Pact

Date of

Signature

Company

(Country)

Expiration Note

25 June 2003 Wind

Telecomunica

zioni (Italy)

June 2008 Strategic i-mode partnership in

the Italian market.

24 July 2002 Telefonica

Moviles S.A.

and Telefonica

Moviles

Espana S.A.

(Spain)

23 July 2007 Strategic i-mode partnership and

3G development in Spain.

17 April 2002 Bouygues

Telecom

(France)

16 April 2012 Strategic i-mode partnership in

France.

Source: Gartner.

Challenges and Competitors

Since the service launch, i-mode helped NTT DoCoMo to capture the majority of new additions to cellularconnections, peaking at 85.7 percent in August 1999. i-mode is a milestone in the competition history inJapan’s mobile communications market, because it spurred competition in developing innovative, uniqueservices rather than in cutting down air-time charges. Camera-embedded handsets and picturemessaging are good examples of the results in the service development competition. As competitorsdeveloped innovative services, i-mode lost its power as a new addition facilitator. In the second quarter of2003, only 32.0 percent of the newly added cellular customers selected NTT DoCoMo.

i-mode also created a step-by-step evolution in the mobile communications market in Japan. The mobilemessaging market, which was originally created by pagers, brought about the smooth adoption of i-mode.Mobile Internet not only lets users send and receive e-mails, but also allows access to content. Handsetswith big color displays thus became essential, and in turn, these handsets cultivated the need fordownloadable Java-based programs. At the same time, the big and colorful displays facilitated the spreadof photo-mail services. Handsets with a megapixel built-in camera are now paving the way to WCDMA.Users are getting to learn that 28.8 Kbps PDC packed is not fast enough to exchange megapixel photos.Thus, the battlefield for mobile Internet services in Japan is expected to move from 2G to 3G as early as2004.

In the meantime, Japanese mobile operators come to focus on business user segment and machine-to-machine (M2M) communications as the growth of human-based connections slows down and total ARPUdecreases. Providing solutions to business customers and M2M services making use of mobile Internetand mobile data will be another area for mobile operators to compete with.

On the international front, NTT DoCoMo is facing intense competition from capable global titans, such asVodafone. Vodafone live! attracted more than 1 million users in the first six months since the launch. Itssuccess can be partly attributed to its tariff structure, which avoids monthly fixed charges thus attractingprepaid customers who occupy more than 60 percent of cellular connections in Western Europe.Meanwhile, i-mode charges a monthly fixed subscription fee in every country. Vodafone providesadvanced functions as well, such as built-in camera and mobile Java at the beginning. On the other hand,



Telefonica Moviles in Spain started the first mobile Java service in the i-mode market outside Japan on 26June 2003.

Strengths and Limitations

NTT DoCoMo Strengths

• NTT DoCoMo is the largest cellular operator in Japan, and it enjoys unmatched economies of scale.Its i-mode wireless Internet service has the largest subscriber base.

• It wields tremendous power over its phone suppliers and partners. This is also due to the large i-mode subscriber base.

• It is cash rich and is capable of embarking on overseas expansion without much trouble. The fact thatit did not have to pay for its 3G license in Japan liberates it from financial woes currently plaguingEuropean cellular operators.

• It has a global presence in the form of minority stakes in European, American and Asian cellularoperators.

• It has a valuable and well-known brand name.

• Its strength in marketing and basic R&D complements its excellent management team.

• It has strong partnership/alliances with many companies, allowing it to access competencies it doesnot own itself.

NTT DoCoMo Limitations

• NTT DoCoMo lacks international experience. This could be a weakness in its efforts to export i-modeoverseas.

• Having already achieved a dominant position in the local market that is already slowing down, NTTDoCoMo will find it increasingly difficult to maintain revenue growth. It will have to look to newventures, like the wireless Internet or overseas opportunities, as well as focusing on the businessuser segment and M2M market in Japan.

• It had to write off 962.3 billion yen for its two consecutive financial years due to losses in its foreigninvestments, such as AT&T Wireless (U.S.), KPN Mobile (the Netherlands), KG Telecommunications(Taiwan) and Hutchison 3G UK Holdings (U.K.).

Insight

i-mode has been one of the few success stories for wireless Internet access. This has prompted manypeople to ask if it is exportable. This question misses the point completely, because i-mode, not unlikeWAP, is fundamentally a technology platform on which value-added services are supported. As NTTDoCoMo’s success has shown, cellular operators should be giving proper focus to the development ofabundant content and applications, affordable access charges and ease of use.

Documents

NTT DoCoMo: i-mode Wireless Internet Services