TOKYO—KDDI, the second-largest telecom operator in Japan, on 1 April launched its third-generation (3G) service based on cdma2000 1x technology, entering the highly competitive Japanese high-speed data market.
In Japan, NTT DoCoMo, the country’s leading operator, launched its 3G service under the brand name of FOMA last October. J-Phone, a Vodafone Group mobile operator, announced this week it plans to delay its 3G service until December, following a trial service beginning 30 June.
Unlike DoCoMo and J-Phone, which both selected wideband-CDMA (W-CDMA) technology for their 3G services, KDDI selected cdma2000 1x, an evolved system based on cdmaOne, for its 3G service. KDDI has been providing cdmaOne service since 1997.
KDDI said by employing the 1x network rather than W-CDMA, it was able to reduce investments for its network, launch 3G service nationwide from the beginning, and provide small, lightweight user-friendly handsets—almost equivalent to its current-generation phones—at reasonable prices.
NTT DoCoMo needs to invest 1 trillion yen (US$7.7 billion) for its 3G service based on W-CDMA, which is a completely different system from PDC, the Japanese standard for second-generation (2G) networks. KDDI must invest a few hundred billion yen for its 1x network. Cost was an important factor for KDDI, which has struggled with huge debts and interest. KDDI’s debts expanded when it launched cdmaOne service before it had recovered all its investments in its PDC services.
Three benefits
By selecting 1x technology, KDDI launched nationwide 3G service from the start. It plans to increase its population coverage rate for the 1x network to 85 percent by the end of September and to 90 percent by the end of 2002. Rival NTT DoCoMo, which expanded its FOMA service areas to all major cities around the country on 1 April, is scheduled to achieve 90-percent population coverage by March 2003.
In addition, KDDI was able to provide more stylish, user-oriented handsets at reasonable prices than NTT DoCoMo’s FOMA handsets. As of 15 April, KDDI provided four 1x-enabled handsets. All the handsets are almost the same size as its 2G handsets, have almost the same waiting time and talking time—220 hours to 250 hours waiting time and 140 minutes to 150 minutes talking time—and sell at 12,800 yen (US$98.50) to 14,800 yen (US$114) per unit.
NTT DoCoMo’s FOMA handsets are larger and heavier than its 2G handsets and have remarkably shorter standby time and talking time. The FOMA NEC basic handset’s waiting time is 55 hours, and talking time is 90 minutes. Although FOMA handset prices have been dropping rapidly since last October, they are still much more expensive than DoCoMo’s current-generation PDC handsets. Matsushita’s FOMA visual phones sell at 49,800 yen (US$383), and NEC’s basic handsets sell at 29,800 yen (US$229), although prices are slightly different by retailer.
Tadashi Onodera, president of KDDI, said the carrier is targeting to win 7 million cdma2000 1x users by March 2003. If the carrier successfully achieves that target, 65 percent of KDDI’s total mobile users will have 3G handsets within a year.
NTT DoCoMo has failed to expand its FOMA users. NTT DoCoMo was targeting to win 150,000 FOMA users by the end of March. However, as of the end of February, it had only 55,700 FOMA users, which is 0.13 percent of total DoCoMo users.
There are many reasons for the failure. In addition to the insufficient service areas and lack of user-friendly handsets, DoCoMo failed to provide attractive content to fully use the network’s high data transmission speeds of 386 kilobits per second (kbps). In addition, although NTT DoCoMo is targeting corporate users for the expensive FOMA service, developing corporate applications is time intensive, and it has yet to score large numbers of corporate users.
Two challenges
But KDDI’s 1x service may share the same problems to some extent. KDDI has also failed to provide applications that fully use 1x’s data transmission speed of 144 kbps. KDDI has been providing location services using global positioning system (GPS) technology, along with motion picture services. However, these services are already available to 2G terminal users. There is no completely unique content and services for cdma2000 1x users.
Like NTT DoCoMo’s FOMA, KDDI’s 3G service is also quite expensive. First, users must subscribe to the 1x 144 kbps data service for a 600 yen (US$4.62) monthly fee. In addition, users pay an expensive communications fee when they use the high-speed service. For instance, when a user downloads a 15- to 30-second motion picture, it costs 90 yen (US$0.69) to 210 yen (US$162), depending on their pricing programs. If a user downloads a five-minute music clip, it costs 965 yen (US$7.42) even when the user selects the discount program.
KDDI is planning to launch 1x-EV-DO (Evolution-Data Only), which provides on average a 600 kbps data transmission service, by the end of 2003 at the earliest. Then KDDI is said to be considering reducing the packet communications fee to encourage users to use more ultra-high-speed services.
DoCoMo and WLAN
Even with NTT DoCoMo’s nationwide FOMA service launch on 1 April and continued expansion, the leading mobile carrier has failed to widely sell FOMA services. Now DoCoMo is trying to make a breakthrough by combining its 3G service and wireless local area network (WLAN) services. As a first step, NTT DoCoMo is going to launch a series of field tests for WLAN service between 15 April and 30 June at nine sites in the Tokyo metropolitan area. Keiji Tachikawa, president of NTT DoCoMo, repeatedly stressed that 3G and WLAN services will not compete but will work reciprocally.
Accenture and Global Communications Center recently released a report that said if 3G and WLAN services work reciprocally, then the Japanese mobile market will expand from its current 6 trillion yen (US$46.2 billion) to 9.7 trillion yen (US$74.6 billion) by 2010.
Now market professionals are carefully watching whether KDDI’s evolving strategy finally helps it compete more closely with NTT DoCoMo. And the market will change even further when J-Phone enters the competitive 3G arena later this year. GW
