When it comes to the Japanese mobile giant NTT DoCoMo and its investment in the poorly performing UK third-generation venture 3, the official, on-the-record reaction is close to the second of these three options: a shrug, a sigh, a shake of the head, an expression of determination, an acceptance that things aren't quite right but that something can be sorted out.
So it came as a shock to this editor — standing there with pencil and notebook — to see, at a reception for analysts and the media at DoCoMo's London office, that leading figures in the company are little short of contemptuous of 3 in the UK.
It wasn't something that could be gleaned from the actual words they used. The executives, mainly from DoCoMo's European operation but including one very senior board member from Japan, were candid about the European market for third generation phones and about DoCoMo's relationships with its other European partners, including Bouygues in France, Telefónica in Spain, and KPN in the Netherlands, Belgium and Germany.
But ask them about 3, the UK-based operation in which Hong Kong-based Hutchison Whampoa is a main shareholder, the instant reaction was a round of smiling, chuckling and sniggering. And this is clearly the sort of reaction that is accepted as the company norm: yes, an individual executive would smile and chuckle — or worse — when an individual analyst or journalist, with a plate of sushi and a glass of fizzy water or wine, asked him about 3, but it was really quite extraordinary to see three or four senior, sober, dark-suited company leaders standing in a semicircle and chuckling together in front of an audience of several analysts and journalists.
Chucking as if they were enjoying a joke. The joke in this case, it was clear throughout the evening, was 3.
Magic abroad in the air
Now, let's get the basis of this meeting straight. It took place one evening in February in DoCoMo's European headquarters on the fifth floor of Lansdowne House, an office block in London's Berkeley Square — famous for the 1940 song by Eric Maschwitz about the nightingale that sang there. It was the week before the world's mobile phone industry was due to gather in the south of France at Cannes for the 3GSM show.
DoCoMo had invited "the journalist and analyst community" for a party — not a rip-roaring, pub-crawling, staggering-home-on-the-last-train party, but a dignified early evening event, with the invitation specifying business attire and asking guests to bring business cards. There were a couple of speeches, including one which briefly dealt with DoCoMo's US investment in AT&T Wireless, then being faced with a successful takeover bid by Cingular.
There was nothing to suggest that anything else during the evening was purely for private consumption. Except for one thing. One of the executives present is a senior figure in a worldwide industry organization. It made sense to ask politely about the organization and its plans.
Nothing controversial was said, but the following morning DoCoMo Europe's PR director called to say that, as the executive in question was not at the event that evening to speak on behalf of that industry organization, would we please not report his comments about it, even though those comments had been completely uncontroversial. Other than that, said the PR director, there was no problem in reporting the evening. He'd seen the notebook.
The i-mode strategy
DoCoMo is famous for the success of its i-mode strategy in Japan. There, more than 40 million people send and receive emails, check web pages and play games on their i-mode phones. Most of the content is provided by independent companies, which earn their income through a well established revenue sharing deal set up by DoCoMo.
The company has tried to replicate the success of i-mode in other parts of the world, mainly through licensing deals with operators in which DoCoMo has taken a stake. Outside Japan DoCoMo "won't do anything by itself", explains Yuichiro Pat Kuwahata, DoCoMo Europe's executive director for public relations. Outside Japan, "the culture is different, the methodology is different".
Hisashi Omote is deputy managing director of DoCoMo Europe and as such is in charge of carrier relationships, with KPN Mobile, which includes E-Plus in Germany and Base in Belgium; Telefónica Móviles in Spain; Bouygues Télécom in France; and 3 in the UK.
He's the person who has also sealed deals with two further operators: Cosmote in Greece, which hopes to be offering services in time for the Olympics, even if the transport systems and the stadia are unfinished; and the Italian operator Wind.
Now Wind is an interesting choice. According to recent figures, about half of the 3G customers for Hutchison Whampoa's various 3-branded networks around the world are in Italy. Hutchison is reporting just over 1 million 3G customers, with its H3G business in Italy claiming 453,000. Yet DoCoMo is working in Italy with a direct competitor.
DoCoMo is keen to point out the i-mode is not inherently a 3G technology. "We started i-mode with 2.5G," says Omote, "and then we will move to 3G." That's the case in Japan — where most of the 40 million are on 2.5G technology — and with the systems run by KPN, Telefónica and Bouygues.
In the UK, 3 is unusual in that it has only a 3G licence. It began operations in March 2003 — but has consistently failed to meet its sales targets. It now says sales are improving. A year after launch, it is thought to have 360,000 customers.
First mover advantage
Omote does not hide his dismay at 3's performance. "3 started service a year ago and now all of its competitors are starting in the market." In other words, it has lost its first mover advantage. "There are technology and service issues and strategy issues," he agrees. He hopes 3 is showing signs of improvement, but is unwilling to say more because DoCoMo owns 20% of the company. That means "I attend some important meetings", he says: "Because of my position I can't say." He meets board members of 3 "at least once a week", he adds.
There's clearly disappointment — from a variety of DoCoMo executives — that 3 hasn't chosen to use the i-mode branding in its phones. It is as if the UK operation has decided to ignore the considerable experience that DoCoMo has gained: it is, after all, the world's outstanding operator of mobile interactive data services.
Meanwhile, i-mode does work in the UK. Paul van Doorn, executive director of DoCoMo Europe, happily demonstrates his Dutch i-mode phone, roaming in London via another 2.5G operator. He pushes the i-mode button, then one or two more, and he shows tonight's UK television listings, displayed almost instantly from a standard web page and automatically reformatted for the phone display. There are other items on his favourites list: "I always have my newspaper and weather report," he says.
"I'm not a great technology lover, but this works. The system is hiding all the technology." Meanwhile a colleague, for comparison, navigates laboriously through the menus offered by Vodafone Live!
The i-mode button is the key, adds van Doorn. "The lesson is that it has to work out of the box. It must work with no user settings." And the content must be accessible from the main i-mode portal, and all pages must link back to the main menu. "Our influence is that we specify the requirements," says van Doorn.
He says that, despite what some people claim, Europe and Japan are in fact similar in their liking for advanced mobile services. "One of the persistent myths is that i-mode is purely Japanese and it won't work in Europe. But it really works." He holds up the phone again.
People in both Japan and Europe want ringtone, messaging and downloads, he adds. The top ten in Japan "is the same as people are doing here", but "people in Japan have a better platform", he adds. "Europe is very early in the learning curve."
But some have questioned whether DoCoMo has really promoted i-mode as enthusiastically as it did in Japan. Of course, the company is not known to ordinary customers, but while i-mode is a famous brand in Japan — it is, after all, in 40 million pockets or bags — it does not have the same presence in Europe.
Most of its partners use the i-mode name for the data services, though Telefónica is unusual in that it is not using the i-mode logo on its handsets: the others, apart from 3, all have an i-mode button to allow customers get straight to the data services. Telefónica is "using everything except the logo" says van Doorn. "Everything behind the hub is i-mode. The software is the same."
There is some coordination between partners, he says, in that the different carriers meet up about once a month, though questions about whether the content providers also work across all countries get vaguer answers. Executives are unwilling to say how many content providers there are. In Japan, literally thousands of independently provided websites are available to i-mode customers. "I can't say," shrugs van Doorn. "We set a minimum requirement — there has to be a minimum number of content providers" before an operator starts to offer services.
There is obviously the language issue in Europe — a Spanish content provider working with Telefónica might have a challenge translating everything into German for E-Plus users or into French for Bouygues' customers. With Wind and Cosmote about to join the European i-mode community, that issue will only get worse.
DoCoMo might once have seen 3 as a content engine, bringing entertainment and sports-based i-mode services from Europe's hub of content and games providers to a range of other European partners. If that is so, the opportunity has clearly been lost.
Bouygues in France is the biggest European success, DoCoMo executives seem to agree. "Bouygues has gone for it," says van Doorn. "They are big i-mode fans. They understand it and they do well."
In early January 2004 Bouygues issued a statement that it had 500,000 active i-mode customers, put on since its service launch in November 2002.
And Bouygues disclosed a little later that the world's total number of i-mode customers outside Japan was two million at the end of January — but that includes all the Europeans plus another partner, Far EasTone in Taiwan.
At the end of February, KPN Mobile said it had one million i-mode customers across its three networks. "The increasing interest from the market is very pleasing," said Guy Demuynck, CEO of KPN Mobile, in a statement. He announced that "more than 560 i-mode services" are available "from over 400 national and international content partners including Disney, CNN and Reuters", and that "i-mode users can also visit the more than 10,000 independent i-mode sites offered by individuals and organizations throughout Europe".
In Japan DoCoMo stimulated the market by taking a modest 9% share of the revenue from interactive services, letting the independent content providers keep the other 91%. The company has lobbied hard for a similar arrangement in Europe, and revenue is shared: "That's part of the rule," says van Doorn. "That positive cycle has to be started." He doesn't name names, but thinks there is still a tendency for European operators to want to control the content business too much: "They seem to still think for their customers rather than let them get what they like."
Omote says he is happy with the European i-mode sales figures. Telefónica's offering, sold as MoviStar e-moción, "enjoys good numbers", but he "can't disclose" the figures. But 3? He doesn't speak but the expression on his face clearly shows extreme dismay. Worse than that, actually.
In early March rumours emerged from Tokyo that DoCoMo was considering ending its ties with 3 in the UK. Reuters quoted "sources close to the matter", who apparently also suggested that DoCoMo would seek a partnership with mmO2. Meanwhile the name of KPN Mobile is also being linked with that of mmO2. Clearly spring has brought thoughts of restructuring, though nothing had happened when this issue went to press.
The next generation
Meanwhile, with 3G getting going, what's next? Well, the fourth generation, of course. "The current target for 4G is 2010," says Dr Toru Otsu, another deputy managing director of DoCoMo Europe, "but it depends on the market." The vision is for a common network, based on internet protocol or IP, but running separate technologies — including wireless local area networks and UMTS or today's 3G services. Operation will change according to the environment.
"The most difficult part of the project is the radio technology that can provide a higher bit rate," says Otsu. DoCoMo is looking at rates of a gigabit a second to a stationary terminal — replacing today's wifi or wireless LAN — and 100 megabits to a moving terminal. "We have developed an experimental system that we are testing now," he adds.
Seishi Tsukada, president and CEO of DoCoMo Europe (France), says the evolution to 4G will allow services of a wholly new quality to start. He compares the coming change to what is already happening with the arrival of camera phones: "The user experience has expanded." 4G will provide "more beautiful video".
But seven years is a long time, adds Otsu. Who could imagine today's services seven years ago, in 1997? And there are other issues to sort out, including spectrum. Developers of 4G systems have their eye on frequencies ranging from 2.5 to 5 gigahertz. But 2.5 GHz is already used for 3G, and the 3-5 GHz range is being used for satellite systems. Coexistence will be needed.
"We need to consider mitigation technologies to reduce interference," says Otsu. "But we have five years," he adds —allowing the following two years to get systems into production. A world conference in 2007 will consider the issues.
And then, a speech by Kiyoyuki Tsujimura, a senior vice president of NTT DoCoMo and a member of the board of directors, based in Tokyo and focused on international relations. A diplomatic comment on AT&T Wireless: "We are reviewing our options in order to contribute most to our shareholders' value. That's all." But he let it be known that six mobile operators were too many for the US.
He was resolutely optimistic about i-mode and the mobile internet. "The mobile internet is always on, always connected. It is the new sociological phenomenon in the mobile world."
He didn't comment — on or off the record — about 3. But given what his colleagues were implying, it's hard to see any optimistic outcome of that relationship. GTB