DoCoMo Plays Its Hotspot Ace

NTT DoCoMo Inc. (NYSE: DCM) has shown its hand in Japan's wireless LAN poker game, and it's made no bones about its strategic objective to unite its 3G and WLAN service offerings (see DoCoMo Readies WLAN).

Following some limited trials, DoCoMo has concluded that a commercial public WLAN service is viable. However, its main rivals in the domestic mobile market, J-Phone Co. Ltd. and KDDI Corp., are both playing a more cautious hand, keeping their cards close to their chests for now. This leaves DoCoMo in competition with a number of fresh-faced upstarts.

But DoCoMo is starting small with its "Mzone" 802.11b service: nine locations in the Tokyo district from July 1, with a goal of signing up 6,000 customers on a ¥2,000 (US$16.2) per month flat fee during the first year of service. Just when multimode devices might appear, and exactly how, and at what rate, the company plans to build out its "network" of WLAN hotspots, are all "under investigation," according to DoCoMo.

Spokesman Ori Takuya told Unstrung that a key driver behind the launch was that "We think customers need broadband in mobile." One would imagine that might be a driver behind the rollout of its currently limited 3G FOMA service, too.

Indeed, the move follows DoCoMo president and CEO Keiji Tachikawa's commitment to enhance the service provider's struggling FOMA services (see DoCoMo Doubles Up). The main objective now, according to DoCoMo, is -- you guessed it -- to build "synergy" out of the 3G-WLAN combo, probably after 2003.

Though a market in its infancy, there is some financial promise for WLAN in Japan, says Gartner/Dataquest analyst Akiyoshi Ishiwata, who estimates that about 3 million WLAN interface cards for PCs will be shipped in Japan this year. In addition, he believes that the number of WLAN hotspots will grow from a few hundred now to about 50,000 during the next five years.

At present, Ishiwata believes there are about 17 companies offering WLAN services in Japan, though the number of providers, and especially users, is difficult to track because the market is so young (see Japanese Plan WLAN Test).

But DoCoMo is the first established telecom service to offer commercial public WLAN services. By doing this, the mobile giant: further strengthens its renewed focus on the domestic market (a key consideration for its shareholders, according to an industry source who wished to remain anonymous); stamps its name on an exciting new service that is creating a buzz in Japan; helps shore up its position in high-speed wireless services; and creates a business opportunity that poses little in the way of financial risk.

Another reason, argue some observers, is that this is an early defensive move to counter any launches by its key rivals. Both J-Phone and KDDI are considering an entry into the WLAN market, says Gartner/Dataquest analyst Nahoko Mitsuyama.

But spokesmen from both companies were reticent to talk about any potential plans. KDDI says the technology appears to have limited profit potential, and both companies say they are still considering whether or not to trial such services.

Mitsuyama also believes DoCoMo may be fending off some of the WLAN upstarts, such as Yozan Inc. and Mobile Internet Services, Inc.

"The WLAN sector is full of upstarts, and hotspots are very inexpensive to set up. They are considered a threat to the telecoms carriers. [802.11b] gives them the bandwidth that 3G lacks," says Kirk Boodry, director of equities research for telecommunications at Dresdner Kleinwort Wasserstein.

He believes DoCoMo is flexing its muscles. "[DoCoMo] is saying: 'We have the capital, we have the scale to be able to put this together.' It's a case of a carrier neutralizing a threat. This is a defensive move."

— Paul Kallender, special to Unstrung
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