Japan's 3G Needs a Kick Start
In a display of admirable optimism last October, DoCoMo said its subscriber target for FOMA was 150,000 by March 2002. Well, March came, but only 89,400 had signed up as members of the W-CDMA (wireless code-division multiple access) supporters' club. In April, only a further 16,100 joined the FOMA gang.
So, after six months, despite the fanfare DoCoMo generated for launching the world's first 3G service, FOMA's takeup represents a grand total of 0.2 percent of the company's 40.7 million subscription base.
Customer satisfaction appears to be an issue. "I am a FOMA user, and I am not comfortable with it. Basically it's inferior to my PDC [with DoCoMo's i-mode]," says Nahoko Mitsuyama, telecommunications industry service analyst at Gartner/Dataquest in Japan. It seems i-mode has more to offer users than FOMA. (For more on i-mode, see I-Mode a No-Go for Euros? and It's I-mode, Jim, But Not as We Know It).
And it's not that Japan's consumers are shy about buying new phones. Amid the country's third recession in 11 years, DoCoMo added 4.8 million cellular subscribers -- and an astonishing 10.8 million i-mode subscribers -- in the 12 months to March 31, 2002, according to Credit Suisse First Boston.
So why was the FOMA sales target not met? With just three different handsets available at launch, coverage limited to a few major cities, and little in the way of services that made full use of W-CDMA's bandwidth potential (up to 384 kbit/s), consumers have been reluctant to shell out the equivalent of about US$400 for a phone with such limited use.
With only about an hour's battery life and few multimedia services to support them, DoCoMo's initial FOMA terminals have proven poor substitutes for its sleek PDC i-mode models. So far, unless users have been in the center of Tokyo, Osaka, or Nagoya, they've had to pack their 2G handsets to stay connected, according to informed users such as Dataquest's Mitsuyama.
DoCoMo, reacting to such criticisms, believes improvements will lead to a FOMA subscriber base of 1.4 million subscribers by March 2003, said chief financial officer Masayuki Hirata at the company's May 8 financial results press conference. So that's another 1.3 million or so converts by next March then. Key to hitting this target will be: the success of a new visual handset terminal, Mitsubishi Electric Co.'s D2101V; the release of handsets in the third quarter of this year that will boost usage minutes; video mail services; and, at last, better coverage.
However, the vital dual-mode (W-CDMA and PDC) handsets, regarded as potential FOMA saviors by some analysts, might not hit the shops in time for the next target to be met. While DoCoMo has announced the phones will come out in the "second half" of 2002, that could mean January-March 2003, "and that's too late to rescue subscriber figures," says Nathan Ramler, telecom analyst with UBS Warburg in Tokyo.
A major problem is coverage. The network won't be 90 percent complete until March 2003, and that’s the sort of coverage required to get people interested, according to Ramler. "It's the same story as with 2G. Once you get to 90 percent, that's when people will buy in."
Consequently, analysts generally agree that FOMA may hit about 1 million subscribers by next March. But even hitting that target, FOMA would still only yield ¥66 billion (US$530 million), or about 1.2 percent of DoCoMo's projected ¥5.37 trillion ($43.2 billion) in revenues.
This ratio shows how far 3G has to go in Japan, says Mark Berman, telecom analyst at Credit Suisse First Boston. "We continue to stress that 3G will not likely have a material impact on DoCoMo's revenues, earnings or cash flow for at least three to five years," he says.
In fact, Japan's 3G provision is a skeleton service, and 3G will not take off until summer 2003 at the earliest, when DoCoMo, KDDI Corp., and Japan Telecom launch competing networks to lure their existing customer bases onto 3G en masse.
But DoCoMo deserves praise for taking the plunge, argues Kirk Boodry, director of equities research for telecommunications at Dresdner Kleinwort Wasserstein. "You have to understand the magnitude of the task," he says. "It's completely new technology. If DoCoMo is guilty of anything, its just promising too much... To its credit, DoCoMo deployed a new network. It took five years to refine the business model with 2G. As with 2G, they will create a whole new revenue stream that didn't exist."
"The problem is that they are at the bleeding edge of wireless technology. Of course it is going to be successful. They have 40 million i-mode subscribers who are going to enjoy 3G for all its potential," says Credit Suisse's Berman bullishly.
Just not yet.
— Paul Kallender, special to Unstrung