July 27, 1999

Forced to Compete in Wireless Technology, Japan Becomes a Global Power

By SHERYL WuDUNN

OKYO -- One of the nicest things the United States ever did for Japan, it seems, was to force it, kicking and screaming, to open its market for cellular phones.

That was five years ago. At the time, Japan was aghast at the idea of freeing up a market that was a groggy backwater. Japanese citizens were not even allowed to own cellular phones -- just rent them -- and Japanese companies were afraid that they were going to lose business to American rivals like Motorola.

	Reuters
	A new cellular telephone by NTT can make financial transactions and airline reservations. In Japan, cellular phones are envisioned as better devices to use for electronic commerce than personal computers are.

Yet Japan buckled, and now, under the pressure of competition, it has leapfrogged to the front of the global pack. The country now has a higher concentration of cellular telephones -- including ones colored pink, pale blue or tea-green -- than the United States.

More astonishing, Japan has caught up with Europe, the early pace-setter, and plans to move ahead by introducing in early 2001 the "third generation" of cellular phone technology, which promises much greater clarity and ability to transmit data and video.

Already, Japanese cell phones, which used to be second-rate and expensive, have evolved into devices to buy and sell stocks, reserve tickets for trains and airplanes, transfer funds between bank accounts and send and receive text messages and simple drawings.

Moreover, as in Europe, they have leaped into the digital era under the umbrella of common connection standards -- unlike in the United States, where competing technologies have actually stifled the advance of seamless and ubiquitous communication.

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The latest mobile phone to draw oohs and aahs here has a tiny camera that sends a shaky TV-style color image to a small screen on the other party's telephone -- assuming that it too is a video phone.

That cellular video phone will be introduced by the Kyocera Corp. this month, for about $335, and it is as tiny as any other mobile phone, easily fitting into a shirt pocket. Meanwhile, another company has merged phones with personal digital assistants like the Palm Pilot, creating a unit that is both phone and diary has color capability.

So, as Japan's economy still staggers along, one of the brightest opportunities in this country of 126 million people is a shimmering milky way of 50 million twinkling and tinkling portable phones.

Trials have already begun on an advanced wideband wireless transmission technology, and some say that Japan may drive the global standard and become a leader in the next generation of mobile phones.

"In Japan, we are at a turning point," said Jun Murai, a professor at Keio University and the leading cheerleader here for the Internet. Japan lags significantly behind the United States in information technology, he said, but with regard to potential technical power, "Japanese companies are not behind."

In many ways, at stake is Japan's pride at being a leader in a pivotal technology -- enormously important in a nation that has been economically wounded for the entire decade.

Japan is betting that mobile phones will enjoy explosive growth as they become a key accessory, as common as wrist watches, that people take when they leave home. Japanese companies are betting that mobile phones, rather than computers, will connect people here to E-commerce on the Internet.

Indeed, Japanese researchers are collaborating with American companies, like Sun Microsystems, so that they may also become a major link in controlling home appliances. Their goal, ultimately, is to transform mobile phones into the crucial digital device of the future.

They see a vast market not just in the industrialized world but also in nations like China, where many consumers' first phone is cellular.

Japan's gamble, though, is by no means a sure bet.

"The next question is whether they take it from a cell phone to a full PC or whether it makes sense to browse the Net on the phone, for simple point-and-clicking," said Vinton G. Cerf, senior vice president for Internet architecture and technology at MCI Worldcom. "Japan is good at size, power and bringing the cost down. There's no better country to do it than Japan."

One big problem, though, is that few Japanese are plugged into the computing world. As recently as a few years ago, Japan was in the personal-computing dark ages, a nation where corporate offices were big rooms filled with paper-laden desks and where desktop computers were rare.

Even now, on average, only one person in four here uses a personal computer. And so far, only about 14 percent of Japan's population is plugged into the Internet, compared with 40 percent in the United States.

Personal computers have not been a bigger hit in Japan for several reasons. For one thing, keyboards intimidate many middle-aged Japanese, and tapping in the Japanese language -- with two alphabets and several thousand Chinese characters -- requires combinations of strokes that are far more complex than in English.

Another is that many homes are cramped, and PC's take up a fair amount of space. But that aversion to bulky computers and keyboards may actually serve to spur the development of mobile phones as a more compatible alternative.

At the same time, the high cost of traditional phone services may help advance cell phone technology even more. Hefty telephone costs, including a mandatory $580 start-up fee for a telephone and charges that add up by the minute, currently make Internet surfing very expensive.

Initial costs for cell phones are so much cheaper than for a regular phone line that young Japanese, especially students, often have only a cell phone in their apartments. And the prospect of a transformation in mobile-phone technology, along with the hope of a new kind of gateway to the Web, is beginning to create a sense of optimism that Japan may be able to catch up in the Internet revolution.

"There's a huge penetration of mobile telephones in Japan," said Junichi Saeki, director of systems solutions at the International Data Corporation in Tokyo. "This will lead to the next generation of information technology."

The push has been driven by NTT's Mobile Communications Network, known as NTT DoCoMo, a cellular operator that commands more than 50 percent of the market in Japan. NTT DoCoMo is now working with American and Japanese companies to develop a new wireless transmission technology, called wideband C.D.M.A. -- short for code division multiple access -- that is supposed to ultimately enable people around the world to transmit data and video rapidly through a cell phone.

Many mobile phone operators here now use a fairly narrow band, which can send data at speeds as fast as 32 kilobits a second, faster than Europe's first-generation digital phones but slower than the interim standard expected next year. True wide band offers much more space and speed -- a potential of as fast as 2 megabits a second, 65 times the capability of existing phones.

Negotiators from around the world have settled on a format to move toward a wideband CDMA for the next generation of telephones, so that the same cellular phone could be used in almost any country. But carriers in the United States are still fighting over standards.

For now, the latest craze in Japan is a cell phone called the I-mode, which NTT DoCoMo started selling in February. As many as 10,000 of the phones are sold every day; already 779,000 owners use them to send e-mail, check news headlines, buy stocks, make bank transfers or plane reservations. They can gain access to specially formatted World Wide Web sites and even see simple graphics.

NTT DoCoMo is betting that Japanese consumers will get hooked on electronic commerce through I-mode phones, which rely on current technology. Once they get used to e-commerce, then the new wide band CDMA should begin, scheduled to commence in Japan in March 2001, probably several years before it will arrive in the United States and at least a few months ahead of Europe.

"I-mode is like black-and-white TV," said Keiichi Enoki, a director at DoCoMo who spearheaded the I-mode project. "CDMA is like color TV."

Kyocera is working on a competing product that would let users gain access to the Internet through a different Web protocol. In the meantime, Kyocera is promoting the notion that telephone partners will want to see each other.

Video phones have flopped in the past, and Kyocera officials admit they have not yet figured out how to market the new model. Still, when they introduced the product in May, they got some unexpected responses.

A professional matchmaker inquired about using the phones for clients on first-time dates, and a security company asked how the phones could be used to keep tabs on where its guards were patrolling.

The idea of a mobile "spy phone," though, is precisely what may scare off customers, even those directly involved in the business. The video phone is one of the pet projects of Kazuo Inamori, Kyocera's iconoclastic chairman.

But at a marketing strategy session this winter, not one in a crowd of 60 employees raised his hand when asked who would buy one. The reason? No one wanted to talk to the boss on a video phone. Kyocera went ahead anyway with the product, mainly to keep up with the competition.

Masahiro Inoue, Kyocera's director of product development for the phone, is crossing his fingers that the public will respond.

"If it is inside the home, a lady might not want to use it is because she might not have her make-up on yet and she wouldn't want to reveal her naked face," Inoue said. "But if she's outside, she's well prepared to be seen. So such an application is right for the market."