FOOL ON THE HILL
The vast majority of all wireless Web users on earth are in Japan, where NTT DoCoMo has attracted a huge customer base for its i-mode service, some 13 million so far. DoCoMo has spent billions seeking to expand its reach outside of Japan by setting up strategic alliances with local carriers, including its most recent play, a $9 billion stake in AT&T Wireless. Japan's mobile market has some peculiarities, so DoCoMo's success there may not translate overseas, but if it does things are going to change for many of the biggest global players.
But though you would expect a resultant cacophony of rings, chatter, and annoying pabulum that goes along with being surrounded by people with cellular phones, it is relatively quiet. In fact, it seems that more people are looking at their phones rather than talking on them.
In fact, they are. Japan is the undisputed capital of the wireless Internet, boasting 20 million users, more than the rest of the world combined. And NTT DoCoMo (OTC: NTDMY) is the king, with more than 13 million users of its mobile Web service, up from zero last year. DoCoMo's proprietary protocol, called i-mode, provides a simple platform for content providers to serve mobile customers, since it uses a derivative of HTML, the markup language that is already used in Web design in the PC environment. This means that companies wanting to have a presence on the DoCoMo network would have significantly less start-up and design costs than those using the European- and American-dominated wireless application protocol (WAP).
But will customers outside of Japan be attracted to the same service? DoCoMo's current technology isn't any faster than competing ones, in fact, at 9.6 kbps throughput, it is downright pokey. DoCoMo will introduce Java-enabled (and thus encryption-supporting) phones, and will also launch the world's first 3G network in the next year, speeding up throughput speeds by a factor of 30. DoCoMo is anxious to spread the gospel of i-mode to the rest of the world, but thus far it has only been designed to work in Japan, piggybacking on parent company and dominant carrier NTT's (NYSE: NTT) network.
DoCoMo's success in exporting i-mode could spur massive changes in assumptions in the mobile phone industry, including competing networks, handset manufacturers, vendors, and equipment makers. It could essentially vault several Japanese companies into a world market that so far has been dominated by European and American firms, all of which are still betting on WAP's eventual ascendancy as the wireless Internet standard.
The prudent money still rests upon WAP, supported by world-dominant Nokia (NYSE: NOK), Openwave (Nasdaq: OPWV), and Ericsson (Nasdaq: ERICY) to emerge as the standard, for the basic reason that, as an open standard it will not give any one company monopoly power, as i-mode would DoCoMo. Still, DoCoMo is making the moves necessary to export its technology overseas, and given the simplicity of its programming, the popularity of its offerings, and the simplicity of its billing system, it should not be discounted as unattractive to the end user, who still can be counted on to be both the end arbiter and unpredictable.
It has become cliched, and at least a tad patronizing, to declare that Japan's market is somehow different from the remainder of the world. Japanese are not Martians; just because "Hello Kitty" has never gone out of style in Japan does not mean that there is nothing that can be learned from its consumers.
But there are some things that are unique about Japan that make DoCoMo's potential for success higher there than in other developed markets. Local telecommunications access and usage costs are extremely expensive, meaning that most Japanese do not generally use the Internet for browsing. Also, Japan is notoriously crowded and short of living space and privacy, thus people rarely have PCs at home, and there is a heightened need for soundless communications. In fact, the most popular component to DoCoMo's service is its instant text messaging, meaning that for a large number of users it has simply supplanted a pager as an inexpensive and innocuous way to communicate.
None of these limitations beset consumers, for example, in Nebraska. U.S. local telecom access is all-you-can-eat, and PC-based Internet access is widespread. But to dismiss DoCoMo and its technology would be a mistake. And DoCoMo is doing what it can to play i-mode crusader, having spent $17 billion in the last year buying stakes in telecom carriers from Indonesia to Europe.
Two weeks ago it made its largest purchase yet, a 15% stake in AT&T Wireless (NYSE: AWE), for $9 billion plus. This also goes along with its 43% stake in America Online's (NYSE: AOL) Japanese subsidiary. This combination gives DoCoMo access to the world's largest mobile market, one that admittedly badly trails both Asia and Europe in mobile technology. The U.S. may be ripe for i-mode, particularly once it becomes possible to use the service as a "mobile wallet."
Should DoCoMo establish a beachhead here, it may provide a significant threat and opportunity for many companies. Obviously, a move away from WAP could hurt Openwave and other companies that have hitched their stars in no small part to the success of WAP. But Nokia, Ericsson, Alcatel (NYSE: ALA) and other handset manufacturers could suddenly see their markets invaded by a host of Japanese manufacturers, including NEC (Nasdaq: NIPNY), Sony (NYSE: SNE), and Matsushita (OTC: MSUSF). Additionally, the carriers offering competing services may feel a new threat from the content-rich services offered by an AT&T Wireless/DoCoMo coalition. Finally, though there are some disagreements between DoCoMo and Qualcomm (Nasdaq: QCOM), launching its W-CDMA technology in additional markets could be a boon to Qualcomm's royalty stream.
DoCoMo is only listed in Japan -- trading over-the-counter in the U.S. -- and its services are only currently available in its home market. (As an aside that will border on shameless, I gave extensive coverage to the benefits and challenges of international investing in Motley Fool Research's Industry Focus 2001.) But should its success begin to transcend national borders, it could quickly change the plans and prospects of several other companies. DoCoMo has a vibrant technology providing an elegant platform for the wireless Web. The question remains whether or not its service is something that is exportable. If so, all of our preconceived notions about the wireless Web may be wrong.
Bill Mann, TMFOtter on the Fool Discussion Boards