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Seeing is believing! - Being back from our first Mobile Executive Tour (MET) to Tokyo [Note: MET was formerly called Mobile Intelligence Tour (MIT)] I can definitely subscribe to this concise piece of wisdom. Travelling to Tokyo to meet some of the best companies and individuals in the Japanese mobile economy once again delivered an incredible ROI for our time and money. Now it's the time to share some highlights and key lessons gained from watching wireless Japan face2face.

During this MET which took place from 12 to 16 April 2004 we enjoyed the company of 10 happy participants including operators, game developers, researchers, analysts, consultants and usability engineers from Germany, Switzerland, Austria, USA, Australia and even Japan.

It turned out to be a major job to set up 18 company meetings, squeeze them into 5 days and arrange a full-flavoured "aprés work" entertainment programme for our super curious MET participants featuring an insightful mobile expert dinner, an eye-opening keitai user demo session, a crowded keitai-l networking SuperJam at the Pink Cow and an exciting "Japan Mobile Rocks" panel hosted by the ICA Japan. According to our participants and all the wireless wizards we met this MET turned out to be a big success. Consequentely, we must do it again and the next trip to Toyko is already in the making.

16.69M 3G users prove Japan to be number 1

To get our MET report started, let's browse some of the mobile market statistics that prove that Japan continues to lead in mobile data. As of March 2004, Japan's cellcos served 81.52M mobile subscribers of which 3.18M use W-CDMA, 16.95M use cdmaOne/CDMA2000 1x and 61.37M use PDC (TDMA). Mobile Internet penetration is extremely high: 84% of the customer base, i.e. 68.71M, pay a monthly premium fee to subscribe to DoCoMo's i-mode (40.61M), KDDI's EZweb (15.23M) or Vodafone's Live! (12.78M). Given these numbers you might agree that Japan leads the mobile data evolution. In fact, while voice ARPU continues to decrease slowly due to mass market penetration, it is mobile data services that drive the growth of the industry. This can be seen everywhere in Japan and it will also happen in the rest of the world, too.

Looking more specifically at the 3G market, it turns out that KDDI is far ahead in the generation upgrade cycle with 13.5M CDMA2000 1x subscribers, followed by DoCoMo with 3.04M FOMA subscribers and Vodafone with 137.700 Vodafone Global Standard (VGS) customers. This adds up to a total of 16.69M 3G users in Japan at the end of March 2004.

KDDI has done the best job of migrating their customer base to 3G without using a new brand for the faster and cheaper access to all of their mobile Internet services. It is fair to say that KDDI does not believe in unique 3G services like video telephony (they don't offer video telephony yet) but rather in reducing the cost of delivering wireless data while increasing the bandwidth at the same time. This automatically fosters the use of ALL data-intensive mobile services like sharing pictures or downloading applications, music or video.

As for DoCoMo, their new handset series 900i finally helped them reach the 3G tipping point. Their new 3G devices are now equal in size, weight and battery power compared to the 2G devices which is very important for the mass market that does not pay as much attention to new features as the early adopters do. Already at the 3GSM World Congress in February, Takeshi Natsuno promised to bring the N900i to the European market before Christmas to finally close the device gap between Japan and the rest of the world. 3G FOMA users enjoy a reduced average packet fee (128 Bytes = 1 packet) which is only 25% of the 2G price. So most of the early FOMA adopters are heavy i-moders trying to not die the "packet death" resulting from paying too much money for data packets.

But recently, the DoCoMo management is most upbeat about the keitai becoming the de facto life management tool. This is the next big thing. Payment functionality (see below) is, of course, an important enabler to manage your life well with just a mobile phone.

Vodafone clearly lost the 3G race in Japan. Vodafone's strategy to launch their 3G service called Vodafone Global Standard (VGS) based on the latest W-CDMA specification release has slowed down their innovation speed. With less than 150.000 3G customers Vodafone is so far behind that I wonder how they plan to catch up again. To the outside observer it very much looks like J-Phone's acquisition by Vodafone killed a lot of innovative thinking and speed.

But Vodafone's new 3G handset from Sharp, the V801SH, is actually quite advanced and gives an idea about how Vodafone tries to catch up. With this device you can roam in any GSM and W-CDMA country. As a matter of fact, international, one day even worldwide roaming based on W-CDMA (and on CDMA2000 1x with the latest Qualcomm-powered handsets) is a completely new opportunity for the Japanese islanders. Having put a FOMA USIM card into a Motorola handset from Hutchinson's 3 W-CDMA networks in Austria and Australia and having made video calls from our FOMA keitai to the Motorola device without problems we got a first hands-on feeling for the new power of W-CDMA-based roaming.

Mobile email is the killer app - and emoji enhance it

When it comes to service roaming let's take a look at the key service mobile messaging. Japanese love email even more than we love SMS. Why? Because it is a lot cheaper - an average email may cost only 1 - 3 Cent (1 packet = 128 Bytes = 0,3 Yen), more emotional thanks to "emoji" - hundreds of small pictograms can be included in your text messages, and more functional - links to (free) mobile sites are frequentely passed around among friends. Mobile email is clearly the killer app in Japan and all operators have it implemented in a very user-friendly push style - comparable to the Blackberry or Hiptop experience here in Europe.

One of the students we met during our keitai user demo session sends and receives around 100 mobile email during the day. You should see how fast young Japanese type their messages ... incredible but true! Such heavy i-mode users really depend on their keitai as one of our students confirmed: "If I forget my keitai at home I would go back to get it." Of course, you can also find Japanese who will be happy to spend a day without having to communicate all the time, but this group is probably the minority.

I do recommend to all operators to seriously consider offering emoji as soon as possible, too. In Japan emoji are operator-specific and make customers stay loyal: "All my friends and family use DoCoMo. I can't change my operator because then we could not use emoji," says our sample user Ayaka. If emoji drive ARPU even more when being interoperable between networks remains to be discussed and calculated. At any rate, operators should implement the push email service first and then embed the emoji application into the new handset generation or make them downloadable if current or future handset APIs allow for it (emoji themselves are not transmitted but rather a unique bytecode for each pictogram). If you need some help in designing emoji for the European market, we will be happy to give you a hand.

First experience with video telephony

We had to do it - our MET group all rented F900i 3G phones from DoCoMo during our stay in Tokyo. Next to playing around with email and cool mobile content, we did quite a bit of video telephony though less frequentely than I expected. I personally like video calls very much, especially when I am with friends and want to involve them in the communication, too. The quality of the video is ok but not yet perfect. Seeing the person you talk to is definitely a fun application and I leave it to your imagination to decide when seeing is believing and better than talking. My hint: Mobile video telephony means the end of blind dating.

In my eyes, video telephony on the mobile will take off gradually, following the usual network effects. It is a new option for enjoying rich personal communication and people will just learn to decide when to use it. While not all FOMA users have rapidly embraced video telephony, some fans of emotional communication already generate a promsing number of video MOU (Minutes of Usage). DoCoMo's video call minute still costs 1.8 times more than voice minutes but this price difference is likely to decrease. And when it comes to the argument "I don't want to be seen if I look bad" DoCoMo has been clever, too: The user can switch from transmitting their own image to a character image (chara den) that can even be animated by pressing certain keys. The goal then is to download the coolest characters for your next video call to surprise your friends again and again.

And, of course, we had a usability problem. Video calls only make sense with a headset or a loudspeaker that can easily be activated. As few members of our group carried their headsets all the time and all of us could not find out how to activate the loudspeaker of the handset, the video calls often were video OR audio only depending on how you preferred to hold the handset - in front of your eyes or to your ear.

Realtune downloads are driving the early 3G market

Mobile music is still the hottest segment in mobile Japan. In 2003, the ringtone market (polyphonic ringtones called chaku melo) was 90 billion Yen (675 million Euro) and the ringtune market (CD quality short music clips called chaku uta) was 7 billion Yen (52.5 million Euro). In 2003, the total amount of 180 billion Yen was spent for mobile premium content, so 50% was music-related business. This is really massive if you compare it to a still declining CD industry in Japan with a mere value of 400 billion Yen (3 billion Euro).

During MET we enjoyed a meeting with Masakatsu Ueda, president of Label Mobile. Label Mobile was established by 5 record companies in 2001. The ringtune service which is a 30 second CD quality music clip based on the aacPlus file format was started in December 2002. The file size of a chaku uta is 100KB so 3G network speeds are needed. In fact, chaku uta is now the most important 3G service in Japan.

The copy protection of chaku uta is very high: Only the official files can be set as ringtunes and they cannot be taken out of the phone. Most chaku uta songs sell at 100 Yen (75 Cent) but prices vary from 50 - 200 Yen. A standard ringtone sells between 10 - 20 Yen. About 150 million chaku uta downloads are expected in 2004 from label mobile sites, out of a total market forecasted to reach 200 million chaku uta downloads. These figures are very promising, given that only 10 million phones in the market are ready for chaku uta.

The most important factor for the record companies about chaku uta is the following: Anybody in Japan can do ringtones as long as they pay 5 Yen royalty fee per download to JASRAC (no rights to be negotiated). So ringtones have become an absolute commodity. However, permission is needed in the case of chaku uta from the master right holders which are the record companies. In 2006, the chaku uta market is forecasted to generate revenues of 100 billion Yen which will be more than 25% of the total CD market. At the same time production costs for chaku uta are quite low as encoding music into aacPlus can be done automatically while most ringtones have to be composed and optimised manually. This makes the labels happy again.

So the labels now dream about the keitai becoming the new walkman instead of portable mp3 players with hard disks. I am not sure if this scenario will be the final outcome for the music industry or rather a temporary one. Myself, I am not prepared to pay 75 Cent for a 30 or 60 second piece of music to alert me about incoming calls. But many (young) Japanese keitai users obviously are. I want to listen to the whole song and I want to move this song around my devices once I bought it. But chaku uta is still a service for personalising your phone (in CD quality) and not yet a full-flavoured distribution channel for complete songs. As the chaku uta market is already very big despite offering a very limited value to the buyers I can only state what many insiders making money from mobile music already know: Never underestimate the power of keitai!

Operators take the lead in mobile marketing in Japan

Since 2000, DoCoMo and Dentsu (Japan's leading ad agency) operate the joint venture D2C, followed by KDDI and Hakuhodo joining forces in a1adnet and Vodafone and Cyber Communications creating Japan Mobile Communications. Usually the 3 operator-led mobile marketing agencies concentrate on advertising on official content sites. The mobile marketing market volume is forecast to be 20 billion Yen (150 million Euro) in 2004. Java applets and banners on mobile sites are among the favourite advertising tools.

This time we met with Takenori Itoi who is in charge of business development at D2C. Interestingly, Itoi-san told us that he invented the famous Tokusuru menu on the i-mode portal. The Tokusuru menu is an advertorial site where mobile content providers or other advertisers buy banner space to promote their products and services. Recently, there is also a cross-operator shortcode in Japan, the so-called "Toku Number", which is a unique 5-digit code that the user inputs into a form on a mobile page to be connected directly to the mobile campaign site. This is a lot more powerful and interactive then sending and receiving SMS to participate in campaigns. To drive traffic to the mobile campaign site the Toku Numbers are included in all media such as mobile, print, TV, radio, posters or flyers.

D2C seems to be very experienced in inventing new mobile marketing tools and selling them to advertisers in the Japanese market. Of course, they are interested in joining the expansion path of i-mode outside of Japan. But for the time being they prefer to wait until i-mode in Europe will have reached a critical mass of users of approximately 10 million users. How long will this take? The longer the better for European mobile marketing agencies who will have enough time to build their business before the Japanese experts enter the market.

Watching analog TV on the keitai

Yes, we have been watching analog TV during our visit of the Vodafone office. And the quality wasn't bad at all. I can very well imagine many situations of having a couple of minutes of free time during which I just want to watch TV because I am too lazy to play a game or type a message. Not only if my favourite football team is playing.

While Europe feels the early mobile digital TV hype caused by DVB-H, the Japanese are once again further down the road in marketing TV-enabled cell phones. For the Japanese watching TV on the keitai is just another feature that will take some time until it works perfectly on the limited mobile hardware resources. And the industry does not wait until TV broadcasting has gone digital or new channels or formats have been created.

This time Vodafone has taken the lead by equipping two models (V601N and the new V401T) with an analog TV tuner. With this approach Vodafone can test whether the analog TV feature is a real selling feature like the camera still is and what early adopters think about enjoying existing TV programmes. With the V401T, customers can watch television broadcasts on a high-quality QVGA (320 x 240 pixel) screen. They can also record up to approximately 12 minutes of TV programming with the recording function and save still images with a capture function. Unfortunately, the current TV fun on the keitai is rather limited - the battery dies down after 1 hour.

Of course, mobile TV will be more exciting for operators when programmes become interactive and drive traffic in the network. This is likely to happen once TV broadcasting has gone digital. But starting to learn how to optimise the TV handsets and how to drive interactivity even with existing programmes seems to be a good idea. For example, KDDI is making very good experiences with building radio tuners into their headsets. Users can then look up the playlist on a mobile site which is probably more convenient and cheaper than using a song recognition service such as "Music Finder" from Vodafone in Europe. Of course, chaku uta are offered on the mobile sites of the radio stations, too. Thus KDDI learns a lot from their mobile radio experience for making the mobile TV business successful, too.

Sharp handsets from Sharp

It's the handset, dude! Our MET delegation was honoured to be the first visiting group in Tokyo which is not a customer of Sharp but rather a team of mobile intelligence gatherers. As a matter of fact, Sharp was a latecomer to the handset business and only started manufacturing mobile phones in 1995. But they concentrated from the beginning on fulfilling all the wishes of their customers - the operators. Sharp's success since 2000 can be attributed to their excellence in mobile camera and LCD screen technology. In 2003, Sharp was number 3 and had a cell phone market share of 11,1 %, while Panasonic enjoyed 15,7% and NEC 23,3 %. Nowadays, Sharp is the number 1 supplier of camera modules for handsets and enjoys a market share of 40%. As for LCD screens in mobile phones Sharp owns 27% of the market. And last year, roughly 90% of all mobile phones were actually camera phones. Congratulations!

The first camera phone launched by J-Phone (now Vodafone) in November 2000 was built by Sharp (probably 100.000 pixel resolution). The first 1 megapixel camera phone was announced by Vodafone in May 2003. Less than a year later, the first 2 megapixel phones have been announced. Next year we will probably see 3 megapixel cameras on mobile phones and SD memory cards holding more than 256 MB. What will be the limits for camera and display quality in mobile phones?

Interestingly enough, Sharp does not produce standalone digital cameras. But now the camera phone becomes the default digicam for many people. So all of a sudden, Sharp becomes big in the digicam market. With enough megapixel, storage and sharp displays taking pictures with your keitai is easy and fun. For example, we met a guy who is a real "ramen no otaku", i.e. a very big fan of the Japanese noodle soup called "ramen". Whenever he finds a new delicious ramen version he takes a picture with his keitai. By the way, so far he takes only ramen pictures with his keitai - I guess that's what a real otaku is supposed to do.

As a result of being very good at making customised phones Sharp is now part of the DoCoMo family of the leading 5 handset makers. Definitely the best FOMA device is the SH900i which has got a 2 megapixel camera and a crystal-clear display. But the most interesting feature is the document viewer coming from the Scottish company called Picsel. The document viewer allows reading PDF, Word, Excel, Powerpoint and JPG files by zooming in and scrolling in all directions. It means that you can read a DIN A4 page even if you can only see and read part of the whole document at a time. This should be very fahionable among business users in Japan who rarely carry a laptop or PDA.

Overall, Sharp seems to be very committed to produce the best customised handsets in the world and improve the features of their products in quality from one generation to the next. Now Sharp chairs the 3D Consortium that was created to drive the development of 3D LCD screens. While screens move from 2D to 3D one day, the predominant form factor of the clamshell might stay: According to Sharp, it is simply a "must-design" if you want to accomodate a large screen in a small form factor, at the same time preventing the screen from collecting too many scratches.

Wireless wisdom from Qualcomm Japan's Ted Matsumoto

Meeting Ted Matsumoto, President of Qualcomm in Japan, for the second time was my personal highlight during our Mobile Executive Tour. In fact, during this session we gathered quite a bit of intelligence and wisdom. Ted was giving us a broad and deep lecture about the success factors for 3G in Japan and the key drivers of the wireless data market.

3G is real in Japan - 16.69M 3G users at the end of March 2004. Until December 2005, Ted forecasts a 3G penetration of 53% in the Japanese market. But how to win the 3G race? For some the answer is simple: Work with Qualcomm - at least it worked out well for KDDI. For others a general success factor check might help to make the right decisions.

On the one hand, price, features and quality of the handsets influence consumers' choices. On the other hand, cost of data is the key parameter to be optimised to enable rich data services. The actual cost of delivering data over the air determines the prices for the end users. And only low prices of data will attract the mass market - that's what it's all about.

To deliver low cost data any technology is welcome that enables a healthy ROI. In this context, Ted foresees dual-mode handsets with 3G and Wi-fi to become the mainstream product soon. Depending on available networks the device will seamlessly shift networks to always have the maximum bandwidth and lowest cost - provided that this is going to be the operator's policy. To prove Ted's point check out the features of the latest Qualcomm 3G chipset series such as the MSM7600 that includes all you need for wireless wide and local area networks. By the way, GPS is a standard feature, too.

We also learned that the discussion about the data peak rates of the latest radio technologies is rather superfluous and not relevant for the end user. As wireless bandwidth in a cell is always shared bandwidth nobody really gets the data speed promised by the marketing brochures. Still, there are opportunities for taking advantage of periods with a lower traffic load in the network, e.g. during the night or whenever the system identifies a timeframe with unused data transmission capacity. The simple idea is to apply scheduled data delivery in wireless networks because not all the wireless data you want is super urgent. Having followed this approach Qualcomm already announced MediaFLO which is a content distribution system for network-scheduled delivery of high-quality wireless content via 3G networks. This is just another example of Qualcomm's all-encompassing philiosophy of how to drive mobile data: Provide all you need from chipsets, via "would-be OS like BREW" to end-to-end service solutions.

Edy or how mobile payment empowers the next big wave

The end-to-end solution getting most of the attention is mobile payment. This is supposed to be the next big thing. And I do agree with this scenario. Soon the mobile phone will allow users in Japan to pay for public transport and at an increasing number of retail shops where Edy is accepted. Edy is the brand of the contactless payment service operated by bitWallet that works with smartcards or, starting in July 2004, with the first mobile phones from DoCoMo. The brand name Edy comes from Sony who is the major investor in bitWallet. And it nicely proves their ambition for the global market: "Edy" actually stands for "Euro Dollar Yen". Cute, isn't it?

Already today more than 20 million people pay their JR (Japan Rail) ticket with the Suica card which they wipe over the transceiver built into the gate at the entrance and exit of the station. Personally I like the strategy and technology of Edy very much. It stems from the obvious need to enable fast, contactless payments: The first customer to purchase Sony's Felica technology built into Suica cards was Japan Rail. They looked for smart technology capable of accelerating the human throughput in Tokyo's Shinjuku station through which a couple of million people route each day.

So the contactless payment technology Felica used for Edy is already in use for many years in the "fixed world". Now the smartcard goes mobile by being incorporated into the mobile phone. You can check your Edy balance online or top up it up over the air. But the coolest thing is that you can integrate Edy cards from different providers into your mobile phone and stop carrying lots of plastic around. Do you know the feeling when standing at the checkout in the supermarket having bought supplies for a full-flavoured weekend and realising that your supermarket loyalty card sits idle at home?

bitWallet has reached the first milestones but they are still at the very beginning of a bright future. In March 2004, there were 3.8 million Edy cards "in force" being accepted at 3.700 stores generating around 3 million monthly transactions. Our group tested Edy in a Sega game centre and though Daniel had only time for a short "drum and shoot" game we could imagine the power of getting rid of coins and game budget problems once you enjoy a good run.

Mobile flat rates for heavy users in Japan

While mobile Edy may result in a never ending money supply for addicted gamers another hot topic in Japan are mobile flat rates for keitai and laptop users. In fact, for some years now you can buy a PHS (Personal Handy System) mobile flat rate with 64 Kbps at 5.000 YEN (= 37,50 Euro) per month from DoCoMo. With the help of a PCMCIA or Compact Flash data card you can connect your laptop or PDA 24 hours per day without worrying about unlimited spendings. One of the reasons for this flat rate is the spare capacity once again available in the PHS network after most users moved on to PDC or W-CDMA/CDMA2000 1x. Among the mobile workers who do carry a laptop or PDA, the PHS-based flat rate is quite fashionable.

When it comes to expanding this mobile flat rate to mobile phones or the laptop mass market, Japanese carriers are struggling to postpone this development as long as possible. However, you must be able to compete. In Japan, KDDI first announced a mobile flat rate for keitai only (no laptops to be connected) for 4.200 Yen (= 31,50 Euro). So DoCoMo had to react to this challenge and followed with their mobile flat rate for 3.900 Yen (= 29,25 Euro) - again, only for use with your keitai. Laptops hooked up to the Internet with a broad mobile flat rate are very hard to calculate for carriers. Once you have heavy downloaders in the same network as frequent voice callers you might get into quite a bit of trouble. So the keitai data flat rates of KDDI and DoCoMo are targeted to the heavy users that will actually be able to reduce their data spendings once they subscribe to the flat rate. And 30 Euro is quite a decent data ARPU, isn't it?

Already today the experts and operators know that the demand for wireless data will be ever increasing. KDDI launched CDMA2000 1x EV-DO already in 2003 and created the brand WIN for this service which may reach data peak rates of up to 2.4 Mbps. At the moment, only KDDI's WIN subscribers have access to the mobile flat rate. DoCoMo also wants to accelerate their downlink speed and plans to introduce HSDPA (High Speed Downlink Packet Access) as an overlay on their existing W-CDMA network in early 2005. HSDPA will reach peak data rates of 3.6 Mbps in the beginning (theoretically up to 14 Mbps), but, as we learned above, this is not what the average user will get.

And if you sometimes feel that wireless data speeds are not enough, then you should just go wired again - maybe by scheduling the heavy downloads over the fixed line. Now, Japanese data addicts can buy an FTTH (Fibre To The Home) flat rate for 5.600 Yen (= 42 Euro) with 100 Mbps peak rate. FTTH already has got 1 million customers and it covers over 60% of the population. That's what I call a "real broadband society".

Next Mobile Executive Tour to Toyko and Seoul in October 2005

Obviously, this report has come out quite long although I tried to rather concentrate on the highlights. In fact, we gathered so much intelligence and insight during our MET that it is sufficient material for quite a number of articles, ideas and strategies.

For those of you who now feel like discovering the mobile future in Tokyo face2face, too, I have good news. We are planning to carry out the next Mobile Executive Tour to Tokyo and Seoul in October 2005. Please visit the MET website.

In this respect, I hope that you enjoyed this report and will soon find motivation and time to enrich your learning experience in the heart of mobile Japan, too.