The face of the cell phone user is changing

Published: Monday, June 6 2005 9:42 a.m. MDT

TOKYO — Hiroki Wakabayashi may be the face of the new cell-phone user. The 27-year-old computer engineer happily spends $100 or more a month for high-speed mobile service from NTT DoCoMo that lets him place calls as well as search Web sites, download songs and movie clips, and send e-mail as quickly as he can with a broadband Internet connection at home.

"With my old phone, talking was the focus," said Wakabayashi, who uses the latest handset from NEC to browse the Web on his train commute to work. "Now, using the phone to talk seems like a waste because e-mailing and Web browsing are so much easier."

Wakabayashi's enthusiasm should be welcome news to DoCoMo and Japan's other mobile carriers. The companies have spent billions of dollars since 2001 to introduce so-called third-generation, or 3G, services capable of transmitting data at speeds up to 40 times as fast as the previous generation of digital mobile voice networks. (In the industry's lingo, the analog cellular networks of the 1980s are the first generation, while the second generation are the digital voice networks of the 1990s.)

These new networks were built to expand capacity for voice calls and allow for high-speed data services that were supposed to generate new revenues to offset declines from standard voice calls. But that has not happened.

That is because Japanese carriers are now locked in a bruising price war for 3G subscribers that has largely voided that promise. DoCoMo, for instance, posted its first-ever decline in revenue and in operating profits in the year that ended in March.

American cell-phone carriers, which are beginning to unveil third-generation data services of their own, should take heed. Like the Japanese carriers, Verizon Wireless, Cingular and others hope faster networks can persuade customers to pay more to use their cell phones for linking to the Internet. But Japan's experience suggests that data services may not turn into a pot of gold.

In the last 18 months, the Japanese carriers have introduced all-you-can-use data plans for about $35 a month, significantly cheaper than earlier data service plans. (Subscribers still pay for bundles of minutes for voice calls, too.)

The faster data services have persuaded millions of customers to upgrade their phones — and made Japan the world's most advanced cell-phone market.

But the deals have lowered total customer spending. Because talking is more expensive than sending data, Wakabayashi now spends about $30 less a month than he did with his older, slower service because 3G makes it easier to send e-mail messages to friends instead of calling.

"This has had a significant impact on our business," said Masao Nakamura, the chief executive of DoCoMo, referring to flat-rate high-speed data plans, which are unlikely to disappear. "Our hope is to get back to a growth trend within three years, or at least halt the down trend" by introducing new video services and the like to recoup lost revenue.

Coming up with the right pricing plan is just one challenge for American carriers introducing similar 3G services. DoCoMo and its rivals, Au from KDDI and Vodafone Japan, have learned the hard way that networks have to be extensive and reliable, handsets plentiful and affordable and services practical and easy to use.

"The U.S. carriers have watched what has gone on overseas very closely," said Roger Entner, vice president at Ovum, a telecommunications consultancy. "They have to be careful because customers have been burned once or twice with the promises of 3G."

Of course, U.S. carriers have the luxury of learning from mistakes the Japanese have made, particularly when it comes to designing attractive and reasonably priced handsets. A bigger hurdle is persuading Americans to use their phones to write e-mail messages, surf the Web and hold videoconferences.

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