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The face of the cell phone user is changing

Published: Monday, July 6 2015 2:57 p.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.
Sprint's wireless group, for instance, gets just 9.8 percent of its total revenue from data services, the highest percentage among cellular carriers in the United States. DoCoMo, by contrast, receives almost 26 percent of its revenues from data services.
"The American and European carriers are trying to answer the 3G question and the data question at the same time," said Makio Inui, who follows Japanese phone companies for UBS Securities in Tokyo. "Japanese carriers had already solved the data question" because their customers were heavy data service users before 3G was introduced.
Even so, Japanese consumers have only flocked to 3G phones in the last year. It took DoCoMo, the market leader, about two years to attract its first million 3G subscribers — twice as long as expected — because the first advanced handsets were bulky and had weak batteries and few original features. DoCoMo's third-generation network coverage was also spotty. Vodafone has also stumbled with its service because it introduced handsets that were not tailored enough to meet the needs of Japan's finicky consumers.
Yet in the past year, after the addition of more phones, coverage and services, DoCoMo more than tripled its 3G subscribers to 12.2 million, or about one quarter of its total customers. The company expects to double its 3G users this year. The second-largest carrier, Au, which uses a different 3G technology, has persuaded a vast majority of its 19.5 million subscribers to move over, while Vodafone Japan now has more than a million customers for its 3G network.
In total, more than a third of all Japanese cell-phone subscribers use next-generation services, one of the highest rates in the world. By contrast, just 200,000 or so subscribe to similar services in the United States.
Despite the influx of new customers in Japan, heavy discounts have taken their toll on revenue. DoCoMo's 3G subscribers spent 9,650 yen ($89.44) a month last fiscal year, 6.1 percent less than the previous year. The company expects monthly spending by 3G customers to tumble a further 11.4 percent this year.
To stem the decline, DoCoMo and its rivals are introducing new services to encourage consumers to transmit more data. The latest phones can download 40-second video clips and ring tones and store hundreds of photos. DoCoMo 3G subscribers can hold videoconferences with up to eight people.
Some 3G handsets even include infrared readers that convert phones into television remote controls. Wakabayashi also uses the removable memory disk in his handset to transfer 2-megapixel pictures he snaps with his phone to his computer.
Many phones now have chips that turn phones into "smart cards" that allow subscribers to pay for tickets, food and other items at 20,000 stores. DoCoMo plans to expand this service so commuters can use phones with special chips as train passes.
DoCoMo's new generation of handsets can even scan two-dimensional bar codes pasted, say, at bus stops, which allows customers to get a bus schedule instantly, and an estimated time of arrival. Once on the bus, they can receive coupons sent to their cell phones from stores along the bus route.
"We think we are doing the same as Alexander Bell did by getting people used to using these services," said Shun Mishima, the director of DoCoMo's corporate marketing group. Whether the carriers will make money from these services is another question.

Copyright 2015, Deseret News Publishing Company