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The face of the cell phone user is changing

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

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.

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