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NTT DoCoMo and its I-mode Wireless Network
Japan’s leading wireless telecommunications provider, NTT DoCoMo, has attracted global attention with the success of its i-mode service. The first commercial packet-switched wireless Internet service in the world, i-mode grew to more than 10 million subscribers in its first eighteen months of operation. I-mode, embodying impressive innovations in both technology and business model, has achieved first-mover advantage for DoCoMo in defining and developing practices in mobile e-commerce.
This paper is based on interviews and other data gathered while the author was a Visiting Research Fellow at the Institute for Social Research at the University of Tokyo from 1994-1996 under the sponsorship of the Fulbright Commission. Since then, the research has continued, partially under the sponsorship of the Santa Clara University Center for Science, Technology, and Society. This article is based on a paper presented at the 28th Research Conference on Communications, Information, and Internet Policy, September 23-25, 2000 (http://www.tprc.org/abstracts00/docomopap.pdf).
NTT DoCoMo, the wireless subsidiary of Nippon Telephone and Telegraph, has recently become the focus of worldwide attention with the success of its i-mode service in Japan. Demonstrating an aggressively innovative approach, DoCoMo constructed a packet-switched network alongside its existing digital cellular network to allow a constant connection with the Internet. The first commercial service of this kind in the world, it has attracted over 10 million subscribers in less than eighteen months. But i-mode’s innovation is not chiefly technological, it is also based on a sophisticated business model that charges users by the amount of information they download rather than their time online. It also allows service providers to charge small, incremental fees for services that then appear on DoCoMo’s monthly bill, eliminating the need for credit card billing. This business model, embedded in i-mode’s packet-switching technology, means that i-mode is producing Internet-related revenue for DoCoMo out of its core competencies as a telecommunications service provider, a feat of great interest to other telcos around the world. I-mode is the first mass experience with “m-commerce” or mobile e-commerce, and in this sense gives DoCoMo the opportunity to play a central role in forging institutional relationships and practices that will help define the new social and technological space created by the convergence of mobile telecommunications and the Internet.
DoCoMo’s efforts take place within the larger context of the explosion of wireless telephony as a global phenomenon and the anticipation of the migration of many Internet functions from the PC to mobile devices. Mobile-Internet convergence is shifting relative national technological competitiveness, with the U.S., long dominant in PC and Internet-related technologies, seemingly in third place behind the European Union and Japan.
Making full use of the advantages offered by its status as a subsidiary of Japan’s largest telecommunications provider, DoCoMo’s top management constructed an overtly entrepreneurial corporate culture, recruiting for top positions on the basis of merit and creativity. The i-mode approach was founded on a commitment to creating a branded standard that embodied an innovative business model, featuring effective methods of offering and billing services, which guided technological development. The i-mode standard was perfectly positioned to take full advantage of a Japanese domestic market environment that offered a springboard for global competitiveness in wireless Internet. Finally, DoCoMo has begun to build a set of global partnerships and alliances based on the attractiveness of its i-mode standard that demonstrates an organizational flexibility on a global level seldom seen in Japanese corporations. All of this argues that NTT DoCoMo will be able to sustain and globalize its present first-mover advantage in mobile Internet technologies and service.
Revolutionary Development of Global Wireless
In a world where high-tech competitiveness has focused for a generation on the PC-Internet platform and has been concentrated in Silicon Valley, the incredibly rapid emergence of wireless in the last few years has the potential to reshuffle the technological deck, leading to new, complex modes of global hi-tech competition. The rapid emergence of mobile Internet services, facilitated by the imminent move to broadband wireless networks, represents the convergence of two dynamic technologies into a new technological and social space with, as yet, undefined characteristics. This rapid turn of events has led to a reshuffling of relative national technological competencies, creating new opportunities and challenges.
The wireless market has experienced staggering growth in the last five years. In the five years between 1994 and 1999, annual mobile phone sales grew ten-fold, from 26 million units to 278 million units. Goldman Sachs estimates that mobile phone subscribers will expand from 475 million to 635 million in 2000, with the number reaching 820 million by the end of 2001. No other technology¾not the PC, not the TV¾has been adopted as quickly, on such a global scale. Now the wireless industry is abuzz with the rollout in the next few years of broadband Third Generation, or “3G,” wireless networks. 3G promises to make possible mobile multi-media services, such as streaming audio and video as well as full access to the Internet, at speeds of up to two million bits per second¾far exceeding the speeds of DSL or Cable Modem. Mobile Internet is generally viewed as the next great technology platform, on a par with the PC itself. The rapid convergence of mobile telephony and the Internet into a new industry is partially a matter of coincidence with e-commerce and a mass consumer base for the Internet emerging at the same time that mobile phone technology makes high speed data transfer possible. It can be safely said that the emergence of the mobile Internet will change the nature of the Internet economy, making the PC platform less important, and attracting many new users to the Internet.
A new business model is now being bandied about: m-commerce, or mobile e-commerce. The number of wireless handsets in the world already far exceeds PCs, and they are much more user friendly. Wireless offers the potential to access services on the Internet with much less need to have knowledge of the technology delivering them, more like most people use their car. The potential to use a wireless device to make small value payments offers convenience for consumers who in a few years will commonly use their mobile phone instead of a credit or debit card. With the addition of Global Positioning Satellite (GPS) capabilities, services tailored to a user’s specific location are also expected to emerge.
The new mix of technological and marketing competencies embodied in mobile Internet has allowed a reshuffling of relative national strengths. There is a general consensus that it is the European Union and Japan that are vying for leadership in this area in both services and innovation, with the U.S. a distant third. Ironically, the very advantages of the U.S. in the 1990's in PC-based technologies may serve to inhibit its competitiveness in mobile data services.
Early agreement in both the European Union and Japan on a common standard for digital wireless (GSM in the case of the European Union, PDC in Japan) has facilitated rapid innovation and network growth. In the U.S., on the other hand, FCC policies resulting in as many as four conflicting standards in regional wireless markets have confused customers and retarded the pace of development. It may also be argued that the great U.S. lead in PC-based Internet usage lowered the incentive to develop another approach. At any rate, while broadband 3G wireless is still several years away in the U.S., NTT DoCoMo will deploy it in May of 2001, with the European Union following in 2002. And, as we shall see, Japan’s lead in successful wireless Internet service is even more formidable.
Successful innovation with a new technology occurs not when it is invented, but when it is made accessible and useful to society. Playing a key role in determining the patterns of social contextualization and utilization of a major new technological convergence, such as wireless Internet, grants the innovator a “first-mover advantage” with powerful long-term implications.
I-mode: What Is It? Why So Important?
NTT DoCoMo launched its i-mode service on February 22, 1999. I-mode was technologically interesting in that it was the first packet-based, always-on, mobile Internet service available in the world. Europeans and Americans are able to access the Internet from their cell phones or Palm Pilots, but both of these systems must establish a new dial-up connection every time. With i-mode, users are constantly connected, albeit at a modest 9600 bps. But wide bandwidth is not the story here. It is the structure of services available, the ease of payment, and the attraction of mobility that have made i-mode such a phenomenal success.
It is the unprecedented popularity of the i-mode service that has attracted attention worldwide. On August 6, 2000, less than eighteen months after its inception, the number of i-mode subscribers topped 10 million, and is growing at a rate of 250,000 new customers a week. As a result, i-mode is now the largest Internet Service Provider (ISP) of any kind in Japan¾three times larger than Fujitsu’s Nifty-Serve, the second leading provider. Millions of Japanese are getting their first Internet experience on their i-mode equipped wireless phone.
Many of i-mode’s unique features spring from the fact that it is a packet-based network, completely separate from the voice channel also on the phone. Offering a simple display of text and color graphics, i-mode phones are constantly connected to a wide array of web-based services, including email, financial service, games, news and other forms of information. Users can afford to keep i-mode on all the time because they are charged for the amount of data they download, not per minute. They pay a flat fee of 300 Yen (about $3.00) a month, plus 0.3 Yen per 128-bit packet, or about 4 Yen for sending a 500-letter e-mail or 20 Yen for downloading a weather report.
NTT DoCoMo has carefully designed the menu system that greets the user to link the initial display to official DoCoMo content partner sites, numbering about 600 in August 2000. One of the great attractions of official sites is that DoCoMo handles the transaction billing. But i-mode is an open system, allowing the user to access any compatible site. In addition to the 1000 official i-mode Web sites, there are more than 20,000 independent sites, accessible through several i-mode search engines.
Many different types of services are offered to i-mode users. In addition to email, they can buy and sell stocks, do their banking, read news headlines, and buy movie and plane tickets. Game software maker Bandai, which provides a new animated character every day as i-mode screen wallpaper, offers one of the most popular services. Over two million i-mode users have signed up for the service and are paying 100 Yen per month, netting the company more than $20 million a year. Plans are in the works between NTT DoCoMo and Sony Computer Entertainment to allow i-mode users to play PlayStation games with each other over the phone. A positive feedback loop is now in operation for i-mode, with new subscribers and content and service-providers drawing each other in at an exponential rate.
DoCoMo: Innovative Management and Business Model
I-mode’s success is grounded in a combination of marketing and technological innovation that is a product of a distinctive strategy by NTT DoCoMo’s leadership, a strategy that in many ways represents a sharp break with traditional Japanese corporate practices. This is especially surprising, given that NTT DoCoMo is a subsidiary of Nippon Telephone and Telecommunications Co. (NTT), which until 1985 was a government telecommunications monopoly. Though DoCoMo stock is now traded on the Tokyo exchange, NTT still owns 67 percent of DoCoMo.
By any standards, NTT DoCoMo is a huge company. Controlling almost 60 percent of the Japanese wireless market, it has a total subscriber base of over 50 million, second in the world only to Vodaphone Airtouch. DoCoMo's 1999 operating profits are expected to hit $5 billion, on revenues of $36 billion. Even more impressively, DoCoMo’s stock soared, resulting in a market capitalization on July 1, 2000 of almost $250 billion dollars, greater than that of parent company NTT, and making DoCoMo the eighth largest company in the world.
But DoCoMo’s origins are somewhat more humble. DoCoMo was spun off from NTT in 1992, at a time when Japan’s wireless market seemed to offer little potential. The market was heavily regulated, subscription fees were extremely high, and handsets could not even be owned, only leased. NTT DoCoMo’s first president was Koji Ohboshi, who had gained quite a reputation in NTT for not being a team player, often in sharp conflict with his colleagues. His appointment as DoCoMo president was seen as a kind of punishment¾exile to an unpromising division. But in 1994, partially as a result of pressure from the U.S. government at the behest of Motorola Corporation, the Ministry of Posts and Telecommunications liberalized the cell-phone market. Individuals could now own cell phones, and DoCoMo faced formidable competition from a number of competitors with strong corporate backing. This was not a familiar situation for NTT, accustomed to monopoly status, but ironically, Ohboshi proved to be the right person in the right place at the right time.
With the advent of deregulation, the Japanese wireless market exploded. Plummeting prices and expanding services resulted in what was, for several years, the fastest growing cellular market in the world. Wireless subscribers in Japan leaped from 2.13 million in 1993 to 31.4 million in 1997, 1500% in four years! It has since again doubled, to top 60 million subscribers.
Rising to the challenge of aggressive market competition, Ohboshi fostered a corporate culture in which marketing decisions came first and shaped subsequent engineering decisions. In response to declining market share in the mid-1990's as his competition introduced newer and cheaper voice technology, Ohboshi looked for other ways to differentiate DoCoMo service, making development of an innovative wireless Internet service a top priority. He appointed NTT electrical engineer Keiichi Enoki to direct the data network business project.
The idea of a packet-switched network for data separate from the voice network had been floating around NTT for a long time. It was a technologically appealing solution, not crowding voice circuits with data, making it possible to charge for data traffic by packet rather than by the minute. Enoki decided to develop i-mode as a dedicated packet network (PDC-P) alongside DoCoMo’s existing PDC voice network.
But, like any technological parameter, DoCoMo’s packet-switched network could have taken many concrete forms. Following Ohboshi’s innovative lead, from the beginning, decisions about the character of the i-mode network were shaped by the prioritization of marketing strategy. Enoki defied traditional Japanese business practice by reaching outside of NTT for marketing specialists, many with MBAs from American universities. He recruited Muri Matsunaga, editor of a magazine on entrepreneurial job opportunities and one of Japan’s few leading women executives, along with Takeshi Natsuno, an Internet entrepreneur running a successful startup (with an MBA from the Wharton School of Business) to design i-mode’s business model.
Unlike the typical Japanese approach involving lengthy and painstaking planning, speed was of the essence in deploying i-mode as rapidly as possible. This led to a pragmatic utilization of existing technologies, rather than waiting for more elegant solutions. First, this meant going with a lowband, 9.6 Kpbs bandwidth and shaping the service around its limitations. This was offset by i-mode’s always-on feature, eliminating dialup time. But more daring was DoCoMo’s decision to go with a Hypertext Markup Language (HTML)-based system for i-mode websites. Wireless Application Protocol (WAP) has been put forward by a consortium of European and American concerns as the new standard for wireless websites, but the i-mode team decided to go with Compact Hyper-Text Markup Language (CHTML), a form of HTML with a reduced instruction set, thus easing the transition of content providers from their already existing HTML websites to i-mode-ready content.
DoCoMo was careful in its management of consumer expectations, never even mentioning the word “Internet” in marketing i-mode. Rather, i-mode was advertised as a new kind of wireless data service. By branding i-mode as essentially an extension of pre-existing mobile phone services, DoCoMo prevented consumers from expecting an experience akin to the World Wide Web, complete with flashy graphics, on their phone, and then feeling cheated and disappointed, a problem encountered in the U.S. and Europe marketing of “Wireless Web” services.
Natsuno, now Executive Director of the i-mode division, has said that his model for i-mode was America Online (AOL), a user-friendly menu-based Internet portal. A great deal of effort has been put into designing the i-mode portal site, with its menu of some 600 official providers. DoCoMo assists official content providers, helping them customize their i-mode Web sites.
But i-mode provides something that AOL cannot offer, a payment structure that has been hailed as a successful model for m-commerce worldwide. The nature of i-mode’s separate data network allows DoCoMo to record billing details for its official providers. DoCoMo’s system allows them to charge small sums and have the amount show up on the user's phone bill. Freed from credit card charges, services involving small, incremental charges, such as a few cents for a news article, become feasible. DoCoMo handles the billing, and earns a nine percent commission. This is the innovation that has caught the attention of the Internet industry worldwide.
Since the emergence of e-commerce, the challenge has been to develop a business model that actually results in profitability. Most Internet portals and other service providers have attempted to make money through advertising, or through marketing its products online. DoCoMo, on the other hand, doesn't generate any revenues from mobile advertising or transactions executed on i-mode. Instead, it focuses on increasing network revenues like airtime fees and commissions for collecting fees for value-added services. In other words, DoCoMo has generated revenue directly out of its core competencies as a mobile telecommunications carrier: building wireless networks and growing their subscriber bases.
DoCoMo has successfully rolled out a mobile Internet service, gaining valuable technical and business experience, all in a lowband environment. This has placed DoCoMo in an excellent position to provide leadership in rolling out similar services in the coming broadband 3G networks. Moreover NTT DoCoMo will initiate the world’s first 3G wireless service in May, 2001 in the Tokyo area, based on the W-CDMA standard developed by DoCoMo and already adopted by the European Union, giving it first-mover advantage in yet another technology. NTT DoCoMo’s successes in i-mode and 3G technologies are both key to DoCoMo’s global strategy: building partnerships based on these standards.
DoCoMo’s Global Strategy: Partnerships Based on Standards
The globalization of telecommunications has resulted in a rash of mergers and acquisitions as companies flush with high stock evaluations attempt to cash in by expanding through purchases. But as yet, NTT DoCoMo has eschewed that strategy. Rather, DoCoMo management states that it is through the power of their technology and accrued business practices that they will be able to spread their influence worldwide. DoCoMo management has made an aggressive attempt to move beyond the domestic ties it inherited from its parent company and to build a series of partnerships and coalitions with various players both in the West and in Asia, most notably on the basis of its i-mode standard. Telecommunication service providers everywhere are in search of new revenue sources, as providing basic telecom services becomes a highly competitive, low profit proposition. They find DoCoMo’s success with the i-mode business model very attractive. In developing i-mode, DoCoMo has acquired key exportable skills in setting up and managing m-commerce platforms on wireless networks¾above all i-mode’s packet communications billing system and the associated structuring of content presentation in menu form on the handset.
Across the globe, DoCoMo has set up relationships with local wireless providers and handset manufacturers, as well as Internet content providers with the desire to go mobile. This includes alliances with many U.S. firms, including Microsoft, AOL, Sun Microsystems and, most recently a reported tie-up with telcos SBC and BellSouth Corporation to form a joint wireless consortium to rollout i-mode service in the U.S. However, DoCoMo’s present overseas strategy is focused on the area that will see the next move to high-speed, packet-switched wireless Internet services¾the European Union.
Over the last year, through selective acquisitions of minority holdings in a couple of key firms, NTT DoCoMo has developed a growing presence in the European market as it prepares to roll-out 3G service in 2002. DoCoMo has bought stakes of about 20% in Britain’s Hutchison Telephone, holder of a British 3G license, and Dutch wireless operator KPN Mobile N.V., with services in Holland, Belgium, Germany, and Hungary. The three companies have announced their intention to bid for 3G licenses in Germany, Belgium, and France. DoCoMo has thus signaled its strategy to be part of the creation of a fourth big player in European wireless, along with Vodaphone-Mannesmann, France Telecom-Orange, and Deutsche Telecom.
However, the new alliance, powered by i-mode’s success in Japan, is not going to wait for 3G in 2002. The DoCoMo-KPN-Hutchison alliance also announced their plans to introduce i-mode service in Europe early next year as the so-called “2.5G” services (GPRS), which includes separate packet-switching capabilities and is initiated on existing GSM networks. DoCoMo’s experience in building a mass consumer base in Japan, based on effective utilization of existing technologies, is cited as key to the rapid development of an i-mode network in the European market.
One thing that is clear from these moves is that DoCoMo’s strategy is to make i-mode an internationally recognized service brand and a global standard for mobile wireless. NTT DoCoMo would appear to be developing the kinds of cooperative relations required to successfully support such a move.
Conclusion: Will DoCoMo’s I-mode Emerge as a Standard?
Both in the domestic Japanese market and in the emerging global market for wireless Internet services, DoCoMo can be seen to have gained a critical first-mover advantage. DoCoMo's business model is responsible for attracting a critical mass of content and users. M-commerce is quickly becoming the dominant form of business-to-consumer e-commerce in Japan; i-mode has become the de facto standard for Japanese e-commerce. DoCoMo’s organizational innovations were a response to the unusually competitive environment of wireless telephony in Japan. Putting top priority on marketing, DoCoMo leadership recruited mavericks to aggressively innovate business practices, at the same time developing new technologies.
DoCoMo has, in i-mode, a standard with the potential to be marketed internationally in an industry with almost unlimited growth potential. It stands as an expression of the organizational/institutional interface between users and technology that is at the heart of successful innovation. The embodiment of the i-mode business model in DoCoMo’s proprietary technologies raises barriers to entry by imitators, while encouraging interested firms to gain access to i-mode. Moreover, DoCoMo has taken the first step toward building a network of global partnerships and alliances to support the adoption and development of the i-mode standard as broadband wireless Internet develops.
The convergence of mobile telephony and the Internet does indeed seem to signal another shift in the balance of forces in advanced information technologies. This creates the possibility for a new trajectory, a moment when outcomes are unpredictable, but certainly will not just be an extension of existing power relationships. Mobile-Internet convergence is producing a situation where new technological appropriations and relationships will be forged. The most pressing question is whether or not NTT DoCoMo is flexible and dynamic enough as an organization to continue to play the leading role it has forged in Japan on a global scale?
 “Telecommunications, The World in Your Pocket,” The Economist (October 9, 1999), and “A Wireless Wave II: the Data Wave Unplugged.” Goldman Sachs Investment Research (November 10, 1999).
2State of the Internet 2000. (Washington, D.C.: United States Internet Council, 2000), 27.
3The “i” in i-mode stands for information, interactive, Internet, and “ai,” which means love in Japanese." according to Keiji Tachikawa, CEO of NTT DoCoMo.
4Figures from NTT DoCoMo press release, August 7, 2000, “Mobile Communications i-modest success.” The Economist (March 11, 2000).
5Daniel Scuka, “Unwired: Japan Has the Future in its Pocket, Japaninc (June 2000). Available at: http://www.japaninc.net/mag/comp/2000/06/print/jun00p_unwired.html.
6Martin Fransman. Japan’s Computer and Communications Industry: The Evolution of Industrial Giants and Global Competitiveness (Oxford: Oxford University Press, 1995) and Steven K. Vogel, Freer Markets, More Rules: Regulatory Reform in Advanced Countries (Ithaca NY: Cornell University Press, 1996).
7 “The Business Week Global 1000” Business Week (July 10, 2000).
8Discussion on DoCoMo management history and personalities is based on interviews and perusal of the Japanese business press, especially Nihon Keizai Shimbun. A good summary of these issues in English is Kenneth Neil Cukier, “Wireless à la I-mode: Japan's NTT DoCoMo's Flashy Phones are Connected to New Wireless Business Models,” Red Herring (June, 2000). Available at: http://www.redherring.com/mag/issue79/mag-docomo-79.html.
9All figures from Japan’s Ministry of Posts and Telecommunications. Available at: http://www.soumu.go.jp/english/.
10Yoshio Ando. “NTT DoCoMo: Global Strategy and European Operations.” Goldman Sachs Japan Research (July 14, 2000).
11Asian Wall Street Journal (August 1, 2000), and Wall Street Journal (August 18, 2000).
12 “DoCoMo, KPN Acquire Stakes In Hutchison Wireless Unit¾Partners to Bid for Europe's New Mobile Licenses,” Asian Wall Street Journal (July 13, 2000).
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Yoshio Ando. NTT DoCoMo: Global Strategy and European Operations (Tokyo: Goldman Sachs Japan Research, July 14, 2000).
Kenneth Neil Cukier. “Wireless à la I-mode: Japan's NTT DoCoMo's flashy phones are connected to new wireless business models,” Red Herring (June 2000).
Martin Fransman. , Japan’s Computer and Communications Industry: The Evolution of Industrial Giants and Global Competitiveness (Oxford, U.K.: Oxford University Press, 1995).
Martin Fransman. Visions of Innovation: The Firm and Japan, (Oxford U.K., Oxford University
“Mobile communications - i-modest success.” The Economist (March 11, 2000).
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