Japan's KDDI dares a 3G debut

CNN's Kristie Lu Stout in Hong Kong

TOKYO, Japan (CNN) -- Japan's number-two telecom operator KDDI is launching its third-generation (3G) mobile service at a time when wireless prospects are slipping.

Delayed 3G launches and NTT DoCoMo's notoriously bumpy debut in Tokyo six months ago has forced the industry to reset expectations.

But that's not stopping KDDI from entering the fray. It is launching a nationwide 3G service on Monday, eyeing 7 million subscribers by March 2003.

The CDMA2000-powered service will allow subscribers to access the Internet, send emails, and take photos at 144 kilobits per second.

Overly optimistic?

"All the handsets with be 3G compatible from April 1 of this year," said KDDI spokesperson Yosuke Fukuma. "So we are very confident that this figure of 7 million will be achieved."

But analysts call the subscriber target overly optimistic since it may take a lot more than fast data rates to attract Japan's finicky mobile users.

"Whether or not it will be successful will depend on the ability to market it as a differentiating service from DoCoMo," said CSFB's head of Japan telecom Mark Berman.

"The data rate is not going to make a success out of it. It's the handsets, the services, the marketing of the services."

At the launch, KDDI is offering a selection of five 3G handsets manufactured by Sanyo, Casio, Toshiba, and Kyocera.

Retailing at around 20,000 yen (about $150), the KDDI 3G handsets will be less than half the price of DoCoMo's 3G phone offerings.

The KDDI service will also cover 90 percent of the Japanese population from day one, in contrast to DoCoMo's 3G coverage, which initially was largely limited to downtown Tokyo.

DoCoMo has since expanded to cover Osaka and Nagoya, and from April 1, a number of other major cities in Japan to reach about 60 percent of the population.

KDDI's 3G plan may trump the DoCoMo service in coverage and handset pricing, but any challenge to DoCoMo's Imode Internet data service would be a steep uphill battle.

"If their service is going to dethrone Imode, there is no way," said Berman.

"If they can manage to... raise the number of CDMA subscriber additions to 200,000 to 250,000 per month, then that will be quite positive. But relative to DoCoMo's base it's still quite tiny."

DoCoMo has more than 29 million Imode subscribers in Japan.

3G glitches

Mobile giant DoCoMo says it is welcoming KDDI's next-generation leap.

"It's a very favorable matter," said DoCoMo spokesperson Nobuo Hori. "Through working hard together with other operators, new services will evolve through the competition and thereby recognition of the 3G service will rise among the market."

About 18 months ago, 3G was the talk of the telecom sector -- a certain revolution that would bring fixed-line broadband speeds to mobile phones.

Last October, the Japanese mobile giant launched the world's first 3G service with hopes of signing on 150,000 customers by March 31.

However, with just 83,000 subscribers DoCoMo has fallen far short of that target -- a disappointing debut blamed on a lack of handsets and a limited coverage area.

"We think we made great efforts despite the area limitation and the recession in the Japanese economy," said DoCoMo's Hori.

"And since we are planning to enhance the coverage up to 90 percent nationwide by March 2003 we think we can regain our pace in the sales."

Content is king

Handset glitches and limited coverage aside, industry observers point to applications and content as the features that can make or break a new telecom service offering.

"From the consumer's point of view they don't care about the technology," said Berman. "All they care about is whether the quality of service is good, the price is right and the applications are interesting."

And KDDI's definition of interesting? Mapping technology and pop videos.

"The killer application will be GPS and movie applications for very short fifteen second video clips," said KDDI's Fukuma.

"For example, music video clips by artists from Sony Music. It could be used for small English language study programs."