"I still have Japan-envy," admits Matthew Hart. It's not that Hart doesn't cherish his new cellphone, or appreciate having a real "mLife" before most Americans. It's just that "the 3G videophones they have over there, the ones that open up with the big color screens ..." He trails off wistfully. "We're getting closer, but we're still nowhere near Japan."
Hart, a commercial real estate developer in Palm Beach, Fla., is a self-described gadget and cellphone junkie -- he keeps 15 or so retired handsets in his closet. He's the kind of guy who gets a kick out of using his Bluetooth-enabled cellphone as a cable-free modem for his Bluetooth-enabled PowerBook so that he can check his e-mail in a park (just for example). The type who hangs around in chat rooms explaining to innocents the difference between locked and unlocked handsets, and why you should pay more for the latter. The kind who buys a T68i handset -- not officially available in the U.S. yet -- off eBay because it's slightly better than his still-new T68 (a replacement for the Nokia 8890 he got in London).
And he's precisely the kind of guy AT&T Wireless must win over with the mMode service launched April 16 (in select US markets including Palm Beach) if it's to have any hope with more typical U.S. cellphone users. A central feature of the company's obscurely marketed mLife "wireless lifestyle," mMode is an imitation of imode, the highly successful, always-on data service offered by NTT DoCoMo in Japan.
Imode users (over 32 million at last count) can buy tickets, find the nearest Starbucks, download and swap pictures, set up group get-togethers and do far too many other things to list here. Charges for whatever digital content or services they buy simply show up on their phone bill -- no credit cards, no electronic wallet, no personal info, no fuss.
Ask AT&T Wireless reps about the "imode-like service" they're rolling out and they bristle a bit: "What we're doing is unique in the American marketplace and is not simply a transplantation of imode, slapping a different letter onto it and then just moving on from there," says spokesperson Mark Siegel. "The content is uniquely American, the approach is uniquely American."
But is it American enough? For many skeptics, imode-type services will never take off in the U.S, for one simple reason: the car. In Japan, the ubiquitous mass transit system is often cited as a primary reason for imode's success. The transit system creates a lifestyle full of "microniches" of time. There's a lot of hanging around nearby bus, subway and train stations, usually waiting for friends or for transport. Imode and its competitors have filled this otherwise empty space with well-received services and cutting-edge handsets -- handsets that cellphone aficionados like Matthew Hart drool over.
For cellular operators in the U.S., desperate to boost data revenues in the face of plummeting share prices, the need to get Americans using something like imode is acute. And notwithstanding America's car culture, if average Americans get their hands on Japan-level handsets, watch out. That, in fact, might be the best way to evaluate mMode -- not necessarily as a service for users, but as a beachhead for Japanese handset manufacturers.
Japan's domestic market is reaching saturation. The battle to get Americans to fall in love with wireless services over their cellphones has at least one very large treasure at stake: who gains the upper hand in handsets. Indeed, this spring could be looked back on as a turning point in the handset wars here and in Europe. Can Nokia be dethroned? Has Japan's time come again?
A successful assault by Japan on the handset market is by no means assured. For one thing, mMode has a handicap that imode in Japan never had to contend with: a jaded consumer base. WAP (wireless access protocol) services -- the first big push to get Americans using their cellphones for data -- were over-marketed to Americans as fast on-ramps to the Internet, when in fact they were pokey, nearly useless text services displayed on ugly screens in clunky handsets.
"You can't over-advertise something," says Mark Berman, a Tokyo-based analyst for Credit Suisse First Boston. "If you build up expectations and then you disappoint people, it's going to cause irreparable damage, and that's what they did."
It's easy to blame WAP. But WAP is simply a specification for displaying information on handset screens as opposed to Web pages. It's not as common-sense as the cHTML standard used by imode, but a WAP-based service has succeeded -- in Japan. KDDI's imode-like service runs over WAP. It hasn't been a monster hit like imode, but it's been successful nonetheless. Still, the belief that "WAP is crap" has become common wisdom in the U.S. and contributed to a resistance to the very idea of cellphones as being useful for anything other than voice. The fact that mMode is initially being rolled out over WAP certainly doesn't bode well, then.
What does bode well for mMode is the success, so far, of the imode-like services in Europe. Offered in Holland through KPN Mobile and Germany through E-Plus since early April, those services are seeing a larger-than-usual share of revenues from data usage, according to early reports. But the parallels between the U.S. and Europe aren't exact. The European imodes, for one thing, are following the DoCoMo recipe for cellular success more closely, using Japanese handsets and the Access browser, neither of which is yet being used with mMode. And Europe, like Japan, has a viable mass transit alternative, around which a successful cellphone data service has already emerged: SMS (short message service). According to a Gartner study, Europeans use mobile data services at least as much as the Japanese do -- just in the form of text-centric SMS. But the mass-transit environment is the same, encouraging Europeans to fill microniches of time by sending messages, playing games and reading news, weather and sports.
Most Americans don't have such an encouraging mass-transit environment, and it's the U.S. alone, it seems, that is so peculiarly attached to the automobile.
"I think the car issue is huge," says Neil Strother, a senior analyst at In-Stat/MDR. "That's part of the reason it may take a while for mMode to take off. If I'm in an area where there's much better or more widely available mass transit, then it makes sense. But I think a lot of areas in the States are going to struggle with the driving."
Strother sees a formidable challenge in persuading Americans to change their habits. "Getting Americans to see their phones in a new way is a huge hurdle. It takes time to use phones in ways Americans aren't used to. There's a learning curve that has to take place. If AT&T Wireless pulls the plug on mMode in six or eight months, I'm not sure that it will have been given enough time."
But the argument that all of America is so completely car-centric that it could never adopt imode-type phones sounds a bit off, too, says Berman: "If you've ever lived in New York City, you know that's not the case. Or Boston, or Chicago. And besides, people have a lot of downtime no matter where they are."
"There are some behavioral differences, and commuting is one," concedes John Bucher, research analyst at Gerard Klauer Mattison. "But I don't think that means that there's not a market here for it." He says a bigger obstacle might be that Americans tend to have PCs at both ends of their work commute, and they've grown accustomed to using them. He notes that in Japan, both PC and Internet penetration were relatively low when imode exploded.
But debates over mass transit versus car culture may miss the real point. Truth is, Americans just don't have the right tools to go online wirelessly. If imode had been offered in Japan over the kind of inferior handsets offered in the U.S. today, it would have failed miserably. In other words: It's the handsets, stupid.
For Americans who've never been to Japan and played around with an imode handset, there's really no Stateside parallel to help them understand how enjoyable the experience can be. "I just cringe when I see handsets in America," says analyst Berman. The best analogy may be this: Whereas Japanese handsets are fun, colorful iMacs, those sold in the U.S. are drab, grim DOS terminals. To get an idea of what using imode is like, imagine clear colorful screens, startling sound quality, and easy-to-understand, icon-based menus navigating you through services you really want to use. And imagine this: sitting alone in a cafe with a grin on your face because you're having fun with your cellphone. In Japan, you can actually see this happening. It's not that the Japanese are deranged gadget freaks, it's simply that the cellphones are a kick to use. (And cute! Even grown men agree.)
"Frankly, the Japanese handsets are much better than what Nokia or Motorola make," says Berman. And high-quality cellphones, he believes, are critical to an imode-like service succeeding in the U.S.: "It's because they like the handsets that Americans are going to start playing. After that, the content has to latch them on. But handsets are the catalyst."
"If Americans saw what they could do on cellphones, they'd be much more excited," says Strother. "The handsets in Japan are exciting."
Japan's road to handset excellence is instructive. While other governments forced operators to bid for wireless spectrum licenses, the Japanese government decided instead not to cripple its operators with debt. Japanese operators used the savings to set up sophisticated R&D labs -- which most wireless carriers can only dream about -- and cooperated far more closely with handset makers than usually happens in other countries. The result: three successful wireless Web services and the world's best handsets.
The top handset sellers in Japan, according to Bucher, are, in order, NEC, Matsushita, Sharp, Mitsubishi, and Sanyo. Outside Japan, their bleeding-edge cellphones are largely unavailable. But that's changing, thanks in part to the spread of imode.
But if handsets in Japan are so cool, many ask, why haven't they been sold in the U.S.?
"We have this alphabet soup of technologies live in the market," explains Charles Golvin, senior analyst at Forrester Research. "If you wanted to sell to all the operators, up until recently you had to make a TDMA phone for AT&T Wireless, a GSM phone for VoiceStream, a CDMA phone for Verizon and Sprint -- and even within that you had other twists and turns. Japanese manufacturers saw a lot of complexity in managing the different technologies, so they pulled back. Now they're coming back to the U.S. market."
The initial handsets available for mMode don't represent the kind of Japanese invasion we're likely to see over the next few years. They include models from Sony Ericsson, Nokia, Motorola, and, later this year, Siemens. Cellphone junkie Hart gives his nod to the Sony Ericsson handsets: "I would say that Sony Ericsson is going to be the major player." In America, he says, "other phones don't even come close to theirs, especially the new ones coming out. I was a huge Nokia fan and user until the T68 came out. Since then, I think Sony Ericsson phones are bypassing Nokia's."
The T68 is an Ericsson phone, however, with little Sony input. As Golvin notes, Sony has barely begun to exert its influence in its joint venture with Ericsson. But later this year U.S. consumers will be offered what might be considered their first Japan-level handset: the Sony Ericsson P800, a lightweight Java PDA camera phone with an oversized, color screen and long-lasting batteries. "When the P800 comes out, it will be the best phone in the world," says Hart.
NEC, tops in Japan, also plans to reenter the U.S. market. And Berman notes that Vodafone, with the most subscribers worldwide, now owns a majority of No. 2 Japanese cellular operator J-Phone: "So Vodafone now has Sharp as one of their major handset suppliers, not to mention Sanyo and the others. Sharp's got very good handsets, and you're going see those all over." Vodafone owns 44.2 percent of Verizon Wireless, the No. 1 U.S. carrier. (AT&T is No. 3, after Cingular.)
In Europe, meanwhile, the imode services are being offered primarily or exclusively over Japanese handsets. KPN's imode, for example, requires a special handset made by NEC or, later this year, Toshiba. Matsushita, meanwhile, is set to supply the mobile phones for the French imode service.
This is just the beginning. Berman, asked if more Japanese handsets will be reaching Americans in the next few years, answers: "Oh, absolutely. It's going to start with imode, but the whole idea of the Japanese is that if 3G is a global standard, they're going to jump on that and make those handsets for the rest of the world. That's a serious threat to the traditional handset makers."
3G, or third generation, is generally defined as fast enough for video. But before they are widely available in the U.S., there will have to be 3G networks -- and that could take a while. In the areas where mMode is now in service, AT&T Wireless has set up a so-called "2.5G" GSM/GPRS network. But Strother notes that there's still no GSM/GPRS coverage in the vast majority of America, and that's just 2.5G, not 3G. "The future does involve Japanese handsets," he says. "But only as the networks get faster and better here -- and that's going to take years."
And even once the networks are in place, Japanese handset domination isn't inevitable. "It's a wide-open handset market, with regional and cultural differences," says Strother. "And I don't think the big boys are necessarily going to lose," he adds. "Nokia and Motorola are going to be right along with them."
Indeed, Nokia isn't exactly running scared: it has about 37 percent of the global handset market share. Motorola comes in second at around 17 percent, and had the foresight to establish itself early in China. None of the top five handset makers in Japan are represented in the top five global list.
But change happens, and if there's one thing that everyone who is in the know agrees on, it's that the handsets sold in Japan are much, much better than those sold in the U.S. and Europe. And they're leaving Japan this spring, riding the coattails of imode (at least until the bigger coattails of 3G come along). If nothing else, the traditional handset makers, like the Big Three automakers, will be forced to respond to the Japanese challenge with better products.
The upshot is simply this: Americans will -- soon -- finally get the kind of cool handsets that fueled Japan's imode explosion. And if they do, they might finally disprove the theory that they're too car-centric for cellphone-based data services.
Matthew Hart is ready to do his part. He's already got his sights set firmly on the upcoming P800 handset, and he's dreaming up how he's going to use it. His killer app for his killer phone? The ability to find local movie times, pay for tickets and have the charges show up on his phone bill. "Especially in Florida, where the movie theaters are huge and there's always a long line," he says. "That, to me, would be a great thing to use a cellphone for."
Question is, how many Americans will agree with him?