Getting it right, end-to-end- Wireless Internet Magazine

Topics

Features
Above the Fray
Follow the Money
Market Research
Big Ideas
Technoptions
Developer Insights
Q & A
Opinions

Tools and Services

Archives
Calendar of Events
ASP Directory
Other Cahners Pubs

About Us

Submit a Release
Meet our Staff
Contact Us
Advertise
Magazine Subscription

Getting it right, end-to-end

by phil carson
March/April 2001

Last fall when NTT DoCoMo purchased a minority stake in AT&T Wireless for $9.8 billion, the wireless world buzzed that AWS would bring the Japanese carrier’s popular i-mode service to America. AWS has gambled on performing that feat–or something akin to it. The question is how. AWS isn’t saying, yet. Its read-between-the-lines answer: Start with the complete user experience and work backward.

On the lane approaching AT&T Wireless’ campus in Redmond, Wash., tall, thin evergreens emerge from the Pacific mist. In the distance, the Cascade range is draped by fog. These indistinct shapes serve as a visual metaphor for the work being done here: AWS executives must take the ill-defined concept of “bringing i-mode to America” and bring it into sharper focus.

Given the tremendous attention paid to the practical implications of the DoCoMo-AWS deal, can AWS successfully translate the i-mode phenomenon to America? In what form will i-mode influences appear? What are the implications for the U.S. wireless data market?

The “vision thing” is the easy part. On the day DoCoMo closed on its purchase of AWS stock (Jan. 22), AWS’ Chairman and CEO John Zeglis exuberantly announced: “This world-class alliance will bring an exciting new generation of mobile multimedia services to AT&T Wireless customers much more quickly than we anticipated even six months ago. Millions of [our] customers will soon have the benefit of a high-performing mobile Internet built in to the fabric of everyday life.”

AWS and NTT DoCoMo also announced the pending formation of a multimedia subsidiary that, while it might assist in the process of bringing i-mode influences to America, would focus more on the next-generation strategies and services that third-generation UMTS networks will make possible. (See sidebar, page 20.) Zeglis’ coupling of the term “high-performing mobile Internet” with a timeframe characterized as “soon” may be difficult to fulfill.

[a vision for the next generation]

AT&T Wireless’ data play for the U.S. market must fit into a coherent picture of next-generation services. Kendra Vandermeulen, formerly a senior vice president involved in product development and strategy, has been promoted to serve as special advisor to John Zeglis, chairman and CEO of AT&T Wireless Group. A few of her thoughts on the 3G future follow.

• “The multimedia subsidiary is not about i-mode alone. The vision is much larger, about third-generation services. As we move into 3G we need to have great new content and applications, things to do with video and music. We’ll figure out what the right relationship should be with a world-class provider of that kind of media. It’s going to be a really long time, realistically, before you are going to get much streaming media on handheld devices. Not only are there screen issues, but the real issue is always going to be battery life and the cost of bandwidth.”

• “To me, the most powerful aspect of a microbrowser–server based split in the application is that once you have devices that support that, then carriers can innovate those services with third parties. Handset manufacturers don’t have to be in the loop, though they still have an important role to play in advancing the core capabilities of the devices [by improving] displays, input modes and operating systems. So the door has been kicked open and whatever we end up with, it’s still going to be an open standard that opens the market. That’s going to bring us really cool devices.”

• “With the advent of third-generation and particularly with the advent of GPRS, finally we are getting ubiquitous packet networks. CDPD’s big failing is that we were never able to achieve the ubiquity we wanted to achieve. GPRS will overcome that barrier. We’ll also overcome the battle to get device manufacturers behind it. It’s a chicken-and-egg synergy issue. Once you have the ability to deliver a national and international footprint, then the device manufacturers follow. And you get this other virtuous cycle going: innovative devices, lots of places to use them and applications will start to blossom.”

In the trenches in Redmond, AWS executives charged with implementing Zeglis’ vision adjust expectations. They’ve seen media coverage of their deal with DoCoMo and the hype over “i-mode in America” send the level of anticipation skyrocketing.

AWS executives–constrained from making forward-looking statements during the quiet period preceding AT&T’s upcoming offer to swap AWS tracking stock for common shares–make clear they are focusing on aspects of i-mode that can be applied to the American market. Among the most compelling: DoCoMo’s business model, which promotes a profusion of content and applications by allowing developers to present their services to subscribers, while the carrier takes only a 9 percent cut of revenues. That approach drives subscriptions, the bulk of DoCoMo’s envious revenue growth. In AWS’ scenario, extensive network coverage and innovative handsets are a given. Market segmentation, pricing and branding of i-mode-influenced services also will be crucial. Timing–and the lack of time–looms in the background.

“You have to get the whole thing right, end-to-end,” says Kendra Vandermeulen, senior vice president and special advisor to the chairman and CEO of AT&T Wireless Group. “DoCoMo has been successful in generating a virtuous cycle of getting subscribers, attracting more content and getting more subscribers. We’ll try to bring those concepts to our market. Whether it’s called ‘i-mode,’ whether it’s priced the same way–that’s not likely.”

As for DoCoMo’s billing model that allows content and application providers to charge by the kilobit, creating the draw for subscribers, whose monthly fees form the bulk of DoCoMo’s revenues, Vandermeulen observes: “There’s a question of whether you can get away with usage-sensitive pricing in our market. I’m not saying we’ve made that decision. It’s just conventional wisdom. The goal, in their minds, is not to generate revenue. The goal is to attract content.” Lots of rich content drives both minutes of

use and average revenue per unit, she says. “That’s a very synergistic cycle.”

It’s clear from talking to Vandermeulen and Tom Trinneer, vice president for portal develop-ment, that AWS values current PocketNet customers–high ARPU mobile professionals–while also seeing an opportunity to reach out to new segments. Vandermeulen suggests that entertainment may well be a common denominator for both the mobile professional and the youth market, which U.S. carriers hope will ignite wireless data usage as it did in Japan.

“If you look at DoCoMo’s demo-graphics, they have a big youth following, but they also have a very large middle-aged following, maybe 40 percent of their base,” she says. “There’s no doubt in my mind that games are where a big chunk of DoCoMo’s usage is coming from.”

“It sounds like they’re going to stick to their knitting and grow ARPUs in their base by supporting enterprise applications, e-mail and other productivity apps,” says Seamus McAteer, an analyst with Jupiter Research. “That’s something DoCoMo wants to learn more about. For AWS, getting into prepaid and addressing the youth market makes sense. Organize your teams to target segmented markets, rather than organize it around the technology, per se.”

As content becomes commoditized, however, the discussion of it takes a back seat to business models and market segmentation. Vandermeulen suggests that AWS already has a good start. “Our PocketNet service is doing really well,” she asserts. “We don’t need to start from scratch. We already have i-mode-like services.” The exercise now is to figure out what content does well in Japan alone and what can be translated for a U.S. audience. “I’m dying to take their 646 alliance sites and stack rank them by the number of hits they get, and stack rank our 70-some odd sites, place them side-by-side, and see how many things they have at the top of their list that we don’t already have,” Vandermeulen says. “For example, gaming. We have a few games on our service, with a small following. But the people who are playing them are really playing them. DoCoMo has a lot more and I’m interested to see which ones have a following and how many of those can be Americanized.”

“What’s going to drive this?” asks Iain Gillott, of iGillottResearch in Austin, Texas. “Entertainment. Visuals or interaction. People think that means only a gaming application. But there’s a lot of business applications for interaction. That’s the way the wired ’Net is moving.”

On the crucial issue of branding, Vandermeulen and Trinneer are cryptic, tending toward mum. They suggest it probably won’t be “i-mode” per se, while they seem to imply it won’t be “PocketNet,” either. There’s a possibility that brands will be created for each market segment. Gillott, for one, suggests that “i-mode” could resonate with American youth. More important than the specific brand, he argues, is the need for a bold, fresh start.

“It comes down to: How much do you want to emulate i-mode, and how much do you want to raise the stakes in the game?,” Gillott says, clearly fired up for the upcoming brand wars in wireless data. “Change the rules! That’s what AT&T did with Digital One Rate.” Gillott argues that the past few years in the U.S. market have seen the loss of big, traditional brand names, replaced by new ones such as Verizon and Cingular. “You put a new brand on it and, hey, you’ve got a whole new attitude,” he points out. “AT&T is looking a little staid here. We’ve got a lot of new names in the market now and it’s going to get worse. What about a Nike phone? What about Yahoo!? Anyone can do this–anyone with a big, powerful brand that appeals to the right market segment.”

So much for what AWS will reveal, and pundits can add, to the translation of i-mode components such as the business model, market segmentation, content and branding. Perhaps as pressing is the interest in how AWS will deliver the goods. Skeptics say it won’t be simple or easy, for reasons largely focused on time-to-market and the competitive environment.

Getting the market to pay attention to AWS’ data offerings will be a challenge. “It’s networks and devices,” Vandermeulen says. “Those two things are real important. Our market is not going to be as easy–this is not Japan. We aren’t going to see people falling all over this stuff in quite the same way. But as we get great services on cool new devices, that’s what’s going to draw people in. And DoCoMo is going to help us with that.”

When pressed on AWS’ need to produce something tangible soon, Vandermeulen takes the long view.

“I’ve tried not to be out there over-revving people on how big this is going to be. If you look back ten years and think about how far we’ve come, it’s unrealistic to expect it’s going to be extremely hot, flash, burn! There’d be so many ways [i-mode] could happen here that’s slower than in Japan that would be wildly successful, in terms of impact on our culture, in terms of economic benefit to our shareholders, in terms of service to our customer base. It needs to be a nice, reasonable ramp.”

“It’s not the right way to look at this to say that one day there’ll be an unveiling and, poof!, there will be i-mode in the U.S.,” Trinneer adds. “It’s more evolutionary, not really a big bang. It’s got to fit this marketplace, it’s got to fit the networks we’ve got in place at the time.” The introduction of i-mode influences will take place on an evolutionary basis, across all AWS networks at all stages of network migration, from 2G to 2.5G to 3G and beyond, Trinneer suggests. “You’ll see the first influences of i-mode late this year at the earliest, more like next year.”

Phillip Redman, senior analyst with Gartner, agrees that a slow, thoughtful ramp is smart–and that media attention to “bringing i-mode to America” missed the point. “2001 is not the ‘year of wireless data,’” Redman says. “Neither is 2002. There may never be a ‘year of wireless data.’ People will look back and say, ‘Was there ever one year when all of a sudden it just exploded?’ Things usually don’t happen that way. I think it’s going to be a fairly gradual increase as users adopt it. As capabilities are enhanced, users will adopt more and more services. A lot will be based on usage, not so much on the number of users. You can liken it to the growth of the wired Internet. Have we really seen the growth of the Internet yet?”

There are deep doubters on AWS’ strategy. Barney Dewey, of Andrew Seybold Consulting, is one of them. “I don’t consider PocketNet to be successful. You can’t get good numbers out of AWS. But look at the percentage of users against AWS’ installed base–a half-million out of 6 or 7 million subscribers?” He compares that figure–under 10 percent–to the more than 40 and 50 percent data service penetration of the three Japanese carriers, of which NTT DoCoMo is the leader. Dewey also discards any notion that the NTT DoCoMo deal with AWS is about anything but an infusion of capital–the lessons of i-mode are in the open and well understood, he says.

In contrast, McAteer thinks AWS has an opportunity to “get the whole thing right,” and says doubts about AWS’ ability to envision the future and execute cleanly are over-blown. “The spinoff of AT&T Wireless from AT&T Corp. will do quite a lot to spur innovation,” McAteer says. “It struggled as its parent pursued broadband dreams and looked to coalesce this story about ‘unified services.’ But this is the company that rolled out ‘Digital One Rate,’ it rolled out CDPD. It made the wrong bet on TDMA, but it made its bet early.” As for skepticism over the company’s new tack with GSM, McAteer says: “AWS has always been an innovator and sometimes innovators end up with arrows in their back.”

So what can AWS do in the summer ahead to inspire shareholders, maintain positive public relations momentum and remain competitive, before providing actual next-generation services?

“The proof is in the delivery,” Redman says. “They’re hoping that they don’t lose ground and that they can keep their heads above water.” Gillott’s concern is timing. “By the time AWS executes on its strategy, it may well be late to market. A year ago they were talking about TDMA going to EDGE. We thought that was a pretty good strategy. They had a year to execute before deciding, well, it’s really GSM and GPRS. They’ve lost a whole year. We’ve got the promise of something great here, but the rest of the market is not stopping to let you catch up. Show me tangible results of the deal. I’m not saying they should have done that by now. But I’d look for something by this summer. I don’t think we want to see a redressed PocketNet. Otherwise, it’s just ‘NTT invested in AT&T Wireless. Thank you.’”

With AWS suggesting it will make announcements at CTIA Wireless 2001, perhaps those vague images in the Pacific mist in Redmond will come into sharper focus.

INSET: “Our market is not going to be as easy – this is not Japan. But as we get great services on cool new devices, that’s what’s going to draw people in.”

INSET: It comes down to: How much do you want to emulate i-mode, and how much do you want to raise the stakes in the game? Change the rules!