Cell Phone Industry Comparison Between Japan And The Us

BEN TURNER MSFS-555-01 SPRING, 2008 PROF. IRENE WU

COMPARING

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CONTRASTING JAPANESE

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AMERICAN 3G MOBILE NETWORKS INTRODUCTION Japan and the US are both front-runners in establishing high penetration rates for next-generation mobile phone data usage. However, they are taking differing paths towards the future, and these paths are being determined by such factors as cultural demands for applications, telecommunications policy differences, private-sector innovation priorities, societal and habitual differences, geography, and population density. This manifests itself in strange ways: the way a Japanese consumer uses a cellphone is markedly different than the way an American consumer uses one. Why? Also, why do their respective mobile phone providers look so different from each other? In comparing the path of development between next-generation mobile phone high-speed services in Japan and the US, which is the purpose and scope of this paper, my goal is to determine the viability of my future business that would rely on users entering information about themselves through an application on their mobile phone. Will these countries, in the near future, develop networks with low latency and high bandwidth to allow for fast, reliable, cheap data transmission, so my customers can interact at a high standard of satisfaction with my business? Such a requirement for mobile data transfer is a little premature for the environment that currently exists, as there is still a lot of shake-up to be done technologically in the business of providing high-speed data services. But where will I find the most opportunity? And what conditions should I look for? Because I am focused on developing an application that is datadependent and which uses Internet-compatible transfer protocols, I am primarily concerned with analyzing the potential of next-generation high-bandwidth networks. High Internet- and mobile phoneconnectivity penetration rates (it is important to separate the two) in

the United States and Japan are good news for consumers and vindication for sound telecommunications policy in general, but both countries will need to transition quickly to next-generation technologies that will allow for a less voice-dependent and more datadependent culture and marketplace. Mobile phone service providers are scrambling to upgrade their backbones, infrastructure, and services in order to respond to customers' demands, but they are struggling to agree on which path to take and which standards will be the most robust in the long-run, looking forward. In the telecommunications industry, the next generation of wireless technology and standards is loosely called 3G, for "third generation". Prior to 3G, what existed was 2G, more commonly known to be divided into two major competing standards: CDMA (Code Division Multiple Access) and GSM (Global System for Mobile [communications]). I will begin by describing the standards underpinning mobile phone networks. Then I will describe the mobile climates in each country by listing the largest providers and which standards they've chosen. Afterwards, I will analyze and explain how these environments came to be, based on cultural and structural differences.

CDMA1 CDMA was standardized by the American company Qualcomm under the names IS-95 (2G) and IS-2000 (3G), and therefore requires for its licensing that fees be paid to Qualcomm. CDMA is generally associated with allowing far more users onto each cell tower because it is more tolerant in dividing up the bursts of short voice traffic into different packets and sending them when available, as opposed to dedicating all the time in one channel slot on a spectrum to one user, who rarely requires that whole channel for voice calls. CDMA also is unencrypted and is therefore less demanding to transmit in aggregate. This, however, makes it less safe from intrusion.

CDMA 2000: 1XRTT

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EVDO2

CDMA 2000 is a hybrid 2.5G/3G standard, allowing for some 1

Wikipedia entry at http://en.wikipedia.org/wiki/Cdma is helpful, but also see the subscriber statistics at http://www.cdg.org/worldwide/cdma_world_subscriber.asp for more. 2

http://en.wikipedia.org/wiki/CDMA2000

degree of backward compatibility while pushing the network capabilities forward. 1xRTT and EVDO are variations within the standard, 1xRTT being true 3G and EVDO being 2.5G. Focusing on 1xRTT in particular, it doubles the number of available channels to 128, from IS-95's 64 channels. This allows the 3G technology to transmit at a maximum of 144 kilobits/second, compared with the 2G CDMA IS-95's paltry 14.4 kilobits/second. 3 Such a dramatic increase in bandwidth spurs growth and experimentation in data-heavy applications to be used over such a network. CDMA 2000 should be expected to be available where CDMA is, as it is built on top of existing infrastructure. It cannot be construed as a possible physical replacement for the 3G GSM competitors in areas where CDMA was not already available.4

GSM5 GSM has enjoyed far greater adoption of its standard than CDMA has, partly because of countries deciding to make the GSM standard mandatory as part of their telecom policies. Question the source, but the GSM Association estimates that 82% of the global mobile market uses GSM. GSM is somewhat more flexible than CDMA on a practical level for consumers because it allows one to take out a SIM chip (Subscriber Identity Module), about the size of half a stamp, carrying all of a subscriber's personal data and his phone number, and put it in a new handset quickly and without any configuration. In countries where consumers tend to replace handsets often, or rely more on prepaid or calling card plans, this versatility is valuable both economically and culturally for consumers. As a product of the network effects of compatibility across many different countries and standardized use of spectrum, GSM also allows mobile phone users to travel across countries and use their tri- or quad- band phones internationally, a feature CDMA phones are not very successful at matching. While roaming and interconnection rates are still high internationally, these rates are dropping quickly. 3

A concise history of the evolution of CDMA: http://telephonyonline.com/wireless/mag/wireless_cdmas_data_evolution/ 4

Reader-friendly tables comparing CDMA infrastructure in different countries as well as statistics on the number of users in different world regions: http://www.cdg.org/technology/cdma_technology/cdma_stats.asp 5

http://en.wikipedia.org/wiki/Gsm

GSM requires more battery power from a handset to operate than CDMA does. However, it also is far more secure than CDMA, offering a challenge and password authentication system which remains far more difficult to intrude upon than CDMA. GSM is far less efficient than CDMA, as it breaks up spectrum into time-division channel slots that only one user per channel is granted whether they are using the full slot or not. And finally, GSM has a 35 kilometer hardlocked limit to its range, whereas CDMA's range is unlimited, depending on the electromagnetic environment and power output of the transmitter.

W-CDMA6

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UMTS7

W-CDMA, or Wideband Code Division Multiple Access, is the 3G "air interface" for the GSM standard. It is the basis for FOMA (Freedom of Multimedia Access, used in Japan) and for UMTS (Universal Mobile Telecommunications System, used in Europe), which are considered the actual 3G competitors to CDMA 2000. W-CDMA is not backwards compatible with 2G GSM, unlike CDMA 2000's 2.5G or 2.75G backwards compatibility with 2G CDMA, but it has been adopted rapidly in countries with standardized GSM networks.8 UMTS supports up to 14 Mbits/second, although right now it may only transmit at 384 kilobits/second on some handsets and networks. This is compared to CDMA 2000's 144 kilobits/second. UMTS has had some difficulty in the US, since the US has allocated spectrum differently than the international standards. But since most new GSM handsets are generally quad-band, this circumvents most incompatibility problems. UMTS also is regarded as having high power usage and was cited as a reason for the lack of inclusion of 3G in Apple's iPhone (which went with EDGE, instead). Both issues will be discussed later in the paper.

MOBILES

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Keeping the two major competing standards in mind, one can now move on to how each has been deployed differently in Japan and the US. Both countries are highly-connected to the Internet and to mobile phone networks, but the US has fallen significantly behind in its 6

http://en.wikipedia.org/wiki/W-CDMA

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http://en.wikipedia.org/wiki/Umts

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Frequently asked questions about UMTS: http://www.umtsworld.com/umts/faq.htm

rollout of broadband and true 3G services, for reasons to be explained shortly. Japan enjoys penetration rates of about 95% for Internet broadband, 75% for mobile phones9, and about 49% for 3G services. The US only has about 57% Internet broadband penetration, but 84% mobile penetration and about 49% for 2.5G to 3G penetration. Within these statistics, there are many subtleties that make each country unique. So how are they different?

I. JAPANESE TELECOMMUNICATIONS INFRASTRUCTURE Japan is a small country, particularly relative to the US, with a land area of 375,000 square kilometers. However, its population reached 127.4 million people in mid-2007. While the numbers vary, this puts Japan's population density at about 337 people per square kilometer. Contrast this with the US, which has about 301 million people within a land size of 9.6 million square kilometers. Thus, the US's population density is only 31 people per square kilometer. As a result, in terms of building out an efficient telecommunications network that provides substantial utility both to the consumer and the supplier, Japan finds it far easier than the US to roll out the newest generations of technology such as FTTH (Fiber to the Home) for fixed broadband access and 3G networks for mobile phones. Having a densely-packed population creates network effects and an efficient clustering bias that encourages rapid adoption of communications devices. As a result, broadband is much cheaper in Japan than most countries; compare its prices, $0.07 per 100 kilobits/second, with the United States, where bandwidth costs $0.49 per 100 kilobits/second. Interestingly, Japan did not use GSM for its 2G standards, instead inventing its own: PDC (Personal Digital Cellular) and PHS (Personal Handy-phone Service).

JAPANESE TELECOMMUNICATIONS INDUSTRY BREAKDOWN Within Japan, there are three major mobile phone providers: NTT DoCoMo, au (owned by KDDI), and SoftBank Mobile (formerly Vodafone).

9

An executive summary for a report on Japan’s 3G mobile phones: http://www.glocom.org/tech_reviews/tech_report/20061222_atip_s80/index.html

A.) NTT DoCoMo10 NTT DoCoMo has over 50 million subscribers and thus controls more than 50% of the Japanese mobile market. NTT DoCoMo decided to use the W-CDMA standard after employing PDC (Personal Digital Cellular) standard for 2G service. NTT DoCoMo's 3G service is called FOMA (Freedom of Multimedia Access), and, having developed FOMA itself, has been able to create a strong suite of applications for its mobile phones. For instance, there is imode, which is a platform offering i-appli (application base for games, weather updates, and news stories, et al), i-area (location-specific news, weather, and local restaurants/shopping), and i-motion (allowing users to capture video and upload it to the Internet). Much talked about has been OsaifuKeitai, an e-wallet using a mobile phone that's been adopted by all the major Japanese providers: it lets users treat their phones as a method for not just making calls, but also for transferring money (using Sony's RFID FeliCa technology11 and Edy, a contactless technology similar to a SmarTrip card in Washington, DC), buying tickets, verify their identities, and more.12 B.) au (KDDI)13 au is the second-largest provider in Japan, and as of 2006, it had over 24 million subscribers. au is based on CDMA networks and is using CDMA 2000 1xRTT for its 3G networks. au also offers a diverse suite of services including video distribution (EZ "Chaku-Uta-Full"), Osaifu-Keitai, and Edy. EZ Navi Walk is a GPS service allowing users to be guided via map to their destination. C.) SoftBank Mobile14 SoftBank Mobile is based on a 3G W-CDMA network with over 15 million subscribers. In the last couple years, it has been growing faster 10

Read both NTT DoCoMo’s Wikipedia page at http://en.wikipedia.org/wiki/NTT_DoCoMo and its English version corporate site at http://www.nttdocomo.com/ for more information. 11

http://en.wikipedia.org/wiki/Felica

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NTT DoCoMo has an English version of its list of services offered: http://www.nttdocomo.com/services/index.html 13

http://en.wikipedia.org/wiki/Au_(mobile_phone_operator)

14

http://en.wikipedia.org/wiki/SoftBank_Mobile

than its competitors by virtue of its White Plan, which offers flat-rate voice calling. So it is competing on price and therefore offers fewer services.

JAPANESE HANDSETS

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MOBILE PLANS

In Japan, subscribers can't buy phones without post-paid or prepaid plans.15 Services and features are somewhat built in to the phone as an extension of the control the providers maintain over the user's experience with his phone. Japanese phones do not work in foreign countries, and there is only limited roaming for international phones on Japan's networks. These difficulties and incompatibilities have a lot to do with the restrictive nature not only of Japanese providers but of Japanese standards and laws. For instance, you must show proof of citizenship to purchase a cellphone plan in Japan. If you are a foreigner, you must have an Alien Registration Card and may be required to purchase using only a credit card.

JAPANESE MOBILE CULTURE Japan has a unique mobile culture that has developed out of its dense, everyday commuter schedule. With a population density of 337 people per square kilometer, Japan's commuters spend a lot of time on mass transit. But social etiquette while on mass transit dictates that people not talk or make noise on their cellphones. Therefore, design for cellphones has moved towards facilitating text messaging, video transmission, and reading data online.16 Partially because of the many Japanese character sets, and partly because of the expressiveness of Japanese emoticon culture, cellphone design is crucial to sales. Japanese consumers prefer to be able to use one hand when using their phone. Another example of importance of design is Japanese reaction to Apple's iPhone, which is revolutionary within the United States, but garners a completely different reaction in Japan. One anecdotal story: "Claude is a 27 y.o. Japanese male I met in my college days. He lives right outside Tokyo working as a textile designer. He thinks the iPhone is super sexy. To him, it doesn't look like any 15

For an idea of how compatible Japanese phones and networks are with other regions, see: http://euc.jp/misc/cellphones.en.html 16

http://en.wikipedia.org/wiki/Japanese_mobile_phone_culture

other phone out there. He loves how slim it is and is completely smitten with the multi-touch interface, but when asked if he'd give up his Sharp branded phone; he says no. "Claude's typical day starts with him checking his email on his phone. He gets all his daily tasks and calendaring events this way. He then syncs it with his computer. He pays for the subway by placing the phone on a kiosk granting him access past the gates. The commute is spent watching TV on his phone by rotating the screen. A small antenna extends up and catches the wireless digital TV signals (something we will never have here in America). About 45 minutes later, he's in Tokyo and heads to a vending machine to buy fresh fruit and water. He places the phone up against a pad. The vending machine reads his bank information which is tied into his phone. He then places his thumb on the phone's tiny thumbprint reader to verify his identity. As he makes his way to the office, he waves the phone near the door handle to unlock it. During a 10 minute break, he's flips thru a magazine and sees something he wants to buy. The item has a tiny stamp size barcode pictogram next to it. He scans the pictogram with his phone. A receipt and shipping confirmation hits his email minutes later. As the day ends, he syncs with his work computer and goes grocery shopping paying for items with his phone. Before heading home, he heads to a bar his friend has invited him too. He uses the phone to give him stepby-step directions. The day is finally over and his phone's battery is nearing the end of its life. He plugs it in and goes about the rest of the evening relaxing before bed.

...

"Claude feels the iPhone will sell but only to people who already have Macs and to people concerned about style. As for the rest of the country, he thinks asking a Japanese person to give up mobile digital TV is like asking an American to give up football for soccer. So I asked him what his next phone would be if not the iPhone. He says he has his eye on the Sony Ericsson SO903iTV."17 For Japanese mobile users, functionality extends far beyond just 17

A blog post about Japanese attitudes towards the not-yet-released Apple iPhone. http://www.tranism.com/weblog/2007/01/sorry_iphone_ja.html

using one's phone to communicate. It includes interacting with one's physical environment within a densely-packed, technologically savvy city. The cellphone has evolved into a multifunctional tool in Japan and not just a communicator. While the iPhone is attractive in a culture that is highly sensitive to style, American branding, and small formfactor, it cannot, at least in this iteration, displace the Japanese preference for clamshell phones that facilitate lots of one-handed typing (the iPhone's touch screen requires two hands and visual recognition of actions since there is no tactile key-press recognition behavior) and multiple technologies like Edy and FeliCa. In terms of fashion, since the Japanese are constantly playing with their phones out in the open, this may explain the tendency for young Japanese girls to customize the appearance of their phones more than people would in the US. The tendency is so great that adding charm chains with lots of baubles to one's phone is commonplace in Japan, and virtually non-existent in the US.

II. AMERICAN TELECOMMUNICATIONS INFRASTRUCTURE In the US, CDMA has a slight edge in subscribers, by virtue of Qualcomm's American headquarters being located there. Verizon Wireless and Sprint PCS operate on CDMA for 2G. But GSM is also popular, with AT&T Mobility and T-Mobile as the major providers. This has spurred a lot of competition not only for features but also on pricing plans, as providers offer incentives for consolidating one's friends and family onto one provider to encourage more use on their own networks instead of on competitors'.

AMERICAN TELECOMMUNICATIONS INDUSTRY BREAKDOWN A.) Verizon Wireless18 Verizon Wireless is the second-largest provider in the US with about 65 million subscribers, and operates solely on a CDMA-based network, transitioning to CDMA 2000. Verizon Wireless is rolling out VCAST, its video distribution channel, to weak results. However, its VZ Navigator service19, giving a cellphone GPS and directions-based mapping functionality, gives it a features edge, since GSM chipsets do not yet support true GPS. 18

http://en.wikipedia.org/wiki/Verizon_wireless

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http://en.wikipedia.org/wiki/Vz_navigator

B.) Sprint PCS20 Sprint PCS also operates on CDMA and is moving to CDMA 2000 1xRTT. Last year, it invested a lot of money into upgrading its networks and has announced as of this year a combined subscriber size of 53.8 million (taking into account all of its wireless services). C.) AT&T Mobility21 AT&T Mobility is the largest provider in the US with 70.1 million subscribers operating on a GSM (2G) and UMTS (3G) network. AT&T uses EDGE for its data transferring protocol. AT&T has struggled lately, but experienced a sudden swell of subscribers thanks to its exclusivity contract with Apple to market the iPhone for its network. D.) T-Mobile22 T-Mobile has 29.8 million subscribers on a GSM (2G) and UMTS (3G) network, also. T-Mobile tends to compete on low pricing and highquality customer service.

AMERICAN HANDSETS

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MOBILE PLANS

Like Japan, American providers exhibit a lot of control over the features available on mobile phones in US markets. Plans are bundled with handsets and unlimited text messaging and data plans are expensive, albeit available. Users are tied into phones by contractual limits that require paying contract violation fines to break. Even prepaid SIM cards require purchasing into one provider -- it is not easy to swap out SIM chips or add minutes between different providers.

AMERICAN MOBILE CULTURE Most Americans do not live in densely-populated areas like the Japanese do. While certain cities such as San Francisco and New York probably strongly resemble the growth path of mobile phones in Japan, much of America is spread out and facilitates a culture of driving. The requirement of one's attention while driving leads American behavior towards voice calls as opposed to active typing on a mobile phone. 20

http://en.wikipedia.org/wiki/Sprint_Nextel

21

http://en.wikipedia.org/wiki/AT%26T_Mobility

22

http://en.wikipedia.org/wiki/T-mobile

Americans are also much larger consumers of Bluetooth and handsfree talking.23 Convergent devices have struggled in the US until lately with the Research in Motion BlackBerry and the Apple iPhone. The BlackBerry has been incredibly successful for corporate users as it offers push email support with most of the major enterprise e-mail server platforms available. The iPhone offers a touchscreen PDA with visual voicemail (select which voicemail to listen to, instead of having to listen to an automated program), cleaner text messaging, MP3/iTunes support, and more. Both devices rely on EVDO (2.5G data transfers) and BlackBerry supports 3G. The iPhone will not support 3G until its next iteration. The iPhone is seen as breaking the hold providers have had both on the feature sets of the handset as well as the service available over wireless. Apple negotiated an exclusivity contract with AT&T in exchange for being able to develop its own applications and its own handset. Apple also agreed to take over initial billing and sign-ups, and AT&T had to implement visual voicemail on its network. This has been the first real excitement in the US mobile market in years.

ANALYSIS

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STRUCTURAL DIFFERENCES

It has been written that hardline bandwidth is much cheaper in Japan than the United States. But this has not manifested itself in customer plan pricing. While Japanese broadband costs are $0.07 per 100 kilobits/second versus $0.49 in the US, Japanese mobile providers earn far more per user in the ever-important metric ARPM, Average Revenue Per Minute. Japan's companies earn $0.25 per minute versus only $0.04 per minute in the US. Part of this difference can be explained by market concentration. In the US, there are over 10 providers with over 1 million subscribers. In Japan, there are only four. Okay, the US has a much larger population, so what else? But in the US, the top two companies control only 51.7% of the market, while in Japan, the top two control 78.6% of the market. The third largest competitor in Japan, SoftBank Mobile, has made huge in-roads by offering much cheaper flat-rate plans. So competition in Japan may drive companies' revenues down in the future. 23

A blog post detailing Japan’s and South Korea’s edge in handset development, but the lags in certain features’ development: http://analytica1st.com/analytica1st/2006/10/abi-research-japanese-and-southkorean.html Also see http://analytica1st.com/analytica1st/labels/Other.html for more posts related to Japanese mobile development.

But Japan's vastly superior broadband density does not manifest itself in the same way in wireless density, and this is a key distinction that causes a lot of confusion in comparing the two countries. In Japan, for wireless, more spectrum has been allocated to private interests than in the US, with 347MHz compared to 294MHz. Considering the US has more than double Japan's population, there is far more wireless room for Japanese providers to innovate and introduce services for Japanese consumers than in the US. However, at the same time, both countries QuickTime™ and a TIFF (Uncompressed) decompressor diverge from are needed to see this picture. international standards for spectrum distribution, making their services and phones mostly incompatible abroad. Is Japan's wireless spectrum allocated to the parties most willing to invest in operationalizing it? While the US has less spectrum and a lower population density, it also serves 828,000 subscribers per MHz of spectrum allocated compared to Japan's 297,000. The US, with its users more spread out, will seek to build out Figure 1: See Footnote #25. networks that emphasize long-range capability and large capacity of subscribers per tower and per MHz of spectrum, in order to reduce build-out costs. The FCC in the US has also been more successful in experimenting with spectrum auctions, which have raised large revenues for the government and which have generally provided spectrum to those purchasers who will make the most use of it -- compare this with the poorly designed and timed auctions in Europe during the dotcom bust, or the beauty pageants typical in Japan. Another explanation for differences between Japan and the US in the wireless sector could be that Japanese users are utilizing more data-intensive services than Americans do, and that ends up costing them more. The US is still dominated both in usage and perception by the idea that Americans only care to make voice calls and don't care as much about text messaging or Internet accessibility. This claim is

dubious and could be a symptom of over-expensive pricing plans for data services in the US. That said, Americans certainly use far more voice minutes than the Japanese: an average American consumer uses 823 minutes of call time while a Japanese individual uses only 140. Just as the FCC in the US has largely taken a hands-off approach towards technology, letting the market create its own winners and losers and then regulating successful methods, the executive administration and Congress have not made national telecommunications infrastructure upgrades a priority. Contrast this with Japan, with its 2010 Competition Promotion Program24. This is an active attempt to transition Japan and Asia towards the future of telecom, IP-based services through a national and regional strategy. Asia has placed priority on building up informational access and is therefore looking forward to a world awash in data and advanced communications services. High penetration of fiber in Japan and a move by wireless providers towards 4G already are some examples of Japan's taking initiative in the telecommunications sector.

ANALYSIS

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COMPETITION WITHIN TELECOM SECTORS

So what does all this mean? Which environment is "better" for consumers, companies, or future software developers such as myself? The United States has more competitive wireless access. US wireless costs consumers less, and there is less market concentration and more competitors.25 Services are similarly priced across wireless standard and company. Barriers to entry can be somewhat high as spectrum is controlled mainly by AT&T and Verizon, even more so after the 700MHz FCC auction recently. Since there are GSM and CDMA standards, however, there is room to compete within this limited spectrum. American consumers can expect to have access throughout the country on any network. Said David Pogue, technology editor at the New York Times: "I also remember hearing friends on the Palm Treo team 24

A good PowerPoint slideshow of how Japan is tackling next-generation networking issues: http://www.itu.int/ituweblogs/treg/Japan++New+Competition+Promotion+Program+2 010.aspx 25

Blog post with an excellent table describing the US’s advantage in provider plan pricing: http://analytica1st.com/analytica1st/2008/02/ctia-us-consumers-enjoy-moreaffordable.html

tell me what a nightmare it was to sell their early phones to the American carriers, who traditionally wield veto power and design control over every feature of the phone. The Treo team had all kinds of great ideas for improving the design and software of cellphones—but those carriers turned up their noses with a “we know what’s best” attitude."26 Reed Hundt, former FCC chief, was more blunt: "[The U.S.] is the last market in the world that people choose to bring a new wireless product to. ... Not second or third--the absolute last. ... Right now the policy of the FCC has been to encourage AT&T and Verizon to become the twin Bells that dominate the wireless business. They're allowed to buy all the spectrum they can find. ... This is the only country in the world where the rule is the big guys can buy all of it... It's very hard for innovators to get into the market, in terms of content or software or hardware."27 American providers often absorb the cost of handsets, offering decent phones to new customers for free. Feature sets and applications on phones are based on proprietary, restricted operating systems. Functionality is extremely limited as Americans prefer to purchase based on service and access instead. The BlackBerry and iPhone are challenging the assumption that Americans won't pay a premium for data services, push e-mail, and more data. But for now, Americans prefer mainly to use voice services and so do not demand convergent devices as phones. American broadband is an entirely different matter. Broadband costs more in the US but Americans are used to using broadband at home, work, and school. In between, they are typically driving or outside of wireless access, and do not use wireless data services as much as the Japanese. Japan's mobile culture emphasizes functionality over service access. Japanese cellphones are truly multi-functional devices, offering ways to make automatic transactions, identify oneself, and distribute video. Applications on Japanese mobile phones are diverse and competitive, and there are several popular standards developed by major companies such as Sony's FeliCa. The handset market is very competitive, rewarding those who assist Japanese in maintaining their 26

David Pogue gathers his reflections from attending a telecom conference abroad: http://pogue.blogs.nytimes.com/2007/07/05/are-us-cellphone-carriers-calcified/ 27

Interview with Reed Hundt: http://crave.cnet.com/8301-1_105-9883241-1.html

mobility. Socially, Japanese prefer not to use voice and rely on text messaging and e-mail on their phones more. Japanese providers are more concentrated than in the US. It costs more to use a mobile phone in Japan, but more features are offered. SoftBank Mobile is just beginning to gain momentum in driving down rates with its flat-rate plan.

FUTURE TRENDS Japan is ramping up its networks to be capable of supporting more and more advanced and bandwidth-intensive applications. A lot more power is in the hands of application developers and new entrants, although providers still largely control the software packages on their phones.28 At least structurally, a service such as the one I wish to develop, requiring a flexible application programming interface and low-latency data transfers, should make more sense on Japanese networks. This is especially so since Japanese phones are convergent devices and I will attempt to collect data not just through user input but by collecting externals from the phone's metrics; as an example, I would be interested in collecting the data about when a user walked through a turnstile at a sporting event or subway, or facilitating the ways users interact with each other using RFID/FeliCa technology. It is of my opinion that American innovators are losing faith in the US telecommunications environment as the most obvious place to start a new business or experiment with new ideas. Online innovation is becoming increasingly clustered and isolated within pockets in California, particularly Silicon Valley and San Francisco. Intense debate over net neutrality pits the providers of broadband (which would eventually include mobile providers as they seek to contain content distribution channels over cellphones) against innovators. At this point, the FCC has made no clear ruling but has hinted that perhaps Comcast, the major complainant against net neutrality, has overstepped its bounds. Congress, showing its lack of understanding in online issues, seems partial to voting against net neutrality. Regulation is a cursed word in the US except when it comes to morality, so the Internet's days as a large sandbox may become tenuous in the US. It is up in the air at this point. The FCC, historically, does not have a good track record of actively promoting competition (save for spectrum auction design) but instead passively discourages anti-competitive behavior. My belief, 28

“ABI Research: Japanese and South Korean Mobile Handsets Leading the World in Mobile TV, Digital Imaging, and Display Innovation”: http://analytica1st.com/analytica1st/2006/10/abi-research-japanese-and-southkorean.html

that a telecommunications upgrade program to spur telecom infrastructure in the US as a new kind of digital Renaissance is needed for the US to remain competitive, is not a strong political view for others. This digital Renaissance will require pro-competition policies for the providers and a digital user's codification of protected behaviors online: the right to access and produce information, the right to freedom of application use across networks and providers, an expectation of net neutrality in transferring data, and privacy from domestic surveillance except on the basis of court-approved wiretapping. While these rights stray from the topic of the paper, they are important for providing an environment conducive to the success of the Internet not just in the US but worldwide. As far as policies encouraging markets go, if the US cannot keep its online innovators and entrepreneurs, then I believe the government will have failed in promoting active pro-competition and pro-business practices. But by no means is the US market a lost cause. Where the US is superior is in its online application development. Much of the movement towards web applications and centralized databases with multi-access web interfaces is being done in the US. By rolling out more bandwidth and more access to the Internet, the major US providers may be sealing their own fate. If the Apple iPhone does manage to break the stranglehold on innovation as it has been anticipated to, then as soon as subscribers can access any web site online at a fast speed, then web apps will make any provider-supplied applications non-competitive. This will not break a stranglehold on hardware additions to American phones, so American subscribers may not see FeliCa or Edy any time soon, but it will go a long way towards citizens always being connected -- a necessary prerequisite for the long-term success of my company. It is unlikely that regulators will step in or that the government will pass a bill encouraging online innovation and infrastructure development, so the US market will have to continue to compete its way out of its problems. Compared with an active Japanese program to get everyone online29, though, the US is in danger of growing far slower, and therefore losing its edge as the chief innovating country on the Internet.

29

Good PowerPoints showing the priorities for Japanese telecommunications governance bodies: http://www.too-much.tv/files/080326_bb_policy_japanapectel.ppt