BEN TURNER

MSFS-555-01

SPRING, 2008

PROF. IRENE WU

COMPARING AND CONTRASTING JAPANESE AND

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 data-

dependent 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 phone-
connectivity 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 data-
dependent 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 AND 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 pre-
paid 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 hard-
locked limit to its range, whereas CDMA's range is unlimited,
depending on the electromagnetic environment and power output of
the transmitter.

W-CDMA6 AND 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 IN JAPAN AND THE UNITED STATES OF AMERICA

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
7
http://en.wikipedia.org/wiki/Umts
8
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 Osaifu-
Keitai, 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
12
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 AND MOBILE PLANS

In Japan, subscribers can't buy phones without post-paid or pre-
paid 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 step-
by-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 form-
factor, 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 V-
CAST, 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
19
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 high-
quality customer service.

AMERICAN HANDSETS AND 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 pre-
paid 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 hands-
free 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 e-
mail 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 OF 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-south-
korean.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
diverge from TIFF (Uncompressed) decompressor
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
networks that Figure 1: See Footnote #25.
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 OF 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-more-
affordable.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-south-
korean.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