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Tue, Dec 30, 2003 - Page 12 News List

Handset industry watches Japan

TEST CASE Although consumers worldwide have been hearing about the promise of 3G for years, only Japan has a number of firms offering full-fledged 3G services

NY TIMES NEWS SERVICE , TOKYO

By now, it has become almost routine: For years, consumers have heard about the promise of third-generation, or 3G, cellphone networks. The 3G wireless phones have Internet connections 40 times as fast as those of ordinary phones, and promise to let users download movie clips and music, hold videoconferences and use the same handset anywhere.

Despite the expectations, only Japan has several companies offering full-fledged 3G services, starting with NTT DoCoMo's network in October 2001. Bulky, expensive handsets, plus weak batteries and spotty coverage took the shine off 3G.

But now, 3G is finally catching on in Japan, in part because of better, cheaper phones, lower rates and wider coverage. DoCoMo drew 300,000 subscribers to its 3G service in the first 18 months, added about that many in September, and by the end of last month had 1.6 million subscribers.

Analysts say DoCoMo, Japan's largest wireless carrier, could add a million customers a month next year, once improved phones are released. Meanwhile, DoCoMo's rivals, KDDI and Vodafone KK, are also expanding, leading executives to predict that next year will be the year of 3G here.

Although carriers will continue to offer older, less expensive wireless service, they are banking on consumers turning to 3G, now that phone prices have fallen by more than half since the networks' introduction.

The forecasters had better be right. Japan's carriers have sunk billions of dollars into the service and need more 3G customers -- who spend about 30 percent more a month on music, videos and game downloads -- to justify the cost to investors. Rival carriers in America, Asia and Europe are also waiting to see if the market in Japan continues to grow before they introduce or expand services.

"If 3G is validated here, a lot of carriers and suppliers will point to Japan as a success," said Mark Berman, an analyst at Credit Suisse First Boston in Tokyo. "This could touch off a 3G rally" worldwide.

If 3G remains only a niche product, carriers may have to scale back or freeze plans, which would be a setback for handset and equipment suppliers that are counting on a global expansion. The handset makers Toshiba, Sharp and Sanyo, for instance, hope to piggyback on Vodafone's 3G network as it expands into Europe. And network equipment makers like Nokia, NEC and Siemens could benefit as networks outside Japan are built to support the service.

The promise of 3G is still a way off in the US. AT&T Wireless, which is partly owned by DoCoMo, plans to start limited service next month. But service is patchy, and Palms, BlackBerries and other PDAs, not cellphones, are still the tool of choice for most Americans wanting to download on the run.

Still, a quarter of all cell phone users in Japan are expected to switch to a 3G service by March 2005. If that occurs, Japan will have gone a long way toward convincing skeptics that 3G is not just a pipe dream.

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