The strategic alliance announced between NTT DoCoMo and AT&T Wireless Inc. is fairly simple on the surface, but may have long-term implications for the global wireless industry.
DoCoMo will invest about $9.8 billion in AT&T preferred stock for a 16-percent equity share in the company. Following its spinoff, AT&T Wireless will retain $6.2 billion of the investment to expand its mobile Internet strategy, while the parent company keeps the remaining $6.3 billion to pay down debt.
But DoCoMo also is giving AT&T exclusive rights to its i-mode technology and brand. What this means for WAP is largely contested. Some view it as a significant blow to the wireless Internet standard, while others merely shrug it off as a needed step for WAP/i-mode convergence.
For the short term, the alliance gives AT&T much-needed cash, while DoCoMo continues its global expansion strategy.
“In Gartner’s opinion, NTT’s stake in AT&T will do little for either company, or end users, through year-end 2002. For now, it simply provides an international presence for NTT and a much-needed capital infusion for AT&T,” said Phil Redman, research analyst at Gartner Group. “It allows AT&T the funds to stave off a potential acquisition.” In particular, AT&T, NTT DoCoMo and British Telecom may present a united front to go up against global heavyweight Vodafone plc, he said.
AT&T’s stock has plummeted 69 percent off a 52-week high of $61. According to ING Barrings, DoCoMo’s investment represents an implied 30-percent premium to AT&T’s current enterprise value. And AT&T is going to need it as it begins the capital spending needed to build a 3G network.
While touted as a win-win, the deal gives significant global clout to DoCoMo, which now has a bridge to bring both its flavor of wideband CDMA service and its i-mode technology outside the Japanese market to lucrative U.S. shores.
DoCoMo has taken equity stakes in Hutchison Telecom and KPN Mobile to gain presence in China and The Netherlands, respectively, and most recently announced a deal with Taiwan’s KG Telecom-which also includes expanding i-mode into that country. That gives DoCoMo a foothold for i-mode and W-CDMA technology in three continents, which could spell big kudos when global roaming becomes a necessity.
“Although there are high-growth areas for communications services around the globe, the United States remains a particularly desirable market for any international carrier because of its comparably lower subscriber penetration rate of only 39 percent at year-end 2000 and its potential for high revenue,” Redman said.
That DoCoMo wanted to extend i-mode to the United States was no secret. Its earlier deal with America Online’s Japanese subsidiary was viewed by many as a mere appetizer for an upcoming U.S. feast. Last week’s deal with AT&T was the main course.
Interestingly, DoCoMo is giving AT&T exclusive access to the i-mode brand and system-for no separate licensing fee-as a core element of the strategic alliance.
“This is for all their technology, not just the brand,” said John Zeglis, AT&T Wireless chairman and chief executive officer. “It is exclusive to us in North America. No other carrier, no other wireless stand-alone portal can have this. This is the exclusive domain of AT&T Wireless and our partner DoCoMo.”
But outside of someday allowing Japanese tourists and businessmen access to their i-mode content when in the U.S., what exactly does i-mode mean to AT&T?
Zeglis said the company will create a subsidiary charged with aggregating all its content into a wireless portal that will include both existing PocketNet services, i-mode services and new multimedia applications such as video e-mail, music downloads and streaming audio and video that it will develop with DoCoMo’s assistance.
Any other carrier or portal wishing access to the i-mode content will have to get it through this new portal. Exactly what AT&T hopes to gain from this is unclear. In fact, the company has not decided if it will even market the service under the i-mode brand in this country.
Just because the i-mode phenomenon resulted in 16 million subscribers in Japan doesn’t mean the experience will necessarily translate well in the United States. Only a microscopic fraction of i-mode cHTML content is written for English-speaking users, and even then it is geared for users in Japan.
Zeglis stressed that the i-mode deal gives AT&T an understanding of how DoCoMo organizes its content and e-commerce partnerships, as well as its a la carte billing structure, which he plans to incorporate into the as-yet unnamed subsidiary charged with managing all of AT&T’s wireless Internet interests.
But even those who have praised i-mode’s success in Japan have reservations over its future here.
“DoCoMo has expertise in understanding content. They have a good knowledge of what does and doesn’t work on packet networks,” said Barney Dewey of The Andrew Seybold Group. “But in Japan, the business model is upside down from what we have here. It’s not clear if that will transfer over here at all.”
“What DoCoMo did was very successful,” said Redman. “But AT&T has been doing this longer. It they need DoCoMo to show them how it’s done, that’s an embarrassment.”
The new subsidiary is expected to first enhance the existing HDML and WML content available on AT&T’s PocketNet service. As the carrier rolls out the packet-based and higher-speed GPRS network, it will integrate what cHTML content is available for domestic subscribers.
“If they run i-mode and displace WAP, it could be a big blow to WAP,” warned Redman. “AT&T was the first to adopt a WAP service. Now that they’re licensing i-mode. I just don’t see them continuing to support both.”
However AT&T said it plans to do exactly that.
“We’ll look at i-mode and compare it to what we have with WAP and see the advantages,” said AT&T’s Nelson.
The company said it will offer phones with a dual-mode WAP/i-mode browser. No company makes such a device today.
Over time, however, the carrier expects WAP and i-mode content will converge.
“We’ll have a dual-mode browser able to display content from both i-mode and WAP,” Nelson said. “Ultimately, all will converge with the next generation of WAP, which will share many of the positive attributes of i-mode.”
This convergence expected to occur around xHTML as the markup language for both WAP and i-mode and no dual-mode browser will be necessary.
Far from an attack on WAP, this would promote the convergence between it and i-mode.
“It’s significant in that they’re saying they’ll open up i-mode a bit and make it less of this closed gateway,” said Frank Marsala, analyst at ING Barrings L.L.C. “As they make the move of combining the best of i-mode into next-generation WAP, WAP will find its way in there. It won’t be all WAP, but it’s not a death blow either.”
