The Young and the Wireless

This country hasn’t had much to cheer about lately, but there is a new source of inspiration: Its teenagers--weighted down with money and free of old ideas--have helped to build a new Japanese corporate mega-star.

Their fixation with cellular phones outstrips even handset-crazed Europeans, thanks to the most successful, elegant and idiot-proof system anywhere on the globe for getting onto the Internet from a cell phone.

Reaping the benefits is a company called NTT DoCoMo, which almost overnight has become Japan’s most valuable company. Now it is taking aim at the rest of the world, where obstacles abound but it has a running start.

After a decade in which Japan fell behind on the Internet and endured its worst economic performance since World War II, DoCoMo has emerged as a new kind of Japanese company--one that encourages individualism, eschews protectionism and breaks many of the old rules of Japan Inc.

Spawned by the stodgy former government telephone monopoly, NTT Corp., in 1992, DoCoMo was created almost as an afterthought to see what cellular communications was all about. Early employees recall pitched battles with NTT traditionalists skeptical of the ethereal nature of wireless.

A phone-monopoly spinoff with an unproven technology seemed an unlikely candidate to point Japan in a new direction. But its success has been phenomenal. Every day it signs up 50,000 new customers. In the stock market, it’s now worth $280 billion--50% more than its NTT parent.

DoCoMo (Japanese shorthand for “DO COmmunication over the MObile network”) has captured 58% of Japan’s booming cellular market, rewarded stockholders handsomely and pioneered Internet on the move with its so-called i-mode service.

It’s become a media darling and its visionaries, celebrities.

And as is often the case with success stories, it was part accident.

DoCoMo’s early i-mode business plans targeted corporate warriors, with many Web sites offering airplane reservations, directories, stock trading, scheduling and news.

Almost as an afterthought, it threw in a few games. And that helped launch DoCoMo’s rocket ride from corporate afterthought to global wireless leader.

The company admits it didn’t fully appreciate what an incredible resource it was sitting on.

“Very few countries have this many teenagers with this much money,” says Mari Matsunaga, a key member of the i-mode development team. “They’re the eye of a hurricane.”

Less than two years later, 60% of the sites are entertainment-related and Japan’s young people have stormed the Internet airwaves, downloading cutesy screen characters, e-mailing their friends, checking restaurant listings, exchanging photos and tracking sports teams.

The latest DoCoMo advance: images of Japan’s 25 most-wanted criminals appear on your handset so you can look for them while hanging out in bars or other shady places.

On average, Japanese consumers buy new, increasingly lightweight, stylish, feature-packed handsets every 18 months, many of which they then adorn with stickers, special straps, gizmos, characters, dolls and luminescent antennae. There are even chip-embedded, glue-on fingernails that light up when your phone rings.

“I e-mail my boyfriend five times a day,” says Asako Shikichi, an 18-year-old high school senior, showing off a gray flip-up model decorated with a string of beads and a tiny surfboard. “I like DoCoMo. This is my third one.”

DoCoMo’s winning formula has turned Tokyo into a cellular mecca, drawing media companies from around the world to gawk, prod and poke.

The company somewhat modestly attributes its success in part to luck. But it also credits its open-system approach--following some past disasters driven by insularity--and its emphasis on making things as simple as possible for the customer. Point-and-click menus replace cumbersome Web addresses. Hit a tiny camera icon and “Want to go to the movies?” is automatically added to your e-mail.

“We never mention the word Internet, browser, mobile multimedia--those are all techie words,” says Takeshi Natsuno, a DoCoMo executive director. “We just say ‘Look, you can transfer money, check a dictionary, do this, enjoy that.’ ”

Users pay as little as 99 cents a month to visit 650 official Web sites--DoCoMo gets a 9% cut--but also have access to 23,000 free sites. All charges are then tallied on a single monthly phone bill, another innovation.

DoCoMo also has broken new ground with its corporate culture. People join mid-career and leave for other ventures, virtually unheard of at most Japanese companies. And forceful personalities are welcome.

Keiichi Enoki, the project’s managing director, was pulled from relative obscurity at a company office in Tochigi prefecture for his strong and unconventional views. A longtime NTT engineer, he had always taken a keen interest in marketing, his wife’s shopping preferences and his kids’ video game crazes. These proved invaluable in shaping i-mode.

Enoki in turn sought out “strange or unique people,” recruiting Matsunaga from her job as a magazine editor. Although self-avowedly tech-challenged, Matsunaga quickly revealed her keen understanding of popular culture. She in turn lured Natsuno away from his own start-up.

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The seven-member executive team, which she calls “the seven samurai” for their widely disparate skills, was given planning independence and a “remote island” office away from the rest of the company. Initially it was so cavernous that members rode bikes inside.

The outspoken Matsunaga quickly went to work visiting authors, directors, media types and marketing experts. Along the way, she also persuaded Enoki to spend nearly $100,000 on a special room for brainstorming dubbed Club Mari with leather couches, a karaoke set, living room furniture and a huge beer and wine fridge.

Told by engineers the screen on the i-mode handset had to be small, she browbeat them into enlarging it to fit a monthly calendar. As executives fretted over revenue targets, she fought doggedly to keep rates cheap. And as the launch approached, she had it out with DoCoMo’s public relations department, which kept removing language with any marketing flair. “I felt like I was visiting a government office,” she recalls.

Matsunaga’s friends predicted she wouldn’t last six months. But Enoki’s support helped her, Natsuno and other team members win many key battles. And her tech ignorance, she says, ultimately allowed her to stay focused on what ordinary consumers wanted in an Internet mobile phone.

DoCoMo also is playing a far more savvy game than Japanese multinationals or parent NTT ever did in the past. In a break with decades of de facto “buy Japanese” policies across the corporate landscape that helped spread the Japan Inc. moniker, DoCoMo has in general embraced open standards, foreign cooperation and overseas equipment makers, forging links with Sun Microsystems, Nokia, Ericcson and Microsoft.

“This time they’ve been a whole lot more open about letting in foreign players,” says Eric A. Noordin, vice president at Bain & Co. Japan. “They’re making an honest attempt to make this the best of the best.”

With its domestic position increasingly secure, DoCoMo is setting its sights on the brass telephone ring: global primacy. This next step promises enormous rewards. But it also involves tremendous risks, as the company ventures from Japan’s comfortable shores into the cutthroat global market.

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Faced with this uncertainty, DoCoMo is moving cautiously--although its greatest risk ultimately may be its reluctance to take more risk in such a fast-paced, winner-take-most industry.

The rather enviable problem for DoCoMo is that it’s rapidly becoming a victim of its own success. Most Japanese will own cell phones within a few years, clogging DoCoMo’s spectrum, saturating the market and capping company growth.

So it is building a global presence, hoping to do better abroad than other Japanese service companies.

It boasts a strong technological arsenal. In the anticipated industry move from second-generation to so-called 3G (for third-generation) cellular service--which promises video streaming, music downloads and a 40-fold boost in capacity--DoCoMo’s expected launch in May will be up to two years ahead of the rest of the world.

With i-mode, it’s had an easy, reliable 2G Internet connection in place since February 1999 even as its European cousins struggle with delayed roll-outs, cumbersome systems, limited content and technical glitches.

“In Europe, the market is mostly driven by voice service,” says Kate Lye, analyst with Warburg Dillon Read. “Not many are doing mobile Internet.”

The U.S., meanwhile, isn’t even in the running, frustrated by standards battles among equipment makers and other internal problems.

With this impressive head start, DoCoMo’s challenge is to ensure that other parts of the world follow its technical lead. A slam-dunk? Not necessarily.

Although more than 500 telephone companies in more than 100 countries are in general agreement with DoCoMo on a new 3G Europe-based standard, DoCoMo risks getting too far ahead only to see the pack move in another direction.

In response, DoCoMo in recent months has gone on a shopping spree, spending more than $6 billion on 15% to 20% stakes in mobile-phone operators in Hong Kong, Britain and the Netherlands. It’s also looking in the U.S. and Asia.

“We’ve tried to plant some seeds in virgin areas,” says Kiyoyuki Tsujimura, DoCoMo’s global strategist.

Critics say this strategy is too timid, that it ties up billions of dollars without giving the company control. And that’s not the only question about DoCoMo.

It also is burdened by the NTT connection. For example, that prohibits it from floating shares on the New York Stock Exchange or using its stock to buy into other companies, forcing it instead to pay cash.

The NTT name also carries political baggage, as seen recently when sister company NTT Communications attracted an FBI probe while trying to buy a U.S. firm. Furthermore, many countries limit how large a stake foreign-controlled companies can buy.

More fundamentally, for all of DoCoMo’s innovations, some still believe there’s less here than meets the eye. Decisions are still made by committee, it’s more bureaucratic than many high-tech counterparts overseas, and its unwillingness to offer stock options raises doubts over whether it can keep talented people.

“Growth is the perfect prescription for every pain, so right now everything looks good,” says Susumu Tsubaki, project manager with Boston Consulting Group. “But after the market hits saturation, these could become a bigger problem.”

DoCoMo President and Chief Executive Keiji Tachikawa doesn’t see a problem. He believes management by consensus is still a good way to do things and says being part of the NTT group still has its advantages. It remains important, however, to stay disciplined and avoid becoming arrogant, he adds.

For the time being, however, none of that matters to the likes of Masami Tanaka, a 23-year-old college student who uses his i-mode phone to check sports scores at least five times a day. And with graduation on the horizon, he’s starting to check some of the job-recruitment sites.

“I can’t imagine life without it now,” he says. “It’s almost like your lungs or your heart.”

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Fast Start

DoCoMo’s cell phone service to the Internet has taken Japan by storm.

Number of subscribers, in millions, since the service was launched in January 1999:

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Increase in number of DoCoMo subscribers

from launch through Oct. 29, in millions

13.95 million as of Oct. 29

Source: NTT DoCoMo