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Social Reform: iPhone's 3G

Toshio Obi, Professor,
Graduate School of Global Information and Telecommunication Studies,
Waseda University

Concurrently with 21 other countries, SoftBank began selling iPhones in Japan on July 11, selling a reported one million units in three days.

This paper will review how the iPhone has affected the Japanese cell phone market.
The first generation iPhone was sold only in the US by AT&T, the country's largest telecommunication provider, at the end of June last year. Last fall, while attending an international conference in Washington, D.C., an American professor happened to be sitting next to me and genially showed me how to use his iPhone. At that time, I did not think that it was such an attractive terminal but it really was drawing a lot of attention because of its multi-touch panel and novel design. Last fall, the iPhone was selected as the "Invention of the Year" by Time magazine. According to AT&T's annual performance review, revenue and the subscribers have increased because of the iPhone's exclusive marketing rights.

Changing the "Picture" by selling "3G"

The world's largest IT trade fair, "CeBIT", was held in Germany this past March. I went to check the reaction of Europeans towards the iPhone. Originally, cell phones had permeated Europe at a higher level than the rest of the world and experts had a variety of controversial opinions about the iPhone. Before the iPhone, Nokia, the world's largest communication device manufacturer, and LG in Korea, had been marketing similar touch phones and so became iPhone competitors in Europe.

However, with the second generation "iPhone 3G", on the market since July, the situation has completely changed. As the manufacturer of the iPhone, Apple originally had a policy of awarding exclusive iPhone marketing rights to the "top" communication providers in each country and in Japan that was thought to be NTT DoCoMo. However, it was SoftBank, third in a market consisting of two strong players and one weaker one, and not DoCoMo that got the exclusive contract. The release date too was moved forward from the fall to July. This appears to be a shift in Apple's business model. Apple well may be leveraging its opportunities in the Asian and corporate markets.

New Purchasing Trend

Many of the iPhone's features have been reported - a multi-touch screen interface, high-speed communication, open software environment, etc. However, the most intriguing feature is its touch panel. The overall functionality of the iPhone can be described as "a phone embedded in an iPod". According to market research, most iPhone purchasers are attracted to the music distribution service and its "stylish" design and not so interested in how the phone itself functions. This is a new purchasing trend focusing on functions in which consumers have an interest. When taking a closer look at the iPhone, you will see that it is a very "convenient" terminal, where conventional cell phone functionalities have been expanded through WiMAX, wireless LAN, "smart-phone" and other functions.

The new iPhone does face some challenges -no "Osaifu Keitai" (electronic money function), no one-segment broadcasting function, no Deco-mail (Decorated mail messages) function, and users cannot view regular "mobile" sites. Some purchasers have complained of short battery life.

Apple and SoftBank had originally been targeting the business and corporate markets. But the actual purchasers of the iPhone have been the young, well characterizing the "Apple + SoftBank" customers.

Transformation of the "Japanese" Business Model

Japan is known as a strong market for high-end and high-functional cell phones, as seen by the permeation of i-mode. It seemed to be the general consensus that the iPhone would not have as much impact in Japan as it did in Europe and the US, though it is recognized now that it caused some stir in the sense of a social phenomenon. Overall, however, experts feel that the iPhone will play a critical role in changing the Japanese style business model.

These changes can be summarized as follows: (1) Needs have changed - instead of the original communication needs, data communication needs, such as music and games are more important to users; (2) The market is changing and becoming more open. Traditionally, marketing to get and "close in" more corporate and individual customers has been "vertically" led by communication providers; that strategy is now changing. In the Japanese market, communication providers have depth in all aspects of the cell phone segment, i.e., from terminal manufacturing to marketing. With this unique situation, iPhone manufacturer Apple is exercising leadership and receiving financial incentives from SoftBank. It is usual in Japan for distribution agents to receive incentives - but this time a US manufacturer is on the receiving end.

Governance in a Ubiquitous Society

Apple has set up a goal to sell 10 million "iPhone 3G" by the end of this year, a target that seems to be well within its reach. If the iPhone sells too well in Japan, however, there may be unsatisfied users because there may insufficient base stations and inefficiency in wireless LAN systems.

In terms of aggressive competition among DoCoMo, KDDI and SoftBank, I believe that they cannot boost customer satisfaction unless they focus on implementing sufficient infrastructure - not just franticly trying to get more customers. As shown in the figure, the future cell phone market is demanding more functionality. Large changes are expected as future technological innovations become more and more feasible: the fusion of the next generation network, fixed telephones and wireless; the fusion of television, the Internet and the telephone and the emergence of fourth generation cell phones (after 2010).

The cell-phone is now an indispensible part of the social infrastructure and appears to be necessary to pursue more convenience but, at the same time, in such a "ubiquitous" society, it is necessary to establish strong controls over security, private information protection, intellectual property rights - all are fundamentals of information communication. Starting with i-mode, technological innovation has now evolved into the social innovation seen in the "iPhone 3G", facing the "Second Mobile Revolution". Amid calls for enhancement of Japan's international competitiveness, I hope the iPhone can be a stimulant to the Japanese market.

Toshio Obi
Professor (Ph.D.), Graduate School of Global Information and Telecommunication Studies, Waseda University Director, Research Institute of e-government, Waseda University


Economy and Business at Columbia University, Secretary, Japanese Minister of Labor Professor, Bunkyo University, Visiting Professor, Waseda University. Member of various advisory committees including Cabinet Office, Ministry of Internal Affairs and Communications, etc

Literary work

"CIO Study" (University of Tokyo Press)
"Japan's 50 Information System Leaders" (SoftBank Creative), and others