Japan Mobile Ecosystem

Changes in Japan’s mobile ecosystem Benjamin Joffe, CEO | +8* Plus Eight Star | 2009.3

Benjamin Joffe ベンジャミン 벤자민 本杰明

4 years 1 year 4 years

www.plus8star.com

Cross-Market Consulting Telecom & Internet Innovation China | Japan | South Korea

26 events | 98 speakers | 3,296 members | 1,440 companies

What changed in the past 2 years 1. For mobile operators 2. For handset manufacturers 3. For ARPU & Price plans – Parenthesis: SMS vs. IP – Parenthesis: i-mode vs. iPhone 4. For mobile content 5. Conclusions

Mature mobile market Total = 106.5 mln users (+5 mln yoy) 1,288,300 1% 30,619,700 Total 29% 54,322,500 51% 20,251,200 19% Docomo Softbank AU EMOBILE Source: Telecommunication Carrier Association, March 2009

Handset market Lower subsidies lead to less sales 1Q09 Source: Operators, March 2009

Market shares: 2G phasing out Total = 8.6 million users 328,500 4% 2,227,400 2G 26% 6,033,400 70% Docomo Softbank AU Source: Telecommunication Carrier Association, March 2009

Japan stopped selling 2G in 2007

Market shares: 3G for all Total = 97.9 mln users 1,288,300 1% 30,291,200 3G 31% 48,289,100 49% 18,023,800 19% Docomo Softbank AU EMOBILE Source: Telecommunication Carrier Association, March 2009

3G (and more) for all 92% market penetration 2G % 3G % 89% 89% 92% 99% 100% 11% 11% 8% 1% 0% Docomo Softbank AU EMOBILE TOTAL Source: Telecommunication Carrier Association, March 2009

3G penetration in Japan is >90%

But of course it is not the end… LTE @ Docomo Source: Docomo, 2009

LTE @ Docomo (300Mbps DL) starts next year Source: Docomo, 2009

LTE @ KDDI (“3.9G”) Source: KDDI, 2009

UQ WiMAX Service • Overview – Service start 2009.7 – 35 EUR / month – 40 Mbps DL / 10 Mbps UL • Deployment – 5,000 test users – 500 base stations – Plans for 20,000 BS – 90% population coverage by 2012

Net additions history “White Plan” effect 15 million “White Plans” “White Plan” Source: Operators, March 2009

Net additions 2008 Aggressive pricing paying off Source: Operators, 2009

Softbank Shifting costs and aggressive pricing Lower costs Aggressive pricing on voice and monthly charges Data ARPU is 44% (decrease of basic charges)

KDDI’s Double Flat Fee (introduced in May 2005) 40 USD 10 USD 1.5 MB 6.5 MB~

Flat-rate data From mobile only to full web • Docomo: 36% (17 mln – 2008.12) – i-mode only / full browser / PC data access • KDDI: 72% (21.8 mln – 2009.12)

Softbank Towards the “mobile Internet machine”

Mobile widgets Source: Operators, February 2009

“au” by KDDI Data ARPU is 38% overall

Docomo • Various discount plans – Family – Data plans • 100% HSDPA population coverage • Segmentation: Style / Smart / Prime / Pro – Touch screens – Smartphones • Credit business DCMX – 9 million members; 400,000 iD terminals installed

Data revenues 2008 Most Western mobile carriers Data ARPU % 20% 40% SMS share 50% 5% 90% profit margin “Real” data 50% 95%

SMS = Candles Brighter Last longer Smell good

IP = Electricity

Social games & iPhone games

Mobile ecosystems

Technical specs Content selection Content distribution Pricing system Payment system User Experience

iPhone vs. i-mode Ecosystem iPhone NTT DoCoMo Users 10 million? 55 million Content 20,000 apps? XXX publishers Rev share 30% 10% Mystery % Data 100%

48 million i-mode users Applications! (January 2001) 87.7% 3G users

Mobile Ecosystem TOTAL Million USD 11.6 billion USD 12,000 Commerce > 10,000 Content 4,301 8,000 3,720 6,000 3,200 4,000 2,645 7,347 5,714 2,167 1,822 2,000 4,139 2,634 1,736 1,212 0 2002 2003 2004 2005 2006 2007 Commerce Content Source: Japan Mobile Content Forum, 2008

Content 40 USD / user / year Commerce 70 USD / user / year

Mobile Content Million USD TOTAL 4.3 billion USD Full songs > 5,000 Ring tones 4,000 1,140 849 231 3,000 585 252 240 500 862 2,000 229 760 598 465 417 192 419 571 156 204 274 771 28 1,091 204 1,000 1 1,186 1,119 1,065 972 856 568 0 2002 2003 2004 2005 2006 2007 Ring tones Full songs Mobile games Mobile books Fortune telling Screensavers Others Source: Japan Mobile Content Forum, 2008

Flat-rate data: 2004 What happened since?

Awesome Irrelevant? Great ?! Good So-so ? Million USD 2004 2007 1,186 1,140 1,200 1,091 1,000 862 800 568 600 500 419 400 229231 225 204 185 200 108 0 0

Million USD 2004 2007 1,186 1,140 1,200 1,091 1,000 862 800 568 600 500 419 400 229231 225 204 185 200 108 0 0

90% of digital music sold in Japan is mobile

Digital music revenues in Japan Source: Infinity Venture Partners, 2008

Million USD 2004 2007 1,186 1,140 1,200 1,091 1,000 862 800 568 600 500 419 400 229231 225 204 185 200 108 0 0

Registered users MANY MOBILE MOBILE ONLY! SOME MOBILE 175 mln 16.3 mln 8 mln 12 mln

Some ads SNS + Free games + Homepage Virtual goods

Revenues 2008 (Est. $US) 350 mln 60 mln 200 mln 120 mln

Profit margin (Est.) 31% - X? 40% 63%

Average Revenue From Users (E) ARFU 10%? 5%? 75% 75%

Market Capitalization ($US) (March 2009) 3-15 bln? 504 mln 1.4 bln 1.2 bln REAL MARKET CAPS BASED ON STOCK PRICE

Digital books: Internet vs. Mobile Flat-fee data plans are introduced Source: Infinity Venture Partners, 2008

Several best-selling novels in Japan in 2007 were written on mobile phones

One full bookshelf for mobile novels at Kinokuniya, Japan’s largest bookstores chain!

The two volumes of this book “Koi zora” (“Loving sky”) sold…

“Koi zora” sold over 2 million copies (10 USD / book) The paper version a “by-product” of the mobile version!

Even on TV!

Mobile TV penetration is over 47% 50 million handsets (2006.4 - Now)

Business model? It’s free! Users are happy (it’s free!) Broadcasters have more reach (1 TV per person) Advertisers get more mileage (same price) Manufacturers sell mobiles (must have feature) Leaves out… mobile operators Thanks to Guillaume & Pierre for their views on this 

Experiment: TV + mobile coupons • Broadcast ads, text & images with TV content • Use of the mobile coupon service Toruca Source: IT Media, 2008.03.05

Mobile advertising Mobile search Mobile commerce are still doing well and growing

1. 3G + Flat-rate will open new doors

2. As markets converge, some of Japan’s lessons are even more relevant

3. With current 3G, 3G+ penetration With flat rate data With 4G coming With mobile TV widespread Japan’s advance is unlikely to fade

About +8*

There are more ideas outside your country than inside Tom Kelley CEO, IDEO The 10 faces of Innovation

“Innovation Arbitrage” • About us – +8* | Plus Eight Star is the leading cross-market and cross-cultural consultancy in Asia. – We provide local expertise & global perspective on mobile and Internet innovation from China, Japan and South Korea to add value to and accelerate the development of our clients’ businesses. • Our services – Analysis of proven best practices and business models from Asia – Other services: executive study trips, market entry strategy, M&A advisory, partners identification, negotiation support. • Founder & CEO: Benjamin Joffe – 9 years experience with mobile & Internet in Asia – Selected among “China’s Top 100 mobile industry influencers” in 2007 – Regular speaker at events on mobile and Internet in Asia – Fluent in English, Japanese, French with working knowledge of Mandarin, Korean and Spanish

Selected References • Adidas | E-commerce strategy for China, Japan & Korea • Bouygues Telecom | Cases studies of leading Asian Web 2.0 services and virtual worlds • Deutsche Telekom / T-Online | Benchmark of Korean mobile & Internet convergence strategies • Hemisphere | Analysis of mobile marketing best practices in Japan and South Korea (Hemisphere is a leading digital advertising agency), analysis of leading social platforms (SNS, virtual worlds, online games). • Microsoft | Analysis of Japan’s key players and market catalysts for mobile commerce market positioning in China • DeNA | Case studies of the best practices of leading social networks in China and South Korea (DeNA operates Mobile Game Town, Japan’s leading mobile SNS service) • China Mobile | Benchmark of Korean leading online communities • Sands Capital Management | Evaluation of investment opportunities in social networks in China

Social Contribution • Mobile Monday – Founder of the Mobile Monday forum in Beijing since 2006 (3,000+ members, 26 events, 98 presentations). • Media – Monthly column on Asian innovation for Asian Business Leaders (one of the leading Chinese business magazines), numerous interviews in international media. • Events – Regular keynote speaker and moderator at Internet, Telecom, Media and Investment events e.g. Ad-Tech, eComm, ITU Asia, Asia Venture Capital Forum, China Mobility International Summit, O’Reilly’s Graphing Social Patterns, Red Herring Asia, Media 08 Conference, Wireless Developer Forum, Open Web Asia, XMediaLab, Mobile Monday Global Summit, etc.

Contact Us www.plus8star.com benjamin@plus8star.com +81 | Japan benjamin0123 +82 | Korea +86 | China http://twitter.com/plus8star Telecom & Internet www.linkedin.com/in/benjaminjoffe + Added Value www.slideshare.net/plus8star * High quality

Japan Mobile Ecosystem

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