Our Cellphone Future

A great majority of the world's 2 billion mobile-phone users would probably blink in jealous awe at an advanced Japanese mobile phone like Sharp's recent hit, the 905SH. The handset, made for wireless carrier Softbank's Vodafone, sports a stainless-steel frame and a striking, black 6.6cm LCD screen, which swivels 90 degrees to display nine channels of digital television in crisp, widescreen format. The phone also surfs the Web, serves as a debit card, plays music, takes photos and, oh yes, makes calls. Outside of Japan or South Korea, there is nothing like it.

Thanks to its edge in consumer electronics and early investments in high-speed networks, Japan's mobile-phone industry is years ahead of most of the world. Everywhere you look, it shows. Tokyo subway riders tap messages to friends, listen to music and play games on their handsets. Shoppers pay for groceries with digital wallets and navigate the streets with GPS-guided maps, two features packed into most new Japanese phones. And now Japan's wireless ecosystem is poised to get even better. A new "number portability" rule coming next month will make it easier for Japanese mobile-phone users to switch wireless carriers without changing numbers, which in turn is intensifying competition among the three major service providers--NTT DoCoMo, KDDI's au and Softbank's Vodafone. The big three are beefing up marketing campaigns, introducing new phones and faster networks, and generally pushing Japan further into the mobile future. "Number portability brings lots of uncertainties," says Tomoko Namba, CEO of mobile-auction firm DeNa. "The only thing we can really prepare for is dramatic change."

Even though Japan has led the world in most mobile-phone innovations, from text messaging to downloadable ring tones, it has lagged behind in allowing phone users to switch carriers seamlessly. American and most European cell-phone users got number portability in the last few years. But only earlier this year did Japanese carriers acquiesce to government demands and set a date of Oct. 24 for the change. Though no onereally knows how many customers will switch carriers, industry leader DoCoMo, which controls 56 percent of the country's mobile-phone market (versus KDDI's 28 percent and Softbank-owned Vodafone's 16 percent), has the most to lose.

Japanese cell-phone users, on the other hand, stand to benefit from the competitive anxiety. On the way, timed to the new regulations, are a wave of slickly designed handsets that emphasize broadband features like mobile music downloads, digital money and, particularly, digital TV. Vodafone was the first to introduce a digital TV-equipped phone earlier this year with the 905SH, and DoCoMo and KDDI quickly followed with their own models. KDDI is now planning a handset that enables video calls between two subscribers--a first for the carrier.

Japanese phone users will also soon have more mobile music to listen to. Last year more than 90 percent of the 268 million digital songs purchased in Japan were downloaded over mobile services, instead of PC-based services like iTunes, according to the Recording Industry Association of Japan. In the new models coming this fall, carriers have worked to improve sound and make downloading easier. For a new phone line, au worked with Yamaha to develop a new digital standard that improves the sound quality of songs on a mobile handset. DoCoMo has lagged behind KDDI on the music front but unveiled a mobile music channel and high- speed handset last month. It automatically transmits an hourlong, podcast-style program to subscribers on a regular basis. "This is a way to enjoy listening to music passively as opposed to [actively programming] an iPod," says DoCoMo spokesman Takushi Koinumaru. "This is something new, but we think there's demand for it."

Ever-improving high-speed Japanese mobile networks are making these new services possible. DoCoMo execs say the company plans to spend $5.5 billion this fiscal year expanding existing coverage of its 3G network, while simultaneously upgrading to the 10-times-faster 3.5G network. KDDI says it will spend $3.9 billion in upgrades this year, much of it to boost upload speeds. "It will be easier for users to upload a video clip that they make on their mobile phone to their blog, or to Web sites such as YouTube," says Kenji Nishimura, an analyst at Daiwa Institute of Research in Tokyo.