Marriage a la i-mode

AOL deal with NTT DoCoMo a wedding with global aspirations The alliance between America Online and NTT DoCoMo will start with a content distribution deal in Japan. But the fax machines churning out press releases on the agreement hardly cooled before word got out that NTT DoCoMo plans to roll out that content - and the rest of its popular i-mode mobile Web service - over advanced networks in Europe, stealing a march on wireless providers in that market.

In Japan, the deal will bring NTT DoCoMo a 42% share in AOL Japan, making it a larger shareholder in the subsidiary than AOL, which will cut its ownership back from the current 50% to about 40%. NTT DoCoMo's investment of approximately $100 million also will buy the power to appoint the CEO of AOL Japan.

In return, the Japanese carrier will introduce AOL Mail and AOL Instant Messenger services on its i-mode mobile service - two services that should appeal to i-mode's consumer base, which is more heavily weighted toward teenagers.

i-mode has been hugely successful since its introduction in August 1999, racking up 12 million subscribers so far and predicting to have 17 million by the end of the year. That's a higher growth rate than AOL itself, which has taken more than 10 years to reach 24 million end users.

It's also much better growth than AOL's Japanese subsidiary, which has managed to sign only 440,000 members since its creation in 1996. Fixed-wire Internet service to PCs is relatively costly in Japan, where AOL has struggled to gain market share against the access services provided by ISPs associated with popular equipment makers such as Fujitsu and Sony (see box).

Under terms of the new deal, NTT DoCoMo will endorse AOL Japan as its recommended wireline ISP and will market the service in its retail shops and advertising. AOL Japan also will receive a $102 million capital infusion in coming years, of which NTT DoCoMo will provide about half.

Yoshinori Uda, senior executive vice president of NTT DoCoMo, pointed to application-development deals with Symbian, Microsoft, Sun Microsystems and 3Com in i-mode's start-up phase as precedent for the AOL link. "To realize mobile multimedia services, we have found it essential to tie up with other players because such results may not be achieved if we work alone," he said. "We are convinced that these specialist alliances will allow us to maximize the value of our networks."

The deal has short-term benefits for both partners. "A link with DoCoMo will give AOL Japan an almost instant growth hit," said Himesh Bhise, an analyst with McKinsey & Co. "On the other hand, an abundance of content has been part of DoCoMo's success with i-mode. By linking with AOL, which will be one of the world's largest Internet and content plays after it merges with Time Warner, they're ensuring plenty of rich multimedia in the pipeline."

That delivery will be turbocharged next spring when NTT DoCoMo launches its third generation mobile network in metropolitan Tokyo and Yokohama, Japan. The new high-bandwidth service, which the carrier said will reach 97% of the Japanese market three years after its debut, will accelerate mobile device access speeds and enable the delivery of high-quality video and CD-quality sound - two commodities an AOL/Time Warner would have in quantity.

Beyond its immediate effects, the new alliance also has the two companies promising to develop "fixed-mobile convergence" Internet services in markets outside Japan, including a joint venture in the U.S.

Those international growth possibilities arose at a London mobile communications conference less than 24 hours after the NTT DoCoMo/AOL announcement. Kimio Tani, the Japanese carrier's senior vice president for strategy, told reporters his company would work with Dutch provider KPN Telecom to build a 3G mobile network in France, and collaborate with KPN and Hong Kong-based Hutchinson Whampoa on a British 3G system.

Under the new deal with AOL, AOL content could find its way onto those mobile systems, Tani said.

Tani said his company was "very interested" in the U.S. network operated by VoiceStream Wireless, which uses GSM technology compatible with NTT DoCoMo's wideband CDMA platform. Most American mobile networks are looking at straight CDMA technology for their advanced systems.

This summer, NTT DoCoMo was reported to be considering taking a stake in the new wireless joint venture being established by BellSouth and SBC Communications. The AOL deal - coupled with a hope to replicate i-mode's success - could make the Japanese carrier very attractive to U.S. wireless players.

"At the least when you're tied to the No. 1 U.S. ISP, it has to help you get a foot in the door with American service providers," Bhise said.