AT&T, NTT deal could jump-start wireless Web

The announcement of a new joint venture between AT&T Wireless and Japanese giant NTT DoCoMo stands to shake up a U.S. wireless Web market that has trailed well behind overseas leaders.

The deal gives DoCoMo, Japan's largest mobile phone company, a U.S. platform for its hugely popular i-mode service, in return for a $9.8 billion investment, or 16 percent stake, in AT&T Wireless. Alongside aggressive new plans to speed up its network, AT&T is staking out new ground in an attempt to dominate wireless data services.

Gartner analyst Phillip Redman says financial support from NTT DoCoMo would likely work as a balm on AT&T's operational and public image wounds. see commentary

i-mode has served as something like the America Online of the wireless world, already attracting close to 15 million customers in fewer than two years of operation. As a part of the deal, AT&T Wireless will get exclusive North American rights to the i-mode brand and technology, along with staff and advice from NTT's operation, giving it a potentially substantial leg up in the wireless market.

That could shake up the slow-moving U.S. market, analysts say.

"The fact that this is an exclusive deal should make (competitors) nervous," said Ken Heyers, a wireless analyst with Cahners In-Stat Group. "This is going to overshadow Sprint for the first time in a year. They've been the player when it comes to data."

Consumers won't be able to expect an immediate revolution in the wireless Web, however.

Executives said they expected to create the new multimedia division, which will be an AT&T Wireless subsidiary, sometime within the next 90 to 100 days. That company will begin adding improvements to AT&T's existing mobile data service over time. That service uses a different mobile data technology than i-mode, however, as do most other wireless services in the United States.

Executives said they would create a new kind of browser that could read both this old wireless Web content and new i-mode sites. But this will take time, and they declined to give details on when this would actually be ready.

Nevertheless, executives spotlighted the mobile data services as a key motivator for their new strategic relationship.

i-mode destined for U.S. markets Ken Heyers, wireless analyst, Cahners In-Stat Group

"The proposition for this alliance is as straightforward as it is compelling," John Zeglis, CEO of AT&T Wireless, said in a conference call with analysts Thursday morning. "For no more than what we had always planned to spend, we have produced a plan that leapfrogs us over our competitors."

Shifting gears
The i-mode deal is just one part of a range of strategic shifts announced Thursday by AT&T Wireless, which includes selling 16 percent of the company to NTT.

The company also said it is changing its technology path, adopting a wireless technology more like that used commonly in Europe and Japan as part of its high-speed upgrade path. Dubbed Global System for Mobile Communications (GSM), the technology will allow AT&T subscribers to move back and forth overseas more easily than under today's version.

AT&T and NTT will resell each other's services in their home countries and serve as preferred "roaming" partners, handing off traffic to each other's network when their customers travel across borders, the companies said.

The new technology comes with a considerably faster upgrade path to higher download speeds for wireless phones, ultimately allowing applications such as streaming audio and video.

Ma Bell said it would keep its old wireless technology in place as the "workhorse" of networks, serving customers who kept their older phones or who primarily want national voice service. The new technology will initially be targeted at customers who want data services, and will be offered through new devices such as wireless Palm Pilot-like devices or laptop modems.

The new upgrade path will not significantly increase AT&T Wireless' planned range of capital expenditure, although it will take the company to the high end of those expectations, executives said. The company already has contracts in place with Nokia and Ericsson, among others, to move that forward.

The deal will also lead AT&T Wireless to drop its small investment in Japan Telecom, executives said. AT&T itself has not yet decided whether to follow suit.

Ripple effects
AT&T's adoption of i-mode will likely serve as a strong new influence on the broader direction of wireless mobile data technology.

Most mobile phone companies outside NTT use a technology called Wireless Access Protocol, or WAP. Many in the industry say it's harder to create sites for WAP than for i-mode, which more closely resembles ordinary Web technology.

But both standards are evolving. The WAP backers plan to have a new version of the standard next year, and many expect the two technologies to be linked in this new version. With AT&T as a powerful new voice, this new standard could be pulled even closer to the i-mode side.

Analysts warn, however, that the Japanese system, which is hugely popular for Web browsing and downloading small files like cartoons or short music files, won't necessarily translate completely to the United States. American consumers have better access to the Internet through personal computers, and won't necessarily jump at i-mode's simple graphics and Web access like Japanese consumers have.

That in part is what has led to slower adoption of wireless Web services here, some analysts say. Cahners In-Stat estimates that only about 1 million U.S. consumers use mobile phone data services with any significant frequency today.

"They will have to come up with new applications that really fit the North American market," said Amanda McCarthy, a wireless analyst with Forrester Research. "I don't think anyone's cracked that nut yet."