AT&T gets I-MODE all to itself

AT&T's $9.8 billion deal with NTT-DoCoMo for I-MODE multimedia could change the world of wireless. The alliance is a victory for AT&T, its partners, but not everybody is celebrating.

AT&T's $9.8 billion deal with NTT-DoCoMo for I-MODE multimedia could change the world of wireless. The alliance is a hands-down victory for AT&T, its partners and many wireless players. But not everybody is celebrating. Indeed, the combo leaves AT&T's wireless carrier competitors in North America scrambling to find their footing.

The deal, announced today, gives DoCoMo--a spin-off of the Japanese public telephone company--a 16 percent stake in the new AT&T Wireless Unit (AWU) set up in October.

AT&T, its affiliates, and its mobile device and networking equipment suppliers will now be able to "leapfrog over competitors" in the U.S. market with high-bandwidth, third-generation (3G) wireless services like multimedia, says John Zeglis, chairman and CEO of AT&T Wireless. AWU also gains exclusive licensing rights in the U.S. market to DoCoMo's I-MODE, a wireless service that's enjoyed stunning success in Japan.

After AWU's planned spin-off from AT&T is a done deal, AWU and DoCoMo will establish a jointly owned subsidiary, to focus specifically on multimedia wireless.

AT&T plans to use the cash from DoCoMo to make a quick transition from its second generation TDMA cellular network, to the "2.5G" EDGE network, where TDMA and GSM will converge; and finally to W-CDMA, a 3G high-bandwidth wireless architecture already planned by other carriers for Europe and Asia.

Most North American wireless carriers are now relying on CDMA wireless technology instead of TDMA. The CDMA carriers will be migrating to 1XRTT as their 2.5G standard, and then to 3XRTT as their 3G network.

Deal Expected, But Still Surprising

Although the deal between AT&T and DoCoMo was expected, its exclusive nature came as somewhat of a surprise. So, too, did some of the partner-related details. Ericsson, Lucent, Nortel and Nokia will supply network equipment for the emerging high-bandwidth system. Ericsson, Motorola, Nokia and Siemens will produce the mobile devices.

The initial batch of smartphones will be dual-mode devices, supporting both I-MODE and WAP. Eventually, in a future protocol dubbed WAP NG (Next Generation), I-MODE is expected to converge with the less glamorous WAP. Nokia and Ericsson were among the founders of the WAP Forum, the industry group that originated WAP.

AT&T won't be stopping at smartphones, either. Also envisioned are handheld PDAs, PC Cards, and other form factors. In the works, too, are plans to scrap AT&T's existing billing system for new billing software, capable of supporting the à la carte, content-based billing approach of I-MODE.

At Home And Abroad

Meanwhile, DoCoMo has been buying up wireless licenses in a number of European countries. In April, NTT Communications unveiled plans to launch a "smart-content delivery service" called Arcstar, to users in the U.S., Europe and Asia. Earlier this week came an announcement of a new joint venture by DoCoMo and Hong Kong-based wireless carrier HKN to launch a dual-mode I-MODE/WAP portal targeted at Europe.

Still, it's unclear whether I-MODE will be a hit on North American soil. Notes Akio Tenka, co-founder of EvolutionB, a wireless ASP: "Early on, NTT DoCoMo established a way to stimulate third-party content and an application service market. That is really important, but it hasn't been happening in the U.S. Consumers [in Japan] subscribe to the content, and are billed through NTT DoCoMo. Application developers and content providers can participate in the revenue stream."

Most I-MODE content offered in North America will be consumer-oriented, just as in Japan. But AT&T also is eyeing "enhanced e-mail services" for business use, involving multimedia attachments. AT&T plans to leverage existing partnerships with IBM and Microsoft to support the new multimedia content on the back end.

"This announcement will give the wireless market in the U.S. a much needed shot in the arm," asserts Jerry Kaufman, self-described chief wireless guru at the Alexander Resources analyst firm. "Up to now, there hasn't been a wireless carrier in the U.S. with the marketing strength to say, 'OK, we're going to make a business out of [mobile wireless].' They've all been chickens," the analyst adds.

Still, AT&T concedes that some carriers have been unable to put together enough wireless bandwidth in key markets to enable support for "richer" forthcoming 3G multimedia wireless.