Tokyo telco bets big on VoIP

Kenji Hall
06 Jun 2008

Sometime in July, telecom services venture Japan Communications is expected to lease wireless spectrum from NTT DoCoMo (DCM) for a new type of cell-phone service. The Tokyo company is likely to be the first operator in Japan to offer mobile handsets that can make calls on-the-go using voice-over-Internet protocol technology.

JCI's service and other mobile VoIP services like it have the potential to change drastically the economics of cellular services. Analysts say that VoIP should mean lower rates for subscribers, especially for long-distance calls. That's good news for users in Japan, where basic monthly rates average around $60 and are among the highest in the world.

JCI officials have a loftier goal: Simplify communications by routing mobile-phone calls through the same digital channels we now use to browse the Net. Microsoft (MSFT) and Cisco (CSCO) have been pushing this concept, known as 'unified communications,' in recent years, but hurdles remain even for these tech giants.

Formatting everything as data

The ordinary Net-connected worker now uses an office PC for work e-mails and appointment scheduling, a personal laptop for instant messaging or Internet-based calls, a home line or cell phone for ordinary calling, and a conference room system rigged for multiparty calls. Unifying all those so they can be easily accessible from a single mobile device requires having everything formatted as data. The problem is, phone calls and data have traditionally used different pathways.

VoIP has narrowed the gap by routing home or office phone calls through the same physical lines that e-mails use. Doing that over the airwaves has proved much harder, yet that's exactly what JCI's service aims to let businesses do. Eventually it plans to assign every user one 11-digit VoIP number that will work over both phone and computer networks. 'If you leave a message to my cell phone or landline phone, it's sent as a text or a voice file to one place,' says JCI's CFO Naohisa Fukuda. 'That's so powerful. But it requires complete telephony and computer integration.'

Since mid-April, when JCI first unveiled its plan, the company's shares have nearly tripled and are now hovering near their highest levels in a year. Analysts say that offering value-added services is the way to go. For companies like JCI, called in the industry 'Mobile Virtual Network Operators,' or MVNOs, 'it's not enough to just offer lower prices,' says Nomura Research Institute analyst Satoshi Awamura. 'Their services have to be unique.'

Switching technologies on the fly

Still, the company faces plenty of technical challenges. JCI must guarantee that voice data travels smoothly over the airwaves and between the cellular network and a Net connection such as a fiber optic or cable line. That's not a simple matter, experts say. Some skeptics say dropped calls and interrupted connections could quickly alienate users.

Ultimately, wireless operators will want to let users switch between cellular, WiFi, and WiMAX technologies on the fly. 'There's no best solution available right now,' says Willie Lu, a former Stanford University professor who founded the U.S. Center for Wireless Communication, a Palo Alto (Calif.)-based private venture.

Bigger wireless operators are now eager to do what JCI is pushing for. This month, DoCoMo plans to introduce its own VoIP cellphone, which will handle ordinary cellular calls as well as Web-based calls via a WiFi connection at home for a flat monthly fee.

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