Wednesday, April 16, 1997

AOL will launch invasion of Japan's online turf

By MICHAEL ZIELENZIGER

Knight-Ridder Newspapers

TOKYO - While its U.S. customers continue to encounter busy signals and brownouts, America Online has launched an aggressive new campaign to become a major online provider in Japan.

"We intend to provide a truly local service with global reach," AOL Chairman and Chief Executive Officer Steve Case said at a news conference here Monday. "We expect Japan to be our largest market outside the United States."

Case said Japan would play a key role in "building a mass market for new interactive media."

Like its American counterpart, AOL Japan will offer chat rooms, online versions of several Japanese publications, information on sports, movies and computer games in Japanese. But unlike the American service, it won't offer its customers flat-rate access to proprietary services and the World Wide Web. AOL's decision to offer flat-rate prices for unlimited use of its services last year led to a wide range of service interruptions and slowdowns as customer use far exceeded the company's expectations.

"We wanted to offer prices that were appropriate for the local market," an AOL representative said. In Japan, AOL will charge its customers 980 yen (about $7.80) for the first three hours of use, and an additional 480 yen (about $3.80) for every subsequent hour. The spokesman did not rule out the possibility that AOL Japan might offer flat-rate pricing at some point in the future.

Case denied that AOL's foray into Japan would diminish efforts to improve customer service in the United States, where the embattled firm has been rocked by consumer lawsuits and mocked by television comedians for its poor service.

Case emphasized the Japanese company is "independent" from the American company with computer servers and networks separate from those in the United States. The Japan service is a joint venture of AOL; Mitsui & Co., the giant Japanese trading house; and Nihon Keizai Shimbun, publisher of Japan's leading economic daily.

The foray into Japan "is not a distraction" from efforts to rebuild customers' satisfaction in the United States, Case said.

However, AOL officials admitted that whenever Japanese users of AOL try to use the English-language service, which AOL Japan will encourage them to do, they will essentially compete for bandwidth with American users. "We're counting on the fact that peak time in the United States is 13 hours apart from peak time here in Japan," one AOL Japan representative said. "So in a sense, the Japanese customers will be coming into the system when we have excess capacity."

Case said that because Japanese consumers are interested in high technology, are highly educated and are "community minded," America Online would prove attractive.

AOL officials refused to disclose their projections of how many users they hoped to attract within the first year. But Case said his company would grow as quickly in Japan as it did in the United States, where it boasts some 8 million subscribers.

Other Japanese service providers and Internet analysts, however, countered that claim.

"It won't be the huge success it was in the States. I don't know if this model will sit well with what happens in Japan," said Steven Anderson, an analyst with the Center for Global Communication, a Tokyo-based think tank. "Their biggest problem is that the telephones here are metered." NTT, Japan's monopoly phone company, assesses users per-minute charges for local calls, and that could limit the amount of time Japanese customers spend online.

Roger Boisvert, head of Global Online, a leading Internet service provider, said he expected AOL to create the same dissatisfaction in Japan it did in America.

"They've already got overloaded lines," he said. "Who in Japan is going to put up with that? People here expect a certain quality of service."

Nobutoshi Okubi, a spokesman for Japan's largest online provider, Nifty Corp., with some 2.3 million customers, said his company was not worried about the launch of AOL.

"We have almost all the Japanese newspapers, and it took us almost 10 years to build up our service," he said. While AOL is significantly cheaper than Niftyserve, Nifty's Japanese service, Okubi said Nifty would not compete on price.

"We will not have an endless price war," he said.

AOL Japan will provide 30 access points across Japan for members to hook up to the AOL network. And unlike Nifty, which does not operate on Sundays, AOL Japan will operate 24 hours every day.