While the battle will have winners, the trickle-down effect of Docomo's decisions could have wide implications on the global 3G landscape and weigh heavily on the future of mobile handset engineering and system-on-a-chip design. Along with size, Docomo is among the most aggressive proponents of 3G services in Japan and abroad. A handset or wireless personal digital assistant design that gets the Docomo nod not only promises to be quickly deployed domestically, but also in markets where Docomo has established a beachhead, including Singapore, South Korea and China.

For Japanese electronics companies suffering from stagnant sales in all but a few areas, the transition to 3G phones offers the chance to regain some lost footing. By following a design template devised by an industry winner, they will have an opportunity to boost sales and global presence, which many now lack. Even so, foreign suppliers of handsets, infrastructure equipment and semiconductors are eyeing ways to hike their own sales or break into Japan's wireless market.

"We're now talking about a world standard for the next generation, so we can expect some scale of economies and high efficiency," said Takashi Kawada, president of Matsushita Communication Industrial Co. Ltd.

Just how important is Docomo in Japan? Try imagining a company with the clout of Microsoft, the cachet of Intel and its own customer base of more than 21 million. Currently more than 10 companies are vying for a spot as a supplier of handset and other multimedia terminals, and just under 10 suppliers are hoping to sell infrastructure equipment. Docomo officials say they plan to choose five handset and three infrastructure vendors early next month.

"Technically, Docomo might be one of the most advanced companies in portable telephones. They have sales points all over Japan and have made some big investments in marketing," said Kazuhiro Goto of the research group Asian Technology Information Program (ATIP), based here.

Industry sources said that many of those chosen will be companies that have been working with Docomo in wideband-CDMA field trials for the last several years. For handsets, they are Matsushita, Mitsubishi, Motorola, Nokia, NEC, Sharp and Toshiba. Those supplying the experimental equipment are Fujitsu, Lucent, Matsushita and NEC.

Despite these vendors' early inroads, there's evidence that Docomo may be casting a wider net. Observers said that Toshiba Corp. and Sharp Corp., for example, were picked as early handset providers on the strength of successful handheld products like the Zaurus and the Libretto, expertise that can be molded to fit a new style of 3G PDA the company has defined. But Compaq Computer Corp., which recently announced it would begin selling its first Windows CE palm-size PC in Japan, has also made an agreement with Docomo in this area, said Annie Bacon, director of handheld products at Compaq. She declined to provide specifics.

Rather than relying on one or two important suppliers to come up with the right specifications for a handset or basestation, Docomo is defining the design specs from the beginning, leaving it up to suppliers to meet them and bid for the business.

Much of the company's success no doubt derives from being part of Japan's largest phone carrier, NTT, which has enjoyed near-monopoly status. Even so, since its spin-off from NTT in 1992 and the entrance of new competitors into the cellular business over the last 10 years, Docomo has earned a reputation for going after new markets and new ways to upgrade its services. The company is pushing the upper limits of its cellular subscriber market share, and getting closer to reaching the maximum spectrum load in crowded urban areas.

A large part of its continued success can be attributed to the deft way Docomo has worked its suppliers in recent years. Between mid-1994 and late 1996, Docomo's monthly share of new subscribers fell to about 40 percent as competitors in Osaka and Tokyo introduced new services following deregulation. Then, in October 1996, Docomo came out with a digital phone made by Matsushita that weighed less than 3.5 ounces, and its market share zoomed past 50 percent. It remains there today.

That coup was a direct result of Docomo's strategy of tapping a handful of preferential suppliers with the understanding that they not sell to other carriers for as long as six months after delivering to Docomo. Under this scheme, suppliers like Matsushita, NEC, Fujitsu and Mitsubishi were allowed only temporary advantages, according to a report by ATIP.

For 3G phones, Docomo has defined and distributed to suppliers four broad applications it wants to support for different transmission rates: an 8-kbit/second speed for voice; a 64-kbit/s rate for PDAs with video transmissions; 348 kbit/s for automobiles that can be linked to Intelligent Transportation Systems; and a 2-Mbit/s rate for home networking and security. The company is already showing off prototype mock-ups connected to simulators, including an 8-kbit/s voice terminal, 64-kbit/s "visual phone," 64-kbit/s PC-card terminal and 384-kbit/s stationary terminal running 30-frame/second MPEG-4 video.

To kick off W-CDMA in Japan, Docomo officials said they want to introduce the first three transmission standards — up to 384 kbits/s — simultaneously by March 2001. Docomo started experimental CDMA systems in 1996, and plans to conduct field tests while also working with suppliers developing commercial equipment. Trials began in mid-1998.

Faced with imminent deadlines, terminal makers have been steeped in engineering for new handsets and PDAs that will have increased functionality yet keep the small form factor and light weight that are the hallmark of handsets sold in Japan. Among the issues they face is how to design-in wider screens for viewing video images while controlling power consumption and battery weight.

Docomo's video phone, for instance, will be somewhat larger than the cell phones sold here today and should weigh less than 7 ounces, a Docomo spokesman said. That could call for the use of new display technologies, observers said.

"It's necessary to develop a reflective LCD because at this moment, LCDs need a backlight and that increases power consumption," said Ryuji Hori, director of corporate engineering for Matsushita. "So for daylight use, a reflective display can be used. And having a color display is essential."

Matsushita, for one, has 400 engineers working on W-CDMA handsets and equipment, many of whom are keeping in close touch with Docomo and competing carriers in Japan, such as IDO and DDI.

Matsushita has an overall plan to increase its market share in handsets from less than 10 percent today to 15 percent by 2000, initially by stepping up its sales in Japan and Europe with existing PDC and GSM phones. After that, it will expand into TDMA and CDMA phones in North America, China and Asia, then move into W-CDMA and new markets such as Latin America.

For Matsushita, riding on the coattails of its largest customer should help, but the company faces tough competition from Nokia, Ericsson and Motorola, which have larger market shares worldwide and have made inroads with Docomo in recent years. "We are somewhat behind, but we have two more years and we're going to try our best," said Yasuo Katsura, director of Matsushita's personal communications division.

Domestic semiconductor suppliers face the same global competition. Texas Instruments Inc., for example, is pushing its 0.18-micron process technology along with its DSP chips. The company recently signed on to deliver a 1.8-V digital baseband processor for Nokia, which currently supplies handsets to Docomo. TI also supplies DSP chips to Matsushita for use in cellular phones.

Japanese chip companies are responding by trying to take a stronger position in the global arena themselves. Fujitsu Ltd., for one, recently licensed the ARM7TDMI core, which is widely used in cell phones in Europe and is becoming more popular in Japan. There's also a sense of urgency to get involved quickly with leading handset players and to ply the most sophisticated semiconductor process technology for handsets and wireless PDAs.

"Everybody's jumping in wideband fairly quickly," said a source at Fujitsu. "With global standards there's more of an opportunity for global sales."

Docomo is treating operating systems with the same magnanimity, greeting each with open arms, yet refusing to be locked down by one. That's how — with hardly a trace of irony — the company last month could tout a new agreement with Sun Microsystems Inc.'s Scott McNealy to incorporate Java into Docomo's I-Mode cell-phone Internet-access service, and a day later announce a deal with Microsoft Corp.'s Bill Gates to support development of Windows CE for cell phones and portable devices. As if to underscore its agnosticism, Docomo also announced a tie-up with Symbian for its EPOC mobile-terminal OS the same week. Symbian is working with Sun to incorporate Java into EPOC.

Similarly, Docomo is hedging its bets on new protocols for accessing the Internet. The company is a member of the Wireless Application Protocol (WAP) forum, which is devising the XML-based Wireless Markup Language for Internet data transmissions. But that did not stop it from introducing its I-mode service in February, citing a need to expand services without waiting for WAP to be finalized.

If Docomo's transition to 3G goes as planned, it means the coming of age of a business model that has proven it can thrive in Japan. For the Docomos of the world, hardware is the iron, powerful, reliable and cheap. The operating system is stripped of its gloss to become simply a user interface. The value of the system moves up the food chain as defined by the provider, and the provider focuses on what consumers ultimately care about the most: the data. And with that, another seed is planted in the so-called post-PC era.