(FORTUNE Magazine) – I'm just a soul whose intentions are good. Oh Lord, please don't let me be misunderstood. --Eric Burden and the Animals

Just as we're starting to understand the Internet, a new medium has emerged--the wireless Internet--that raises many of the same questions in a new context. Unfortunately, in many ways the wireless Web is more confusing than its wired brother. This article will assess the global infrastructure and identify the five most important issues that confront the business executive who is pondering a wireless strategy.

It's often noted that the U.S. trails Japan and Europe on the wireless Web. Setting the pace is Japan's NTT DoCoMo, with its i-mode wireless data service. The number of i-mode subscribers is approaching 10 million from a standing start in February 1999. And the phone features are much richer than what is available in the States. Europe isn't quite so far ahead, but it's still beating the U.S. The primary innovation in Europe is SMS, a cross-carrier cellular phone version of Instant Messenger. By year-end, some 50 million Europeans will be using SMS.

Japan leads because it was the first to implement a packet-switched (as opposed to a circuit-switched) infrastructure. Without getting into the technical arcana, suffice it to say that the difference between the two is similar to the difference between using a "dial-up" modem and using a high-speed broadband connection. Packet-based networks allow for an "always on" experience and are less costly for the user.

Although Europe is circuit-switched, it still leads the U.S. The carriers in Europe use the same underlying GSM technology, which results in much better interoperability, and allows innovations to be shared by all. This standardization philosophy also enables inter-carrier functionality, such as SMS. The other primary European advantage is cell-phone penetration, which is well above 50% in some countries.

Another interesting difference pertains to e-mail. In Europe and Japan, many are obtaining their first personal e-mail address through their cellular phones. We all know that e-mail was one of the original killer applications of the Internet. That same phenomenon is driving the acceptance of the wireless Internet overseas. The cell phone has become the primary e-mail device for most consumers.

If you've read about wireless, you have likely encountered the letter "G" to describe evolutions in the wireless Internet. Today's technology (except in Japan) is known as "2G," which has a maximum throughput of about 9.6 kilobits per second. Next up, in 2001, is 2.5G, which will use packet-switching to deliver up to 100 kbps. The Holy Grail, 3G, will support speeds of up to two megabits per second. It should launch in Japan in 2001, but don't expect to see it elsewhere until about 2003.

The move to packet-switching is more important than raw speed; therefore the advent of 2.5G technology is more important than the arrival of 3G. Most significant, it looks as if Japan could extend its lead over the U.S. in the foreseeable future. NTT DoCoMo will be the first to implement 3G, and it is well in front in understanding wireless business models and customer needs. The U.S. must overcome its tangle of competing standards and needs help from the government, which has been slow to clean up spectrum issues that could hinder a 3G rollout.

Beyond that, there are five key unresolved issues that will affect companies that are implementing a wireless strategy.

To WAP or not to WAP. Most wireless devices in Europe and the U.S. use the "wireless access protocol," a set of standards that describe how a cell phone accesses data over the Internet. WAP supporters argue that a cell phone's tiny screen and lack of processing power necessitate a separate set of technologies from those used on the Internet (HTML, for example). The anti-WAP forces argue that these problems will evaporate once we move to packet-switched networks. Supporting this view is the fact that i-mode, the only packet-based network operating today, relies on HTML, not WAP.

PC, Cell Phone, PDA? Which will be the primary Internet access device? The PC seems like the natural choice, due to the large installed base, the rich experience, and the relatively high connection speeds. But the installed base of cell phones is about twice that of PCs, and cell phones have the advantage of portability. The personal digital assistant has a richer user interface than the phone, but usership is much lower. Will the PDA become a phone, or vice versa?

Killer App? Everyone talks about the application that drives customer adoption. You'll see articles and press releases discussing corporate applications or "m-commerce," but the applications driving adoption in Japan are fundamentally consumer focused. Games, daily screen savers, and instant messaging are the most popular. This is a social medium more than anything else.

Is There a Business Model? Great question. NTT DoCoMo has been successful in charging users per-bit fees as well as subscriptions for extra services. One key: NTT has allowed content providers to put their charges on NTT's bills. Of course, on the broader Net, competition has made many services free, and the same could happen in the U.S. Many startups will point to advertising and e-commerce, but that will probably pay off only for those with "portal power."

Who Has Portal Power? Anyone that has a large number of users and can use that to extract rent from others who want to reach those customers has portal power. Everyone from cellular carriers to hardware manufacturers to wired-Web portals (AOL, Yahoo) to new mobile portals is hoping to have this position. If the wireless carriers seize the opportunity, they should be successful--particularly if they leverage the billing relationship. Otherwise, the current portals are the likely winners.

There are many unknowns when it comes to the wireless Web. The good news is that we get to watch NTT DoCoMo in action and learn from its model--a unique position for American companies.

J. WILLIAM GURLEY is a partner with Benchmark Capital, a venture capital firm. Except as noted, neither he nor Benchmark has a financial interest in the companies mentioned. To receive an expanded version of Above the Crowd, visit www.news.com/Perspectives/Column/ Archive/ 0,194,5,00.html; to subscribe to the e-mail distribution list, send e-mail to www.benchmark.com/about/ bill.html. Send feedback to atc@benchmark.com.