DoCoMo Is Back, Leading Japan's Cellphone Market

[Dave Farber <dave () farber net>]

[ I am a member of NTT DoCoMo's USA Advisory Board. Djf]

DoCoMo Is Back, Leading Japan's Cellphone Market

May 7, 2003
By KEN BELSON 




 

TOKYO, May 6 - After enduring staggering losses on its
international alliances and a halfhearted introduction of
the world's first "third-generation" digital mobile phone
service, NTT DoCoMo and its president, Keiji Tachikawa, can
finally breath a bit easier.

NTT DoCoMo, which is due to report earnings on Thursday for
the fiscal year ended March 31, has now written off the
bulk of its overseas losses, released a flock of new
products and finished building most of its new mobile phone
network, known as FOMA. After a bruising two years, Mr.
Tachikawa has steered DoCoMo back to where it was at its
peak: the dominant cellphone company in Japan, with the
most coveted phones and plenty of cash.

DoCoMo was buoyed by the warm reception consumers gave to
its new line of mobile phone handsets in March, lining up
in front of shops to buy them on the first day they were
available. The new handsets, which can take and send
24-second video clips, are as sleek and stylish as older
phones and, importantly, cost about the same.

The new phones helped DoCoMo reach its scaled-back target
of enrolling 320,000 users for the FOMA service by the
close of the fiscal year, and they gave Mr. Tachikawa hope
that he can raise the figure to a million customers by
March 2004. 

"This year, we will return to the trajectory we expected
when we first launched FOMA" in October 2001, Mr. Tachikawa
said in a recent interview.

Even without FOMA, DoCoMo will probably report 1 trillion
yen ($8.4 billion) in operating income and 182 billion yen
in net income on Thursday, analysts said, even though
revenue fell about 9 percent. In the previous fiscal year,
the company racked up $10 billion in losses on its stakes
in KPN Mobile, AT&T Wireless and other overseas companies.

Investors have been heartened by DoCoMo's apparently
having found ways to expand profits even as revenues fall.
They have bid the company's stock up by about 30 percent
since mid-March. And with most of the FOMA network already
built, analysts like Mark Berman at Credit Suisse First
Boston expect DoCoMo to be able to triple its profits this
year. 

"DoCoMo had those losses overseas that stayed with them
like a cancer," Mr. Berman said. "But having written them
off, DoCoMo should go forward with a clean record."

DoCoMo, like its rivals, still faces a host of challenges.
One is saturation: More than 60 percent of all Japanese
people already have cellular phones, so new customers are
harder to find, and they tend to be people who spend the
least - the young and the elderly. With the economy
sluggish, existing consumers tend to hang on to their old
handsets longer. And DoCoMo's efforts to interest Europeans
in its proprietary i-mode technology have yielded only
modest results. 

Still, these challenges pale beside the immense write-offs
the company absorbed last year. And DoCoMo seems to be
recapturing some of the momentum and buzz it lost to rivals
last year. 

For example, J-Phone was the first to offer phones with
small built-in cameras, but DoCoMo has far outpaced J-Phone
since June 2002, selling more than 10 million
camera-equipped phones. Some 60 percent of DoCoMo's handset
sales now come from the camera phones, whose users also
tend to spend more on data transmission fees to swap photos
with friends and relatives.

The popularity of DoCoMo's phones is helping it begin to
close the gap with KDDI's third-generation network. Based
on a cheaper, slower technology, KDDI's system has signed
up more than seven million users for its service since
April 2002, but the momentum is shifting toward FOMA.

"If everyone is going to be using FOMA phones eventually,
it's better to change now," said Akihiko Ono, a 29-year-old
businessman, who bought a new DoCoMo handset last week. "I
like new things, and I like things that other people don't
have." 

To attract more customers like Mr. Ono, DoCoMo is cutting
prices. The company is also lowering fees to encourage more
use. And it is investing 42 billion yen ($354 million) this
year to help manufacturers like NEC, Panasonic and Sharp
develop new FOMA handsets and sell them at fairly low
prices. 

The trouble, Mr. Tachikawa said, is that Japanese people
already spend an average of about 5 percent of household
income, or $200 a month, on telecommunications costs. In a
sour economic environment, they are unlikely to spend much
more. 

So DoCoMo is trying to develop phones that can generate
other income, including some with chips inside that can be
used to make purchases at vending machines, train stations
and convenience stores charged to the monthly phone bill.
DoCoMo would earn a processing fee on each purchase.

Mr. Tachikawa hopes the new income will offset another
worrying trend: consumers who are willing to wait until
prices fall before they switch handsets. After living
through five years of deflation, most Japanese look for
sales and markdowns before they buy.

"People have become much more price sensitive in Japan,"
Mr. Tachikawa said. "Consumers can be divided between those
who are keen on new features and those who want cheaper
phones, even if the technology is a year old."

http://www.nytimes.com/2003/05/07/business/worldbusiness/07WIRE.html?ex=1053
303977&ei=1&en=a0794d2d91a94590



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