DoCoMo - The Japanese Wireless Telecom Leader

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Themes: Differentiation
Period : 1992 - 2003
Organization : NTT DoCoMo (DoCoMo) Inc
Pub Date : 2003
Countries : Japan
Industry : Telecommunication

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Case Code : BSTR049
Case Length : 17 Pages
Price: Rs. 500;

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DoCoMo - Problems Aplenty Contd...

Apart from this, the saturation of Japan's wireless telecom market was also posing a severe threat to the company's growth. The growth in subscriber base was declining through the early 2000s. According to reports, the net growth in subscriptions went lower by 31.7% by December 2001 than in December 2000. This increased the competition in the market during early 2002. Reportedly, though DoCoMo still dominated the market (59%) it was facing fierce competition from the existing players and the new entrants in the market.

Its nearest competitor KDDI's Au and Tu-Ka services had captured 17.7% and 5.7% respectively, of the total cellular market in Japan. Vodafone's J-Phone, which launched the camera-equipped mobile phone Sha-Mail in 2001, had also increased its market share to 17.6% by early 2002.

To meet the competition, DoCoMo had to offer handset subsidies and reduce its profit margins. But despite these measures, the company's ARPU continued declining during early 2002. With the customers shifting to cheaper wireless e-mail services from DoCoMo's expensive voice-mail services, and with I-Mode also losing its initial pull, the ARPU figures were reportedly rather depressing.

Apart from this, DoCoMo's ambitious investment drive went awry with the company forced to take a ¥ 664.49 billion write-down on its investment in AT&T. The company also had to write-off the value of its various other investments during early 2002. All these factors culminated in the DoCoMo posting one of the biggest ever, corporate losses in Japan (Refer Exhibit I).

Life After The Loss

DoCoMo's decision to continue with its global strategy met with apprehension in the markets, though the Government of Japan gave it support stating that DoCoMo was Japan's "flag bearer" in the global arena. In the words of Hiroyuki Arai, Director, Parliament Telecom Policymaking Committee, "DoCoMo is our flag bearer. If the company takes its time getting into the global arena, we will lose our lead to American or other foreign companies. Without that kind of commitment from Japanese companies, our economy will never recover."

In April 2002, KDDI launched CDMA2002 1x, its 3G service, which though slower than FOMA, gained more than one million subscribers in the first three months. This was because its technology upgrade was in sync with technology standards worldwide and did not require rebuilding of a whole system, as required by FOMA or I-Mode. J-Phone's 3G service IMT- 2000 also, launched in June 2002, proved successful in the market.

In mid 2002, it was reported that DoCoMo was facing problems in convincing its partner wireless companies in other countries to adopt its technology. Reportedly, its partners were reluctant to spend huge amounts in upgrading their wireless networks as they feared that DoCoMo's products and services might not attract as many customers in their countries as expected. According to reports, these companies had spent billions of dollars in acquiring licenses to operate 3G services and landed in huge debts.

Commenting on the reluctance of these companies to join the 3G bandwagon, Yasumasa Goda, analyst, Merill Lynch (Japan), a leading financial services firm, said, "The whole point of investing abroad was a speedy roll-out for 3G. But clearly this is no longer realistic." Decreasing revenues and failed global initiatives resulted in a sharp decline in the value of DoCoMo stock which fell by 33.8% from its 52-week high in mid 2002 (Refer Exhibit V for DoCoMo's stock price movements during 2000-03).

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