Paying Heavy 2G Users to Stay Happy Just a Little Longer

But the most significant hidden news in this announcement may just be the fact that there are 300,000-plus extremely heavy data users already using i-mode. This means that DoCoMo has a captive, willing audience already on hook that is ripe for targeted migration to 3G. And it would appear that this audience has been woefully underexploited — FOMA had just 127,400 users on July 31. Looks like Big D will slash i-mode transmission fees on both the 2G and 3G networks starting September 1.. OK — maybe the reduction isn’t exactly a “slash,” since the 2G rate will only go from 0.3 yen per packet (128 bytes) to 0.2 yen per packet, and this reduction will only be applied after the first 100,000 packets (i.e. the first 30,000 yen of transmission fees).

Similarly, on 3G, the reduction will only be applied stepwise after 15,000, 60,000, and 200,000 packets have been used, and will be valued differently depending on the FOMA data discount plan that a subscriber uses.

As a result, only the heaviest of i-mode users — those who download lots of Java games or who use their FOMA terminals for lots of Web surfing or video watching — will notice the reduction. And the cuts will only affect 2 to 3 percent of the subscriber base; the rest of us (moderate) users won’t see much shrinkage in our monthly phone bill, if at all.

But this is indeed the first such rate cut since the dawn of the i-mode era in February 1999, and is significant for a number of reasons.

First, DoCoMo doesn’t have to make the cut. There are no regulatory, economic, or marketing reasons forcing this. Instead, the carrier seems to be reacting to speculation that i-mode profits have become, if not excessive, at least overly healthy, and to customer complaints about their hefty bills (this story was plastered all over the front page of last Sunday’s Nihon Keizai Shimbun).

The carrier may also be worried about its continuing share slump, but some analysts said the slump is based more on general concerns about the company’s growth potential and its ability to boost ARPU (by migrating 2G users to 3G) than on excessive 2G data fees per se. Credit Suisse First Boston’s telecoms analysts Mark Berman wrote in a report that, “The impact of this adjustment is immaterial to our revenue and earnings forecast, and thus our rating and target price are unchanged.”

Second, DoCoMo’s admission (to analysts) that the over-30,000-yen monthly spenders account for a mere 2 or 3 percent of the subscriber base is also a surprise. “This would imply that about 1 million DoCoMo subscribers are spending over 30,000 yen per month simply on i-mode usage,” stated Berman, a level that some analysts had not previously suspected.

Berman also pointed out what, for example, 30,000 yen’s worth of i-mode data fees will buy, including (in one month): 1,600 downloaded melodies, 4,800 emails (250 characters sent and received each), 3,800 downloaded images, and about 1,200 downloaded Java applets. If we assume that someone spent 2 minutes listening to each of the ringtones, 1 minute looking at each of the images, and 5 minutes playing each of those Java applets, that’s a solid 9.03 days’ worth of entertainment (exclusive of sending or receiving any mail). Yet over 300,000 people actually incur this sort of monthly data usage.

But the most significant hidden news in this announcement may just be the fact that there are 300,000-plus extremely heavy data users already using i-mode. This means that DoCoMo has a captive, willing audience already on hook that is ripe for targeted migration to 3G. “Not many carriers can boast a captive audience for 3G of half a million users that will spend 3.8x the average total ARPU for 3G,” states Berman. And it would appear that this audience has been woefully underexploited — FOMA had just 127,400 users on July 31.

The lack of marketing push to convert these users to 3G speaks volumes about the technical readiness of the FOMA network to accept a flood of new subscribers. Looks like FOMA still isn’t ready for prime time, and DoCoMo is paying off the heavy users to stay happy on the 2G system just a little longer…

Daniel Scuka