Just as we thought things are gearing up this month, Japan’s number one and two carriers have really pulled some goodies out of their bag. We’ve already talked about KDDI and flat fees, but this week’s subject is profits for the carriers and a grab bag of gains for subscribers. If ever there was a reason not to keep your eyes fixed on Japan’s wireless communications, we’d like to know. DoCoMo trumped itself recently announcing profits, Felicia Mobile commerce with Sony, and now (finally) some concrete plans to expand i-mode. We have the innards of DoCoMo’s recent press conference up for you in this week’s video program.

DoCoMo had a good half-year to September 30, posting a net income of 365.4 billion yencompared to 42 billion yen a year ago with DoCoMo pushing a bunch of happy buttons forjournalists, claiming that sales were boosted by FOMA and mova handsets, and climbing datarevenues. DoCoMo managed to boost its cell phone subscribers by 7% to 45.04 million mainlydue to their 505 series handsets. Old Faithful i-mode finally passed the 40 millionsubscriber mark, but better for DoCoMo’s strained PDC network, president Tachikawahas now tossed another projection in the ring, upwardly revising the company’s FOMAsubscriber target to 2 million from 1.46 million by March 31, 2004.

But lets look at this from a different angle. DoCoMo also reported its first decline inconsolidated pretax profit since its listing in October 1998 while KDDI’s group pretaxprofit more than tripled. DoCoMo was unable to offset the increase in incentives paid tosales agents, which run at an average of 31,000 yen per unit — and this resulted in an 8percent decline in operating profit to 590.1 billion yen.

Cellie sales jumped 25 percent to 14.7 million units, but about 70 percent of these wereto existing members, so they didn’t generate much fresh revenue.

For the full fiscal year through March 31, DoCoMo projects a record operating profit of1.09 trillion yen, up 3 percent from the previous year.

There were a lot of fun figures pouring out of the DoCoMo press mill. FOMA revenuesclimbed to 36.3 billion, up 565 percent compared to the same 6 months last year. (But lastyear there were only a handful of subscribers!) Oh happy times: FOMA ARPU has broken theten grand mark, which must be melodious music to Big D’s ears. Voice ARPU, packetARPU and aggregate ARPU were 6,650, 3,470 and 10,120 yen respectively.

More convincingly, the 505i series really brought home the bacon both in terms ofsubscribers (see previous Viewpoint) but also in packet communications revenues, which increased23.9 percent over last year to 517 billion yen? until you read more closely. Thenyou’ll find that aggregate ARPU for i-mode dropped to 8060 yen (down 1.2 percent)from a year ago. With more bells and whistles than a Latin American carnival on its PDC505s, it seems that DoCoMo has reached the limit of what it can possibly squeeze out ofits subscribers. All the more reason now to move folks to FOMA, wethinks.

And FOMA’s looking more and more fabulous these days, with Big D announcing that itsgoing to also roll out a Compact Flash Card P2402 to enable 3G videophone and otherwireless data communication via PCs and PDAs, such as DoCoMo’s sigmarion III.

Enterprising Dawn for the Contactless IC Phone

Just as we thought KDDI (which won 1.21 million new users in April-September, beatingDoCoMo and partly causing KDDI’s Onodera to raise the company’s full-year netprofit estimate 34 percent to 95 billion yen) had the news of the quarter by finallygiving itself to flat rates for packet services, DoCoMo announced the establishment ofFelica Networks Inc. and, many believe, the dawn of the IC phone.

Just a note on how well KDDI did: KDDI’s pretax profit jumped 250 percent to 148.2billion yen. Incentives paid to sales agents are still higher than DoCoMo’s at 37,000 yenper unit — but KDDI lowered it by 6,000 yen from the previous year, and soaked up theprofits. For the full fiscal year through March, the company projects pretax profit tojump 110 percent on the year to 240 billion yen and sales to grow 1 percent to 2.82trillion yen

Back to Felicia: Much has already been written about this (see the press release) but our initial thoughts are:

a) This technology, especially because Japan’s interlocking shareholding structuremeans that KDDI is an investor in key players that are needed to promote this system,which in turn means that at least two of Japan’s three carriers, with around 83percent of Japan’s subscriber base, will be on board sooner or later. So what isVodafone to do? In October (see our video program and Viewpoint) Vodafone KK’s Darryl Green Talked the Talk aboutturning the mobile phone into an eWallet. What is Vodafone to do now? Vodafone, T-Mobileand Orange have gotten together with Simpay, anyway so moves are also under way in theEuropean market.

Japan’s dominant wireless carrier and Japan’s leading contactless IC card makerhave got together gives the pair the strong arm of the first mover advantage. But whatwill happen to the various SmartCard initiatives out there?

b) Costs vs. credit cards, with instant payments possible, for retailers the technologylooks a dead ringer as an enterprise solution, but how fast and how many of Japan’spersonal client subscriber base really wants to turn their mobiles into a do-all, be-allTool/ Wallet? DoCoMo was unusually clear about it’s target, with executivevice-president Keiichi Enoki postulating “Consider, for example, if 60 millionpeople, when they bought their commuter passes, all downloaded information from thenetwork?” Our Suica cards (Suica means watermelon in Japanese,) for the seven millionof us that use them, work like a dream.

c) In one fell swipe, Japan’s suited samurai salarimen could in theory have many oftheir business-related transactions not so much put on the tab, but the phone. With GPStracking systems out there, it would seem possible that Mr. Tanaka’s nearly everymovement, except possibly those of his bowels can be tracked and itemized rigorously. Wow,and think about the corporate replacement market from next year too as domesticenterprises retool.

d) For private use, we’d like to ask about what sort of information will be broadcastby our mobiles and our ability to customize the phones. What will be decided for us andwhat options will we be given, and what sort of costs will be loaded into the inevitablepurchase of new handsets? What sort of convenient, yet trustworthy security will we have?This cuts several ways. The Shibuya girls who blasted i-mode into the subscriberstratosphere are not going to want to punch in extra pin numbers for big-ticket LuisVuittoncumPradacumChanelcumThingamyjig handbags and $300 cosmetics items. Just put yourthumb print here, Ma’am.

e) Mobile Phones are iconic status symbols for young people in Japan to communicate, butnot to pay for thing… yet. Separation of work and play issues also come to mindhere. Having a wallet stuffed with credit cards (memories of Sheriff J.W. Pepper in “Liveand Let Die” spreading his plastic wares for all and sundry) is something peoplewill miss. And Japan, despite topping 250 million credit cards, is still a very-muchcashed-based society for personal transactions. We can see DoCoMo rubbing its sweaty palmsas subscribers decide they must purchase two phones, one for business and one for personaluse. And then, what’s going to happen to all our other cards? And, how manyall-in-one IDs are people going to have? We’ll be interested to see how the arguments andmoves about phones versus Smartcards pans out.

f) If and when phones become personal IDs and eWallets, what happens if you accidentallyflush your mobile down the chemical loo, as was famously reported in New York last week?What happens when your phone, wallet and digital handbag is destroyed with thsoe post-itsfor all your precious codes?

Eyeing Up I-Mode, Going Greek

Other news just came in that might help to clarify one story that’s become ratherfoggy—what on earth is DoCoMo doing about i-mode expansion overseas?? I-mode wasbeginning to look like V-Live’s Ugly Sister at the Communications Ball. Much asVodafone would kill to get even a million W-CDMA subbies, DoCoMo’s desultory foreigni-mode performance has been quietly kept out of DoCoMo’s steady stream of pressreleases of late.

DoCoMo has just confirmed reports that it is talking with Greece’s Cosmote to licensei-mode technology, making Cosmote the seventh European operator to take up the platform,although the situation with Hutchison is still unclear. One that thing does ring true is our interview with Mark Berman in January this year stated quiteclearly that the launch of V-Live would push the non-Vodafone carriers into DoCoMo’s campfor a competing mobile data service offering. We can hear the dinnerware smashing inGreece now.. Oopaah..!!!

— Paul Kallender

Related posts:

1. DoCoMo’s 1Q Profits Slip 13%
2. KDDI Earns $256.5 Million on Popularity of 3G Service
3. Japan Telecom Profits Fall on 3G Costs
4. KDDI Reports 1H Jump in Quartly Profits
5. DoCoMo 1H Profits off 20 Percent

Some sage advise when entering new turf; Stop, Look and Listen.. it’s also good to secure a local guide. Japan is the cradle of mobile civilization – we been been dedicated to this space since 2001 – trust our archives here offer some useful material.

Domestic activities continue to set the pace, and sharp players are looking at global markets. We have hard-earned industry expertise and trusted network of contacts with access to advanced intell. and potential deal flow. Need a lift.. Ok, buckle-up!