KDDI vs. DoCoMo: FOMA Forging On?
Last Friday’s monthly report released by the Telecommunications Carriers Association contained more grief for NTT DoCoMo’s 3G planners: While the carrier’s FOMA subscriber base grew by a healthy 15% in February, bolstered no doubt by the 900i-series handsets, KDDI yet again handily beat DoCoMo. While we aren’t reviewing our measure of confidence in the 900i-series, even after Big D admitted that the “best 3G phones in the world” were suffering from software bugs and had to recall nearly 70,000 Fujitsu handsets, we do note that NTT DoCoMo in Kyushu ‘fessed up last Friday to padding its subs figures so as to avoid the distinction of being the first DoCoMo sales region to actually suffer a (Gasp! Grrr!) net decrease in subscribers, according to Kyodo.
The cold, hard figures speak for themselves: KDDI’s CDMA 1X network attracted 502,500 new subs whereas DoCoMo’s FOMA added a significantly smaller 307,700. DoCoMo 3G has yet to beat KDDI 3G in any month and February’s performance remained down from FOMA’s net add peak in October 2003 (when FOMA signed up 334,000 new subs) (see chart at right).
When second-generation net adds are factored in, the situation is even grimmer for DoCoMo. Overall, KDDI’s Au service grew by 273,800 while DoCoMo limped in a distant second with just 84,400—largely because DoCoMo lost a huge number of second-gen PDC subscribers (223,300). Most embarrassing, DoCoMo’s overall net adds figure was only 19,500 more than third-place player Vodafone’s 64,900.
While we aren’t reviewing our measure of confidence in the 900i-series, even after Big D admitted that the “best 3G phones in the world” were suffering from software bugs and had to recall nearly 70,000 Fujitsu handsets, we do note that NTT DoCoMo in Kyushu ?fessed up last Friday to padding its subs figures so as to avoid the distinction of being the first DoCoMo sales region to actually suffer a (Gasp! Grrr!) net decrease in subscribers, according to Kyodo.
Beyond dodgy data and buggy software, the high-profile launch of the 900i-series has, at least in its first month, seem to have given FOMA a hearty boost, despite the Fujitsu fumble.
The Fujitsu phone went on sale on February 6 and additional models in the series are expected soon. DoCoMo’s message is that FOMA is finally winning customer acceptance and last week the company also claimed that it had reached 99.9 percent network coverage (we wonder, where is that pesky last 0.1 percent?).
So, with all the pieces of the service model jigsaw (if not the actual onboard software) in place, new net adds were impressive. But not as impressive as those at KDDI, where over a half million bill-payers opted for the new CDMA 1X service.
Of course, when the majority of customers don’t know and don’t give a fig about what blend of 3G they are buying, is KDDI’s flat-rate data service—arguably one of the key differentiators over DoCoMo’s FOMA—really the killer sales point attracting all the new users? It may be just one factor behind KDDI’s success; in addition, the carriers’ 1X keitais are great and typically sell for well under JPY20,000—about JPY10,000 less than FOMA’s 900is. On top of this, KDDI has successfully managed to differentiate its services. Users can download CD-quality music to make their own ring tones, there’s a great personal navigation service, and some handsets boast FM radio reception – all features which DoCoMo cellies lack.
In fact, just last week, KDDI announced that its ongoing work with Tokyo FM Broadcasting (terrestrial digital radio broadcasting trials started last October) has now resulted in 250-gram handheld terminal that can produce CD-quality audio as well as video. That not-so-little item begins trials of its own this April.
While DoCoMo’s 2.4 million target for the end of this month is not looking in doubt, behind this, the bigger picture is that KDDI’s 3G operation is now just a handful of subscribers short of 12.5 million, six times as many as DoCoMo. 2004 was supposed to be the year that FOMA makes the “jump” to the mainstream. But when you add up the costs versus recent subscriber uptake, FOMA is looking less of a gold mine.
Of course, we shouldn’t forget the bottom-line reason for DoCoMo rolling out FOMA in the first place—sheer lack of spectrum on the older 2G network.
Is DoCoMo’s FOMA strategy about to unravel? It’s been said that the huge marketing and development costs of the 900i-series might dent DoCoMo’s profit for this fiscal year with one analyst quoted by local media predicting the carrier could suffer a 6-percent profit decline based on FOMA growth projections of 10 million subscribers; they also have to pay higher subsidies to retailers than with 2G handsets.
Furthermore, the impact of flat-rate data which President Keiji Tachikawa has de facto admitted the company will have to introduce to combat KDDI, could prove even worse strategic news for Big D. As we’ve pointed out, the last thing the company wants is to get locked into a price war. But if the company doesn’t match KDDI’s flat-fee pricepoint, it will have to come up with some sort of massive PR spin plan to explain to customers why they should pay more. And whatever fee is set, this puts an effective cap on any juicy data ARPU streams the company was planning on.
One hope could be new, additional revenue-generating data services. As we saw in last week’s WWJ video program, DoCoMo wants to move to a “new paradigm” based on significant e-commerce revenues from efforts like FeliCa. Let’s hope they get the bugs out before plunging in.
— Paul Kallender