DoCoMo and KDDI Pushing the Envelope and Raking in Profits
DoCoMo and KDDI Pushing the Envelope and Raking in Profits

DoCoMo and KDDI Pushing the Envelope and Raking in Profits

DoCoMo and KDDI Pushing the Envelope and Raking in Profits

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 WWJ video program here.

DoCoMo had a good half-year to September 30, posting a net income of 365.4 billion yen compared to 42 billion yen a year ago with DoCoMo pushing a bunch of happy buttons for journalists, claiming that sales were boosted by FOMA and mova handsets, and climbing data revenues. DoCoMo managed to boost its cell phone subscribers by 7% to 45.04 million mainly due to their 505 series handsets. Old Faithful i-mode finally passed the 40 million subscriber mark, but better for DoCoMo’s strained PDC network, president Tachikawa has now tossed another projection in the ring, upwardly revising the company’s FOMA subscriber 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 in consolidated pretax profit since its listing in October 1998 while KDDI’s group pretax profit more than tripled. DoCoMo was unable to offset the increase in incentives paid to sales agents, which run at an average of 31,000 yen per unit — and this resulted in an 8% 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 were to existing members, so they didn’t generate much fresh revenue. For the full fiscal year through March 31, DoCoMo projects a record operating profit of 1.09 trillion yen, up 3 percent from the previous year.

There were a lot of fun figures pouring out of the DoCoMo press mill. FOMA revenues climbed to 36.3 billion, up 565 percent compared to the same 6 months last year. (But last year there were only a handful of subscribers!) Oh happy times: FOMA ARPU has broken the ten grand mark, which must be melodious music to Big D’s ears. Voice ARPU, packet ARPU 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 of subscribers but also in packet communications revenues, which increased 23.9 percent over last year to 517 billion yen? until you read more closely. Then you’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 of its subscribers. All the more reason now to move folks to FOMA, we thinks.

And FOMA’s looking more and more fabulous these days, with Big D announcing that its going to also roll out a Compact Flash Card P2402 to enable 3G videophone and other wireless 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, beating DoCoMo and partly causing KDDI’s Onodera to raise the company’s full-year net profit estimate 34 percent to 95 billion yen) had the news of the quarter by finally giving itself to flat rates for packet services, DoCoMo announced the establishment of Felica 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 148.2 billion 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 the profits. 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 2.82 trillion 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 structure means 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 83% of Japan’s subscriber base, will be on board sooner or later. So what is Vodafone to do? In October (see our”target=”_blank”>video program) Vodafone KK’s Darryl Green Talked the Talk about turning the mobile phone into an eWallet. What is Vodafone to do now? Vodafone, T-Mobile and Orange have gotten together with Simpay, anyway so moves are also under way in the European market.

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

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

c) In one fell swipe, Japan’s suited samurai salarimen could in theory have many of their business-related transactions not so much put on the tab, but the phone. With GPS tracking systems out there, it would seem possible that Mr. Tanaka’s nearly every movement, 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 domestic enterprises retool.

d) For private use, we’d like to ask about what sort of information will be broadcast by our mobiles and our ability to customize the phones. What will be decided for us and what options will we be given, and what sort of costs will be loaded into the inevitable purchase 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 subscriber stratosphere are not going to want to punch in extra pin numbers for big-ticket LuisVuittoncumPradacumChanelcumThingamyjig handbags and $300 cosmetics items. Just put your thumb 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 mind here. Having a wallet stuffed with credit cards (memories of Sheriff J.W. Pepper in “Live and Let Die” spreading his plastic wares for all and sundry) is something people will miss. And Japan, despite topping 250 million credit cards, is still a very-much cashed-based society for personal transactions. We can see DoCoMo rubbing its sweaty palms as subscribers decide they must purchase two phones, one for business and one for personal use. And then, what’s going to happen to all our other cards? And, how many all-in-one IDs are people going to have? We’ll be interested to see how the arguments and moves about phones versus Smartcards pans out.

f) If and when phones become personal IDs and eWallets, what happens if you accidentally flush 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 those post-its for 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 rather foggy—what on earth is DoCoMo doing about i-mode expansion overseas?? I-mode was beginning to look like V-Live’s Ugly Sister at the Communicati
ons Ball. Much as Vodafone 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 press releases of late.

DoCoMo has just confirmed reports that it is talking with Greece’s Cosmote to license i-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 Mark Berman in January this year stated quite clearly that the launch of V-Live would push the non-Vodafone carriers into DoCoMo’s camp for a competing mobile data service offering, WWJ video interview here. We can hear the dinnerware smashing in Greece now.. Oopaah..!!!

— Paul Kallender