Yes, KDDI 3G Really Does Rock
I received a query from a long-time, astute, tech industry watcher last week after sending out the WWJ newsletter. I say “astute” not only because he’s a long-time WWJ fan, but also because he works as a high-level consultant in several fields, including auto electronics, software development, and marketing. His query focused on my comments that Vodafone’s 3G subscriber base was still tiny — with 151,400 compared to 3.58 mn and 13.99 mn at DoCoMo and KDDI, respectively, as of April 30. My numbers came direct from the Telecommunications Carriers Association (TCA) website, and he asked, somewhat skeptically, if these numbers were correct. I replied that they were and said that…
… the April figures demonstrate that KDDI are still way out in front with 3G. And the numbers for KDDI 3G reported by the TCA only reflect CDMA 2000 1X users; the carrier is not yet publicly stating the number of CDMA 2000 1X EV-DO ultra-high-speed users.
My guess would be around 300-350,000 1X EV-DO users, assuming they’ve added 1/10 the number of 1X additions each month since October (and 1X net adds have been running 450-700,000 per month).
One analyst reported KDDI as having 343,000 EV-DO users at end-March 2004.
The TCA numbers also show, however, that KDDI’s monthly growth is slowing down. In April, they added 488,700 — down sharply from the peak of 742,800 in March. In fact, April’s results represent a 31-percent decline in net monthly adds, calculated from the previous year.
Meanwhile, NTT DoCoMo net adds have been growing steadily, and April was strong for them with 530,500 new W-CDMA 3G subscribers (beating KDDI — by about 50,000 — for the first time!). This, however, was also down sharply from 723,800 net adds in March. Nonetheless, it’s still up a whopping 483 percent, YoY (year-on-year).
Vodafone’s 3G numbers aren’t worth reviewing here.
It appears that April was overall a poor month for 3G — surprising considering that April is back-to-school month and a shiny new keitai is often given as a stay-in-touch-from-your-university-dorm gift.
My correspondent subsequently mailed to state that he’d heard that KDDI’s 13.99 mn 1X users still only use text-based HTML services with simple video and audio — and that the video is low quality and requires too much download time. He also stated: “Or am I confused? Can 3G offer high quality audio/video interactivity or will that [have to wait for] broadband cell phones [i.e. EV-DO]. In March, KDDI came out with new, whiz-bang phones. Are these broadband not 3G? I thought 3G was broadband or good enough for the super-cool applications.”
My reply was that, yes, slower-speed 1X is obviously a success — and in Japan folks are using it for much more than just simple video and audio (depending on how you define “simple”). Also, 1X speeds, at around 80-100 Kbps, are more than sufficient for making lots of money.
For example, the Chaka-Uta real-tone download service (basically, near CD-quality download-and-unlimited-playback audio files from Big 5 Japan Labels) is hugely successful and profitable; this service is waaay beyond simple text or HTML browsing.
Video mail also appears to be enjoying lots of usage — and the quality is fine for user-generated purposes.
Video rental chain Tsutaya (and many others) is offering streaming video clips to promote rental & sale of DVDs and CDs. This is also a big money maker for them, I believe.
All in all, 1X is fine for a bevy of applications that are real money makers. Plus the phones themselves are very good, so it’s worth upgrading to 1X (as 81 percent of KDDI/au subscribers have already done) even if you don’t think you’ll use the data features much. And then guess what — you do! Because it’s easy, relatively cheap, fun, and all your friends are.
And in April, KDDI reported a **massive** 104-percent YoY (year-on-year) increase in net profit, driven by consolidated operating profit margins which doubled to 10.3% from 5% last fiscal year. Their operating profit was 292,104 million yen!!
Granted, 4Q ARPU declined 2.8 percent (QoQ) to 7,280 yen, but this was probably due to voice ARPU continuing its long, steady decline. Meanwhile, data ARPU increased 3.6 percent QoQ in 4Q to 1,720 yen, contributing a 23.6-percent share to total ARPU; the company forecasts this to increase to 25.2 percent next FY.
In further good news, one analyst wrote: “As the structure of cellular ARPU changes, we think it is very positive news that half of those who have upgraded to the EV-DO service are spending more on data ARPU than they were before switching to the flat-rate data pricing scheme EZ-Flat.”
In other words, current 1X 3G is a huge success and in 2004 the upgraded, and flat-rate-priced 1X EV-DO will be even more so.
— Daniel Scuka
KDDI Releases New Line of 3G Phones February 28