Notable Revelations from Japan's Cellcos
Notable Revelations from Japan's Cellcos

Notable Revelations from Japan's Cellcos

Notable Revelations from Japan's Cellcos

Japan’s Big Three cellcos, NTT DoCoMo, KDDI, and Vodafone, released their Oct-Dec 2004 quarterly financials in the past fortnight, and there’s a lot of information to be digested. If the endless listings of multi-billion-yen profits bore you, then it might be interesting to take a look at some of the new technologies, service models, and data tariffs that were announced along with the financial results.

Carrier ARPUs
DoCoMo’s figures were for the 9 months (1 March – 31 December) of the fiscal year (Mar 2004-Mar 2005) to date, and revenues and earnings were weak. The company reported total operating revenues of 3,643.1 bn yen, 4.8 percent below last year’s 3,828.3 bn yen, and net earnings (before taxes and other non-operating costs) of 1,304.0 bn yen, a drop of 6.7 percent YoY (year-on-year).

KDDI, on the other hand, has seen growing revenues. The company said it gained 2,846.1 bn yen in operating revenue, 4.3 percent above last year’s 31 December figure, and net earnings of 522.2 bn yen (consolidated for both the au and Tu-Ka operating units). The company also booked an extraordinary gain of 27.7 bn yen through the sale of its PHS carrier, DDI Pocket. Operating revenue at the au CDMA 2000 3G unit jumped by 15.5 percent and operating income was up by 12.9 percent, YoY.

Vodafone reported a consolidated operating revenue for the 9-month period ending 31 December 2004 of 1,102.8 bn yen, a painful 14.4 percent decline YoY, due mainly to the exclusion (i.e. sale) of the fixed-line telecommunication business in 2H2003. Accordingly, total revenue for the mobile business declined by 3.4 percent YoY. Perhaps somewhat optimistically, Vodafone said that the full-year forecast for fiscal 2004 (ending in March 2005) remained unchanged. Time will tell.

We’ve posted links to, or extracts from, some of the material, here, here and here.

Notable Revelations
Here, in no particular order, is a brief review of what WWJ thinks are the most notable revelations.

NTT DoCoMo

  • FOMA ARPU was 10,360 yen (6,960 voice, 3,400 data — of which 3,310 was due to i-mode). Combined 2G and 3G ARPU was 7,170 yen (5,350 voice, 1,820 data).
  • Now has some 2 mn users on its “Pake Hodai” flat-rate data tariff; subscribers opting for Plan 67 (or more expensive data plans) are growing. In December, about one-third of all new FOMA subscribers choose the flat-rate tariff.
  • The latest 901i-series FOMA handsets feature 3D sound & graphics; expanded mail, Java, image, audio and video files sizes; and upgraded Flash functions. The 901iS-series, due in mid-2005, will feature FeliCa e-wallet functions and the upcoming 701i-series will be sourced from non-Japanese makers, hopefully leading to lower procurement — and hence retail — prices. (Maybe including Samsung? NOT! — Ed.) WWJ’s video report from the 901i launch event will be online this week or next.
  • The churn rate is trending down and reached a record low of 0.95 percent. WWJ thinks this is due to most 2G users upgrading to FOMA (and not KDDI WIN) so as to keep their number and email address and avoid the hassle of transferring phone book and other user data to a competitor’s handset.
  • Videotelephony usage remains flat at 11 MOU (minutes of use) per user per month, despite strong FOMA handset sales. Nonetheless, audio-visual data usage remains strong. They are cutting retail subsidization (as Vodafone have been doing).
  • Some 1.3 mn DoCoMo handsets are FeliCa enabled and there were about 13,000 shops accepting FeliCa payment as of 31 December. DoCoMo is underwriting the cost of the reader terminals for retail shops.
  • The carrier launched a new type of i-mode content service (push-type) called Tokudane News Bin on 12 October. The company is also now allowing per-event billing on i-mode, which has been solely based on monthly subscription billing (except for 3G Chaku Uta tones) until now. The fee is 105 yen per view and can be combined with lower monthly billing as well.
  • Overall, the FOMA business appears to be growing strongly but the moves to source foreign handsets, reduce subsidies, reduce unnecessary accessories supplied with handsets, allow greater content provider billing flexibility and install lower-cost “micro” base stations all hint at the tremendous cost of running FOMA.

KDDI

  • 3G WIN (1 X EV-DO) ARPU is trending down, ending the year at 10,570 yen total (6,970 voice, 3,600 data). Total ARPU (WIN plus 1X plus 2G) was 7,490 yen (5,820 voice, 1,660 data), down slightly YoY.
  • For the au CDMA 200 business, retail subsidies are rising. After dropping in FY2003 and into 2Q2004, the company projects the average commission per unit to reach almost 40,000 yen in 3Q 2005! That may be steep, but it merely represents the cost to purchase a new 3G-using customer who will immediately start generating an ARPU of at least 7,170 yen/month, meaning the cost will be paid back in less than half a year. (And when do the capital costs of building out the 1X EV DO network get paid back? — Ed.)
  • There are now 3.2 mn CDMA 1X EV-DO subscribers. The churn rate is still a little high, at 1.37 percent. I couldn’t tell from the IR presentation if this was just au or au and Tu-Ka combined; it makes sense if it’s a combined figure.
  • Some 2 mn subscribers had opted for flat-rate data billing as of end-December, corresponding to 79 percent of flat-rate-eligible handset users. Overall. flat-rate billing users are trending up while the percentage of eligible users who choose flat-rate is trending down. Those who spent less than 4,500 yen per month on data who switched to the WIN system tended to spend more afterwards. Overall, among all users, there was a slight boost in ARPU post upgrade.
  • There were 410,000 Chaku Uta Full-compatible handsets in use as of end-December; users generated 1 mn downloads on the 48th day of sales (5 Jan 2005). See WWJ’s article on the estimated Chaku Uta Full revenues –> KDDI Music Downloads: $70mn Annual Revenue?

Vodafone

  • Overall, Vodafone ARPU for the 12-month period to 31 December 2004 declined to 75,133 yen, a 9.4 percent decline YoY. The company says the decline was mainly due to an increasingly competitive environment and a growing prepaid customer base, as prepaid customers typically spend less ARPU (there was no comment on why they are trying so hard to convert customers to a lower-paying profile). Prepaid customers generated an ARPU of 30,734 yen for the preceding 12-month period, while registered contract customers spent 79,506 yen. Total ARPU on a monthly basis for the period was 6,280 yen in October, 5,970 yen in November, and 6,200 yen in December.
  • A new 3G service and platform based on WAP 2.0/MMS was launched in December with five new 3G handsets (from Nokia, Motorola, Sony Ericsson and Sharp). The company continues to roll out high-end 2G models, with the announcement of the V602T (Toshiba) in November and two more models (Toshiba and Sharp) today. No other carrier is developing high-end 2G models in Japan.
  • With the new 3G launch, Vodafone began delivering enhanced Vodafone live! services, including increased capacity for file downloads, larger Chaku-Uta ringsongs, digital comics, and rich 3D games. The new mail platform features increased sending and receiving capacity, as well as a new easy-to-understand pricing model for MMS.
  • Pressured by the market, Vodafone also introduced flat-rate pricing in November for 3G customers. December saw monthly net adds back on track, with 69,500 new 3G customers for a total of 366,400 subscribers (31 December 2004; the net monthly growth and overall 3G subscriber base are still just tiny fractions of those at DoCoMo and KDDI). Net customer additions totaled just 37,300 (indicating an overall steep loss of 2G subscribers), representing a 3.2-percent share of market net adds for the 3Q2004 period. At year-end, total customers amounted to 15,211,000, representing a 17.8-percent cumulative market share.
  • To sum up the situation at year-end: they are developing new, high-end, 2G handsets against a rapidly shrinking subscriber base while continuing to offer low-revenue, pre-paid services. Is this a recipe for… what?
  • The percentage of prepaid customers was stable at 11 percent compared to the end of September, but grew from 8 percent in December 2004. To help prevent the inappropriate use of prepaid mobiles in Japan, initiatives were implemented to confirm the identities of subscribers in December.
  • Data and messaging revenue accounted for 21.4 percent as a percentage of total service revenue in the month of December 2004 and for over the past twelve months. Churn for the three-month period ended 31 December 2004 was broadly stable compared to the same period last year (no word on what the actual figure is; we guess in the low single-digits and higher than at D or K).

— Daniel Scuka