WW-173 -- How to turn an incumbent around?

Mon May 5 10:22:00 JST 2008

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Issue No. 172 Wednesday April 30, 2008
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How to turn an incumbent around?

Those who have read our past months' issues might have had
impression that we do not care about NTT DoCoMo anymore. The
incumbent mobile giant has had a tough ride since 2006. Its
market share dropped by 2.4% to 52.0% due to the introduction
of Mobile Number Portability, and it has faced intense
competition from SoftBank and KDDI with aggressive pricing plans
and services, and the end of handset subsidies.

In April, DoCoMo announced the financial results for the fiscal
year ending March 2008. Operating revenues dropped by 1.6% to
4.7 trillion yen (US$45 billion). And yet, its profit margins
increased. Internal cost cutting measures resulted in a growth
of 7.4% of the net income to 800 billion yen (US$7.7 billion).

DoCoMo did not anticipate the changing mobile environment well
enough. The expansion phase with a focus on new subscriber
acquisition, prevention of churn, and pushing new technologies
to the users had come to an end. DoCoMo finally recognized last
summer it had to react. A mature market requires a focus on
existing subscribers. Japan has traditionally low churns of well
below 1%. DoCoMo churn peaked at 0.97% in the first quarter of
2007. After the introduction of brand loyalty programs with new
discount services and handset purchase methods, churn started
declining to 0.68% in the first quarter of this year. The number
of flat rate subscribers (all you can eat data traffic)
increased to 12.7 million.

On the services side, DoCoMo is pushing ahead in mobile credit
business. It now has 5.6 million credit hard holders, and the
number of installed payment terminals reached 300,000. Home
area services will be offered this year. Mobile handsets
automatically switch to the wireless LAN connection at home to
make cheaper calls. The wireless LAN router is connected to the
DoCoMo network through a broadband connection.

In terms of its international business of DoCoMo grew by 35%
year on year to 56 billion yen (US$530 million). International
roaming has always been an issue as the second generation
PDC-handsets and most of the first generation FOMA-handsets
could not roam outside Japan. The new 905-series handsets can
roam over GSM and 3G-networks.

To further cut operational costs, DoCoMo's nine group companies
divided by region will be merged in a single entity resulting
in higher efficiency and standardization of sales and
promotions.

Masao Nakamura, President and CEO of DoCoMo successfully stopped
his company's decline with a new customer centered approach.
KDDI, Softbank and EMOBILE will continue pushing him harder.
It seems like the Japanese market has finally become competitive
 – stay tuned.

By Arjen Van Blokland

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