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DoCoMo Embarks On 3G's Bumpy Ride

DoCoMo Embarks On 3G's Bumpy Ride

In the past year NTT DoCoMo has spent $14.7 billion building up a portfolio of European and U.S. telecom interests, including a 15% stake in KPN Mobile of the Netherlands, which is suffering from high debts incurred through its purchase of 3G licenses.

The sharp fall in telecom valuations has raised concerns about DoCoMo's overseas strategy. Many of these investments were purchased at the height of the telecom euphoria, and analysts reckon DoCoMo may now be forced to take hefty write-downs. For example, Makio Inui, telecom analyst at Nikko Salomon Smith Barney in Tokyo, gives zero value to DoCoMo's investments in both KPN Mobile and Hutchison 3G, the UK mobile company. And in Hong Kong, where DoCoMo recently increased their stake in Hutchison Telephone to just over 25%, the introduction of Orange World, an i-mode-like service which Hutchison launched last May, has so far won only 130,000 subscribers.

Japanese Mobile Market Proves To Be Resilient
At home in Japan, on the other hand, NTT DoCoMo forecasts a rise in i-mode subscribers to 29.8 million in the year to end next March, from 22 million at the end of this past March. The spread of i-mode, which was launched slightly more than two years ago, has shown that "Japan's communications market is still resilient even in this depressed market," according to DoCoMo's president, Keiji Tachikawa.

He indicated that i-mode, which is becoming a pillar of NTT DoCoMo's businesses, contributing $2.8 billion in revenues, was expected to become a killer service with the launch of 3G services. Although DoCoMo announced last month that they would begin a trial 3G service in May and postpone full-scale commercial services until October, Tachikawa noted that the delay in 3G services would have only a negligible effect on this year's performance.

"I-mode will reach saturation fairly soon," Tachikawa explained, "so we must come up with new services, such as music downloading (over third-generation networks)." He expects revenues of just $164 million from DoCoMo's 3G services in the first year, including communications charges and handset sales.

Highlighting the problems the Japanese mobile phone operator has faced as phones have become increasingly sophisticated, DoCoMo recently recalled more than 420,000 Java-enabled i-mode phones made by Sony, due to a software bug. This was the second such glitch in 2001 as the company was forced earlier in the year to offer to replace Java-enabled i-mode phones made by Matsushita, Japan's largest mobile phone supplier. These handsets were also plagued by a software bug.

Such recall problems are likely to support the view of many industry officials that DoCoMo made the right decision in delaying the launch of full-scale commercial services for advanced 3G wideband CDMA by several months.

As its fixed-line business continues its relentless decline, Japan's largest telco, NTT, of which DoCoMo is a 67%-owned subsidiary, continues to rely on the mobile phone business for 75% of its profitability. Overall though, NTT expects net profits in the next fiscal year to fall sharply by 72%.

A Newly Open Approach From 2003
Finally, DoCoMo, which has been criticized for maintaining a "closed" network, will be opening their network to other service providers in the Spring of 2003. While users of their i-mode Internet service currently sign on to the i-mode portal automatically with the push of a single button, users who want to access other ISPs or portals must do so by typing in an actual address.

DoCoMo will spend $403.8 million over the next two years on infrastructure and equipment to open up the i-mode network so that users can choose to access immediately popular service providers such as Nifty, Japan's largest ISP, and portals such as Yahoo! This change is expected to benefit DoCoMo by boosting data transmission income.

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