Popular in Course
verified elite notetaker
Popular in Business
This page Document was uploaded by an elite notetaker on Monday December 21, 2015. The Document belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 28 views.
Reviews for Case
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 12/21/15
ICMR Case Collection ICFAI Center for Management Research DoCoMo The Japanese Wire s Telecom Leader BSTR 049 This case was written by Neela Radhika under the 39 tion of A Mukund ICFAI Center for Management Research ICMR It was compiled from d so rces and is intended to be used as a basis for class discussion rather than to illustrate 39 her or ineffective handling of a management situation W 2003 ICFAI Center for Management Research All rights reserved No part of this publication may be J V reproduced stored in a retrieval system used in a spreadsheet or transmitted in any form or by any means 1 electronic or mechanical without permission it E 39539 Hi39 For enquiries regarding bulk purchases and reprint permissions please call 91 402343046263 or write to ICFAI Center for Management Research 49 Nagarjuna Hills Panjagutta Hyderabad 500082 India or email icmricfaiorg Copies of this case can also be purchased online from the ICMR website wwwicmrindiaorg I I BSTR049 iElfili it i39ilF quotil ti II n I ah DOCOMO THE JAPANESE WIRELESS TELECOM LEADER DoCoMo is like a huge sumo wrestler overpowering the market There 39s nowhere left for it to go but overseas Takeo Tsukada Senior Adviser IDO Corp a rival Japanese mobile operator in 2000 THE TSUNAMI IN TROUBLE In May 2002 NTT DoCoMo DoCoMo Inc Japan s largest mobile pho ompany announced a net loss of 11619 billion1 and a goodwill writeoff of 6246 billion fiscal ending March 2002 Though the company registered an increase in operating reve 0m 466937 billion in 200001 to 516714 billion the revenue growth was stated 8 el elow its company expectations Company sources attributed this to the gene 1 i A rage Revenue Per User ARPU for voice services and slower growth in new c ular s v er across the country Refer Exhibit I for DoCoMo s financials and ARPU data had been forecasting losses for the company si ly 2002 itself What was noteworthy about DOCoMo s announcement did not come as a ma g prise to industry observers as media reports this development however was the fa n th 0 pany was largely believed to be performing 5 a exceptionally well in the recent past Th DoCoMo had roped in as many subscribers as the leading USbased media com a ut much faster was often cited as a proof of Japan finally waking up to the challenges 0 Analysts claimed that DoCo paying the price for its aggressive overseas expansion drive during 19992002 in 0 v ese losses DoCoMo had to take a huge writeoff in its books e value of its foreign investments and the slump in the global telecommunications a 2001 While some analysts felt that DoCoMo should revamp its global strategy a few 0th 3 said that the company should take measures to increase ARPU In the words of Hironobu Sawake an analyst at J P Morgan leading global financial services firm The question is whether we can see a rise in profitability on account of a DoCoMo announced that its commitment towards globalization was intact The company also brushed off analysts View that the focus should be on increasing the ARPU Instead it announced that it would focus more on 3G Refer Exhibit 11 for a note on 3G initiatives developing and launching more innovative and new 3G technology products While DoCoMo 1 May 02 2003 exchange rate 11886 1 US This case was written by A Neela Radhika under the direction of A Mukund ICFAI Center for Management Research ICM R 2003 ICFAI Center for Management Research All rights reserved No part of this publication may be reproduced stored in a retrieval system used in a soreadsheet or transmitted in any form or by any means electronic or mechanical without permission To order copies call 009 t 4023430462 63 or write to ICFAI Center for Management Research Plot 49 Nagarjuna Hills Hyderabad 500 082 India or email icmr icfai org Website www icmrindia org DoCoMo The Japanese Wireless Telecom Leader was still lauded for its well designed and executed strategic and marketing game plan that had helped it build a huge subscriber base over the years these developments had raised many doubts about its future prospects and its ability to turn itself around BACKGROUND NOTE DoCoMo s history can be traced back to 1949 when the Ministry of Communication in Japan was split into the Ministry of Telecommunications MTEL and Ministry of Posts MPosts A few years after its formation MTEL was renamed as Nippon Telegraph and Telephone NTT NTT operated as a legislative monopoly for telecommunication operations in Japan The Ministry of Posts and Telecommunications acted as a regulatory authority for NTT s operations According to reports NTT took all accolades for rebuilding the Japanese telecom infrastructure after the Second World War NTT ran a monopoly regime in Japan till the 1970s However in the 1970s the Ministry of International Trade and Industry MITI began pressurizing the Japanese government to break the NTT s monopoly claiming that the convergence of communications re ed the opening up of the regulatory regime in the country This argument picked up momen 39 the 1980s when US players into Japan In the late 1980s Japan finally decided to reform its entry of foreign players into Japan s telecom a a ket reduce its monopoly in the telecom sector NTT s mobile communication network unoff in 1992 to form DoCoMo initially named as NTT Mobile Communications Ne the name DoCoMo was adopted in 2000 NTT had a 67 majority stake in D M e the remaining was held by the public Kouji Ohboshi Ohboshi associate vice T s Chugoku Telecom division was made the CEO of DoCoMo of NTT DoCoMo was In olved in offering various wireless communication devices and DoCoMo began its operatiory l 2 Having inherited the wireless communication business 0 services The initial a u 5 io of DoCoMo included mobile phones car phones maritime phones in ight p o c agers DoCoMo formulated its policies in line with this corporate philosophy of creating v communications culture Refer Table I for DoCoMo s basic management policies TABLE I DoCoMo BASIC MANAGEMENT POLICIES Basic management policies of DoCoMo based on its corporate philosophy included 0 Expanding its businesses while contributing to the realizing of a rich and dynamic society 0 Emphasizing and strengthening DoCoMo s existing core business of voice communication services 0 Assertiver promoting mobile multimedia services among the public While pursuing these goals DoCoMo intended to maximize its enterprise value and gain confidence from its customers and shareholders Source wwwDoCoMousacom DoCoMo The Japanese Wireless Telecom Leader With the entry of foreign players like Motorola into the Japanese cellular phone market the number of subscribers increased from 213 million in 1993 to 314 million in 1997 However as the competition intensified DoCoMo registered a drastic decline in sales during 199294 To sustain its position in the market the company in October 1993 decided to stop taking rental security deposits on handsets Following this in April 1994 DoCoMo launched its own handsets and encouraged its customers to purchase these handsets rather than renting them and reduced the initial subscription fees This strategy resulted in a substantial increase in its subscriber base In December 1996 the company eliminated the initial subscription fees for its service altogether which further triggered the subscriber base growth On account of its focused initiatives and the growing demand for mobile telecom services in Japan during the mid 1990s DoCoMo emerged as the market leader by 1997 However during the same period the company sensed that there was little differentiation between the products offered by various mobile players in Japan Apart from this feedback from its customers showed that the growth rate of voice services 1G first geneation technology was gradually declining DoCoMo thus realized the need to shift to a h39 elevel technology to differentiate its services from those of its competitors KDDI2 and J p a o ustain its growth in the market Following this the company began focusing heavily e a a evelopment RampD to develop advanced second generation 2G wireless oducts e i1tiatives gave rise to the development of DoPa DoCoMo Packet trans ion se ice ie communication of data through mobile phones Launched in March 1997 Do 9 ed customers to receive or transmit data in packets The service was charged on the is of 39 volume of the packet The launch was followed by yet another initiative of the com he 10 Yen Mail Service which allowed customers to send an email of upto 1000 wor their mobile phone for just 10 n success DoCoMo found itself still under threat from its competitors KDDI and J urther derive competitive advantages the company gave free reign to Keiji Enoki elect a engineer in NTT to develop a unique valueadding wireless product The compan bro ght in outside talent like Matsunage Mari a former editor for a classified ad maga 39 eatsuno Takeshi an Internet expert to create a new wireless nt of the rigorous RampD efforts DoCoMo launched Imode a anged the market dynamics overnight Though the DoPa initiative met Imode was the first ins a tly accessible mobile Internet service in the world which made the Internet available on the phone without the need to dialup Refer Table II for details regarding the functioning of IMode IMode was offered as an optional service to DoCoMo s customers and provided access to over 15000 websites which were specially adapted to be viewed on their handset screens This enabled subscribers to perform many Internet functions such as exchanging emails checking stock quotes getting maps viewing train schedules buying movie tickets making online purchases downloading new ring tones or playing games 2 KDDI Teleserve Inc a division of KDDI Corporation Japan was established in 1987 It offered wireless mobile phones and mobile phone services in Japan KDDI evolved as the second largest wireless telecom carrier in Japan next to DoCoMo 3 JPhone is the wireless telecom subsidiary of Japan Telecom JPhone division included Japan Telecom s mobile communications and nine companies of JTelecom s affiliates Digital Phone and Digital TuKa Japan Telecom had a capital alliance with British Telecom and ATampT the leading telecom companies in the UK and the US respectively In 2000 the J Phone division also entered into a jointventure agreement with UKbased Vodafone Group the largest wireless carrier in the world 4 DoCoMo The Japanese Wireless Telecom Leader IMODE DoCoMo S SUCCESS STORY IMode became an instant success resulting in a phenomenal growth in DoCoMo s subscriber base The fact that the usage of the Internet was still in its infancy in Japan till then worked to the company s advantage IMode resulted in a huge surge in DoCoMo s profits in the very first year of its launch According to reports on an average IMode generated 30 higher revenues per subscriber as compared to DoCoMo s phones that provided only voice services In 2000 the company reported a net income of 24 billion a 39 increase from the previous year TABLE II FUNCTIONING OF IMODE 0 Customers desirous of accessing Imode were required to press the 1 button present on DoCoMo s cell phones 0 The 1 button connected the phone directly to the Internet with help of an Imode gateway 0 When the connection was established a menu was displayed along with an option to choose between Japanese or English language to proceed further 0 The customers could also type in URLs to access various websites the content they required Source wwwcbstrategycom 3 To leverage the success of IMode DoCoMo announced 39 pp third generation 3G obal s 1 services in late 1999 The company also announced its to establish itself as a global player expanding its operations outside Japan Unde is str egy DoCoMo planned to take up minority stakes in less evolved cellular companies wo 39 to establish itself as the first global cellular telecommunication giant By November 2000 DoCoMo had inveted billion in overseas cellular companies This was in the form of minority stakes 39 ison Telecom Hong Kong KPN Mobile Netherlands and 3G UK Hold39 Exhibit III for DoCoMo s partners Though these minority stakes did not yield much p it to the company they served DoCoMo s primary aim in gaining international footage through th As part of the investment agreement these companies agreed to roll out DoCoMo s and 3G mobile services if Meanwhile IMod ty in Japan continued to soar According to analysts IMode was nothing less than a ph on in the Japanese mobile telephony market Due to its easytouse nature and affordability v subscriber growth was so fast and so high that the company faced capacity problems in early 2000 Reportedly DoCoMo suffered 16 disruptions in its IMode service by April 2000 casting doubts on the ability of the service to accommodate the increasing subscriber base However the company solved the problem by improving the technology used By early 2001 the subscriber base in Japan accounted for more than 60 181 million of the 30 million mobile Internet customers in the world Reportedly this figure was increasing by 50000 per day during early 2001 with the Japanese youth taking to IMode in a major way Company sources mainly attributed the success of IMode to its simple and efficient network access its middleware software its business model and its positioning The IMode network was based on Personal Digital Cellular Technology a technology that allowed the data to be sent to its destination in parts called packets Both the network and the middleware software were DoCoMo s proprietary services The company s middleware software was based on compact HTML cHTML a subset of HTML identical to WAP4 cHTML was used to create the content of I 4 Wireless Application Protocol WAP is a specification for a set of communication protocols to standardize the way in which wireless devices cellphones radio receivers etc can access the Internet DoCoMo The Japanese Wireless Telecom Leader Mode sites as it enabled content providers to easily convert their HTML Internet site content into an IMode compatible format with minor programming changes This exibility in operation helped DoCoMo to attract more content providers onto the IMode platform Another reason that triggered IMode s growth was the business model DoCoMo adopted from AOL s packet billing model According to this model billing was based on the volumes of data received and sent by the subscriber and not on the amount of time spent on the Internet This meant that unlike the traditional billing model which billed the subscribers on the basis of time they stayed connected to the Internet IMode users were billed only when they sent or received any data However DoCoMo altered AOL s model to include incentives for content providers as well to encourage them to develop innovative applications and services Refer Exhibit IV for the strengths of DoCoMo s business model Growing ecommerce transactions on IMode also contributed to its IMode s success DoCoMo realized that most of its customers were not very comfortable making payments through the Internet To address this issue the company started adding the value of its customers online purchases to their monthly bill This was not only much more conveni nt but also gave the customers a sense of security something they felt was missing in onli e ayments As a result there was a substantial increase in ecommerce transactions through I the company consciously chose not to refer to the te campaign for IMode during the first year of its launc customers The other reason for such a carefully sub ro a ional exercise was to differentiate the service from the Web and WAP services av ilable o the world Imode was positioned as a simple usable and funtouse service K The biggest advantage of IMode acc in lysts was that the service acted as a WinWin Win platform benefiting DoCoMo con t ders and customers While DoCoMo collected information charges from custom ontent acquired by the customers from various sites on behalf of the content providers anarged a commission of 9 on the amount it passed the rest to the content providers The co nt providers could thus receive their share without indulging in the hassles of bil content The customer A eing an open platform IMode allowed all and sundry to set up a site on its network asing the variety of content available Analysts remarked that oCoMo succeeded because it chose not to be a gatekeeper between content companies and their customer base The company also had made it easy for individual Web developers to make their sites IMode friendly And when DoCoMo realized that it could attract more customers if it offered more websites on IMode it increased the number of accessible sites to more than 20000 by early 2001 Also the customer abandonment rate number of customers shifting to other mobile service reduced drastically On account of such strategies DoCoMo reached far ahead of other players in the wireless telecom market across the world thus forcing other players to focus on the wireless web services as well DoCoMo s constant focus on identifying the changing needs of customers and providing for them well in advance than its competitors helped it in positioning itself as the market leader Reportedly its major competitors KDDI and JPhone were left far behind on account of IMode Chris Parente senior product manager VeriSign a leading security services provider for online companies said NTT DoCoMo concentrated on the consumer It made sure that there was quality content good handsets and an entirely new billing process based on packets of data exchanged not time online Even more important it provided billing services to the official content providers and consumers one central bill DoCoMo The Japanese Wireless Telecom Leader DoCoMo sources said that two invaluable resources were responsible for its accomplishments through the years the sophisticated RampD efforts and the close ties with its huge customer base and partner network While its RampD was engaged in the development of mobile communications and next generation wireless services the focus on customers enabled it to listen to them The partner network built with other companies helped DoCoMo improve its own applications and offer good content besides providing technical and operational expertise According to reports DoCoMo had multiple points of contact with the customers Customer representatives were present at all its branch offices and shops across Japan to take feedback on products services customer assistance product maintenance repair and other product related issues The company also enabled its customers to reach it through a specially set up telephone service center With such initiatives DoCoMo succeeded in staying close to its customers and understanding their needs and thereby changing its strategies to provide solutions for them Apart from the company s strategies various external factors also contributed to the success of I Mode Though Japan s population density was high the PC penetration remained low when compared to other industrialized nations This created an untappe market for wireless technology Also since the Japanese spent more time commuting on t IMode was a useful companion for many people In the words of Kirk Boodry teleco s analyst Dresdner Kleinwort Benson Securities Tokyo IMode came at the right 39 th 39ght place with the right content It just dazzled everybody DoCoMo BEYOND IMODE In early 2001 DoCoMo announced the develo ment dom of Mobile Multimedia Access FOMA5 a 3Gservice that was to be launched May 2001 As a part of this through the early half of 2001 the company used IMode s succe acquire minority stakes in various cellular companies around the world Comment39 g o suno Takeshi Executive Director DoCoMo said No one ever expected this to hap s v 39 and a half ago Only those who witnessed the shift ie DoCoMo can imaginepect with 3G DoCoMo alone is very sure of the potential of 3G because we have a1 y experienced the explosive success of the data business Our overseas business is to offer our kn v how We cannot give it away free but we can make a minor1ty 1nvestment 1n 1nterestners I th1nk 1t 1s a perfect strategy Analysts pointed ou o o oCoMo had tried earlier to enter the global arena with IMode through its deals with l lar companies it could not succeed due to IMode s incompatibility with the digital transmi 390 standard used worldwide Hence IMode did not find many takers though it was faster than e WAP services offered by other wireless companies around the world The digital transmission standard used in Japan was compatible with the GSM system used worldwide Analysts felt that DoCoMo s only chance of fulfilling its ambition of succeeding in the global markets was through 3G services like FOMA V During the same period DoCoMo sources revealed that the company was banking on a transmission protocol WidebandCode Division Multiple Access WCDMA which was expected to help the company diversify into to 3G services DoCoMo expected to place Japan on the global wireless telecom map with its 3G services In words of Mitsuyama Nahoko an analyst 3G is offering DoCoMo the first global stage that Japan can enter The company s international thrust could act as a wedge forcing open new markets for its parent NTT as well as for Japanese cell phone manufacturers like Sony and Matsushita which have done well domestically but have struggled to gain ground abroad against Nokia and Ericsson 5 FOMA is an advanced 3G service that allowed users to download dataintensive graphics and MP3 music files on their phones It also allowed the phones to transmit video DoCoMo The Japanese Wireless Telecom Leader In January 2001 DoCoMo completed the acquisition of a 16 stake in ATampT the leading wireless company in the US for 98 billion This was till then the biggest investment the company had made overseas DoCoMo expected the deal to help it establish itself in the world s richest potential market US As the penetration of wireless services in the US 39 was lesser as compared to Japan above 50 and European countries 70 DoCoMo expected to leverage the available potential through IMode and its 3G technologies In line with these plans the company began taking initiatives to make IMode compatible with the wireless standards used in US In spite of these efforts the company soon landed in a host of problems DoCoMo PROBLEMS APLENTY In early 2001 though DoCoMo still remained the largest company in Japan by its market capitalization and the second largest mobile phone company in the world after Vodafone it was facing problems on account of its aggressive overseas investment drive With wireless stocks plummeting across the world during early 2001 DoCoMo was forced to write off 77 billion due to the decline in the value of its investments in various foreign wireless companies Meanwhile DoCoMo was facing problems in launching FOMA The I originally scheduled in May 2001 had to be postponed by 5 months The company also a un that it would launch a mini trial service of FOMA in the introductory phase by provi o ut 4000 customers in Tokyo FOMA allowed its users to exchange moving imag qua ity sound files over the Internet Commenting on the decision to postpone the la h Yu hiro Kuwahata Kuwahata the company s spokesman said Our base stations and w I 2 are ready for commercial launch However we did not have enough time to comptglither esting to ensure 100 network quality for our customers He further explained When 0 1y had a small number of customers for our IMode service we did not have an cw oblems But when the number of users skyrocketed and exceeded our expecta to deal with a lot of technical problems We do not want that to happen with our es Company sources said that they wanted to take feedback from the customers to imp rvice quality before going ahead with a full edged launch of the service However analysts felt t e thn behind postponement of the service was that DoCoMo was s e 9 ms with its 3G networks and that it had bought time to rectify experiencing some t a those mistakes Th a that the company was planning to strengthen its networks and work out the differences be w the WCDMA standard used by the company and the Universal Mobile Telecommunicati Service UMTS standard used in the European countries to launch its 3G services globally However analysts were quick to comment that such a delay in launch might prove disadvantageous because competitors like J Phone Communications were also planning to launch 3G services by early 2002 If this happened DoCoMo would have very little time to establish itself in the market and reap the firstmover advantage In early June 2001 media reports indicated that the initial enthusiasm over 3G services created by DoCoMo was slowly dying down across the world Many wireless companies seemed to doubt the commercial viability of the service in the long run As investors began losing interest in 3G services stocks of companies foraying into 3G services fell drastically In the words of Niq Lai Director Telecom Research Center Hong Kong Investors have now practically written off 3G DoCoMo s share price declined during this period Analysts said that customers might not be interested in buying costly 3G enabled handsets just to have faster service and view pictures and video They felt that mobile phones might not be suitable as multimedia devices as they had small screens and weak batteries Hideo Okinaka Manager KDDI a DoCoMo rival opined People would not like to stare at video on a tiny screen for a long time DoCoMo The Japanese Wireless Telecom Leader In mid June 2001 DoCoMo faced severe criticism from its customers who were provided with FOMA services as a part of the trial According to these customers DoCoMo phones enabled with FOMA services had a very short battery life insufficient network coverage and they crashed easily Apart from this many customers complained of hackers manipulating FOMA phones According to reports when the FOMA service was accessed the customer got an email attachment which caused the phone to automatically call another phone number and then forward the email to other mobile users On account of such complaints DoCoMo was forced to recall over FOMA enabled 1500 handsets in late June 2001 In July 2001 it was reported that DoCoMo was delaying the launch of IMode in Europe on account of the difficulty in adapting it to the European market According to company sources the local operators in Europe were facing problems in launching an IMode compatible technology in place of the standard WAP technology DoCoMo was also facing problems in Europe on account of a scarcity of IMode compatible handsets Meanwhile DoCoMo was going ahead with the launch of IMode services in other countries such as Netherlands and Germany in collaboration with its partners In the same month DoCoMo announced that it was fast rectifying F technical problems and the service would be launched as planned in October 2001 R dly y September 2001 DoCoMo engineers had rectified 448 problems associated with th ne ork In early October 2001 DoCoMo launched its first full The service was initially offered in Tokyo and Yo I ama nation by mid2002 FOMA allowed users to transmit nload dataintensive graphics and six times faster than its competitors MP3 music files According to DoCoMo source FOM A services Though the price of the FOMA enhandset was very high the company was confident that it would get over 15000b the end of fiscal 2001 However analysts were skeptical a e 1 success According to them the high cost of the new service including subscripti 3 ervice FOMA in Tokyo a was to be launched across the costs of data transmission and handset was a big hurdle They pointed out that FOMA u ed the two very essential elements affordability and ease of use that had made I Y FOMA failed to me 39a ions of DoCoMo as customers still complained of its short battery life lack o cross the country and nuisance from hackers Commenting on the factors preventing PO A success Hideki Nomura Executive Vice President Marketing DoCoMo said The lar st reason is the limited service coverage We are constructing the 3G network from scratch and the area is still very limited The second is the development of handsets the availability of handsets is quite limited the variety is limited and the prices are also relatively expensive The third reason is related to technology development The battery life is too short On account of such problems FOMA s subscriber base amounted to only 89000 by the end of March 2002 much below the expected 150000 for fiscal 2002 Apart from this the saturation of Japan s wireless telecom market was also posing a severe threat to the company s growth The growth in subscriber base was declining through the early 2000s According to reports the net growth in subscriptions went lower by 317 by December 2001 than in December 2000 This increased the competition in the market during early 2002 Reportedly though DoCoMo still dominated the market 59 it was facing fierce competition from the existing players and the new entrants in the market Its nearest competitor KDDI s Au and TuKa services had captured 177 and 57 respectively of the total cellular market in Japan Vodafone s J Phone which launched the cameraequipped mobile phone ShaMail in 2001 had also increased its market share to 176 by early 2002 DoCoMo The Japanese Wireless Telecom Leader To meet the competition DoCoMo had to offer handset subsidies and reduce its profit margins But despite these measures the company s ARPU continued declining during early 2002 With the customers shifting to cheaper wireless email services from DoCoMo s expensive voicemail services and with IMode also losing its initial pull the ARPU figures were reportedly rather depressing Apart from this DoCoMo s ambitious investment drive went awry with the company forced to take a 66449 billion writedown on its investment in ATampT The company also had to writeoff the value of its various other investments during early 2002 All these factors culminated in the DoCoMo posting one of the biggest ever corporate losses in Japan Refer Exhibit I LIFE AFTER THE LOSS DoCoMo s decision to continue with its global strategy met with apprehension in the markets though the Government of Japan gave it support stating that DoCoMo was Japan s ag bearer in the global arena In the words of Hiroyuki Arai Director Parliament Telecom Policymaking Committee DoCoMo is our ag bearer If the company takes its ti etting into the global arena we will lose our lead to American or other foreign compa ithout that kind of commitment from Japanese companies our economy will never rec However the company s management had to face the Following this DoCoMo announced that its manage rat quot5 t eholders in July 2002 w d s oulder the burden of the In April 2002 KDDI launched CDMA2002 1x 39t 3G s e which though slower than FOMA gained more than one million subscribers in the ee months This was because its technology upgrade was in sync with technology stan dwide and did not require rebuilding of a whole system as required by FOMA Phone s 3G service IMT 2000 also launched in June 2002 proved successful in In mid 2002 it was reported that DoC companies in other countries opt 39 s technology Reportedly its partners were reluctant to spend huge amounts in eir wireless networks as they feared that DoCoMo s products and services might p t any customers in their countries as expected According to reports these coma K pent billions of dollars in acquiring licenses to operate 3G services and landed in huge debt Commenting on the reluctance of these companies to join the 3G bandwagon Yasumasa Goda analyst Merill Lynch Japan a leading financial services firm said The whole point of investing abroad was a speedy rollout for 3G But clearly this is no longer realistic Decreasing revenues and failed global initiatives resulted in a sharp decline in the value of DoCoMo stock which fell by 338 from its 52week high in mid 2002 Refer Exhibit V for DoCoMo s stock price movements during 200003 On account of its problems with its overseas partners DoCoMo announced in October 2002 that it was considering freezing its overseas investments According to analysts the company was forced to consider this option to control its own costs FOMA was yet to make profits even in late 2002 while competitors KDDI and J phone s 3G services were doing rather well To attract subscribers DoCoMo had to offer heavy discounts on FOMA handsets and services During this period the company also began offering free global roaming to its FOMA customers to retain its existing customers and to lure new customers According to the company sources such discounts and free offerings took a heavy toll on the company s revenues 10 DoCoMo The Japanese Wireless Telecom Leader Meanwhile the performance of the IMode launched in other countries was also not found to be encouraging In Netherlands and Germany where IMode was launched in July 2002 the service could gain only 34000 subscribers ATampT also was disappointed with the performance of mMode ATampT s version of IMode BUSINESS AS USUAL In January 2003 DoCoMo decided to reduce its promotional expenditure on 3G services and focus on increasing profits Commenting on this CEO Keiji Tachikawa said Reckless spending on network expansion will not help promote 3G services we d better focus more on returns on investment The company thus decided to focus on offering better phones with good battery life and to enhance the quality of its content through better content partnerships By February 2003 on account of DoCoMo s aggressive marketing initiatives the sales of FOMA handsets increased to over 191500 though still behind the target of 320000 units for fiscal 2002 03 However the company s new handset P2102V launched in mid Marc 2003 reported sales of one million handsets by the end of the month This model featured a ro 39n liquid crystal screen and had a good battery life of over 250 hours In April 2003 DoCo nounced the launch of its new handset F66li with the Global Positioning System GP re hich enabled users to pinpoint their location and get area maps and information In April 2003 it was reported that DoCoMo was uncing to profits on account of its successful new launches handsets declining capital 39 re and higher mobile revenues In the words of Mark Berman a telecom analyst EgoCo V 0 bounding In another year it should 6 B 9 H regain its status as one of Japan s most profitabl ompanies Proving the reports right DoCoMo announced a consolidated net profit of 183 the year ended March 2003 t 0 its basics After its lackluster stint with 3G again towards 2G technology As a part of this the t ased on 2G technology in June 2002 and it turned out In April 2003 Do six new 2G camera camera phones were to ffer the fingerprintauthentication feature and a special feature that allowed users to download images on to a small memory chip and print them at their convenience Meanwhile DoCoMo s 3G initiative also began showing signs of revival This was on account of the company s efforts to reduce the weight of its handsets and increase their battery life combined with aggressive advertising which positioned 3G services as an affordable service The company also increased the coverage of the service during 2002 and by April 2003 covered 90 of Japan s population On account of these initiatives by April 2003 FOMA subscribers increased to 330000 with 140000 subscribers signing up in March 2003 alone though DoCoMo sources was reported to have expected FOMA subscribers to reach 15 million by March 2004 By April 2003 DoCoMo s subscriber base amounted to over 41 million Refer Exhibit VI for growth in DoCoMo s subscriber base However most of this was still due to the IMode users who had subscribed to the company s services during the peak of its popularity during 1999 2002 As the service seemed to be gradually losing its luster DoCoMo had reportedly decided to focus back on it and improve its content base 11 DoCoMo The Japanese Wireless Telecom Leader However DoCoMo was still not free of problems In April 2003 the Japanese Government passed a new law The Local Taxes Amendment Law which removed a loophole in the accounting rules This rule had till then enabled Japanese companies to in ate their balance sheets by including items such as deferred tax assets After taking into account the changes in the accounting rules DoCoMo announced that it might result in a drop in its profits for fiscal 200203 as well Thus despite its turnaround on the anvil investors remained unconvinced Though the company s share price increased to 2000 in April 2003 from 1700 in March 2003 the fact remained that the share price had fallen by a third during the previous year DoCoMo s investment partners such as KPN Mobile and Hutchison were in deep financial crisis during this period and had requested DoCoMo to infuse fresh capital However because of its shareholders averseness towards its global investments DoCoMo had to refuse the request This crisis at DoCoMo s partner companies gave analysts room to doubt the company s chances to earn adequate returns on its investments Apart from the above issue competition in the Japanese mobile telephon segment showed no signs of waning even by mid2003 Customers were again finding little 39rentiation in the kind of services provided by the players While competitors KDDI and J ere increasing their market shares rapidly DoCoMo s future prospects were being r shaky The loss making overseas investments investor mistrust and a market ne n were projected to be major hurdles in the company sustaining its growth an lea QUESTIONS FOR DISCUSSION l Analyze in detail the strategies adopted by 0 o ring the early and mid 1990s in detail and comment on the factors that helped it es 39 itself as a market leader 2 Critically examine the role play QWOde service in making DoCoMo the largest a rs that led to the success of Imode company in Japan What were 3 Examine DoCoMo s global strate and 3G initiatives Do you support DoCoMo s global strategies WhyWhy not 7 ou t ink DoCoMo was correct in advancing to 3G technology during the early 20 9 our answer with reasons 4 Critically examin 0 o s initiatives to increase its revenues In the light of the saturation of Japan s cellular a et intensified competition and decreasing ARPUs do you think DoCoMo would succed in retaining its market share What measures would you recommend for DoCoMo to increase revenues and retain is leadership l2 EXHIBIT I DoCoMo FINANCIAL STATEMENTS 20002002 DoCoMo The Japanese Wireless Telecom Leader in millions of 2000 2001 2002 Operating revenues Wireless services 3008726 3620271 4153459 Equipment sales 709968 1049095 1013679 3718694 4669366 5167138 Operating expenses Cost of services 532368 537913 684400 Cost of equipment sold 649685 958022 927483 Depreciation and amortization 599486 595598 640505 Selling general and administrative 1427968 1799213 1913863 3209507 3890746 4166251 Operating income 509187 778620 1000887 Other expenses net 21359 m 44496 Income before income taxes equity in net 487828 8 956391 losses of affiliates and minority interests in g earnings of consolidated subsidiaries Income taxes 211072 K 317937 399643 Income before equity in net losses of affiliates 2766 W 440794 556748 and minority interests in earnings of consolidated subsidiaries Equity in net losses of affiliates gt 1730 17767 643962 Minority interests in earnings of consolidated 462 21272 28977 subsidiaries A Net income loss Vlg 256564 401755 116191 Source wwwnttdocomocom Includes a writedown of 624644 millio net of deferred taxes of 453235 million in investments in affiliates for the year ended March 31 2002 Q 0 ARPU DATA 19982002 in thousands of PERIOD ENDING ARPU VOICE DATA March 1998 1080 March 1999 927 March 2000 862 012 March 2001 777 088 March 2002 694 154 Source wwwnttdocomocom 13 DoCoMo The Japanese Wireless Telecom Leader EXHIBIT II ABOUT WIRELESS TELEPHONY GENERATIONS Wireless telephony has evolved through various generations G 1G Analog Communication First Generation wireless telephony was a voicebased technology that used analog signaling a way of signaling where transmitted signal was a wave of re ection analogous to the original signal The sound waves were transmitted to the receiver of the telephone where they were read and amplified to reproduce the voice through the speaker 2G Digital Technology Second generation wireless telephony was also essentially a voice based technology that used digital technology This technology was based on binary code ie the voice to be transmitted was converted into binary form a series of zeroes and ones At the receivers end it was converted back into voice through the switchon nd switchoff of the inbuilt circuit Though digital wireless telephony provided cle r and crisper voice transmissions with little disturbance as compared to analog technolo v a slower due to the circuit switchon and off 25G Packet Switching Technology 25 Gener io he kind of wireless technology used across the world in the early 21st 0 ury a c a in ermediate path between 2G and 3G It uses General Packet Radio Servic GPRS an interim technology between Global System for Mobile GSM 2G and Univ ile Telecommunication Service UMTS 3G technologies It is essentially a voice transmission technology GPRS technology enables high speed transmission of voice up to 115 kbps as compared to the 96 kbps enabled by GSM technolog G a from normal voice services supports a e browse the Internet and receive and send e wide range of bandwidths that enabl mails and large amounts of data 3G Advanced Packet Switched Te ology Third Generation wireless technology was still evolving in the early 21st 0 It promised to increase the bandwidth and provide faster packetswitched data a rate of 384 kbps as compared to 115 kbps of 25G technology The a o g owed for video transmission apart from voice and data transmission on acc n 39 high speed DoCoMo was the pioneer of this generation 4G Software De ne Wireless Technology Fourth Generation wireless telephony or the future generation of wireless telephony is still in the planning stage Leading wireless companies in the world were involved in doing the groundwork for this in the early 21St century and the technology is not likely to evolve before 2010 Compiled from various sources 14 DoCoMo The Japanese Wireless Telecom Leader EXHIBIT III DoCoMo PARTNER NETWORK TYPE COMPANY APPLICATIONS IBM Japan Ltd IBM Lotus Software America Online Inc Microsoft Corporation SAP AG Sony Computer Entertainment Inc SEGA Corporation Walt Disney Internet Group Japan Symbian Ltd 3Com Corporation HewlettPackard Company and Nokia Oracle CONTENT News And Information CNN Nihon Keizai Shimbun Inc Bloomberg LP ENGLISH Dow Jones Bridge Japan Weathemews Inc The Chosun Ilbo People s Daily Digital Bridge Communications The Asahi Shimbun and Stock Smart Entertainment Disney Hudson USJ CoLtd Telysys Network Co Ltd and ImaHima Inc Ring Tones Xing Konami and Music Channel CoLtd Database NTT Directory Services Co Nokia Jap Industrial CoLtd OG Capital CoLtd and Kimec Others Northwest Airlines Inc Citibank NA Matsushita Electric subsidiary of DoCoMo A large network of websites offering e e 6 ed services and more JAPANESE OPERATIONS KG Telecommunications CoLt Taiw n KPN Mobile NV Based in the Netherlands ATampT Wireless UK Hutchison Telep Com y Limited Hong Kong Tele Sudeste Celular Participacoes Br 391 nd Bouygues Telecom SA TECHNICAL MBNS Multime 39a T r Malaysia PT Telekom Indonesia SingTel Moblle Pte Lt 39 Smart Communications Philippines SmarTone Mobile Co imited Hong Kong Sonera Finland Telecom Italia Mob1 TOT Thailand Source wwwnttdocomocom EXHIBIT IV GTHS OF DoCoMo s BUSINESS MODEL 0 Network externality effects that generate more users When a new user joined the network it created incremental benefits for all users in the network After a critical mass was reached there were added incentives for new consumers to come in thus helping the network to grow 0 High customerretention rates DoCoMo had a massive upfront investment and customer acquisition cost To prevent its customers from switching DoCoMo created a sticky business model Under this model the customers found the cost of switching to other service providers higher than the value gained by switching o Economies of scale The cost of supporting new content providers users and new technology diminished and the size of the network grew Source wwwebstrategycom 15 DoCoMo The Japanese Wireless Telecom Leader EXHIBIT V DoCoMo STOCK PRICE MOVEMENTS 20002003 DEI39u1Hl39t Dncnmn Fads Iquot IllI El II 43 I 139 35 I 3 E4 1E Jul Int 01 pr Jul Int n I pr Jul Int 03 pr Source wwwprophetne 16 EXHIBIT VI DoCoMo SUBSCRIBER GROWTH DoCoMo The Japanese Wireless Telecom Leader 311998 31999 32000 32001 32002 32003 CELLULAR 1798400 2389700 2935600 3602600 4078300 4386100 Subscribers thousands FOMA 8900 33000 imode 560300 2169500 3215600 3775800 Market Share 1 5700 5750 5740 5910 5900 5800 Aggregate ARPU PDC 874000 865000 848000 812000 yen 2 Voice ARPU yen 3 1080000 927000 862000 777000 694000 637000 imode ARPU yen 4 12000 88000 154000 175000 ARPU generated purely 154000 211000 220000 211000 from imode PDC yen Aggregate ARPU 875000 774000 FOMA yen 2 Voice ARPU yen 3 505000 Packet ARPU yen Mm 269000 imode ARPU yen 4 v V 212000 ARPU generated purely Q 234000 from imode FOMA PDC minute yen MOU PDC minute 15500 16400 18900 16800 5 17800 MOU FOMA minute 10900 5 n Churn Rate 6 V 161 139 122 197 AK 1 118 PHS Subscribers thousands 190509kl7348amp 144100 181200 192200 168800 Market share 1 gt 2330 3100 3090 2830 2520 3370 ARPU yen 555000 479000 420000 383000 353000 MOU minute 5 14500 13200 12500 11600 12100 Churn Rate 6 Q 460 380 360 340 610 PAGER Quickcast Subscribers thousands 390800 211100 144400 109800 60400 82700 Source wwwnttdocomocom 1 Source Telecommunications Carriers Association 2 ARPU Average monthly revenue per unit Aggregate ARPU PDC Voice ARPU PDC i mode ARPU PDC Aggregate ARPU FOMA Voice ARPU Packet ARPU FOMA 3 Inclusive of circuit switched data communications 4 I Mode ARPU ARPU generated purely from IMode A No of active IMode subscribers No of active cellular phone subscribers 5 6 MOU Minutes of Usage Average communication time per month per user Total cancellations for one year Sum of subscribers at the end of each month from March in the previous fiscal year to February in the current fiscal year No of active subscribers used in ARPUMOU calculation are as below PDC No of subscribers at the end of previous fiscal year No of subscribers at the end of current fiscal year2 A 12 months FOMA Sum of the No of active subscribers for each month from April to March active subscribers No of subscribers at the end of previous month No of subscriber at the end of current month2 l7 DoCoMo The Japanese Wireless Telecom Leader ADDITIONAL READINGS amp REFERENCES 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NTT DoCoMo WWWbusiness2com August 2000 Issue Mutsuko Murakami And Shameen Assif The DoCoMo Generation WWWasiaweekcom December 1 2000 Yamada Michele DoCoMo Delays 3G Launch WWWthestandardcom April 24 2001 Middleton James DoCoMo Deluged by 3G Customer Complaints wwwitweekcouk June 15 2001 Murakami Mutsuko DoCoMo s Gamble WWWasiaweekcom June 22 2001 DoCoMo39s European Plans Hit a Snag WWWthestandardcom July 17 2001 Williams Martyn DoCoMo WWWpcworldcom October 1 2001 Fisher Sally DoCoMo Raring to Go with its New Generation httpafrcom October 24 2001 Takeuchi Lisa Cullen De ating DoCoMo WWWtimecom Febru Launches ThirdGeneration ServiceAt Last 2002 Inoue Kae and Imaizumi Ryoko DoCoMo to Post 1 Tln Yen ge Overseas Stakes httpquotebloombergcom March 27 2002 DoCoMo to Post Loss Put Focus on Rebound WW 39 39 m May 1 2002 kcom May 20 2002 DoCoMo39s Falling From Grace httpbetanord atchcom June 11 2002 There39s No End to DoCoMo39s Wireless H NTT DoCoMo to Cut Executive Hellstrom Rob FOMA Too DoCoMo Exceeds FOMA Sales oal for FY02 httpneasianikkeibpcom April 5 2003 DoCoMo GPS Phone Rea WWW nstrungcom April 16 2003 DoCoMo Gets a Cl 4 er WWWbusinessweekcom April 21 2003 WWWnttdocom WWWdocomousa s o WWWebstrategycom WWWhindustantimescom httpseattletimesnwsourcecom WWWWatercovecom WWWamanetorg httpaprotechnonetau httpquickstartclarinet WWWsbuacuk 18
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'